EDITORIAL – Golden eggs

Macau Business Editorial | October 2021 | By José Carlos Matias – Director

This image has an empty alt attribute; its file name is matias-opinion-screenshot-director-MB.jpg

The conversation on diversifying Macau’s economy away from gambling is almost as old as the casino industry itself in the city. Through the decades a number of attempts to push for effective economic diversification failed to yield results. Most of them relied on launching industrial parks, which never truly attained their promised potential.

The liberalization of the gaming industry that occurred two decades ago was aimed at a particular approach to diversification: the new integrated resort (IR) model, making casino gambling part of a larger package including non-gaming elements such as retail, fine dining, F&B, MICE and entertainment. The post-liberalization operators did deliver that new IR model (some more so than others), and in doing so changed the city’s landscape beyond recognition, heralding an unprecedented era of economic growth and job creation. What was intended to be basically the “head of the dragon” multiplied severalfold on the heels of seemingly limitless demand from mainland China together with a massive increase in supply thanks to supportive measures from Beijing. And the rest, as they say, is history.

When Xi Jinping visited Macau in early 2009, then as Vice President, he brought with him two key messages that, despite not being entirely new, did carry special weight, as he was by then already regarded by many as the nation’s leader-in-waiting. Xi insisted the SAR had to diversify its economy, and that the development of Hengqin would provide the necessary room. Over the following decade Macau grew even more dependent on the gaming industry, and calls for diversification intensified. The mammoth stimulus package to assist China’s recovery from the 2008/9 US financial crisis was highly effective at lifting the country’s economy clear of any hint of recession – with the added spillover effect of cheap money flooding into not just the overheated property market but also, indirectly, the city’s gaming industry.

Mass market expanded impressively, but VIP gaming reigned supreme in those years, and jaw-dropping growth figures attained levels that would have to be reined in. The city’s casino industry, specifically the high-roller segment, could not be shielded from the knock-on effect of the anti-corruption campaign and the efforts across the board to curb massive capital outflows. Beginning in 2013/14 a number of corrections to the model were made to bring it in line with more sustainable levels.

In Macau all of us – the government, industry players, society – knew those “sky’s the limit” days could not go on indefinitely and that the risks of putting all our eggs in one basket remained high. Still, the fiscal reserve was pilling up thanks to year after year of robust surpluses, and the Government’s welfaristpolicies – doling out part of that surfeit in the form subsidies, one-off grants and other instruments – forged a social contract that held sway through the years, ensuring a satisfactory level of prosperity and stability. You could say that, back then, while plenty of lip service was given to the importance of economic diversification, the city was in fact resting on its laurels, failing to tackle that mission – to diversify – head on.

It was just three years ago, remember, that Macau was tipped to overtake Qatar in 2020 as the world’s richest jurisdiction (in terms of GDP per capita).

Then reality bit. COVID-19 emerged like a black swan soaring over the grey rhinos that had already charged into view. And while the last twenty months have been overwhelming for the whole world, the last few months here have felt like a Sisyphean loop, our recovery continually derailed by successive waves of COVID-19 cases – in neighbouring provinces and, more recently, in town. Local authorities excelled in the first year of the pandemic, making our city a “poster child” for disease control, but the same unfortunately cannot be said about the last couple of months, namely when it comes to vaccination. With mass inoculation finally gaining steam in a number of countries around the world, Macau’s vaccine rollout remains embarrassingly slow, and it’s taking a heavy toll on the economy. 

On the back of the Zhuhai authorities’ vaccination requirements for crossing the border bolder measures should be adopted locally to finally do the trick, so that our city quickly catches up with the overall national rate and finds itself on a path towards a gradual opening and lifting of restrictions. Meanwhile, a new round of financial support will be inevitable, and formulating budget and policy guidelines for 2022 against the backdrop of so much uncertainty represents a formidable challenge for the Government.

New game 

One of the authorities’ key tasks for the coming year is managing the revision of the gaming law, now in progress following the presentation of the consultation paper in September. It is certainly no coincidence that the document was announced just ten days after the Master Plan for the Development of the Guangdong–Macao In-depth Cooperation Zone was issued. “Remember, remember the month of September (2021)”, historians may one day chant when contemplating these watershed moments.

At this stage it’s still not easy to see the forest for the trees. And we come full circle to Xi Jinping’s 2009 words, which he repeated on subsequent visits, as President, in 2014 and 2019: the Two Ds – Diversify and Develop (Hengqin). The question was – and remains, to some extent – how and when. We now have a partial answer, mirrored in the two key documents announced last month. Our Destination: 2035, with Macau–Hengqin integrated and the SAR’s “adequate economic diversification basically realized”.

As the In-depth Cooperation Zone is established on a model of co-governance, with seats on management and executive committees for Macau’s top officials alongside their counterparts from Guangdong and Zhuhai, it will take wisdom and competence to live up to the high expectations. Openness and farsightedness will be key, as will detailed policies able to boost confidence among local businesses and the youth, particularly with respect to investment, mobility and the legal framework. 

Balancing act

This is indeed a golden opportunity that must not be missed. All sides will need to rise to the challenge. New blood will be required, but the contribution of those who deeply cherish Macau and have shown commitment to the city’s development in the past should be honoured, as well, including of those who were not born here. Along with the visionary and comprehensive top-down design for regional development, bottom-up contributions will be highly beneficial.

In moving forward and kick-starting a new era in the region’s development, a delicate balance must be struck to avoid throwing the baby out with the bathwater. It would serve no one’s interest to kill the goose that lays the golden eggs. Hopefully we might finally put those eggs in more than one basket and in the meantime nurture new gooses. We have to get this right.