Choco Pies and Broadband: What a Peaceful North Korea May Need
North Korea Needs Choco Pies to Broadband, Its Neighbor Wagers
(Bloomberg) -- As optimism builds about a nuclear-free Korean peninsula, companies from the Hyundai Group to the retail-giant Lotte Group that makes Choco Pies are preparing to expand into North Korea, the world’s most isolated economy -- someday.
Tuesday’s summit between U.S. President Donald Trump and North Korea’s Kim Jong Un in Singapore raised expectations that economic sanctions against the communist country could be eased and its economy opened. The two leaders signed a declaration that North Korea would work toward “complete denuclearization of the Korean peninsula,” a goal that could eventually lead to North Korea’s economic integration with neighbors, though sanctions will be remain for now.
South Korean companies are for the most part still waiting for significant signs of progress in diplomacy and economic development related to North Korea. South Korean stocks related to inter-Korea businesses fell on Tuesday after statements by Trump and Kim suggested the agreement they signed was too vague to confirm actual progress toward improving relations between North and South Korea, which are technically still at war.
Below are some examples of companies preparing for a possible opening in North Korea:
The Hyundai Family
Hyundai Group, which expanded into North Korea in 1998 as a tour operator at Mount Geumgang had also operated the Gaeseong industrial complex for more than a decade. The company has created a task force to review preparations resuming operations at Geumgang and to reopen the Gaeseong complex. The group is also looking into possible railway, power generation, dams, air ports tourism development projects envisioned as well under earlier agreements, but as yet unrealized.
At Hyundai Motor Group, which split into a separate group years ago, investors are betting some its units would benefit from thawing North Korea ties. Shares Hyundai Engineering & Construction Co. and train manufacturer Hyundai Rotem Co. have gained amid rising expectations that easing tensions could lead to an opening in North Korea.
SM Group
The South Korean construction and shipping conglomerate is also preparing to jump into North Korea based on its experience of participating in the Korean Peninsula Energy Development Organization, an international consortium set up to build light-water reactors in North Korea in late 1990s. That project was abandoned over disputes related to nuclear disarmament, but an agreement with North Korea could lead to the restarting nuclear power projects.
Faster Internet
KT Corp., the former phone monopoly, has created a task force to support inter-Korean economic cooperation and expand exchanges in information and communications technology, it said in a statement. KT, which opened a branch in the Gaeseong industrial complex to install about 700 private communication lines in 2005, is aiming to start supporting infrastructure in the region once operations at Gaeseong resume.
The company has also explored providing satellite telecommunications and broadcasting satellite services to the North through its KT SAT Co. unit.
Choco Pie Makers
These chocolate-covered marshmallow-cream cakes have already been selling on North Korea’s black market and have even been traded as a form of currency. Lotte Group considered building a Choco Pie plant near Pyongyang with a North Korean partner two decades ago, but the plan was suspended when geopolitical tension with South Korea flared anew. The group sold about 120 million units of the cakes between 2010 and 2014, while Lotte supplied its Cider soft-drink at the Gaeseong Industrial Complex, a joint manufacturing venture between North Korea and a group of South Korean companies, until it was shut down in 2016.
Lotte has created a North Korea task force of eight executives from the group’s food, hotel, retail, chemical units to oversee a potential re-entry into North Korea and look for synergies with its hotels and farms in Russia and theme park in China.
“The possibility of opening the North Korean economy is high because the United States is moving fast," Oh Sung-yup, Lotte Corp. vice president and head of the task force, said in an interview. “First of all, we’d like to support humanitarian aid to North Korea by supplying food and medicine. Going forward, we are expecting to enter the North’s markets in advance with preparations for investments in early stages."
Shares of another Choco Pie maker, Orion Holdings Corp., and food companies such as Ottogi Corp. and Dongwon F&B have risen recently amid expectations they will benefit from an opening in North Korea.
Condos, Not Missile Launchers
President Trump said during Tuesday’s press conference how wonderful it would be to put hotels and condos on North Korea’s great beaches instead of testing weapons there. Should that ever happen, it could be good news for Daemyung Group, South Korea’s largest resort operator. Daemyung has said it’s started feasibility studies to operate businesses in the North’s Wonsan-Kalma special tour region and Masikryong ski resort.
--With assistance from Heejin Kim.
To contact the reporter on this story: Sohee Kim in Seoul at skim847@bloomberg.net
To contact the editors responsible for this story: Young-Sam Cho at ycho2@bloomberg.net, Dave McCombs
©2018 Bloomberg L.P.