Pandemic economic recovery could run against diversification efforts – Study

Recovery out of the Covid-19 pandemic could run counter to government economic diversification goals, a recent research paper published by the University of Macau Faculty of Business Administration indicates.

The research named ‘City resilience and recovery from COVID-19: The case of Macao’ was conducted by UM researchers Glenn McCartney, Jose Pinto and Matthew Liu used the SAR as a conceptual model on resilience and recovery for tourism cities looking for a pathway of recovery following the impact of the Covid-19 pandemic.

‘Our theoretical assertions have wider implications as tourism cities globally look at COVID-19 exit strategies. The short-term resilient endeavours taken now by cities may have longer-term consequences on their ‘reset’ milieu. With the challenges of vaccination rollout, a COVID-19 exit will be prolonged further with continued economic and tourism recovery challenges for cities,’ the study noted. 

The paper argues that immediate action and significant fiscal reserves were crucial in creating the ability of the Macau SAR to withstand the lockdown.

Through casino tourism, Macau has accumulated substantial fiscal and foreign reserves, representing 121 per cent and 40 per cent of GDP respectively, with the city holding zero public debt and local financial of some US$72.3 billion in 2019.

These reserves were helpful after the local casino market ended 2020 with its lowest gaming revenue total in 14 years, some US$7.5 billion or a decline of 79.3 per cent from 2019.

‘Securing annual fiscal surpluses to government coffers through the heightened financial liquidity performance of the casino sector placed Macau in a unique position to be economically resilient to the COVID-19 outbreak,’ the study indicated.

The local top-down administration also allowed it to exert leverage over the private sector, and quickly react to the pandemic outbreak last year, to, for example, seize hotels in emergencies or suspend casino operations and quickly implement lockdown and mandatory preventative measures against COVID-19, and economic support measures. 

‘Macao’s rapid casino growth trajectory and top-down approach to governance has meant there has been limited public consultation although greater public and private collaboration is suggested for a more effective COVID-19 exit strategy,’ the study adds.

However, contrary to government direction that Macau diversify beyond gaming revenues after COVID-19, the study affirms this is unlikely, as casino companies focus on recuperating revenue losses.

‘The urgency to stem the dramatic financial and employment losses to the tourism industry may mean recovering to a pre-COVID-19 position. Rather than an opportunity to address previous vulnerabilities, the recovery process will be primarily revenue and profit-seeking,’ the research considers.

The study notes that local tourism authorities have had limited progression on diversification due to the local governance model, using the MICE (meetings, incentive travel, conventions, exhibitions) industry as an example.

‘The MICE industry has been advocated by the Macau and China authorities as a tourism market to develop. Yet the dominance of the casino industry and the financial benefits that the tourism and hospitality private sector derive from supporting the gaming sector,’ means limited progress is made in MICE development or other tourism segments,’ the report adds. 

Therefore the local urgency to restart gaming and tourism revenues implies a bouncing back to a gaming industry focus, and an eagerness to prioritise revenues, possibly relegating any vision of a tourism reset or rethink. 

Maintaining social stability is a Macau Government key directive and with local employment inherently linked to the gaming sector, moving away from the industry could also pose another obstacle to diversification.