Record numbers 'inspired' by Korea

By Ronald Man

Last year the world loved South Korean culture more than ever. Even as slowing trade dragged down global growth, millions danced happily to Psy’s viral music video “Gangnam Style.” And one of the big beneficiaries was the country’s tourism industry: by November the annual number of visitors topped 10m for the first time.

According to the World Travel Tourism Council (WTTC), the travel and tourism industry added a record $62 billion to the Korean economy, or 5.4 percent of annual 2012 GDP by our calculations. This is more than double the country’s agricultural output. Indeed, its impressive resilience likely provided a helping hand to Korean growth last year, cushioning its fall to a three-year low at 2 percent.

Tourism revenue last year was almost certainly at its highest ever, and if it stays this way it will do a lot to help job growth. This is much needed in a country where domestic demand is weak, leaving the economy dependent on an export-led recovery. Travel- and tourism-related businesses account for roughly 5.6 percent of total Korean employment, and for every new job created in the sector, an additional 1.6 jobs are generated indirectly.

Higher tourism revenue can come from either more tourists or more expenditure per tourist. In fact both contributed to the recent rise. The record high number of visitors in 2012 is on track to being the strongest annual growth rate ― around 16 percent ― since 1989. And individual spending by visitors in Korea, which has been sliding since around 2007, now averages roughly $1,300.

China has had a lot to do with this, highlighting the fact that it is more than just a destination for manufactured exports. The world’s second largest economy accounted for almost 25% of tourist arrivals in Korea, up from just 10 percent a decade ago. Over the same period, Japan ― still Korea’s largest source of tourist arrivals ― saw its share decline significantly to 32 percent from 43 percent.

Improving conditions in Korea’s tourism industry can support domestic investment. Travel and tourism enjoyed about 2.3 percent of total Korean investment in 2012; a share that is likely to rise as tourism-related industries edge closer to full capacity. Take hotels for example, where the average occupancy rate was 65.2 percent in 2011, the highest in 14 years. True, a significant proportion of visitors in Korea are on business trips. But holidays in Korea matter more ― foreigners who visit for leisure spend nearly 6 times more than those who come for business only.

When can we expect the benefits to be greatest? Partly due to seasonal fluctuations, look out for the second half of the year. Data from the past decade tell us that almost 13 percent more tourists visit Korea in the second half, especially August and October, than in the first. The potential lift this year may be further boosted by higher global economic activity ― China is likely to expand comfortably above 8 percent and both the US and Europe look set for stronger growth.

With all this in mind, Korea’s resilient tourism industry supports our view that Korean growth will be better than markets and policymakers think.