It is a diagnosis made by scholars from around the world: the economic diversification of Macau is a very difficult task. The Chief Executive’s speech was clear and unequivocal.
MB June 2020 Special Report | Diversification now or never
The question is not so much whether Macau has done enough in the last 15 years to diversify (moderately…) its economy, not even if it could have done more than it did.
Numerous experts, based or not in Macau, agree that this is an impossible or nearly impossible undertaking, in a territory with the characteristics and specificities of the MSAR.
The diagnosis is shared by specialists from the Mainland, who are usually optimistic or when this is not possible, users of flowery rhetoric.
But when it comes to talking about economic diversification in Macau, there is no official narrative to resist.
“Macau’s economic dependence upon gaming makes the economy extremely vulnerable to external changes,” Chinese authors Mingjie Sheng and Chaolin Gu boldly proclaim.
“As the gaming industry boomed, other industrial sectors saw rapid contractions. Macau’s lack of a broad-based economic structure has raised concerns about the sustainability of its growth and the sustainability of its economy,” both authors, from Tianjin University and Tsinghua University respectively, argue.
On this side of the border, Professor Edmund Li Sheng is one of the most dedicated authors to explore this topic.
“To reduce the mono-structure and resulting economic risks, the government has undertaken a series of measures to diversify the city’s urban economy,” states the Professor, from the Department of Government and Public Administration, University of Macau. “All these efforts seem to have been ineffective, and Macau’s over dependence has worsened, overshadowing all other parts of the economy,” he wrote four years ago.
In his important essay explaining urban governance: The City of Macao, Edmund Li Sheng says that “despite efforts, Macau’s economy has become increasingly mono-structured”, which “is a cause for concern in itself.”
As “little attention has been paid to Macau’s need to diversify its economy,” Professor Sheng talks about the ‘Dutch Disease’ in local economy – The term was coined in 1977 by the economist to describe the decline of the manufacturing sector in the Netherlands after the discovery of the large Groningen natural gas field in 1959 and it can be applied to Macau, in the opinion of several experts, namely of current professor at the Macau Polytechnic Institute (MPI), Susana Mieiro.
“Any economy that relies exclusively on such revenues might be hurt, if that economy is not ready to face a situation where the source of those revenues dries up, and this draught is profound and long-term,” says Ms Mieiro to Macau Business.
Professor Mieiro understands “the threat of an epidemic disease is among the specific vulnerabilities of tourism based economies such as Macau’s.” The Associate Professor at MPI’s Centre for Gaming and Tourism Studies argues that “most likely, to address such conjunctural risks that are essentially temporary, a reasonable accumulation of reserves, coupled with timely and assertive government intervention, would suffice, which seems to have been the strategy adopted in Macau.”
“Despite some possibilities (e.g. Chinese traditional Chinese medicines), it seems that Macau has not seized many opportunities to boost industries unrelated to tourism and gaming,” assert Australian experts Verity Anne Greenwood and Larry Dwyer. “To date, much of what is regarded as diversification consists of attempts to expand the fringes of the market or to provide new attractions along the margins, rather than creating new revenue streams to challenge gambling.”
In the antipodes of these two authors lies Ricardo Pereira, who presented this year a master’s thesis in Portugal precisely on the topic of Macau’s economic diversification.
“Macau is not prepared to diversify its economy simply because there is no industry that can thrive in the tiny territory guaranteeing high profits for everyone involved, as gambling can,” states Mr Pereira, who conducted his thesis fieldwork in the MSAR.
“In fact, the population lives today in a bubble of its own, in a society that does not reward risk and does not encourage change, already suffering setbacks that will manifest themselves even more in the future, as places are being removed from the administration and sent to unimportant positions in casinos.”
“Despite the efforts of the previous MSAR governments, over the years, in promoting economic diversification, there are no notable results” – who said that? Chief Executive Ho Iat Seng during this year’s Policy Address.
What the numbers say?
“As there is no widely accepted standard for objective measurement of economic diversification,” the Statistics and Census Service (DSEC) has developed a set of multi-dimensional statistical indicators, the best known of which is “Entropy Index of Economic Diversity,” published annually with Analysis Report of Statistical Indicator System for Moderate Economic Diversification of Macau.
The latest figures available (from 2018) show that the total value added of all industries increased by 39.5 billion MOP, an increase of 9.9 per cent. Gaming and non-gaming total value added was 220.8 billion MOP and 216.3 billion MOP, increased by 13.3 per cent and 6.7 per cent year-on year respectively.
“The figure shows that when gaming industry has stabilized, it also drives the development of other industries. From the prospective of industry type, non-gaming industries like hotel industry, financial industry and real estate industry grow fastest. At the same time, exhibition industry, cultural industry and traditional Chinese medicine industry have also developed. The exhibition industry develops particularly rapidly,” explains Li Sheng to Macau Business.
Comparing with 2015, the total value added increased by nearly 1.6 times, and the proportion increased by 0.4 per cent. “Those figures indicate that considerable results have been achieved by now. Even so, Macau’s horizontal diversification is still in its preliminary stages,” stresses Professor Sheng, much more because despite a rise in the contribution of non-gaming industries, the importance and share of the gaming industry in Macau has continued to increase between 2016 and 2018.
The Report indicates that the share taken by the gaming sector has increased by 1 percentage point relative to 2017. “Firstly, we would not interpret it as ‘deteriorated’ condition nor ‘failing’ in the journey towards economic diversification,” explains the Macau Economic Association. “Instead, it can be regarded as a kind of fluctuation, caused mainly by the contraction in fixed assets investment after the completion of existing projects. The other reason attributed to the contraction of non-gaming sector is the economic uncertainties caused by the Sino-US trade conflicts, which may have affected investor confidence. It may still take a period before these industries can be regarded as financially sound and solid,” adds the Association to Macau Business.
In truth, Macau’s industrial diversification continuously decreased from 2008 to 2013, while Macau’s gambling industry developed rapidly, but it started to change in 2014. In 2015, the gross income of the gambling industry had declined by 34.3 per cent, which resulted in a rise in the entropy index of economic diversification calculated by the industrial added value.
“The DSEC statistics you are referring to seems to be a revenue measure. I don’t think revenue should be the only indicator of industrial success,” advice Professor Florence Lei. “If you compare a tourist’s 1-dollar spending on gaming versus 1-dollar spending on F&B, you are like comparing apples and oranges. The price points of different kinds of tourism services can be very different,” adds the Assistant Professor at the University of Saint Joseph’s School of Business and Law.
“Suppose each industry has served 100 tourists. The tourists spend $10 000 on gaming tables (because the minimum bet is $100) but only $5 000 on F&B (because food items can be, say, $50 each). In terms of revenue, it appears that the non-gaming sector falls short of the gaming sector, but in terms of number of tourists served, there is evidence that the non-gaming sector is catching up. In fact, the story goes beyond this. Many tourism services are complements. Casino goers probably also visit restaurants, do some sightseeing, etc. In this sense, the growth of the gaming industry can lead to growth in the non-gaming industries in the long run,” concludes Ms Lei to Macau Business.
“Despite the efforts of the previous MSAR governments, over the years, in promoting economic diversification, there are no notable results. The weight of emerging industries in the economy in general remains relatively low. The weight of the convention and exhibition industry and of the cultural and creative industries promoted by the Government, in the Gross Domestic Product does not reach 1 per cent, while the weight of the gaming industry reaches 50 per cent,” states Ho Iat Seng unequivocally.