INTERNATIONAL. Orascom Telecom Holding will become the first mobile-phone company to invest in North Korea when billionaire Naguib Sawiris seals the contract with the communist state’s government in Pyongyang today.

Sawiris, the CEO and Chairman of Cairo- based Orascom Telecom, has arrived in North Korea to sign the contract, a company official said, requesting anonymity.

Orascom Telecom, the biggest mobile-phone company in the Middle East, is trying to make up for a slowdown in Pakistan and Bangladesh by investing in North Korea, one of the world’s most isolated countries. The phone company, which secured a 25-year licence and exclusive access for four years in January, said it plans to spend as much as US$400 million to build its network and pay the license for the first three years.

“It’s an interesting move and it is an opportunity, taking into account there is no competition over the next four years, but in absolute terms it is limited,” said Kristof Lybaert, an analyst at Dexia in Brussels who has a 'neutral' recommendation on the stock. “It’s a question to what extent Orascom will have a big market for growth.”

North Korea has a population of 23 million and 67% are aged 15 to 64, according to Orascom Telecom.

The North Korean venture is “in line with our strategy to penetrate countries with high population and low penetration by providing the first mobile telephony services,” Sawiris said in a statement earlier this year.

CHEO Technology JV Company, the North Korean unit, is 75% owned by Orascom Telecom and 25% by the state-owned Korea Post and Telecommunications Corporation.

The unit will see average revenue per user of US$12 to US$15 this year as Orascom Telecom targets three of the country’s biggest cities, according to company forecasts.

“The political situation has kept other companies out,” Lybaert said. “Naguib Sawiris is a very powerful man and he probably has inroads into that market that Western European companies don’t.”

Lybaert said the North Korean investment won’t be a driver for Orascom Telecom’s stock over next 12 months. The performance in Pakistan and Algeria, as well as its liquidity, are the biggest concerns, the Dexia analyst said.

North Korea is in urgent need for food aid for 40% of its population because “the country’s agricultural production will not meet basic food needs,” the United Nations’ Food and Agriculture Organization and the World Food Programme said in a report issued earlier this month.

Orascom is counting on four potential markets in the Stalinist nation, according to a study by Marcus Noland of the Peterson Institute for International Economics.

The military and government officials are the top targets, followed by foreigners working for UN organisations and diplomats. The others are customers from South Korea, which has several economic projects with its neighbor, and local demand from rich North Koreans.

To protect its investment, Orascom “hedged its bet, committing only half of its investment at the outset and making additional investment conditional on its assessment of conditions going forward,” Noland said.

If the deal is threatened, Orascom may withdraw specialized equipment or technicians, reducing the value of the network to Pyongyang, Noland said in his study.

“Orascom may have spread the wealth informally, creating beneficiaries within the decision-making apparatus who would stand to lose if the agreement failed,” according to the study.

In July 2007, Orascom Construction, also owned by the Sawiris family, signed a US$115 million agreement to acquire 50% of state-owned Sangwon Cement. Part of the deal, according to Noland, was to employ North Korean workers for Orascom Construction’s projects in the Middle East, generating much-needed cash for the North Korean economy. “Disruption of the telecoms contract could jeopardise this earnings stream,” Noland said.

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