Private Equity and Chicken Entrepreneurs Investing in Pyongyang

by Brendon Carr

Emerging-markets asset management company Fabien Pictet and Partners is reported to be sniffing around Pyongyang for investment opportunities, and to intend a North Korea private equity fund. There are a few other North Korea funds in the raising, but finding the opportunities may be difficult:

“It would be very difficult to put more than $50 million directly into North Korea,” said [Fabien Pictet CEO Richard] Yarlott, 47, who helps manage $750 million of bonds and equities.

Maybe so, but the North Korean economic revival, when it ever comes, is probably going to depend more on re-establishment of entrepreneurial activity than on large investments in industrial capacity. Here’s one of the pioneers who will either be a hero of the new North Korean economy or another sucker fleeced by the Korean Workers’ Party—South Korean “Matdaero” chicken-franchise entrepreneur Choi Won-Ho said yesterday he would open a restaurant in a joint venture with a North Korean state-run trading company later this month.

Here’s what the paper—and all the wires, who seem to be writing from the same press release—has to say:

Choi has invested 500 million won ($551,000) in the restaurant’s cooking facilities, interior decoration and delivery scooters. He will split the profit 70-30 with the North Korean firm.

Choi, 48, who has been a chicken entrepreneur for 15 years, said there should be sufficient demand despite North Korea being one of the world’s poorest countries, because he plans to offer lower prices to locals.

“I will charge about $3 for a whole chicken for North Koreans and at least $12, the same price as in South Korea, for tourists from the South and other countries,” Choi said yesterday by phone. “One whole chicken will be enough for a four-member family, so the price of $3 will not be too burdensome for special occasions.”

Ah, yes—lower prices for locals. I know this phenomenon well.

But Choi’s probably right about the price point. My wife remembers life in a poorer South Korea, when a family night out for a ten-dollar chicken dinner with all the fixins and soft drinks for the kids was big-time treat—something her family could only afford once a month, if that often. Now, of course, that same dinner costs pocket money. But the small luxuries point the way to better days. If North Korea can tolerate the spread of a consumer society, with entrepreneurs encouraged to open small businesses (the 70-30 joint venture is really kind of a tax, which means the state could also make the same deal with North Korean citizens), maybe we’re on to something.

One does wonder how he managed to spend half a million dollars, though: His staff reportedly numbers 20, including delivery drivers, and the restaurant has seating for 50. That’s not a huge restaurant, and one would imagine the real estate would come cheap—maybe even the contribution from the JV partner. The capital expense here in Seoul, including the rent deposit, would scarcely approach 2/3 that level—so something seems to be awry.

I wonder if there will be delivery to the Yanggakdo Hotel, colorfully described in The Economist as an Alcatraz of fun for foreigners visiting the city. See also this recent travelogue for another view of life in North Korea. Anyway, as for me, I won’t be moving to Pyongyang until a few Indian restaurants and a good Tex-Mex restaurant opens up and stays in business there.

November 3, 2007 | Filed Under North Korea

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