The service gapKorea’s service account deficit reached $18.7 billion last year, the third biggest after Germany and Japan. A service account includes transportation, travel and other service-related payments, and a deficit means money for these services is going abroad. During the first half of this year, the number reached a record $10.5 billion. Except for 1991 and 1998, the service account deficit has been continuously rising, and with the rate of increase growing rapidly, it has become a drag on the entire current account.
Korea is close to becoming the world’s 10th biggest economy, but the service sector here is lagging behind. When the size of an economy grows, its main economic activities shift from agriculture and fisheries to manufacturing, then to services. Among developed countries the service sector usually contributes about 70 percent of gross domestic product.
The United States is outstanding in legal and consulting services. The United Kingdom has advantages in financial services, while the French are famous for their tourism industry. Only about 50 percent of Korea’s GDP is derived from the service sector, which was the figure for advanced countries in the 1980s. Data from the Bank of Korea show that the rate of annual sales growth for service industries from 2002 to 2005 was a mere 3.5 percent; manufacturing grew by 9.3 percent.
Korea’s weakest areas are education and tourism. During the first half of the year, the deficit from these two areas alone reached $7.2 billion. Not satisfied with what is available in Korea, more people are seeking better services in foreign countries. More than 11.6 million people traveled outside Korea for tourism and golf last year. With the stronger Korean won, more and more Koreans are expected to travel abroad.
Public education here is also disappointing, and the cost for private education is astonishing. Almost 200,000 students left Korea to get an education overseas last year. Providing more reasonably priced and higher quality tourism and education is one way to nurture the service industry.
The medical industry is another area with room for improvement. Thailand is a good example. By allowing profit-making hospitals to flourish, Thailand has become a global medical hub. The government also needs to find realistic proposals to lower the service account deficit.