What did Singapore get apart from US$15m bill from the Trump-Kim summit?

The historic Singapore summit between Mr. Donald Trump, President of the United States of America, and Mr. Kim Jong-Un, Chairman of the Workers' Party of Korea, Chairman of the State Affairs Commission of the Democratic People's Republic of Korea and Supreme Commander of the Korean People's Army, concluded on Tuesday June 12th 2018, with the signing of a joint statement which Mr. Trump called “comprehensive” and “committed to provide security guarantees to North Korea” while at the same time Mr. Kim “reaffirmed his firm and unwavering commitment to complete denuclearisation of the Korean Peninsula”.

What’s in it for Singapore from improved relations with North Korea?

Well, to start with, there’s a US$15 million bill Singapore has to pay for hosting the Trump-Kim summit, and the amount includes all the security in place in the city state for the duration of the summit plus the hotel bill, as a welcoming gesture of hospitality, at the 5*Luxury St. Regis hotel for the suite where North Korea’s Mr. Kim stayed for 2 nights whilst in the Lion City.

But as declared by Singapore’s Prime Minister, Mr. Lee Hsien Loong: “It is a cost we are willing to pay.”

Although just a fraction of the yearly investment for hosting the F1 in Singapore, the bill for the summit has a ROI in terms of publicity because Singapore has been chosen for the meeting by both the USA and North Korea as, in fact, Singapore did not ask for hosting but was asked for doing that.

Talking about trade, Singapore halted all trade relations with North Korea on 8 November 2017 following the implementation of the UN Security Council sanctions, thus preventing all types of goods to/from North Korea from being imported, exported, transshipped or brought in transit through Singapore as indicated in a circular to traders and agents issued by the Singapore Customs on 7 November.

In 2017, Singapore was North Korea’s 7th-largest trading partner but the bilateral trade was just slightly more than US$500,000, whilst back in 2015 Singapore was North Korea’s 6th-largest trade partner with a bilateral trade of US$29 million.

Actually North Korea state media reported that the “supreme leader” has been particularly impressed by what he saw during his evening stroll in Singapore’s Marina Bay and described the city as “clean and beautiful”.

And in Singapore, the Singapore Business Federation reinforced that a positive outcome after the summit could provide “crucial conditions for further trade and investments in the economic development of North Korea”.

Of course with the present situation, it is impossible to make a forecast as of when bilateral relations will take a new course of action because it is only once the sanctions will be lifted that the potential to restart business and trade relations will be clear and considered, and this will take some time. And even with that it may require extra time for developing new business because entering North Korea will still mean sailing in uncharted waters in an economy that nobody knows and with risks down the line.

But the potential is there, and probably many companies may be attracted to rush-in allured by entering a new virgin market, hence it would be smart to invest in this waiting time, until North Korea becomes a new emerging market, by studying some market intelligence and know more about the country, market opportunities and business potential.

More structured opportunities for Singaporean companies may rise with North Korea opening some Special Economic Zones to attract foreign investors by offering incentives to, say, relocating manufacturing capabilities, as well in the infrastructure sector, and in the THL (tourism, hospitality and leisure) field, with new chained-brand hotels to raise the bar of quality, service and customer experience (the likes of Pan Pacific and Parkroyal as Singapore-based hotel companies), and serviced apartments to be rented by relocating expats (Frasers and Ascott come to my mind).

Trade opportunities for Singaporean companies will mainly manifest in areas like commodities, including beer and soft drinks, processed food and seafood, convenience stores and fast food outlets.

Indeed North Korea remains today an isolated market but the 12 June Singapore summit offered an encouraging step to warm things out and get the country on the international map, hopefully tuning the relations to the rhythm of international rules and regulations and slowly opening the market to global business.

History

As we all know, Singapore and North Korea established diplomatic relations back in 1975, and North Korea has an embassy in the Lion City whilst Singapore’s interests are represented by a non-resident ambassador to North Korea from Beijing.

In line with current sanctions Singapore, like many other countries, halted trade relations with North Korea since November 2017. Until mid-2016, North Korean visitors could enter Singapore visa-free whilst now they require a visa and the same applies for Singaporeans willing to travel to North Korea as they need an entry visa after obtaining authorisation from the North Korea government to visit the country.

