Kapok | Bottoming at last?

Eric Sautedé

“Bottoming” is the new buzzword that has been on everyone’s lips for a few months now. It intends to convey the positive outlook that our whole economy could soon be recovering after 20 straight months of dwindling gaming revenues. Although it is a very large step away from the more robust “upturn” or “recovery”, one gets the feeling that there is finally some light at the end of the tunnel—even if the light is still distant and the “bottoming” stage surely prolonged.
Beyond the necessary confidence bolstered by casino operators to reassure investors, the “bottoming” credo rests on two main arguments. First, that the shift towards the mass market is finally happening, and that revenues from what constitutes now half of the pie is slowly but surely making gains—only VIP rooms are still steeply declining; and second that the downward trend is decelerating—gaming revenues shrank by 21.4 percent in January 2016 whereas they plummeted by a record 48.6 percent in February 2015. With that perspective in mind, and despite an overall staggering contraction in gaming revenues of 34.3 percent for 2015, one could say that we are now falling at half the pace of a year ago.
All this is very well: casino operators are still turning hefty profits and with an estimated MOP350 billion in GDP for 2015, Macao should still be No. 2 on the world listing of GDP per capita—don’t ask me about distribution though as the last time we “extrapolated” a Gini Index in the SAR was in 2011.
Yet, the “bottoming out”, the real change on the road to recovery, is heavily dependent on the success of the oft-repeated “diversification” and transformation of Macao into “a world centre of tourism and leisure”. The diversification here can be either “path dependent” and/or resolutely novel. The first direction considers the development of tourism as the extension and necessary complement of the gambling industry. Huge properties have already been built, more are scheduled to open (with further delays) in 2016/2017 in Cotai, and then many more will mushroom in Hengqin—Maldives- or Bhutan-­like, but all mega in size. Upper mass market is the target, and more in line with the VIP heritage that is presently restructuring. And then there is the entirely new route: think Marina ripping the benefit of an extension of our maritime borders; think business and finance in Shizimen; think creative industries in Xiangzhou Culture Street; think medical tourism investments from well-­established local companies; think industrial park; think transportation hub connected with China’s fastest network; etc. In the meantime, local SMEs are being pampered. Energetic young people are opening cafés all around town with generous government funding, and creative industries of all guises are being given the nod.
Indeed, how can one doubt that the next stage of development for Macao has to be found in the periphery if we want to spare the suffocation of Macau’s heart and soul while making the whole ‘MSAR experience’ something that visitors remember and possibly come back to? But the question of the short- and medium-term remains. When will this periphery be up and running? What about the sustainability of all these small service outlets enriching our neighborhoods? Who will actually benefit in the end? Unimaginative and greedy vested interests are also a Macao specialty.
As of now, we had only marginally fewer tourists in 2015 (30.7 million) than in 2014, but tourists still stay on average 1.1 nights per visit (against 3.3 in Hong Kong) and visitor expenditures have gone drastically down with the per capita average registering a staggering 15 percent contraction—so much for the “upper mass market” drive! And then general retail is down too, by 10.4 percent year-on-year—the first yearly decline since 1999! Providing Macao citizens with incentives to consume cannot hurt—“Macao loves locals”—but long-term recovery goals will require bigger sweeteners and a thorough upgrade of the operating system if innovation and talent are to prevail.