After taking a 75 percent stake in a new joint venture in 2008, as many as three million North Koreans have signed up for “Koryolink” cell phone services, using re-branded Chinese flip or smart phones.
Although Orascom offered 3G service, there is no public Internet in North Korea. Still, the Koryolink service has given North Koreans, very few of whom had access to a landline let alone a mobile, a way to contact each other.
The devices have enabled North Koreans to communicate more easily with people on the other side of the country – a big change in a place where travel is highly restricted. They have been particularly helpful in the nascent market economy, with traders reportedly using information about incoming shipments of rice to set prices at stalls around the country.
North Koreans use the phones for texting and picture messaging, as well as using the Bluetooth capability to share files, according to defectors from North Korea.
They also apparently needed some lessons in cellphone etiquette, with the regime telling mobile users to identify themselves when calling and not to speak loudly in public places.
Orascom is the largest foreign investor in North Korea and also offered to fix up the Ryugyong hotel, the pyramid-shaped hotel that had been looming incomplete over Pyongyang for years due to crooked elevator shafts. But it has received very little in the way of thanks, or money, for its efforts.
For some time, there have been reports that North Korea was not allowing Orascom to repatriate its profits. Orascom had wanted to convert its North Korean earnings at the official exchange rate – putting them at about $540 million. The Pyongyang authorities ironically wanted them to use the black market rate, which would have put the Egyptian company’s profits at about $8 million, Martyn Williams of the North Korea Tech blog reported in July.
Now, Orascom has revealed that it has “deconsolidated” its stake in the joint venture, officially known as Cheo Technology, making it an associate instead of a subsidiary. Basically, this means that it’s lost control of the service, despite having a majority stake, Williams reports.
This comes after Orascom discovered that North Korea was starting a competitor to Koryolink called Byol, and then began discussions about merging it with Koryolink, thus presumably extracting even more money from Orascom.
While the negotiations were ongoing, the issues made it difficult to treat the investment according to international and Egyptian accounting standards, Orascom said.
The problems were partly due to international sanctions against North Korea, which affect Orascom’s ability to impose control over the joint venture, “as well as the convertibility of cash and repatriation of dividends”.
Orascom’s chief executive, Naguib Sawiris, tried to sound upbeat.
"We are very proud of the success of our operation 'Koryolink'," he said in a statement. "We have around three million people today carrying our phones in the DPRK. We are still hopeful that we will be able to resolve all pending issues to continue this successful journey," he said, using the official acronym for North Korea.
Sawiris was feted by the North Korean regime as he poured money into the country. When he visited in 2011, the official Korean Central News Agency published a photo of Sawiris standing hand-in-hand with then-leader Kim Jong Il.
Incidentally, on the other side was Jang Song Thaek, the mercurial businessman and uncle executed by current leader Kim Jong Un.
Kim Jong Il hosted a dinner for Sawiris and “warmly welcomed his DPRK visit taking place at a time when Orascom’s investment is making successful progress in different fields of the DPRK, including telecommunications,” KCNA reported at the time.
In this profile, the Financial Times described Sawiris as “a man who does not shy away from risk,” noting that he had invested hugely in Algeria and Iraq when both countries had barely emerged from war and later vociferously opposed the rule of the Muslim Brotherhood in Egypt, helping contribute to its downfall.
Things are not looking good for Sawiris in North Korea. But they’re not looking good for North Korea either, a cash-strapped country that relies on cash from the outside world.
Indeed, this is a much bigger issue than monopoly investors taking risks or facing competition.
“North Korea desperately needs a foreign direct investment success story,” Marcus Noland, an expert on the North Korean economy, wrote on the Witness to Transformation blog in July, adding that the Orascom case would not inspire confidence in other potential investors.
“Reputation, credibility, and confidence are concepts that North Korea’s elderly communist apparatchiks seem to have trouble grasping. This situation really might amount to cutting off one’s nose to spite one’s face,” he wrote.
Talk about a bad signal.