For the record, North Korea has embassies in 8 countries of the ASEAN marketplace (in Cambodia, Indonesia, Laos, Malaysia, Myanmar, Singapore, Thailand and Vietnam), embassy in China along with 2 consulates in Hong Kong and in Shenyang, and embassies in 37 countries in Europe, Africa, Central and South America for a total of 55 diplomatic and consular representations abroad.

On the evening prior to the meeting with Mr. Trump, Mr. Kim had the opportunity for a short sightseeing visit here in Singapore accompanied by Mt. Vivian Balakrishnan, Singapore’s Minister for Foreign Affairs, and he was highly impressed by the economic development of the Lion City and in particular how the city-state turned into a powerful attractive magnet for foreign investments.

At the end, the path that drove Singapore to realise modernisation could play as a role model for North Korea in the same way it did for China.

Back in 1978 when then China was a totally closed economy, the then Chinese premier Deng Xiaoping visited Singapore and that’s when he oversaw the economic liberalisation of China which then progressed from one of the poorest countries in the world to the second largest economy in the world in a matter of just 4 decades.

Granted that doing business in Pyongyang remains quite a challenge today and that with the current sanctions in place it will take time before they will be lifted, partially or totally, along with the signing of multiple international agreements, the prospective of doing new business is almost zero as of now.

The World’s Top Exports website (WTEx) published on 14 June 2018 the list of North Korea’s top trading partners in 2017. China accounted for 90.8% of total North Korean exports or US$1.7b. Pakistan and India follow at second and third place after representing 1.6% and 1.4% of North Korea's trade activity followed by France and Sri Lanka which account for 0.7% and 0.5% respectively. 

But the business potential is there.

On the mining side alone, North Korea stands on top of USD6 to 10 trillion worth of mineral resources, from rare earth metals (in high demand from smartphones manufacturers) to all the range of minerals from gold to iron.

The mining sector is a priority for the North Korea government, definitely the most distinctive asset of the country, and a cash cow considering the value of trade with neighboring China, but figures are still far below what could be achieved by exploiting full potential without the current sanctions in place, and South Korea is ready to step-in with few infrastructure projects where the mining sector is a key target (indeed while South Korea is the world’s 5th largest consumer of minerals, its lack of natural resources obliges to import 90% of the required minerals from foreign markets, when the proximity of such an abundance right across the border would facilitate such demand).
 

Private enterprises are still prohibited in North Korea but there’s a plethora of small, private and unregistered businesses doing their own domestic trade, and foreign trade with China and South Korea, hence the ban is bypassed by having private companies acting as state-owned companies and where the owner is then hired as company manager with the consent of the cooperating state official who in turn gets a fee and a share of the profits in exchange for a sort of political protection.

Tourism is a sector with great potential for contributing to North Korea’s economy acting as a growth engine and an industry that the local government wants to grow and expand.

At present, none of the leading brands in global hospitality (ie. the likes of Marriott or Sheraton) and none of the international hotel chains have a property or manage a hotel or resort in North Korea, but the country is eager to attract international visitors.

Based on latest available data (2014), some 100,000 tourists visited North Korea, the majority of them being Chinese whilst just 5,000 from Western countries, and contributing with around USD40 million to the local tourism industry.

Several travel operators offer travel packages to North Korea, and some British agencies run a regional office in Beijing, China, for handling operations.

And indeed, it is Beijing that has become the gateway to North Korea but bottleneck comes when planning to travel to Pyongyang as the capital is connected to the rest of the world by just a handful of flights operated by state airline Air Koryo on only 3 routes: Pyongyang to Beijing, China (5 times a week with a non-stop flight of around an hour and a half), Pyongyang to Shenyang, China (twice per week) and Pyongyang to Vladivostok, Russia, (2 times per week).

The only non-North Korean airline operating is Air China which resumes on Wed 13th of June a 3 times per week rotation between Beijing and Pyongyang after flights had been suspended this past November 2017 officially citing poor demand but was in reality a response of China’s backing of the sanctions imposed on North Korea by the United Nations.

