Lecturer Ian Bennett from Choson Exchange explains how to scale a product successfully during the Women In Business program held in Pyongyang in 2015. Photo: Choson Exchange.
Lecturer Ian Bennett from Choson Exchange explains how to scale a product successfully during the Women In Business program held in Pyongyang in 2015. Photo: Choson Exchange.

While the eyes of the world are on North Korea’s development of an intercontinental ballistic missile, observers say innovation of another kind is occurring in the secretive socialist country.

North Koreans are increasingly starting business projects and “essentially managing their own economic destiny,” according to Dr Andray Abrahamian, whose non-profit organization trains local students in entrepreneurial skills and economic policies.

Choson Exchange has provided such training to more than 1,200 citizens in North Korea since 2010 and a further 100 have traveled abroad to do so – but some people outside the country scoff at the idea of entrepreneurship in a place sometimes referred to as the hermit kingdom.

Abrahamian, a senior advisor to the organization, told reporters in Tokyo: “A common question we get is: ‘Does this really happen?’ What interests do the North Koreans have in studying this kind of thing?”

He pointed to a series of measures, including the expansion of special economic zones and the adoption of rules for managing state-owned enterprises and cooperative farms, which have helped cement economic development as a core part of North Korean leader Kim Jong-un’s brand.

Furthermore, a limited level of private ownership was allowed in one of those zones in Rason, in the country’s north-east, Abrahamian said.

“One North Korean lady told me once: ‘Kim Il-sung made us ideologically strong, Kim Jong-il made us militarily strong and so now Kim Jong-un can make us economically strong’,” he recounted.

“I think that’s not an uncommon way of thinking about the Kim Jong-un era.”

How does it work?

North Korea’s economy is seen as one of the world’s most centrally directed and its people’s contact with the outside is limited, but that doesn’t preclude creativity.

Often, the way an entrepreneurial North Korean starts a business is by creating a project that technically falls under the umbrella of a state-owned enterprise but eventually becomes autonomous.

“There are a lot of very unique North Korean quirks … But in terms of a lot of business activity happening in grey areas, that’s pretty normal in a developing economy.”

Abrahamian explained how this might work during a briefing at the Foreign Correspondents’ Club of Japan on Wednesday.

“Imagine you’re a young business person and you’re working for a ministry, say the ministry of agriculture, and your uncle has a bit of money, or you know a Chinese person who has a bit of money, who is willing to invest in a machine to turn potatoes into potato chips,” he said.

“You can go to your boss at the ministry and say, ‘Listen I can turn our potatoes from these farms into potato chips and we can sell them …’

“You make a pitch and your boss says ‘OK, we can house that project. Maybe we’ll put you under a bigger state-owned enterprise, or maybe we’ll make a new company that’s officially attached to our ministry of agriculture, but it’s your project – you run with it. You’re making all the decisions on both the inputs and finding the market for your product’.”

Operating in such a way could be “tricky” because a lot of the arrangements were “grey and informal”, said Abrahamian, drawing comparisons with other developing economies.

“There are a lot of very unique North Korean quirks – it’s not everywhere where the state, the cabinet, will send a message to every company and say you have to provide us with x amount of plastic sheeting by December 1 and then every company is scrambling to find plastic sheeting. But in terms of a lot of business activity happening in grey areas, that’s pretty normal in a developing economy.”

Obstacles for businesses

Asked about the percentage of profits likely to be kept by the state, Abrahamian said this was also a grey area and depended on relationships. North Korea had boasted that it abolished taxes in the 1970s, so the revenue system is fragmented.

“If I’m running my little chip factory with the ministry of agriculture, I make some profit, they’ll get a little bit of it, but it may not go any further than that. Or maybe sometimes it does. So it’s all very relational.”

Apart from navigating the murky legal framework, budding entrepreneurs may find it hard to gather the seed capital to start a business.

People check shoes in a shop in a newly constructed residential complex in North Korea. Photo: Reuters/Damir Sagolj

The environment for foreign investors is shaky – thanks in part to international sanctions in response to the country’s weapons program, plus the regime’s tendency to prevent profits returning offshore.

Orascom, a large Egyptian company that helped build North Korea’s mobile phone network, discovered this the hard way. Its participation in a joint venture to deliver a 3G service turned sour amid reports of difficulties repatriating hundreds of millions of dollars in earnings. Meanwhile, an affiliate bank had to be shut down last year due to US sanctions.

The restricted nature of communications in North Korea also makes it hard for the operator of a small business, such as a cafe, to find a solution to problems like a coffee machine breaking down.

“You or I would be able to go online and find out perhaps the problem ourselves and fix it,” Abrahamian said. “Certainly we’d be able to get a hold of somebody who could help us. They will struggle to do so.”

Choson Exchange, registered in Singapore in 2010, recruits expert volunteers to travel to North Korea to teach locals in fields like business, finance, law and economic policy. American, South Korean and Japanese volunteers are excluded because of safety concerns.

In a stark example of the risks facing some travelers, US citizen Otto Warmbier, who was not associated with the group, slipped into a coma during a 17-month period of detention in North Korea. Warmbier had allegedly tried to steal a propaganda poster from a hotel during a holiday tour. He died days after his return to Ohio in June.

Ethical questions

Choson Exchange argues that entrepreneurship “provides a viable path towards positive change and a healthy civil society in North Korea.”

But it sometimes faces tough questions about its work, given broader concerns about the North Korean regime’s human rights abuses and spending on weapons development.

The international community has ratcheted up sanctions in response to scores of missile launches and five nuclear tests since 2006. Those measures are likely to be further tightened after Kim claimed on Tuesday to have successfully tested an intercontinental ballistic missile that could potentially reach Alaska.

Three years ago, an inquiry established by the UN Human Rights Council found the regime had committed “systematic, widespread and gross human rights violations” including crimes against humanity. Its report said society was segregated, with those considered most loyal to the state allowed to live in favorable locations such as the capital Pyongyang.

The state had also “used food as a means of control over the population” and had prioritized military spending “even during periods of mass starvation,” said the commission, headed by former Australian judge Michael Kirby.

Abrahamian has previously addressed claims that visiting North Korea helped prop up the system. In an interview in 2014, he said such comments were “often thrown out by people who would prefer North Korea remains isolated.”

“But really the amount of money you spend as a visitor is peanuts, especially considering the good one does by exposing Koreans to new ideas and broadening their horizons,” he told Shanghaiist.

“Overall, if you want to see a more open, integrated North Korea, you have to favor more people-to-people exchanges. I think when you look at other countries in this region that were once closed, but gradually opened up to people and investment, you’d have to say that they end up better off than they had once been.”

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