WaPo: North Korea suckered Egyptian telecom on cell phone system

posted at 7:11 pm on November 19, 2015 by Ed Morrissey

This might make for an interesting, if somewhat short, case study for the Harvard Business Review. The lesson? Don’t invest money in Stalinist regimes … which is only second in already-learned lessons to “never start a land war in Asia.” The Washington Post reports that North Korea ended up with a modern cell-phone system by snookering it out of an Egyptian telecom, who saw gold in the captive population of 26 million:

Orascom Telecom and Media Technology is the company behind the astonishing explosion of cell phone usage in hermetically sealed North Korea in recent years.

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. …

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.

The Post’s Anna Fifield raises but does not pursue the question of international sanctions and Orascom’s presence in North Korea. Fifield notes that Orascom’s position was made more difficult by the sanctions … but that’s the intended effect. What was Orascom doing in the DPRK in the first place, outfitting a rogue regime with reasonably advanced technology? The UN cut off trade with Pyongyang for many good reasons, chief of which are its pursuit of nuclear weapons and the enslavement of its people by the Kim regime. Shouldn’t Orascom be suffering those questions for opening the business at all, rather than just having sanctions “hamper” the merger?

PC World, which covered this story earlier in the week, notes that the sanctions essentially allowed Kim to stab Orascom’s owner in the back:

The government can’t afford to pay the money at the official rate, and it can’t be seen to officially recognize the black market rate. So the two sides have spent months locked in talks about what to do.

The issue came to light in an auditor’s report in June, and a month later Orascom dropped a bombshell: It said the North Korean government — supposedly its close partner — had set up a second carrier to compete with Koryolink.

With its options limited, Orascom entered merger talks to combine Koryolink with the new carrier. The North Korean government has agreed to the move in principle, but so far nothing has happened.

What’s more, the North Korean government has apparently proposed that it be the majority partner in any new venture that’s formed.

The irony here is that the move will create more long-term headaches for the Kim regime than it solves, as Fifield also points out. When North Korea needs foreign investment again, who will put up the capital after this double-cross? The same currency issues will apply, so investors can forget about repatriating profits. At some point, the Kim regime will simply duplicate what the investors build and eclipse it, forcing them into a subsidiary position or worse. One doesn’t need a Harvard Business School study to learn that lesson.

Of course, no one with any common sense would have needed to learn this lesson the hard way in the first place. Orascom’s Naguib Sawiris allowed himself and his investors to get suckered by a tyrant, thanks to a few dinner parties and the lure of a supposedly untapped market. That was an illusion, as Sawiris learned too late: Stalinists do not tolerate markets which do not profit the tyranny, and only the tyranny.


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Comments

Years from now, historians will look back at this article and say,

This is the point when Ed Morrissey foundered on the rocks.”
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Yeah … you’re right, this is just another way point on the path to obscurity.

PolAgnostic on November 19, 2015 at 7:17 PM

never go in business with anyone you couldn’t put in the trunk of your car if you had to.

HugoDrax on November 19, 2015 at 7:17 PM

Fool me once, shame on you…

Marcola on November 19, 2015 at 7:17 PM

“I have altered the deal. Pray I do not alter it further…” – Kim Vader

ExpressoBold on November 19, 2015 at 7:19 PM

What an off the wall post relative to everything going on recently – can someone email Ed a glucose meter and some test strips?

celt on November 19, 2015 at 7:19 PM

Did my post go into moderation for saying the word Ed ?

celt on November 19, 2015 at 7:20 PM

Orascom’s Naguib Sawiris allowed himself and his investors to get suckered by a tyrant

lol

jaime on November 19, 2015 at 7:22 PM

..ok I see it now – weird..I usually see my post once submitted.

celt on November 19, 2015 at 7:23 PM

What an off the wall post relative to everything going on recently – can someone email Ed a glucose meter and some test strips?

celt on November 19, 2015 at 7:19 PM

Yeah, a corrupt regime made a single payer deal and reneged on it’s word by making onerous requirements to obtain the supposed profits. What’s that got to do with us?

pedestrian on November 19, 2015 at 7:28 PM

The lesson? Don’t invest money in Stalinist regimes … which is only second in already-learned lessons to “never start a land war in Asia.”

