Diversification, the hard way

Paulo Coutinho

There’s no way around it. Beijing has sent a clear message this week that Macau has to diversify its economy no matter what.
Now, there is the soft way – we do it by ourselves – or the hard way – Beijing does it on our behalf.
Diversification has long been a big word in the local political lexicon. So, first thing’s first, what are we talking about when we are talking about diversification?
Is it diversification of industry sector (it’s the most common meaning)? Is it inbound market diversification or offer diversification in the major industry? Are we talking about diversification within and around gaming or are we talking about alternative clusters? Health tourism destination? Higher education hub?
Though commendable, these alternative clusters are simply not feasible without proper software and hardware, which Macau doesn’t have. In order to recruit top-notch medical doctors and scholars, such a place must excel in least in two basic things: international schools and a reliable health system. We lack both. It’s not enough to show off our galactic GDP per capita and offer big salaries to attract those highly qualified human resources.
Actually, I’m personally aware of cases of good professionals in both areas that simply, at some point, gave up on Macau and moved away. They gave up because they had to follow their kids as they’ve grown, now requiring good high schools; they gave up because they cannot practice here at what they are good at; they gave up because they got fed up with bureaucracy, pollution, traffic jams, high-density living, and lame services in general.
So, what we have witnessed in the past 10 years is diversification within and around the major industry. Those that were smart enough to see that window of opportunity eventually made a fortune.
The problem with this concept is that when the cluster-industry gets hit like we are witnessing now with the 6-month decline in gambling revenues, all the ‘parasite-businesses’ around are hurt much more. And even if the world-class gaming operators can support an eventual shriveling in profits during difficult times (which may not even happen), some of the ‘parasites’ may not sustain the blow.
A whole new concept of diversification was given this week by Li Gang, the man who represents Beijing’s interests here. In an interview with Xinhua News Agency and other Chinese state media, Li said that Macau entrepreneurs should be able to replicate “new Macaus” on the mainland.
This diversification by dispersal of our industries and small business operators across the border comes as manna from heaven in potential times of need should gaming revenue decline as is indicated it will.
For us on the two-systems side of the fence, such diversification might be the hardest to swallow yet.
UMac on Hengqin was the thin edge of the wedge, and manufactured GGR decline and what it forebodes for negotiations on the next tender of gaming concessions might just be what rams it home…all the way to the motherland.