Monday, August 08, 2022

Navigating rough seas


North Korea is seeking foreign investment to fund a $20 million casino cruise ship aimed at boosting tourism in the region. But international sanctions and cultural differences mean the initiative may never set sail.

When considering vacation options, most holidaymakers don’t place North Korea high on their list of choices. Strict visa requirements, a lack of luxury accommodations and a trigger-happy dictatorial leader are enough to deter even the most intrepid explorers.

But this is something the Hermit Kingdom is trying to change, inviting foreign investors to fund an international casino cruise program run out of its Mount Kumgang tourist zone in a bid to boost visitation to the country.

The region, a special development zone and port close to the country’s border with South Korea, is calling on overseas entities to invest $20 million in a 30,000-tonne casino-equipped cruise ship, which will operate routes between South East Asia and Russia.

A statement on the region’s official website said it was “trying to diversify international tourism at the world-renowned Mount Kumgang by using cruise ship services.”

It is certainly a bold move from the reclusive totalitarian nation, whose economy is starting to crack under the pressure of sanctions imposed by the United Nations, USA, European Union, South Korea and Japan.  

But does it present any real opportunities for overseas investors, particularly given the inclusion of an on-board casino? And if it does, do international sanctions scupper any potential investment from the get-go?

To answer these questions, it is important to understand whether there is an appetite for gambling in North Korea, and whether a casino-cruise ship will be enough to draw more visitors to the country.

The state of play

Gambling is illegal in North Korea, except for tourists. There are two known casinos in the country; the Pyongyang Casino inside the Yanggakdo Hotel in the capital and another inside the Emperor Casino at the Rason special economic zone.

Both properties are owned and operated by foreign investors, the former by Macau-based SJM Holdings, with the latter belonging to Hong Kong’s Emperor Group. They have performed well in the past, driven by a steady rise in the number of Chinese tourists visiting the country.

“The casinos hire mostly Chinese dealers and accept hard currency like US dollars,” says Tim Lee, director of public relations at Daemin Consulting.

“North Korean tourism is heavily dependent on Chinese visitors, and therefore casinos are considered an important source of earning foreign money,” he adds.

Chinese appetite for travel is on the rise, too, with cruising an increasingly popular choice among the middle class who see it as luxurious and exclusive. According to the Asian Cruise Association, more than 1.6 million Chinese people will cruise each year by 2020.

For these tourists, gambling plays a huge part of their holiday experience. So it’s easy to see why North Korean authorities are looking to a cruise casino to drive visitation to the country.

“A casino cruise ship is ideal from the perspective of the North Korea authorities,” says Andray Abrahamian, an honorary fellow at Macquarie University in Australia. “They can generate revenue while keeping gamers on a nice, isolated ship.”

Past failures

This is not the first time North Korea has tried to boost tourism and revenues via an international casino cruise program. The Royale Star, believed to be the cruise ship up for sale, previously ran trips between the port of Raijin and Mount Kumgang.

The ship, formerly owned by Singapore's Danny Tay, operated casino cruises into international waters from Singapore before shifting to North Korea in February 2013.

But it only ran the route a handful of times, and now Royale Star sits idle in the Kosong Port, just outside the Mouth Kumgang National Park, awaiting further foreign investment.

Lee says South Korean conglomerate the Hyundai Group also tried to operate sightseeing cruise excursions to North Korea back in 1998, running a four-day trip between Sokcho and Wonsan.

“The business failed to grow due to a lack of demand leading to a heavy loss. It was finally terminated when South Korea banned all tourists from visiting North Korea after a guard shot a visitor dead in 2008 at Mount Kumgang,” he adds.

These past failures will undoubtedly provide cause for concern for international investors, who will also be mindful that the country is under sanction and doing little to calm the waters and improve international relations. In fact, its repeated missile tests are turning up the heat and may lead to even tighter sanctions.

Indeed, some see the program as something of a two-fingered salute to those applying the squeeze to the North Korean economy; that the Hermit Kingdom is essentially saying it will find its own way of stimulating growth and revenues.

“The North Korean economy has been struggling and it is only going to get worse as China recently stopped importing coals from the country, while the Trump administration continues to apply maximum pressure,” says Lee.  

“As a result, North Korea is seeking to attract new groups of international investors and visitors from more friendly regions like Russia and South East Asia to overcome its economic crisis.”

Choppy waters

On paper, the opportunity to invest in a casino cruise business is an attractive one. The Asian cruise industry is on track to triple in size by the end of the decade, and travellers certainly have an appetite to gamble.

But the waters around North Korea remain choppy, and international investors will be unwilling to navigate round international sanctions and a government shrouded in secrecy when similar opportunities exist elsewhere.

Abrahamian says sanctions will “complicate things” for investors and that North Korea is “a tricky place to invest”. These points are echoed by Lee, who believes the initiative is “highly likely to fail”.

“Even though the proposal permits the operation of a casino on-board the ship, it won’t be easy to convince investors. The government has tried promoting similar initiatives in the past, plans that always failed to attract foreign investors,” he adds.

For the time being, then, it would appear the Royale Star will continue to gather rust while foreign investors focus on more stable and sustainable opportunities in other Asian markets.

 

 

 

 

 

 

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