Surprise!? Egyptian Telecom Expropriated in North Korea

♠ Posted by Emmanuel in , at 1/05/2016 03:41:00 PM
The way we were: Orascom's Naguib Sawiris [c] with the late Kim Jong-il [r].
A corollary to "fortune favors the brave" is "misfortune favors the foolhardy."

Yes, there are cell phones in North Korea--it's just that you cannot call abroad or access the Internet through them. I had been peripherally aware of Orascom, the Egyptian telecommunications provider, through its advertisements on CNN. I was reminded of it in a powerful way when I read a recent Wall Street Journal article discussing how Orascom got expropriated (excommunicated?) by North Korea. Of course, my initial reaction was "Why of course! What were you thinking would happen to you went to North Korea, of all places?"

A closer reading reveals greater subtlety to it than that. Aside from investing in its home region of the Middle East, Orascom has found a profitable niche operating cellular phone networks where others won't dare go. Read: countries high in "political risk," which often isn't actually as forbidding as most of us would presume if you ask Orascom:
Egyptian tycoon Naguib Sawiris made billions of dollars from a global telecommunications empire that operated in authoritarian states from Zimbabwe to Pakistan. Now he is being dealt a potentially painful setback by one of the global economy’s biggest pariahs: North Korea...But in the last few years, a state-run competitor emerged in North Korea, and Cairo-based Orascom hit problems trying to repatriate profits. Orascom said in a November filing in Egypt it had lost control of its 75%-owned North Korean venture, Koryolink, and struck the venture from its balance sheet, removing hundreds of millions of dollars in assets.
Since 1997, Orascom has built and run mobile networks in more than 20 countries across Africa, the Middle East and the Indian subcontinent. Its strategy: Load up on debt to build networks quickly in risky markets with little or no infrastructure, betting on rapid growth and strong returns, then sell when the market matures and more players materialize...

Orascom operated in many politically unstable nations such as Yemen and Bangladesh. In most cases, the gamble paid off. In 2003, Orascom paid $5 million for one of Iraq’s first mobile network licenses. Its local partner faced kidnappings of staff and attacks on property from insurgents, but in 2007 Orascom sold its Iraq operations for $1.2 billion to a Kuwaiti company.

There have been some setbacks. Orascom’s joint venture in Syria with a company run by a cousin of President Bashar al-Assad fell apart in 2002 when a Syrian court handed the Egyptian company’s share of the venture to the local partner.
Zimbabwe, Pakistan, Syria, North Korea...if nothing else, Naguib Sawiris does not lack for courage. His approach is that while there may be a few write-offs here and there like North Korea (and Russia as mentioned elsewhere in the article), that other countries aren't so much in a hurry to chase Orascom away probably holds true insofar as few others would take his place. In Orascom's case, its inability to repatriate profits has led it to write off its North Korean operations:
Orascom’s operations in North Korea began when the country awarded Koryolink the rights to operate its only mobile network from late 2008 through the end of 2012. North Korea had scrapped an earlier project in the country with a Thai firm in 2004, because of fears the network was vulnerable to spies...

Orascom’s problems in North Korea appear to have built during the final year of its exclusivity clause in 2012. Koryolink’s annual report for the year noted “restrictions on cash transfers from local currency” in explaining a $272 million cash balance held inside the country, that more than doubled to June 30.

The company’s board meeting to ratify first quarter results in 2015 was postponed by over a month “due to the delay of the negotiations with the North Korean side to solve the problems arising out of the transfer of dividends, the currency exchange rates and the operational problems that has recently emerged,” minutes from the meeting reviewed by the Journal said.
So now we know that North Korea is really less safe the Pakistan or even Zimbabwe. Whereas countries like those are still peripherally attached to the international community--and even publicly welcome foreign direct investment--North Korea has next to no regard for FDI. As for Orascom, it's probably not crying too much about lost business. When you are in the business of investing in highest-risk markets, well, things like these are bound to occur once in a while.

Besides, I am sure it's made more than a reasonable amount elsewhere.

PS: Also see al Jazeera on "foreign indirect investment" in North Korea.