Foreign Lender Gambles On Change for North Korea
By a WALL STREET JOURNAL Staff Reporter
November 2, 2000PYONGYANG, North Korea -- As a 38-year-old British banker, Nigel Cowie may not seem like the type who lives on the edge. But in the universe of finance, Mr. Cowie's occupation is about as far out as they come: commercial banking in North Korea, the reclusive Stalinist state that is one of communism's final frontiers.
Admittedly, the joint venture Mr. Cowie manages -- Peregrine Daesong Development Bank -- doesn't look like much. His staff of three works out of three rooms at the Potanggang Hotel in Pyongyang, and the bank has only about 150 customers. But its mere existence represents a gamble that this impoverished and isolated economy is ready for a little once-despised international capitalism.
"There is an effort to try to get the country going again," Mr. Cowie says. "The door is open for investment, and they're not going to slam it again." Implausible as it once would have seemed, the government is trying to lay the groundwork for increased foreign investment. Two years ago, Pyongyang unified all offices dealing with foreign economic issues into the Ministry of Foreign Trade. In recent months, supreme leader Kim Jong Il has made dramatic overtures to archenemy South Korea, and established relations with Australia, Britain and Germany.
There are signs that Pyongyang's efforts are starting to work. Mr. Crowie says he has already witnessed greater foreign interest in the past year: Whereas initially his office hardly ever had visitors, he now sees several businessmen a month. Improving ties with Washington, demonstrated by last week's visit of U.S. Secretary of State Madeleine Albright, will give business a further boost, Mr. Cowie says.
"A lot of people who wouldn't have thought about it in the past are prepared to give the place a look," he says. Successful foreign investment in North Korea "will be probably as important as high-level political discussion" for the economy down the road.
Indeed, foreign investors may be the only hope for this country's decaying economy and starving population. Since the fall of the Soviet Union, North Korea's main patron, industry has practically ground to a halt. There is a chronic shortage of electricity, and food shortages have forced this proud government to go begging to its erstwhile enemies. Foreign investment, North Korea experts say, is sorely needed to rebuild the country's decrepit infrastructure and boost exports to earn desperately needed foreign exchange.
Mr. Cowie arrived in North Korea in 1995, as chief representative of high-flying, Hong Kong-based investment bank Peregrine Investments Holdings Ltd., which formed the joint venture with state-run Korea Daesong Bank. In January 1998, at the height of Asia's financial crisis, Peregrine collapsed, and the Pyongyang bank faced a run as jittery customers withdrew nearly all of their money. But Mr. Cowie held fast.
"I spent a lot of time and energy setting this thing up," he says, "and we really didn't want to throw it out the window."
Neither did the North Koreans. His staff worked the phones to convince customers that the bank was solvent, and within three months most had returned. "They were very supportive of us in our difficult time," he says.
This year, a group of investors that includes some other ex-Peregrine bankers bought Peregrine's stake, ensuring that the bank is in Pyongyang to stay. Peregrine Daesong serves foreign companies or foreign joint ventures by providing small loans and services such as remittances and foreign-exchange transactions. Typical of its clients are Chinese, Hong Kong and Japanese trading firms that import beer, cooking oil and other consumer goods while exporting such products as mushrooms and seafood.
To take over some of the projects Peregrine had started in North Korea, Mr. Cowie and two other Europeans set up an investment banking firm in 1998, Crocus Group Ltd. This year, he brought in a European company to invest $6 million in a joint-venture soybean oil refining plant to supply the local market. Crocus is working on a plan to renovate the coal industry by exporting coal and using the proceeds to buy new mining equipment.
Meantime, doesn't an ambitious fellow like Mr. Cowie wish he were working in New York or Hong Kong? No, he says, "this is a lot more fun."
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