The long and winding road for local economic recovery

This is an article on the impact Covid-19 has had in Macau and possible ways out for the city to reach the end of this economic nightmare.

Recent data indicates that the recovery will only start by end of the year… Dramatic times that we are experiencing globally.

The rapid spread of Covid-19 has ignited fears of a possible pandemic. The private sector and especially SMEs are going through the worst economic scenario seen in decades. There just no phone calls, no emails, no business in Macau.

A price to pay

China has rolled out the most aggressive disease containment measures in history. Around 500 million people, almost 6.5 per cent of the world’s population, have been affected by restricting movement policies, to contain the Covid-19 coronavirus. 

Initially, the containment started promoting common universal measures by monitoring temperatures, encouraging use of masks, and hand washing. As the outbreak evolved, and knowledge was gained, “a science and risk-based” approach was taken to strengthen the containment efforts.

Disinfecting robots, smart helmets, thermal camera-equipped drones and advanced facial recognition software have all been deployed in the fight against the outbreak. Beyond robots and drones, China has also mobilized its sophisticated surveillance system to track on infected individuals and enforce quarantines.

All these measures are paying out so far: the number of new infections and deaths reported in China has been declining, which suggests the spread of the virus may have peaked and that transmission is slowing down.

Graphic:  WHO-China Joint Mission on Coronavirus Disease 2019

As new cases of coronavirus infection slow in China, the country is gradually getting back to work. Authorities and businesses are taking a range of measures: Local governments are chartering buses for workers. Some companies are buying out entire hotels to house quarantined staff. 

China Activity Tracker

According to recent data, the situation has started to normalize in China since the beginning of last week. At least 8 provinces and regions downgraded their emergency levels, loosening the most draconian restrictions on movement to allow people to leave their homes and return to work. 

Factories across China started reopening slowly. Most car plants are reported to have reopened; passenger traffic remains low but migrant flows into major cities rebounded; coal consumption has started to pick up; container ship activity has almost recovered to normal levels; property sales rebounded but remain below normal levels.

Most industrial firms have resumed production but the biggest bottleneck continues to be a shrunken workforce, as many returning workers must be quarantined for two weeks before entering factories. 

A late-February survey by the Cheung Kong Graduate School of Business in Beijing found that 45% of firms surveyed had “no way to resume work,” mostly due to labor shortages. Just 11% predicted their production capacity would reach between 80% and 100% by the end of February.

Coal consumption by major power plants is picking up:

Container ship flow is slightly below the level in previous years:

Migrant flows into major production cities have recovered:

Passenger transportation by road, railway increased by 40 per cent from lowest level:

Congestion is happening again in major cities:

Property sales continued to improve in 30 major cities:

The recovery in China’s activities is also expected to come sooner than the rest of the world. China’s eventual economic rebound will likely lead other major economies by one or two quarters. This is because the outbreak is getting largely contained in China, but is just starting globally. 

Tourism sector with the slowest economic recovery globally

Even though we see undeniable signs of normalization in China, we think the tourism sector will have the slowest economic growth recovery. Due to the epidemic expanding globally many airlines will maintain travel restrictions to contain the infection.

Global Airlines are facing a revenue loss of US$63 to US$113 billion according to IATA press release on the 5th of March. Global Air traffic is suffering largest slump in history (Graph Below).

The virus has spread to over 80 countries and forward bookings have been severely impacted on routes beyond China. Many countries will continue adopting immigration restrictions and tightening visa requirements. About 21 countries and regions still include Macau in Covid-19 travel restrictions.

