“It’s essential to diversify sources of clients”

The interview took a long time to set up but was finally scheduled. Lionel Leong and a full hand of his team members didn’t know much about the contents of it. Not that they didn’t try to ask for the questions ahead but the answer to that, as to all who have asked in the past, was a polite rebuff. For the sake of ethics, which some publications still uphold.
The game was on, literally, for the conceded 45 minutes interview that became 1.5 hours. Gaming, the hottest topic of the moment. Well, for the past 60 years but especially now, given the amazing results once the semi-liberalization of the industry took off, reaching its peak in 2012 and 2013 – followed by the vertical descent to a more down to earth reality. But still the biggest gaming mecca in the world, revenues wise, at fourfold that of Las Vegas.
The Secretary for Economy and Finance receives with an undisguised smile the journalist’s questions. Cards on the table, requests the journalist. Lionel Leong is not ready to show his poker hand, but takes the opportunity to send a message: “The authorisation of tables is a very important measure in the management and supervision of the gaming sector. It’s an important stimulus for gaming operators to invest in non-gaming elements, as well as in other activities that contribute towards Macau becoming a World Centre of Tourism and Leisure”. Which means that the government “will not divide the number of additional tables equally among the operators”. Message received. Crystal clear.
What about the VIP market, any place at all? Sure, believes the government. But like any analyst will tell you, probably never again like it was in the past. Mass market is the way ahead now, which, according to the official, “may produce a positive effect in diversifying the clientele”. As everything changes in life, so does the industry, he says. “Before, when we mentioned the market, we always considered it from the perspective of demand. Now, this notion has shifted to ‘Supply Side Restructuring’. For us, it means that we must continuously change the factors. That’s the only way we can produce satisfactory effects in favour of the healthy development of industries,” explains Mr. Leong.
Positive budget balance
In terms of revenues, if the results continue on a monthly average of MOP18 billion to the end of the year, Macau can expect a 5.5 per cent drop compared to 2015. The Secretary prefers not to express any pessimism: “With available data, gross gaming revenue dropped 13.3 per cent during this year’s first quarter. In 2015, gross gaming revenue reached MOP230.8 billion. When we prepared the 2016 budget, our forecast was MOP200 billion, anticipating a 13.35 per cent drop. Thus, the decrease is well within our forecast. So far, based on our estimate, we believe that a positive budget balance is still possible this year, at about MOP3.4 billion”.
Still, the Secretary explains that Macau needs to “change” its total dependence upon one single factor. “Our clients originate from one area, so we need to develop the non-gaming elements and invest more in order to elevate our competitiveness on the world tourism stage. It’s essential to diversify sources of customers”, he tells us. Besides, the mass market is more stable, says Mr. Leong. And drives more requests for rooms and F&B than the VIP segment and “creates more jobs” because it employs more croupiers. Definitely, mass is the trend to follow while the city expects operators to invest in more non-gaming facilities to attract more families instead of the individual, he explains.
As we feel the Secretary becomes more confident, it seems to be the ideal moment to launch a more aggressive hand. The gaming law allows SJM’s concession to be extended to a maximum of 20 years, which is 2 more years than what Stanley Ho got while the other two operators got a straight 20 years, so what’s the plan? Extend SJM the two years – and consequently its sub-concessionaire MGM – or open a public tender for that concession? Lionel Leong didn’t fall for that and preferred not to answer. “The time for that hasn’t arrived yet”, he says, by way of an apologetic explanation.
However, this was not the only question he avoided. When confronted with the proposal of legislator Chan Meng Kam for a “casino of the people” – a gaming operator in which every Macau citizen would be a shareholder – Mr. Leong declines to respond. “The current scenario is three concessionaires and three sub-concessionaires. Until the end of the contracts, we have to study if the need is there to renew them. So far, no decision has been made,” he asserts.
As for the long awaited new casino in the “most expensive hotel in the world”, as the international media describes The 13, Secretary Leong repeats what he has already declared in parliament. “All casino and gaming tables requests must come through the gaming concessionaires.
Until now, I have not received any request for a casino in the location you mentioned. If we do receive it, we must analyse all the factors”, he points out. However, from just a legal point of view, he adds, “there are no legal dispositions that forbid the existence of a casino in Coloane”.
MICE: Conferences are the favourites
At one stage, MICE (Meetings, Incentives, Conferences and Exhibitions) was all the political fashion and considered one of the areas the government needed to support on its way to a more diversified economy.
However, last year’s results revealed an industry punching way below its weight, contributing less than 0.05 per cent of GDP.
Lionel Leong seems undaunted and serene. Maybe because the target was settled before his term. MICE “has different stages”, he says. “We will change its development model which previously was focused only on endlessly organising fairs. From a ‘more is better’ concept, we will now transition to a phase where great efforts will be made to catapult the sector towards a path of sophisticated and robust development. That’s why we suggest a policy that prioritises conferences”.
Conferences, then, becomes the strongest leg of the concept. “Because we feel that they attract clients that have an increased spending capability, with a consumption model that is more appropriate to the retail and services that Macau provides.
According to data from 2015, more than 70 per cent of fairs and exhibitions took place in the same hardware, or were held in the same venue, thus creating a centralised situation when it came to client sharing. With conferences, which may be of different scale, they can be held in different places, so it would help promote a more generalised client sharing and contribute towards reinforcing the activity in those parts of the city”.
