There is a sharp contrast between the Koreas when it comes to growth and prosperity.
The North has struggled to revive its economy since a famine in the mid-1990s with the majority of people now living in poverty. The South has taken off as an economic powerhouse exporting everything from smartphones to automobiles.
The Songun, or military-first policy, charted by North Korean leader Kim Jong-un’s father, Kim Jong-il, also dried up economic resources that otherwise would have benefited the economy.
For sure, Kim’s suspension of North Korean nuclear tests offers a ray of hope. But it has strings attached, too. The leader’s statement at a ruling party meeting last Friday includes a pledge to seek a “favourable” international environment for economic development. That includes the lifting of trade, financial and energy sanctions that hardened every time North Korea detonated a nuclear bomb.
Scepticism does prevail on whether North Korea could emulate the kind of economic success the South has achieved. The former, nevertheless, is viewed as a wildcard and frontier market that could offer rewards for the business community because of its central location in a booming region encompassing China, Japan and South Korea.
South Korean President Moon Jae-in, set to meet with Kim on Friday, has already suggested his country could receive gas supplies from Russia through North Korea while cargo flows to Europe. That means building roads and other infrastructure in North Korea.
Estimated to be worth as much as $6tn, North Korea’s reserves of gold, copper, zinc, coal, magnesite and molybdenite could attract buyers from countries other than China, allowing Kim to diversify his sources of income if he opens up his country.
The nation of 25mn also provides a labour force that remains largely untapped. South Korea has shown that a business model combining its capital and know-how with North Korean labour can work when it ran an industrial park in the North Korean border city of Gaeseong.
That complex closed in 2016 amid military tensions.
Time for investors to think of the Korean reunion? A double-minded play, indeed. Thawing tensions between the Koreas could restart businesses halted for years and spark new private investment in the North, say some analysts. But investors should be wary of strategies based on excessive optimism, because it may take longer than expected to conclude a peace treaty, according some others.
The leaders of the two Koreas are set to hold their first summit since 2007 on Friday to pave the way for direct talks between the US and the reclusive Communist nation. But more than two decades of nuclear talks have repeatedly broken down, with each side accusing the other of reneging on various commitments.
Kim’s promise to halt nuclear tests is a far cry from US and South Korean demands that all nuclear programmes be rolled back. Kim has said nuclear arms safeguard his regime.
Longer term, however, here’s an enduring lesson for Kim: When people are starving, societies tend to unravel, no matter they’re ruled by a dictator, or a democratically-elected government.
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