Lifestyle

Macau Moves Towards Economic Diversity

Macau Moves Towards Economic DiversityAt one time when you said “casino” Las Vegas sprang to mind. No longer. The former “Las Vegas of Asia” has been enjoying a vibrant tourism and gaming boom in the years since the 2008 financial crisis, and is currently showing no signs of slowing down. The cranes are back in action and the former Portuguese enclave is looking resolutely at the future. It’s more like Vegas is the “Macau of the West” these days.

Laying a Foundation
Any discussion of Macau must include the subject of its gaming industry. Good or bad, sinful or not, gaming is the city’s backbone. This past May, Macau’s gambling revenue rose 14 percent over the previous, underpinned by Chinese players. Macau is now the world’s largest gambling market and casino revenues account for 50 percent of Macau’s economy. Compared that to the globe’s other gaming hotspots: Monte Carlo’s casinos are estimated to be approximately 5 percent of its GDP, around US$34 million. Las Vegas generated $6.2 billion in 2012. In Macau, gaming revenues totalled $33.5 billion in 2011.

The six gaming licensees all have second or third phases in the Cotai pipeline. Also in May, Wynn Resorts, Las Vegas Sands (Venetian Macao Resort), MGM Mirage, Galaxy Entertainment Group (StarWorld and Galaxy), SJM/STDM (the legendary Lisboa) and Melco Crown (City of Dreams) attracted 9.1 percent more travellers than the year before according to Macau’s Statistics and Census Service. Oddly the world’s largest gaming company by revenue — Caesars Entertainment — does not have a property in Macau. Yet.

That’s a lot of gambling, and could make Macau a one-trick pony, which is always a dodgy prospect. Hong Kong suffers every time the finance industry hiccoughs and it begs the question of whether the other SAR should be putting all its eggs in the hospitality basket. “I think right now the major driver is still gaming. Hospitality includes a lot of other things. True hospitality — family entertainment, shopping, all that — is still in the pipeline and isn’t fully actualised yet,” explains Jeff Wong, director and head of residential for Jones Lang LaSalle in Macau. “The theme parks, the shows, the exhibitions, the facilities — will provide another engine for the local economy. Right now the hospitality industry is only running on one engine — gaming. It will take another four or five years to reach capacity and that’s why I believe there’s still great potential for us.”

A Different Kind of Show
“We continue to believe investors’ concerns over a slowdown in the Macau VIP market are largely overblown and expect the late second quarter opening of Las Vegas Sands’ Cotai Central to serve as an impetus to growth within the mass market segment,” Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors at the American Gaming Association’s annual meeting last year according to the Las Vegas Review-Journal. “Given the additional convention space at Cotai Central, we believe Las Vegas Sands will be able to attract higher-margin business to a market that ... has primarily been a gambling-only destination.” Obvious government planners aside, Wong’s clearly not alone in his views. He and Wieczynski could be right. Starwood Hotels recently opened the massive, nearly 4,000-room Sheraton Macao Hotel, Cotai Central at the new uber-development, Sands Cotai Central. It has several pools, a spa and an inordinate amount of family facilities and six restaurants — and it has neither a casino nor a dedicated bar. Conventioneers seeking a tipple after a trade show may kvetch, but Starwood appears confident in Macau’s untapped MICE sector; Sheraton boasts 214,000 square feet of event space (Starwood could not be reached for a comment). Rihanna is playing a show at the Venetian, and Hongkongers are accustomed to making the trek to Macau to see concerts, but the permanent Cirque du Soleil closed recently and the swish restaurants at the Sands were converted to high roller gambling rooms ages ago. Large convention-focused hotels demand plenty of conventions, and the question remains of whether Macau can support anything not related to gambling.

Cultivating a Playground
JLL’s Wong theorises there may be runoff business from Hong Kong’s crowded convention scene considering the ease of connection, which will only improve when the city’s major infrastructure projects are completed in the coming years. Wong admits the Light Rail Transit (scheduled for 2015) is geared at making tourism easier; stations are set for the airport, the ferry terminals, border crossings and stops on Cotai near the major casinos. He doesn’t see it benefitting local residents and it won’t have an MTR type knock-on effect. However the Hong Kong-Zhuhai-Macau bridge (2016) is another story. “The bridge is designed to facilitate integration with neighbouring cities. With the completion of these infrastructure projects Macau will help with the flow of people and goods around the region,” theorises Wong. “Macau will become a hub. You’ll be able to go from the airport to the Venetian to the beach. We expect the number of tourists to increase in the coming years.”

And if there are doubts about Macau’s economic diversity, there’s always the forthcoming, and debatable, Hengqin Island development, a proposed free trade zone with seven pillar industries (among them financial services, scientific research and health care). University of Macau economics department head Dr Kwan Fung called Hengqin-Macau partnerships “wishful thinking” last year. “Besides casinos, most enterprises in Macau are small and medium-sized companies that fail to meet Hengqin’s high-end industrial development targets,” he told the SCMP. Critics are quick to remind that Beijing has tried this kind of special zone before and failed every time, and that without industries that support Macau’s gaming trade, Macau investment will be limited.

The city needs to be on guard too. Development is outpacing other sectors of Macau society, from the law and legal framework to human resources, and that disconnect could lead to demands the government could be unprepared for. “There’s a shortage of labour, and one solution is to import labour, but that creates other problems: housing, transportation, education and so on,” cautions Wong. But with all those tourists and all that cash, the government should at least be able to throw money at its problems.