Ikea to invest in North Korea? No

Can North Korea’s Kaesong industrial park attract foreign investors, given its lack of appeal to South Korean ones? Apparently not. Seoul’s unification ministry in charge of inter-Korean relations said on Wednesday that Swedish furniture maker Ikea had turned down a request from Seoul to set up a plant in the North Korean border city.

Kim Hyung-seok, a spokesman for the ministry, said South Korean officials held talks with members of Ikea’s Seoul office last year about investing in Kaesong but the company decided not to do so “from a business perspective.” He said Seoul had contacted other foreign companies in the past about possible investments in Kaesong.

Kim confirmed the talks with Ikea after Seoul’s Dong-a Ilbo newspaper said, quoting a diplomatic source, that Ikea had rejected the offer, citing “excessive risks.”

The news comes a day before the two Koreas hold a sixth round of working-level talks to resume operations at the industrial complex, three months after the sole remaining inter-Korean economic project was suspended in April amid heightened diplomatic tension on the Korean peninsula.

South Korean companies were allowed this month to retrieve finished products and raw materials from the industrial park, which is located about 10km north of the heavily armed border. It had been a showcase for a reunified Korea, with the South’s capital and technology and the North’s cheap labour, before North Korea withdrew its 53,000 workers in April in protest at joint US-South Korea military exercises and international sanctions, following its third nuclear test in February.

This month, the two Koreas tentatively agreed to reopen the complex but it remains unclear when the project will resume operations, as the two sides remain far apart on Seoul’s demand that Pyongyang should guarantee it will not shut the part for political reasons in future.

“We will continue to discuss the issue to prevent a recurrence of such unilateral action by North Korea and to develop Kaesong as an internationally competitive industrial complex that meets common sense and international standards,” Kim said in a briefing.

But hopes are not high for Kaesong’s reopening amid growing scepticism over the survival of the inter-Korean project. South Korean businessmen with plants in Kaesong are losing patience.

Dong Yong-sung, chief of the economic security team at the Samsung Economic Research Institute, says it will be difficult for South Korean companies to continue investing in Kaesong, even if operations resume, unless the North shows a strong determination not to repeat any unpredictable behaviour that undermines stability of the project.

“I am doubtful whether South Korean companies will be as much interested in investing in Kaesong as they used to be, after going through all this political trouble,” Dong says. “There won’t be many foreign investors who are interested in investing in this high risk, low return country.”

The closure prompted Seoul to provide South Korean companies with up to Won300bn ($270m) in emergency funding. More than 200 South Korean companies with operations in Kaesong have claimed more than Won1tn in damages from the government since the industrial park was closed.

As Dong says: “The complex is within North Korea, which is not a usual investment destination for foreign investors. Kaesong cannot be free of the geopolitical risks related to North Korea,.”