Of fools and their money: Martyn Williams on Orascom’s North Korea fiasco

Martyn Williams of the North Korea Tech blog has a must-read story at IT World about how Orascom’s investment in North Korea’s Koryolink mobile phone service “went horribly wrong.” That such a headline can be written is, by itself, a stunning reversal. During the early years of Kim Jong-Un’s reign, Koryolink was the poster child for more sanguine North Korea watchers, who believed that once a Swiss-educated reformer had taken the throne, a Pyongyang Spring must surely follow.

For the first few years, Koryolink really did look like a grand success, touting millions of , and ostensibly breaking down some of North Korea’s internal isolation. Optimistic observers assumed away, or perhaps beyond, a system architecture that facilitated state control, censorship, and eavesdropping, and the fact that cost alone put Koryolink out of reach of everyone but the elites. They held their tongues when Koryolink poured millions of dollars into white elephant projects like the Ryugyong Hotel while millions of North Koreans went hungry. They ignored the security forces’ use of Koryolink to shut down the very cross-border movement of people, information, and goods that has been the greatest driver of change by North Korea’s poor and underprivileged.

In the end, however, the fatal blow to Koryolink is more likely to be Pyongyang’s own greed than the moral, ethical, or legal, hazards of dealing with His Corpulency:

Orascom’s efforts to get its profits out of North Korea have been unsuccessful, partially because of international sanctions imposed on the country but mainly by the government’s refusal to let the money go.

To transfer money out of North Korea, Orascom needs permission from the government and it hasn’t been granted, despite it being a partner in the joint venture.

The government hasn’t acted because it can’t afford to.

The profits are held in North Korean won, but the currency isn’t traded internationally and the government’s official rate is set artificially high, at 100 won to the U.S. dollar. At that rate, Orascon’s holding at the end of last year was worth $585 million.

But at the black market exchange rate, which is effectively the real value of the currency in North Korea, the cash is worth only $7.2 million. And therein lies the problem. The government can’t afford to pay the money at the official rate, and it can’t be seen to officially recognize the black market rate. [IT World, Martyn Williams]

After months of negotiations between Pyongyang and Orascom deadlocked, Pyongyang set up a rival carrier to compete with its now-captive partner. Eventually, it even forced Orascom into merger talks in which it would be the majority partner.

That led to a dramatic statement from Orascom when it reported its financial results Monday — “in the group management’s view, control over Koryolink’s activities was lost.”

What are we to take from all of this? First, that His Corupulency has not made the decision that Burma’s rulers have, to open and reform the society he rules, or to deal fairly with foreign investors. The careful observer will perceive a cooling in the ardor of even such pro-engagement stalwarts as Andray Abrahamian, who was, until last year, one of the most enthusiastic promoters of commerce with Pyongyang. Judging by his Twitter feed, Abrahamian appears to be spending more time in Rangoon than Pyongyang lately.

Second, despite all of this evidence, there will always be an endless parade of gullible foreign investors who will follow in the footsteps of Hyundai Asan, Volvo, Yang Bin, David Chang and Robert Torricelli, Chung Mong-Hun, Nigel Cowie, and Orascom, which I predicted back in 2008 would “eventually meet the same fate.” All of them have, to one extent or another, abandoned their investments in the Central Bank of the DPRK. The oil and gas company GeoExPro seems like a strong candidate to be next. Pyongyang, like the smarmy barkers of carnival midways, is counting on a small, yet endless, supply of suckers who are too greedy and ill-informed to know better.