It seems, as he explains, a similar concept to the VIP-mass market formula. To avoid concentration and allow other areas to share visitors’ expenditure. He elaborates: “When we speak of an adequate diversification of the economy, of developing the gaming sector and Macau’s economy, we should take into account all the related measures; but these measures aren’t just those that help distribute clients. On the contrary, they should allow the same clients to be shared by other people”.
The Secretary defends the little importance he gives, or so he says, to GDP, which is one of the indicators for a “proper evaluation of the economy’s diversification”, as he puts it. “But we also need to look at full employment, employment options and business creation, so that we can ponder and do a better job in the pursuit of adequately diversifying the economy. As Secretary, I pay close attention to GDP figures and the drop in gaming revenue, but in this phase of economic readjustment we can see that the unemployment rate has only increased from 1.7 per cent to 1.9 per cent. In other territories, it is believed that chaos would follow a drop of over 30 per cent in their predominant sectors and over 20 per cent in their GDP. But in Macau, our resilience and dynamics persist”.
As Lionel Leong explains, economic diversification is indeed a hard task ahead, but “this year’s results are better than last year’s results and next year’s results will be better than this year’s”, he avers.
The time for the interview has ended twice, with only a quarter of the interview nailed down so the journalist insists, almost wringing his hands, and is granted another hour the following week. “We’re not used to this; normally, he only concedes one hour”, explains his chief of staff. We take it as a compliment and agree: “Yes, some people see us as a pain…” With a smile, apparently, you can say so much more.
Diversification, a myth?
The following Monday, evening. The Secretary concludes his thoughts on where and how Macau may contribute to a more diversified economy. He chooses the financial sector with “Macau characteristics”.
By way of background, Macau and Hong Kong – the unique advantages of which “are mentioned several times in the Mainland’s work reports of 2015 and 2016” – have the concept of “One country, two systems” as a differentiation with the rest of the inner regions and provinces. Whilst Macau has its “unique connection to Portuguese-speaking countries”.
“Regarding the financial sector and its articulation with some of the national policies, we have to consider that the country has to invest in certain large equipment in the construction of the ‘One Belt, One Road’ [The Silk Road Economic Belt and the 21st Century Maritime Silk Road] and in the context of projects financed by the Asian Infrastructure Investment Bank [AIIB]. Heavy machinery must be exported for that and we’re trying to see if part of that process can be done in Macau, by adopting the financial leasing model. Macau would only address the application of that model, which doesn’t take a lot of physical space.
As Macau becomes a platform for Portuguese-speaking countries to pay for transactions in RMB we already have the basic structures that will allow us, in the future, the capability to participate in the country’s projects; namely, in the export of machinery backed by financial leasing made in Macau. Besides, Macau also provides tax benefits and certain advantages in the free flow of currencies”, he explains. A mammoth task but is it feasible? Not only feasible but it will open the door to other activities “such as registration, insurance, etc.”, he says, apparently confident that this specific financial activity will lead us to the “birth of a new and modern services sector”.
We can only hope. But exactly when? Next year, in five years?
The journalistic impatience needed to be matched by the political serenity: “Rome wasn’t built in a day. In order for a sector to perform well, infrastructure is required in the legal and fiscal areas, as well as much talent. That’s the only way we’ll be able to take the first steps and build a sustainable future”, Mr. Leong explains. We will wait and be here to remind him. He smiles. Next challenge.
SME support
The government was quick to implement austerity measures when gaming revenue dropped. It was widely criticised because of it. After all, the steep drop doesn’t put Macau in any danger. Revenue still surpasses expenditure, the government never spent even half of what was budgeted for PIDDA and the public coffers are comfortably full. So, we ask if wouldn’t it make more sense to promote the internal economy and internal consumption to offset decreasing foreign investment?
Secretary Leong denies the implementation of austerity measures was quick. And explains the intention behind the decision: “to promote less spending within the public administration”.
“Because of that, for 2015 and 2016, we didn’t make any budget changes to decrease expenditure in social welfare. At the time, I was firm in my intention to increase PIDDA’s execution rate [in 2015]. I agree that any GDP stimulus must be powered by exports, investment and consumption.
The three factors must occur simultaneously. When we notice that the exports sector is underperforming, something must be done, like increasing public investment and supporting private investment. However, about the savings in public administration expenses, I would like to highlight that the concept must be present at all times and not just during difficult economic times”.
As the hour wore on – even though the intended interview had just passed the half way mark – the necessary measures to provide support to the SME’s (Small and Medium Enterprises) was up next. Lionel Leong was expecting a similar move, even if we made it, as the government’s help is seemingly nothing more than some tax exemptions. “Not just”, he says, and enters a comfort zone (and his team as well, it seems, who very kindly provide a couple of graphics to illustrate the government’s efforts).
“The government has also launched a revenue tax payment exemption.
Nearly 98 per cent of Group B companies are exempt from that tax. On top of that, we will continue to provide interest free loans to SME’s, as well as help with banking loans through a guarantee system”, explains the city’s head of Economy and Finance.
“We also promote training courses. Regarding human resources, we can see that manpower available to SME’s has also increased”. In addition, he concludes, “in all the efforts to promote Macau’s economic activity, the government has focused its attention on promoting regional co-operation. The ‘Macau Week’ activity aims to help SME’s enter markets in China’s inner provinces. The food products distribution centre, which is already operational, allows for online and offline contact with retailers and potential clients”.
The journalist concedes the more positive political move to end the interview. Maybe that will make him concede another, some time from now, as so many topics still beg to be addressed. Or maybe not; as now he knows that he can’t kick us out within the allotted hour. Time will tell.