National income

The Statistics and Census Bureau has just published a new series of national accounts. For the first time, we have estimates for Gross National Income or GNI. A series from 1982 until 2009 has been published.

As some readers may have noticed, Macau’s GDP is now calculated using a new procedure, the chained prices method, and the base year has been moved to 2008. These changes raise some methodological issues, and certainly comparability issues with the national accounts.

For those less familiar with the difference between the two measures, GNI is accepted as a more appropriate measure of national wealth because the basis for analysis is the income generated by assets owned by the national residents,
no matter where those assets are located.

Therefore, its value is obtained when the net flows of income earned by the residents is added to the GDP. Outflows bigger than inflows, as is the case for Macau, mean a national income that is lower than the GDP.

Graph 1 shows the plots of the values for both GNI and GDP, both in current and chained prices. Each line essentially tells the same story.

In particular, one should note the sharp increase in the national income in just seven years, implying an average growth of about 10 percent a year over that period.

Our second graph shows two different periods. By plotting the annual growth rates it becomes apparent that 2007 is a threshold year.

Until then, in broad terms, both indicators follow parallel trends. Since then, GNI yearly rates become very unstable, suggesting strong income movements possibly associated with the instability in world markets.

Based on the released data, we can also note a significant growth of the per capita indicators. Building a growth index and taking 2002 as the base year, we see a neat divergence between the current and chained prices measures from 2004 on. Again, the new methodology requires that some care be taken when trying to extract meaningful information from these new series.

Income flows and FDI

An analysis of the income flows that result in the divergence between GDP and national income shows that flows have been negative in the period.

You will notice from Graph 4 that each half of the equation tells a different story.

The main drivers of income flowing into Macau are portfolio and other investments while the outflow
is dominated by foreign direct investment (FDI).

Macau assets owned by non-residents have increased by more than five-fold in the period of our analysis. Residents, for their part, appear to derive their external income from other financial sources, either shares or loans.

Of course, these observations are based on the formal classifications of residents and non-residents. One should not forget that they should be read ‘cum grano salis’, if one takes into account that a significant share of these income flows are to and from fiscal paradises whose purpose may be, in fact, to hide the owner’s identity.

Reflecting the rise in the amount of inward FDI, this analysis displays a sustained growth. The trend is relatively slow at first and explosive after 2004, resulting in a four-fold increase in the FDI stock in just eight years. Not even recent instability in the world economy has made a significant dent.

Not so for outward FDI. The break after 2006 is violent, showing, in relative and absolute terms, massive disinvestment.

The apparent profitability of FDI flows has always been difficult to grasp from the published figures. In an admittedly rough calculation based on the ratio between the annual average stock and the income generated, there are two significant effects. There are significant rates of inward investment and low rates, when not negative, for outward investment. It is likely we are not dealing with the same type of investment.

by José I. Duarte
Economist /Macau Business
Senior Analyst Data source: DSEC
Charts and graphics in our paper edition and MB online browseable