Inconceivable!

parke on November 19, 2015 at 7:29 PM

Yeah, a corrupt regime made a single payer deal and reneged on it’s word by making onerous requirements to obtain the supposed profits. What’s that got to do with us?

pedestrian on November 19, 2015 at 7:28 PM

Good point, does kinda sound familiar when you put it like that. :)

celt on November 19, 2015 at 7:44 PM

Every time marxism fails it’s no longer marxism in the eyes of marxists.

emerson7 on November 19, 2015 at 8:20 PM

HAHAHAHAHAHAHAHAHAHA…! Suckers!

vnvet on November 19, 2015 at 8:26 PM

Schadenfreude. It’s almost as if there’s no honor among thieves.

307wolverine on November 19, 2015 at 8:27 PM

Good point, does kinda sound familiar when you put it like that. :)

celt on November 19, 2015 at 7:44 PM

Those who do not learn the lessons of doing business with dictators are doomed to repeat them.

AesopFan on November 19, 2015 at 8:31 PM

So, the descendants of shifty rug dealers got snookered by the descendants of…lying Stalinists?

“Hey, you ****ed up. You trusted us.”
—Pyongyang

orangemtl on November 19, 2015 at 8:43 PM

I’ll raise you the United States Oil companies and Venezuela, twice!

xdwall on November 19, 2015 at 9:45 PM

WaPo: North Korea suckered Egyptian telecom on cell phone system

Envious Obama and the Democrats are working hard to duplicate Kim’s deal where all profits of every company flow to them in the Democrat Party.

RJL on November 19, 2015 at 9:53 PM

Orascom’s Naguib Sawiris allowed himself and his investors to get suckered by a tyrant, thanks to a few dinner parties and the lure of an endless stream of young Korean girls supplied to satisfy his repressed Muslim sexual depravity.

BobMbx on November 19, 2015 at 10:06 PM

Ed, tell me this is just a morality tale warning Paul Ryan away from making deals with Obama like Boehner did.

AppraisHer on November 19, 2015 at 10:37 PM

Reminds me of the parable of the scorpion who asked a frog to carry it across the river.

If you do a scorpion a favour and give it a ride, you’re gonna get stung.

s1im on November 19, 2015 at 10:50 PM

Muslims fooled by midgets…you can’t make this up.

LawfulGood on November 19, 2015 at 11:40 PM

NK now has a command and control system that the NSA has the back door to. Nothing like this happens by accident.

Deadeye on November 20, 2015 at 1:09 AM

Every North Korean phone is hacked…

albill on November 20, 2015 at 6:15 AM

Every North Korean phone is hacked…

albill on November 20, 2015 at 6:15 AM

The bad news is that 90% of the conversations consist of nothing but constant praises for Dear Leader while a voice in the background occasionally threatens them to keep going.

LawfulGood on November 20, 2015 at 6:23 AM

I’ll raise you the United States Oil companies and Venezuela, twice!

xdwall on November 19, 2015 at 9:45 PM

Except that a lot of those oil deals existed before Venezuela was a dictatorship.

GWB on November 20, 2015 at 10:04 AM

I use to work for Pinkerton’s in Thailand. Many of our out of country clients were companies that set up operations in Vietnam, Thailand, Cambodia, etc.

Against our advice these out of country clients would hire local nationals to run their complete operations. Generally after a few years to learn the system, the local nationals would frequently, very frequently, set up a local competing company while using the resources and employees of the out of country clients to run their “shadow” company. After a year or so, if the out of country clients didn’t figure out the scam the local nationals would all quit the same day and run the “shadow” competing company full time while the original company went bust.

This was a very popular scam in Thailand, but it was evident almost everywhere in the “Mysterious East”.

E9RET on November 20, 2015 at 4:23 PM