Time to Make Big Foreign Direct Investment Play on North Korea?

by Brendon Carr

Via Tom Coyner’s Korea Economic Reader clipping service, we learn that Egyptian cement giant Orascom (I’ve learned this name through travels in India and by watching StarTV; I think they have a big-time telecoms company affiliate) today announced a very substantial investment ("total value” US$115 million, although we aren’t told clearly whether this is for the 50% stake Orascom is taking, or the new valuation for the total enterprise) in a North Korean cement plant.

The deal, which might be for more than just the cement factory, is definitely bold and visionary, as it anticipates a surge in infrastructure investment—all of which needs cement—in North Korea. From the press release, it seems Orascom is getting into more than just the cement plant:

Based on the signed agreement, OCI will acquire 50% of Sangwon Cement for a total value of US$ 115 million. The acquisition will take the form of a capital increase from which the proceeds will be used to modernize, rehabilitate and upgrade the plant capacity to reach 3 million tonnes per year. The proceeds will also be used to invest in ready-mix concrete and distribution activities. In addition to the Sangwon cement plant, the agreement also includes mining perations related to the cement production including limestone quarries, a coal mine and a gypsum quarry. It also includes a dedicated hydroelectric power station near the plant. The plant also has its own railway connection to the national railway grid which connects the plant to the Port of Nampo thus allowing for exports.

So, basically, Orascom is providing money and knowhow, North Korea will provide access to skilled, low-cost labor, raw materials, and a clapped-out factory site—of which there is an abundance in North Korea—and they will split the profits 50-50. Still, US$115 million (even US$57.5 million) is a very large investment while these days South Korea is having a hard time attracting new foreign investment. Things are not good when the big investments are north of the DMZ. Obviously that’s a bit of a joke, when this past year’s FDI total for South Korea was US$3.6 billion (3M alone just dropped US$140 million on a new plant in Hwaseong), and North Korea hasn’t really had new foreign investment in the last 20 years.

Let’s hope Orascom’s vision is realized. The precondition for that infrastructure-investment surge is peace, stability, and some opening to the outside world. Those all sound good to me.

There are at least three law firms which now claim North Korea offices (interestingly, all three have claimed “first” status):


Did any of these firms assist Orascom in the deal? Korea Law Blog hopes to find out.

July 16, 2007 | Filed Under Foreign Investment, Legal Market, North Korea

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