North Korea, officially known as the Democratic People’s Republic of Korea (DPRK), is what drives many business readers around the world to seek answers because it is an economy that is closed and has few dealings with international markets. From time to time, it appears that there are questions about whether it is feasible to purchase or invest in a company in North Korea.
Understanding the economic system of North Korea
North Korea has a state-controlled economic system with the government playing a dominant role in almost all productive activities. Most enterprises are state-owned, and private ownership in the conventional international sense is extremely small.
Economic decision-making is centralised, and business activity is closely tied to government planning and oversight. As a result, the structure of companies in North Korea is much different from that in market-based economies.
The legal and regulatory environment
Any discussion of business activity in North Korea has to recognise the complexity of the legal and regulatory environment. The country faces a wide range of international sanctions and trade restrictions imposed by different governments and international organisations.
These restrictions place considerable constraints on foreign economic engagement and impose strict obedience to the laws of an investor’s home country. In practice, that means that many forms of foreign investment are either banned or subject to unusual scrutiny and authorisation.
What does buying a company mean in the DPRK context
In most cases, any open private ownership of a company, as it exists in capitalist economies, does not exist in North Korea. Instead, what is sometimes referred to as “buying a company” may refer to alternative arrangements, such as:
- Participation in state-sanctioned joint ventures.
- Limited operational/ management rights.
- Long-term co-operation agreements with state entities.
In all cases, the state is a central and controlling participant.
Considerations for key risk assessment
North Korea is generally considered to be a high-risk environment for any type of business engagement. Key risks include political uncertainty, regulatory unpredictability and a lack of legal protections of foreign parties.
Additional challenges may include access to banking, currency controls and restrictions on transferring profits. These factors make it difficult for people to plan for the long term and result in greater exposure to both financial and reputational risk.
Conceptual level due diligence
In high-risk jurisdictions, due diligence becomes of heightened importance. At a general level, this involves knowledge of the ownership structures, checking for verifying the counterparties and compliance with international regulations.
Transparency can be a limited factor, which further makes the assessments a challenge. For this reason, any serious consideration of engagement usually includes a lot of legal and compliance review.
The role of an international advisor
Organisations attempting to access high-risk markets typically have specialised international advisors such as sanctions lawyers and compliance professionals. These experts assist in interpreting the ever-changing regulations and their legal exposure.
It is also common to engage with financial institutions early in the process: the banks play a critical role in what types of transactions can be done.
Ethics and human rights issues
Beyond the legal and money issues, there are more general ethical issues. North Korea is often discussed in relation to human rights issues, which brings up the questions of corporate responsibility and the social impact of economic engagement.
For many organisations, standards of ethics and reputation are as much a factor as legal limitations when considering such environments.
Alternatives to direct purchase
Rather than becoming directly involved in owning shares, some observers concentrate on academic research, policy analysis or comparative studies of the market that pertains to North Korea. Others look to other markets that are similar or adjacent to their own and that are legally open to foreign investment and have clearer regulatory frameworks.
Monitoring policy developments over time is another approach for those interested in long-term regional analysis as opposed to immediate action.
Conclusion
The purchase of a company in North Korea is not comparable to the acquisition in open market economies. The country’s system, which is controlled by the state, as well as the amount of sanctions and high-risk profile, means that the opportunities are extremely limited and heavily regulated. For those interested in global business, the DPRK is a case study in how the areas of politics, law, and ethics merge with economics. It is essential to understand these constraints to have informed discussions, conduct responsible research and have realistic expectations.
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