Macau’s economy will recover at a much slower speed for the following reasons:

  • 90 per cent of travellers come from Greater China: 60 per cent of visitors from China and the remaining 30 per cent from Hong Kong and Taiwan.
  • 23 Million out of the 39 Million Macau’s visitors in 2019 are from China. 2/3 of the Chinese travellers are from 3 major provinces that are the most affected by the Corona Virus: Guangdong, Hunan and Hubei. (Data from DSE Bureau)
  • Hong Kong, which is the 2nd Largest market of visitors for Macau is experiencing a dramatic economic slump in History with a -5.5 per cent Economic Growth YoY. Hong Kong is the most penalized economy globally at the moment. (Graph Below)
  • More than 800 million people have been in lockdown for a few weeks and have not been able to work. It is almost certain that people will not take holidays sooner as they are starting to get slowly back to work. Not to mention that many employers asked employees to take forced pay leave. (Graph Below)
  • For Business Travellers and MICE the situation also will take some time to improve. Many companies have suffered consequent losses due to their inactivity and first thing companies will look on to is to reduce their costs. Many planned Meetings, conferences, exhibitions and incentives will be simply cancelled as they will need to reach their business objectives by end of 2020.
  • During the 2003 SARS, a Travel Ban advisory alert issued by the Center for Disease control prevention lasted for four months (From March 2003 to July 2003). Knowing that Coronavirus has already infected more people than SARS, the travel Ban shall be extended beyond four months (Total of 8,098 SARS infected cases versus almost 100,000 with coronavirus)
  • 70 per cent of Macau’s GDP is directly related to Tourism businesses. Macau’s economic landscape is too dependent on Gaming with half of the GGR Revenues coming from High Rollers. 
  • Not to mention that Macau seats less than 1000 km away from the epicentre in Wuhan

As per data suggested above China should be retaking 100 per cent normal life only by end of March to mid-April and most affected regions (i.e.  Hunan and Hubei province) by end of April. The most optimistic scenarios are forecasting a phased approach by lifting visa measures gradually with the less affected regions by April. 

A much caution approach should be adopted by the Chinese Government in order to avoid any collateral risk of spreading again, with travel not resuming any time soon before May. This means travellers will probably start coming back with significative numbers only by the end of September/October. (Q4 2019)

An excellent opportunity for Macau Government to plan ahead for a better economic recovery. Food for thought for coming months:

Pricing and VIP occupancy: in order to attract potential customers and boost fast recovery, operators will have to compete on price by making attractive promotions and packages. Most of the hotel room capacity is reserved exclusively to Gambling players, leaving very little space to large groups of Business Travelers and MICE. Something needs to change here.

Diversification outside China:  As we mentioned above, Macau is too dependent on Greater China that accounts for 90 per cent of travelers. There is definitely space in promoting Macau as a tourism destination to the rest of the world.

Focusing on destination marketing and branding: Valorizing culture and local attributes as destination’s attractiveness is key. This would be a good opportunity to help SME by giving further ambitious incentives for promotion and marketing purposes with specific & SMART goals.

Economic Stimulus: Local government has implemented several measures such as free interest Loans for SME, Electricity & water bill waves, the anticipation of yearly cheque for local holder ID residents, free Voucher consumption worth MOP3,000 etc.  Probably not enough for struggling SME’s that may need additional stimulus to stay alive. 

MGTO Macau Tourism Masterplan. The Tourism Master Plan needs to be taken off the shelf. The implementation of key actions points highlighted in the paper and validated by public consultation needs action: New Waterfront areas, maritime products, further development of a green & eco-friendly city, diversification of tourism products,  etc..

Casino license renewal: The casino licenses renewal process will begin in 2022. This is an excellent opportunity to reduce VIP reliance by implementing specific and measurable requirements in terms of entertainment and leisure diversification measures to casino operators. the Macau government should take as an example what has been done in Singapore by the CRA (Casino Regulatory Authority) in terms of setting a clear vision for the city with very specific goals in terms of entertainment & leisure m2 spaces etc.  The actual objective set by Macau government to have 9 per cent of GGR coming from Non-Gaming is a joke…

Accessibility of destination: The bridge connection with HK Airport needs to be more effective. A constant review of the ongoing passenger load of all the tour buses connecting all the casinos should be conducted and studied so that a better redesign of bus routes and redeployment of tour buses could be undertaken swiftly and efficiently. The Macau Light Rapid Transit rail and the International Airport also need further improvements.

Written by Marco Duarte Rizzolio

Managing Partner at Follow Me Macau Limited