August 10, 2015 / 4:49 PM / 2 years ago

Comrade capitalism: North Korea seeks investors for brewery

SEOUL (Reuters) - For the boldest frontier market investor: North Korea is looking to raise $39 million from foreign investors to fund a new brewery in Wonsan, an eastern port city where leader Kim Jong Un has big development ambitions.

North Korean leader Kim Jong Un speaks during the 4th National Conference of Veterans in this undated photo released by North Korea's Korean Central News Agency (KCNA) in Pyongyang July 26, 2015. REUTERS/KCNA

The isolated country recently announced more than 100 separate projects seeking foreign investment in the Wonsan-Kumgang Development Zone, a mountainous region where leader Kim keeps palaces and a summer residence.

“They’re looking at this as a new East Asian business and tourism hub,” said Michael Spavor, an independent consultant who is helping a Wonsan investment committee seek more than $150 million in foreign funds, including for the brewery.

“It’s a nice area, it’s on the coast, and it has the same qualities and infrastructure that once made places like Shenzhen and Hong Kong such attractive investment zones,” said Spavor, who will lead a delegation of investors to Pyongyang next month to discuss the brewery and other projects.

North Korea is home to over 20 special economic and development zones which use a grey market exchange rate to value the local currency and contain separate economic laws, even allowing foreign entities to sue the state in the event of a break of contract.

Still, the impoverished country whose formerly Soviet-style planned economy is increasingly market-driven, does not have a strong record of attracting or protecting foreign investments.

Egypt’s Orascom Telecom, which runs Pyongyang-based Koryolink - the country’s sole mobile phone network - has not been able to withdraw its profits from North Korea despite a subscriber base of 2.5 million, according to a first quarter regulatory filing.

“Most foreign investments in North Korea have ended badly, but most of those people had very superficial understanding of the place and did not have insider connections,” said Andrei Lankov, a professor at Kookmin University in Seoul.

“Those who did, make good money, but tend to remain very silent about their success because they don’t want to attract attention - from any side,” he said.

Many would-be investors are deterred by the isolation of the Pyongyang government, which is under heavy sanctions over its nuclear program and human rights record.

“TASTES GREAT”

Also up for grabs in Wonsan are a bus terminal, restaurants, petrol stations and the $90 million refurbishment of a faded pea-green government hotel on the water’s edge, according to documents seen by Reuters.

The brewery aims to produce 50 million liters of beer a year: 20 million liters of draught beer, and 30 million liters in plastic bottles, the documents said.

Poor infrastructure and rising demand mean many North Korean cities produce their own beers, although none sell as well as Taedonggang Beer, a lager produced in a factory made from old British parts that was personally ordered by late leader Kim Jong Il.

It is often described as tastier than its lighter South Korean counterparts, a comparison which rankles in Seoul.

“North Korean beer tastes great and despite the really big demand for it on the east coast, there’s no large-scale brewery in the region capable of generating the supply,” said Spavor.

Reporting by James Pearson; Editing by Tony Munroe and Ian Geoghegan

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