North Korea: Investing

FDI in Figures

Although foreign investment has increased somewhat recently, overall North Korea still attracts very little FDI as international sanctions continue to discourage investors. In addition, foreigners are banned from establishing enterprises that can pose a threat to the country's national security. Hence, investment is forbidden in the publishing, press, broadcasting, and telecommunications sectors. Businesses that do not conform to the country's ideology are also prohibited, and international sanctions make it hard to repatriate profits. According to the latest available data from UNCTAD (World Investment Report 2023), FDI inflows decreased from USD 30 million in 2021 to USD 10 million in 2022. At the end of the same period, the FDI stocks were estimated at USD 949 million. Key sectors for investment in North Korea encompass mining, manufacturing, and services/trade. While many foreign investors are typically small, privately-owned firms from China's northeastern provinces, several larger international corporations have substantial investments in the country, such as Orascom from Egypt and Lafarge from France. State-owned enterprises like the Russian Railways Company and Poland's Ministry of Transportation have also made investments, notably in ventures like the JV shipping company Chopol. However, notable challenges persist for foreign investors, with companies like Orascom and China's Xiyang Group encountering significant obstacles and incurring losses, prompting some to withdraw from North Korea. Furthermore, South Korean companies have made significant investments in projects like the inter-Korean Kaesong Industrial Complex (KIC) and Mt. Kumgang Tourist Zone. However, UN Security Council Resolution 2375, passed in September 2017, prohibits the formation of new joint ventures with North Korean entities and mandates the closure of existing ones, unless granted a UN exemption.
unctad.org/system/files/official-document/wir2023_en.pdf
The predominant form of investment in North Korea is through equity joint-venture (JV) companies, with other investment structures like contractual JV companies and wholly foreign-owned enterprises in Special Economic Zones (SEZs) being rare. Although North Korea has designated over two dozen SEZs of varying sizes, most foreign direct investment (FDI) is focused in Pyongyang or the Rason SEZ, situated near the country's borders with China and Russia. Experts suggest that the Rason Special Economic Zone, once a North Korean venture into limited capitalism, now serves as the nucleus of the country's increasing collaboration with Russia, potentially involving arms shipments for the conflict in Ukraine. Initially established in the 1990s on the China-Russia border, Rason boasted bustling markets and residential complexes filled with imported goods, attracting many North Koreans. However, tightened sanctions and pandemic-related border closures severely curtailed trade and tourism. Recent indicators hint at Rason's revival, with ships docking there for the first time since 2018 and satellite imagery pointing to increased trade activity via both the port and a rail link to Russia. While China holds substantial economic sway and historical connections with North Korea, experts note that the deepening ties with Russia might exert a more immediate restorative influence on Rason. Ongoing sanctions since 2006 have made trading with North Korea increasingly challenging for most Western countries, and on the other hand have resulted in heightening the country's reliance on China. Russian companies also did not adhere to the strongly enforced UN Security Council resolutions and re-exported coal, petroleum, and transshipped oil from North Korea to other countries. Overall, North Korea’s poor investment climate is mirrored in its poor standing in international ranking: the country stands at the 172nd position among the 180 economies on the 2023 Corruption Perception Index and 176th out of 184 countries on the latest Index of Economic Freedom.

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Latest Update: May 2024