Forget Cuba, North Korea is 'Next Hot Emerging Market'

Tuesday, January 19, 2016
Doesn't this all sound familiar?

Massive oil reserves, street markets, tourism, high literacy, growing middle class and "a strong military-industrial complex."

One thing is for sure, Pyongyang looks like Dubai compared to Havana (see below).

Read this story carefully. It brings perspective to the similar stories (err: lunacy) written about Cuba throughout last year.

From Business Insider:

North Korea might be the next hot emerging market

North Korea has been in the news a lot already this year after the country claimed to have successfully detonated a hydrogen bomb at the beginning of January.

The reclusive nation is in the news again today, but this time, the country is being touted as the next hot frontier market by James Passin, a hedge fund manager at Firebird Management.

In an interview with the New York Times, James Passin stated that he believes North Korea is sitting on as much as a billion barrels of crude, which, if unlocked is enough to make the country as big a producer as Oklahoma. And it’s not just the oil that has attracted Passin. “You have a country with 25 million people — young, highly disciplined, literate — and a strong military-industrial complex,” he said in the NYT interview. “It’s possible that the early investors will be rewarded with potential for massive appreciation.”

James Passin isn’t the only frontier market speculator that’s expressed a desire to invest in North Korea. Jim Rogers, who co-founded the Quantum Fund with George Soros and has made a name for himself as the Indiana Jones of Finance, told the Wall Street Journal last September, “if I could put all my money on North Korea, I would.”

“Yes! I’m very excited about North Korea. If I could put all of my money into North Korea, I would. Massive changes are taking place there.” — Jim Rogers, Wall Street Journal

According to Rogers, North Korea today looks similar to China in the 1980s. The country is going through a period of significant change after Kim Jong-Un took over the role of leader after the death of his father Kim Jong-il in December 2011.

North Korea is an extremely secretive nation, so it’s difficult for most investors and emerging market analysts to get hold of any reliable economic data. That said, it’s possible to get some idea of how the country is developing via the sporadic news and data releases on the country from various news outlets around the world.

North Korea: Economic activity increasing

Lacking any reliable concrete figures, 38 North a program of the U.S.-Korea Institute at SAIS (USKI) uses commercial satellite imagery to study the level of activity around key North Korean trading areas at various points in time to get an idea of the country’s economic activity. The trading areas which are the most revealing are the country’s street markets.

Studying the number of street markets in operation, and the number of people visiting these markets may seem like a trivial operation at first, but this topic deserves a great deal of attention. Until the 1990s, North Koreans had to put up with a centrally planned economy. After the country’s central planning began to break down in the 1990s an increasing amount of economic activity is taking place outside the country’s state-run economy. Market activity is one of the only ways of measuring the progression of capitalism inside the reclusive nation.

Satellite imagery shows that North Korea’s markets have seen overall growth since the early 2000s. In some cities, they have grown only marginally, but in cities like Sinuiju, across from Dandong in China, markets have increased in size by over 110% between 2003 and 2014. This growth is all the more impressive when you consider the fact that the country’s GDP growth averaged -0.5% per annum between 1990 and 2014.

That said, while it seems that the country is becoming more open to capitalist ideas, North Korea’s government is still widely unpredictable (as we’ve seen over the past year) and will not hesitate to shut down enterprises it believes are not in the government’s best interest. In 2010, the authorities tore down one of the largest wholesale markets in the country wiping out 70% of a city’s market space in a single day.

Economic development is may not be taking off in North Korea’s provinces, but in the country’s capital,  Pyongyang  Kim Jong-un is carving out a reputation as a champion of modern facilities for the country’s new middle class. A massive building boom is currently underway. A new ski resort, theme park, and waterpark have already been completed, along with an 18-tower 47 story apartment complex in the center of the capital. Alongside these project, the North has also constructed a new international airport (home to the country’s flagship carrier Air Koryo, the world’s only one-star airline), part of the state’s goal to welcome two million tourists a year by 2020.