Gov’t vows to nudge economy into services

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Gov’t vows to nudge economy into services


Korea needs to significantly strengthen the services sector of its economy, the government said, because the current economic structure won’t sustain growth or create good jobs.

The government said it plans to raise Korea’s service industry to the level of other OECD nations within five years.

The service sector should employ 73 percent of Korea’s workforce by 2020 and create 250,000 quality jobs. The added value created from services should reach 65 percent by 2020.

Added value is the price a product or service sells for minus the cost of production.

Currently Korea’s service sector employs 70 percent of the workforce, which is below the OECD average of 72.9 percent, while the added value contribution is only 60 percent compared to the OECD’s 71.3 percent.

The government plans to encourage convergences between services and manufacturing industries to narrow the gap between the two sectors of the economy and create higher added value. Additionally the government plans an infrastructure for the advancement of the service sector, which includes setting up the foundation for R&D and improving or easing regulations.

The focus will be on seven areas with potential: medical services, tourism, cultural content such as entertainment, education, finance, logistics and software development.

There has been growing urgency in recent years to change the country’s economic structure, which is dependent on exports and manufacturing, although the added value generated from them has been shrinking. Since many leading economies including the U.S. and U.K. have been leaning toward more protectionist trade strategies as a push back against globalization, it has become clear that relying on exports will not ensure long-term growth.

“In May, both production output and consumer spending rebounded while exports in June dropped significantly,” said Finance Minister Yoo Il-ho during a minister-level economic meeting held at the government complex in Sejong city on Tuesday.

“However, uncertainties about an economic recovery continue as the confidence of consumers and investors has yet to see an improvement with such unstable developments as Brexit and corporate restructuring.”

Yoo stressed that a deceleration of the global economy not only affected the nation’s exports but has now started impacting the domestic economy.

“In order to actively guard against new protectionism, we need to secure the competitiveness of our major industries through the convergence and integration [of the manufacturing industry] with the service industry,” Yoo said.

A Hyundai Research Institute’s study released Monday showed that the manufacturing industry’s contribution to growth has been dwindling.

The contribution of the manufacturing industry to GDP rose from 5.9 percent in the 1960s to an average 28.5 percent between 2010 and 2015. However, added value in manufacturing has shrunk from 18 percent in the 1970s to 5.2 percent in recent years.

“Once industrial corporate restructuring kicks in, the contribution from the manufacturing sector will shrink further,” said Lee Boo-hyung, senior researcher at Hyundai Research Institute.

According to a study by the Korea Development Institute, if Korea raised its service sector to the same level as advanced economies like the U.S. and Germany, the nation’s economic growth will be raised between 0.2 percentage points and 0.5 percentage points by 2030.

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