Inside Asian Gaming

INSIDE ASIAN GAMING | March 2009 28 new casino resorts, and there will now be a longer wait for many of the planned new attractions. Still, it could be a welcome gap, providing the government much- needed breathing space to improve the city’s infrastructure, which has been straining under an increase in visitor arrivals from 11.5 million in 2002 to 30.2 million in 2008. Even during periods when growth of visitor arrivals and casino revenue slowed—as occurred in 2005, when no major new resorts were unveiled—Macau’s economic growth between 2003 and last year was sustained by soaring investment spending as operators ploughed billions into developing new casino resorts in the city. Since the fourth quarter of 2008, however, Macau has been hit by a double whammy of halted investment and declining casino revenues. Although the government’s approach to the local economy has thus far been decidedly laissez-faire—perhaps excessively so—it is now in the rare position of having more than sufficient reserves to fund a slew of long-delayed infrastructure projects. While other governments struggle to pay for essential services, Macau’s government can pick up the slack in the local economy by finally honouring its commitment to provide for the sustainable development of the local tourism and gaming sectors. In his 2009 budget address, delivered in November, Chief Executive Edmund Ho earmarked 10.5 billion patacas for public investment expenditure. Healsoannounced several measures to support Macau’s small and medium-sized enterprises, which were already struggling to compete for resources with the city’s powerful gaming and tourism interests before the financial crisis took hold. Macau is heavily reliant on its gambling and tourism sectors, leaving it vulnerable to external shocks. Although much lip- service is paid to the city’s need to diversify its economy, and several high-ranking officials from Beijing have repeatedly stressed the issue in public, the Macau government has no concrete strategy to work towards this. In the absence of a plan B, all Macau can do is hope for Beijing’s continued munificence in keeping the floodgates open and resisting calls to legalise casinos on the mainland. arrival of the first new foreign-operated casinos from 2004, ending Stanley Ho’s 42- year effective monopoly. There used to be a serious stigma associated with Macau’s casino industry, which was rocked by bloody triad turf wars prior to the handover of the city’s sovereignty from Portugal to Macau in December 1999. The industry is now seen to be run by legitimate publicly-listed casino and junket operators, rather than the underworld. The new casinos are also much more comfortable and attractive than the monopoly-era properties, where main floors were allowed to decay because the real money was made in private VIP rooms. Macau’s limited anti-problem gambling programme only covers locals, even though the majority of gamblers at Macau’s casinos hail frommainlandChina.The riseof problem gambling across the border also factored into Beijing’s decision to restrict visitation by mainland Chinese to Macau. Tax hike not on the cards Although Macau’s casinos operators are not holding their breath for a lowering of their heavy gaming tax burden, they can at least rest assured that the rate is not likely to rise further. Macau, like Illinois, already has the highest gaming tax rate in its neighbourhood. It also does not need the money. The Macau government has no debt, and accumulated budget surpluses on the back of soaring gaming tax revenue have swelled its fiscal reserves to over US$10 billion at the end of 2008. The fiscal reserves are separate from foreign exchange reserves, which grew 19.6% over the year- ago period to US$15.93 billion at end-2008, in line with growth in gaming spending by visitors in Macau. Expenditure on gaming by non-residents constitutes around three quarters of Macau’s service exports—by far the biggest component of Macau’s GDP. Macau’s steadily widening budget surpluses have also been boosted by the government’s failure to meet its public works spending targets, largely because of delays in approving infrastructure projects following the 2007 arrest of the former secretary for transport and public works, Ao Man-long, on corruption charges. The subsequent sentencing of Mr Ao to 27 years’ imprisonment in February last year has not restored confidence in the government, and many believe he has beenmade a scapegoat for corruption that extends much deeper into the administration. Delays in approving infrastructure projects became more pronounced in 2008, with the government’s public investment expenditure coming in well below target at 3.1 billion patacas (US$387.5 million). Spending on roads and bridges shrank to 61.2 million patacas last year, from 358.7 million patacas in 2007 and 747 million patacas in 2006. Filling the gap Macau’s economic growth spurts since 2004 have coincided with the unveiling of The Sai Van Bridge linking the Macau peninsula to Cotai is the largest post-handover infrastructure project, and opened for traffic in January 2005 In Focus