Ulan Bator's longstanding links with Pyongyang can help stability in region, says foreign minister of democratic ex-Soviet satellite

North Korean workers toil in factories and on building sites, Kimjongilia flowers bloom at a special exhibition, and a restaurant serves plates of bulgogi as another patriotic song blares from a television. Yet this chilly north Asian capital is not Pyongyang, but Ulan Bator, Mongolia.

When Mongolia's president, Tsakhia Elbegdorj, arrives in North Korea on Sunday – the first head of state to visit since Kim Jong-un took power – it will cement a longstanding relationship.

Other countries have ties to North Korea, but Mongolia is highly unusual as a democracy enjoying warm relations with both Pyongyang's authoritarian regime and Seoul government in the South. "The visit of our president will elevate relations to a new stage," Mongolia's foreign minister, Luvsanvandan Bold, told the Guardian.

"We want to make a more secure region – more safe and stable – with more economic development. Of course we have different systems but we shared a common history and there's a lot of sympathy between Mongolian and Korean people."

Mongolia, then a Soviet satellite, was the second country to recognise North Korea and took orphans following the Korean war. Such charitable initiatives continued after Mongolia's democratisation; last month it delivered food aid, following a request from Pyongyang.

Charles Armstrong, professor of Korean Studies at Columbia University and author of Tyranny of the Weak: North Korea and the World, said the two countries had a shared history that pre-dated the communist period and "a common concern about domination by larger countries, namely Russia and China, and retaining political independence".

On Mongolia's side, its ability to engage with North Korea is a potentially important asset in dealing with other, more powerful countries.

"Ulan Bator can be a useful platform to create understanding," Bold said. "What Mongolia can provide is leverage to improve the situation in the region and pursue the initiative for parties to share dialogue … We see a lot of room to be more active."

Last year Ulan Bator hosted talks between Tokyo and Pyongyang on Japanese citizens abducted by North Korea.

"Mongolia has done a good job of portraying itself as an honest broker on Korean peninsula issues. It is probably the only country that both North and South Korea can be said to trust," Armstrong said.

"To the extent that North Korea can be persuaded to do anything, Mongolia can play an important mediating role … Of course, North Korea is fiercely protective of its independence and will act in its own perceived interest, taking maximum advantage of the countries it deals with. But due to its non-threatening nature, Mongolia is in a better position to positively influence North Korea's behaviour than are China, Russia, South Korea, Japan or the US."

Economic links are becoming as important; one key advantage for the landlocked country is North Korea's access to the sea.

This year, Mongolia-listed HB Oil bought a 20% stake in a North Korean state-owned refinery. It plans to supply crude oil to the Sungri refinery, based in the special economic zone at Rason, exporting the products back to Mongolia.

"That has triggered a lot of interest," said Munkhdul Badral, founder of business research firm Cover Mongolia, who visited Pyongyang with a business delegation last month. "Other potentially developing countries are already crowded with Chinese investment … It doesn't make much sense for Mongolian companies to be going into Myanmar [Burma]."

Mongolian firms can also benefit from offering others a route into North Korea. "Essentially, tThis HB Oil opportunity has provided those foreign investors who specialise in managing funds in emerging and frontier markets with an opportunity to gain exposure to the DPRK [North Korea]," said Joseph Naemi, non-executive director of HB Oil.

If Pyongyang approves the processing deal, Sungri could reach full operational capacity by the first quarter of 2015, he said; the Mongolian oil firm also has exclusive rights to onshore exploration, development and production of hydrocarbons.

Given North Korea's fractious relations with other states, such investments come at significant risk. "Of course, sanctions can change. If they affect the oil and gas industry of the DPRK then yes, we are out of business," said Naemi, adding that if the sector was not used to risk, "oil would have been at $1,000 a barrel 30 years ago".

Others warn that foreign operations in North Korea face considerable domestic challenges and have little protection even if their countries have good diplomatic relations, as Chinese businesses have found.

"I can think of five or six cases - two are success stories," said Andrei Lankov, an expert on North Korea at Kookmin University in Seoul.

Hiring North Korean workers, however, had proved "a capitalist dream: people work hard, don't ask for much money and never ever unionise". There are around 1,700 such labourers in Mongolia and construction and manufacturing firms seek more; existing agreements would allow up to 5,000 to work there.

Lankov noted that North Koreans paid "very significant" bribes to get jobs abroad because they could earn five or six times the average wage at home. Even after Pyongyang has taken a large chunk of their earnings, "it's unbelievably profitable - and they save most of it and buy goods that will sell well in the North Korean markets, multiplying it".

He and others argue that exposing North Koreans to the outside world has to be positive. "We are still not a rich country, but we have gained a lot of experience in the past 20 years and more in shaping society and democratising. I think that's very important," said Bold. "There are a lot of opportunities for North Korea … It is very important they can see how there could be a transformation process."