INSIDE ASIAN GAMING | July 2013 4 Inside Asian Gaming is published by Must Read Publications Ltd 5A FIT Center Avenida Comercial de Macau Macau Tel: (853) 8294 6755 For subscription enquiries, please email
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[email protected] EDITORIAL Of History and the IVS T his month is the 10th anniversary of the Chinese government’s Individual Visit Scheme, and little Macau, flush with mainland cash, debt-free and fully employed, has every reason to celebrate. Gaming revenue hit MOP171.4 billion through the first half of this year and is on track to exceed last year’s total of MOP304.13 billion by 15%. That’s an increase of 5.7 billion US dollars, or just about $500 million shy of what all the casinos on the Las Vegas Strip made in 2012 combined. If it comes off, which is likely given Macau’s history of strong second-half performances, the market will generate somewhere between $43 billion and $44 billion— not counting spending on hotel rooms, restaurants, shops and shows. To get an idea of the impact of all that money let’s look at Las Vegas, where leisure and hospitality, the city’s principal industries, account for about 20% of gross domestic product and 29% of total employment. If we go back to 2002, the year before the Individual Visit Scheme, Macau’s gross domestic product stood at MOP56 billion, and gaming accounted for about 33%. Ten years later, gaming is generating an astounding 87% of the city’s total economic activity, whose value hit MOP348 billion last year. That’s an average growth rate of 18% a year. The impact on employment over the last decade has been no less profound. Gaming directly employs only about 16% of Macau’s active labor pool. But when we factor in hotel and restaurant and related service workers—businesses directly dependent on tourism and whose employment rolls have grown 125% since the IVS was instituted—and add in tourist-facing sectors the government classifies as “recreational” and “cultural,” the industry is supporting in one way or another probably close to 40% of the working population. In terms of public revenue, gaming has grown to the point where it now generates 76% of the government’s annual tax haul. Its direct contribution to the treasury is about 20 times that of its counterparts in Las Vegas and all the rest of Nevada. Of course, Nevada’s gaming tax rate is only 6.75%, the lowest in the US, one of the lowest in the world. Macau’s effective 39% is one of the highest. Arguably, better-balanced, too. For while Nevada’s recession-battered public finances struggle to support the state’s obligations and maintain basic services, Macau and its casino concessionaires tend to think more in terms of the benefits to be derived from public-private partnership. The result, five years on from the worst global downturn in a century, is a government with zero outstanding debt, with 10 straight years of budget surpluses, with fiscal reserves expected this year to reach 59% of total economic output, the equivalent of US$29 billion. It’s been a remarkable decade by whatever measurable criteria we choose—population growth, jobs and median wage growth, visitor spending, retail sales, property values, capital investment residential construction, home ownership and domestic savings rates, enrollment in higher education, the volume of student grants and loans, even life expectancy. The decision to open the casino market to competition, transformative as it has been, could not have achieved all this, or surely not in just 10 years, had China’s millions not been traveling to Macau on a regular basis as individuals, the economic miracle of their country in tow. The IVS viewed in this light really is Beijing at its big-picture best. Taiwan is the end game here. It’s the thing that secures the central government’s commitment to the prosperity of Macau and Hong Kong. The IVS was conceived in the context of the tripartite Closer Economic Partnership Agreement whose purpose has been to bind the economies of the two repatriated territories to the motherland. Gaming had very little to do with it. The goal is integration, and the program has been steadily expanded so that it now covers 49 cities in 17 mainland provinces, encompassing an eligible population 4/5ths as large as that of the United States. In 2002, mainland Chinese accounted for 37% of visitors to Macau. They’re now 60% and counting. And more than 40% come on the IVS. The SARS epidemic in 2002-2003 may have hastened its implementation, but the backdrop is social and cultural and geopolitical. The special economic status enjoyed by the border cities of Shenzhen and Zhuhai, the massive investment in the development of Hengqin, the Hong Kong-Zhuhai-Macau bridge, the new rail line between Beijing and Guangzhou, the longest high-speed link in the world, its extension through Zhuhai to the Border Gate, the expansion of the immigration facilities there—they’re all part of this. China is being knit together. Rewoven is more like it. Macau is being absorbed, if you want to call it that. It is inevitable. Fortunately, it’s been tremendously beneficial as well.