The city’s economy is increasingly dependent on gambling due to short-sighted politics and a laissez-faire approach

Another year has passed with another outstanding display of economic growth by Macau. Unemployment was virtually zero and fears of inflation have abated somewhat.

We may be tempted to conclude that all is well in our SAR. Yet, one cannot avoid observing that most of the results achieved were driven by factors over which we have very little control. We caught, or were caught by, the crest of a wave that appears to have no end in sight.

Continuous growth in gross gambling revenue seems to make our economy insensitive to whatever happens abroad. But what fortune gives, fortune can take away. We must peer into the future and make timely decisions that allow us to better cope with challenges when times eventually change.

Still, one cannot avoid the feeling that those things over which we do have a degree of control are being allowed to drift. Decisions are either postponed or avoided, and objectives are poorly defined or imprecisely framed.

Drifting along subjects the fabric of society and the economy to erosion, making it less resilient when the tide changes or the currents slow.

Policy vacuum

Let us look at the economy. The one sector upon which almost everything else depends is doing very well, thank you. The flow of visitors is steady. The flow of money seems infinite. However, the taps to both are outside our jurisdiction and are themselves subject to forces, economic and political, upon which we have a weak influence.

That implies two main pillars should underpin economic policies: a clear understanding about the expected and desirable development of the gaming sector, and a coherent approach to developing a legal and policy framework that favours economic diversification.

There are mounting worries on both fronts.

Significant decisions have been made on the future of the gambling sector. Most notably the policy to limit the number of live gaming tables until next year to a maximum of 5,500 and to restrict their growth thereafter to 3 percent a year for the next decade. Aside from the abundance of adjectives used to describe these targets – adequate, sustainable, harmonious growth – no substantive explanation on how they were calculated was provided.

They seem arbitrary. We could easily imagine other figures and rates of growth that could also be described as “adequate” or “sustainable”. The table cap also seems totally out of sync with reality.

What are the assumptions behind these targets? What population, visitor and demand trends were taken into account to define them? What considerations in terms of their impact on the labour market, transportation, housing needs, infrastructure development were used? One can only guess.

The same kind of uncertainty hangs over assigning land in Cotai for new casino resorts. By the way, are they all viable within the existing limits on development? The same question could be applied to the criteria that will eventually be used to share the available gaming tables between casino operators.

There is a sense of arbitrariness and vagueness in these policies that is the contrary to good governance and fostering economic confidence.

Cushion erosion

The excessive and growing dependence on the gambling sector, no matter how well it may serve the public finances in the short term, can also become a curse if, for some unexpected or uncontrollable reason, the tide changes.

The argument for diversification is often based solely on social or ethical considerations. In many regards, a society less heavily dependent on gaming might be a desirable goal in itself. That is another discussion.

From a longer-term economic perspective, a more diversified economy is a worthy goal. That objective, continuously repeated by officials, seems increasingly hard to achieve. A lack of policies to guide timely housing and urban development led to skyrocketing real estate prices. Labour policies that were incoherent and unstable led to imbalances in the labour market. Both labour shortages and rental costs have exacted a toll on family-owned firms, and small- and medium-sized enterprises, and are serious obstacles for start-ups.

Even if those sizeable barriers could be overcome, there are too few people interested in engaging in these types of business. Anyone who knows a thing or two currently looks for a job in the gambling industry and expects a salary that is beyond most smaller companies.

Smaller firms impart a great deal of resilience to an economy and to a society. As the autonomy and initiative of the government has progressively declined, it seems that the social structures that could provide a buffer during difficult times are being weakened by the day.

Throwing money around is unlikely to solve the problem.

It is also questionable whether the co-development of Hengqin Island with Guangdong will solve the problem. As much as it seems to make sense from the perspective of officials in Zhuhai, in Macau, the project is trapped in vagueness by the “wait-and-see” approach favoured by our officials.

It appears that we believe money alone will always fill in the gaps. Sooner or later, fortune will test that belief.

Not all is gloomy. A new year is setting in and with it comes a renewal of hope.

Happy New Year!

By José I. Duarte Economist, Macau Business Senior Analyst – jid@macaubusiness.com