Skytrax provides global quality ranking for world airlines and airports, and they recently ranked Air Koryo as 1-star airline: 1-star represents “a poor quality of product delivered across the assessment sectors, combining with low and/or inconsistent standards of front-line staff service for the on-board and home-base airport". Ratings go from 1- to 5-star, with Singapore Airlines and 9 more airlines rewarded with the 5-star mark, and UAE’s Emirates getting its 4-star.

Air Koryo is famous to western travelers for its indescribable Koryo burger which is the only in-flight meal served on board in economy class: a solitary lettuce leaf, a slice of processed cheese, some unidentified meat that many believe to be chicken, all inside a bun and always served cold.

To tell the truth, Air Koryo also provides business class service and at least here we have to acknowledge the good intentions of delivering a premium service that is far from that of leading airlines in Asia (no, it’s not like Singapore airlines, no it’s not like Emirates) but give them time to adjust and improve what in marketing is called the customer experience.

a) Interested in familiarising with the North Korean economic environment?
2 seasonal trade shows get planned regularly every year with the support of the Ministry of Foreign Trade, the North Korea Chamber of Industry and Trade and the Pyongyang city people’s committee, with one show geared towards consumer goods (the Spring edition) and the other towards foreign trade (the Autumn edition). The 21st Pyongyang Spring International Trade Fair just ended (21-25 May 2018), with the majority of the over 260 exhibitors being local companies, but also attracted foreign companies, from China of course, from ASEAN’s Indonesia, Thailand and Vietnam, and from Mongolia, showcasing all sort of products ranging from chocolate to tablets to satisfy local demand as the trade show was literally packed with local shoppers.

This coming Fall, the 14th Pyongyang Autumn International Trade Fair will take place (17-21 September 2018) and several foreign delegations are expected.

b) More interested in the entrepreneurship of North Korea?
Singapore-based Choson Exchange, a not-for-profit group founded by Singaporean entrepreneur Geoffrey See, is the most active organisation that has been providing training in business and management to more than 2,000 North Korean managers, entrepreneurs and business-minded individuals since 2007. 

Choson Exchange is currently planning for this year the “Business Training For Frontier Entrepreneurs” workshop in Pyongyang (18-24 August 2018), and later on the “Pyongsong Startup Bootcamp” (3-9 November 2018).

These are exceptional programmes open to foreign managers and professionals who want to volunteer a week of their time to experience North Korea by providing hands-on training to young North Korean eager to become the next class of business managers and business leaders.

c) Interested in attending official parades?
The Korean Friendship Association (KFA), fully recognised by the North Korea government, and acting with the purpose of building international connections with local chapters in several western countries like Italy, Ireland, Chile, Brazil and in the USA as well, is planning a cultural trip to North Korea (6-13 September 2018) on the occasion of the 70th anniversary of the foundation of the Democratic People’s Republic of Korea (DPRK) with access to special government events celebrating the anniversary on top of the classic tourist visits to museums and monuments.

d) Are you an aviation geek?
For aviation enthusiasts a trip to Pyongyang is a must as it allows the unique and almost rare experience of flying with a wide range of Russian-built airliners with the colors of North Korea’s state airline Air Koryo. The “Grand Aviation Tour 2018” (16-20 October 2018) is packed with an intense schedule of charter domestic flights flown on-board aircrafts like the last surviving in service, and large 4-engine turboprop, Ilyushin IL-18, the long narrow-body 4-engine jet airliner Ilyushin IL-62, the multi-purpose 4-engine turbofan Ilyushin Il-76, the 3-engine medium range narrow-body jet airliner Tupolev TU-154, as well as the TU-134 and the Antonov AN-24, and plenty of photography and filming is guaranteed, and allowed, both in flight and on the local North Korean domestic airports tarmacs.

As said “North Korea is the final frontier, a whole new world to explore where no global business has gone before”. It’s going to be a challenge but as in all ventures, it’ll take time, negotiations, meetings, agreements, deals.

Quoting from a recent column published on The New York Times on 12 June and reporting what a senior presidential advisor to Mr. Moon Jae-In, President of the Republic of South Korea, told in a CNN interview: “They want (the North Koreans) American investments coming to North Korea. They want Trump Tower. The want McDonald’s and all these kind of things”.