Gambling: problem and solution

Macau would not be what it is without gambling. But at the same time, gambling seems to dry everything around it. How to square the circle?

MB June 2020 Special Report | Diversification now or never 

Finance Secretary Lei Wai Nong said the obvious in April when he revealed details about the second round of financial support rolled out to face the impact of the Covid-19 outbreak: the key lesson that needed to be learned from this and previous economic shocks is that Macau is too dependent on a single industry.

On top of that, this single and dominant industry seems to be little ‘friendly’ to all the others.

“The gambling industry has led to a highly imbalanced industrial structure in Macau. Such an industrial structure is easily exposed to external macro-economic changes, posing a serious threat to the steady long-term development of the economy,” wrote two researchers from Macau and Singapore, expressing the realisation that so-called industrial diversification has not happened and that gambling is basically the only game in town.

“Although the gaming industry has acted as a pillar industry having significant impact upon the growth and development of the total economy of Macau, the gaming industry has a very low degree of industrial linkage and a weak pulling and pushing effect upon other industries,” conclude Yu Song, of the Macau University of Science and Technology, and Xinke Chen, National University of Singapore, about this “relatively independent industry.”

Over the past few years, several researchers have warned of the difficulties in diversifying the economy from a base clearly dominated by gambling.

Pingping Lu, from the School of Economics of Jinan University, Guangzhou, is the author of a study on the moderate diversification of industrial structure in Macau. He said that when gambling revenues fell for nine consecutive months from 2014, “the gambling industry lacks the characteristics of ‘embededness’ and ‘correlation effect’ and cannot promote economic sustainable development” or “will not be conducive to the sustainable development of the Macau economy”.

The Chinese researcher understands that Macau needs “to recognise and examine the existing growth model and the crux of the dilemma of economic diversification, to stipulate the development direction of the economic and implementation path of economic diversification, and to develop a comprehensive breakthrough strategy while Macau is facing the worst economic downturn moment”.

Pingping Lu’s study is from 2016. Much more recent is the work that four experts from mainland China, Macau and Hong Kong published in recent months, called Sustainable Development for Small Economy and Diversification from a Dominant Industry: Evidence from Macao.

Fei Choi, Chi Tin Hon, Yan Hua Mao and Ivan Ka Wai Lai stress that “how to strike a balance between moderate economic diversification and further development of the gambling industry must be determined.” And point out that “such a domination in gambling makes Macau vulnerable to a decline in the demand for gambling, which may arise from competing destinations such as Phnom Penh in Cambodia, Singapore and Japan, community alienation, slower growth of China’s economy and Chinese government policies.”

Gaming is not only the single biggest contributor of public revenue in Macau, but also the biggest employer group, and the biggest buying group of services and products in the city.

As if that were not enough, Macau is increasingly dependent on patrons from Mainland China, clients who, “are not very sophisticated and are not prepared to spend money that American and European consumers are,” said Andrew Pearson, analyst and president of the integrated resort consulting firm Intelligencia, on the sidelines of the 13th Global Gaming Expo Asia. “This will probably improve in the next five, ten, 20 years, but for Macau it is already seen as a gambling destination and less as an entertainment destination.”

“Such a domination in gambling makes Macau vulnerable to a decline in the demand for gambling” – Fei Choi and others

“High-value-added industries and services”

“A better diversification of Macau requires that we move into high-value-added industries and services. However, while this is a laudable goal, it is only possible if we can increase our capacity to diversify,” emphasizes professor José Alves, Dean the Faculty of Business at City University of Macau.

He explained to Macau Business four different perspectives: “First, Macau has accumulated significant financial resources, which suggests that financial capacity is not a limitation. The research and technology capacity of institutions in Macau is growing but still with limited output and impact. The physical infrastructures of the city are also improving but not ready to cope with growth. Yet, the most limiting is possibly human capability. The government is aware of this, and during the last two decades has invested and promoted education at all levels. Education in Macau is now entering a critical stage of qualitative growth.”