The new (likely) top leader of the world’s highest-grossing gaming jurisdiction brings many questions with him. But, despite the trepidation, a top economist notes that Macau’s “general economic orientations are unlikely to change”.
This bodes well for an industry that has faced a massive downturn during the three-year closure period of COVID (slightly more stringent than other jurisdictions), followed by a resurgence in visitation – albeit not with the same appetite for gaming (in particular VIP/premium) or for spending on luxury goods.
Current Macau Chief Executive Ho Iat Seng is on his way out, following a busy five-year term that will end on December 20th. The elections are coming up in October, and his term is set to end then.
During his time in office, he oversaw not only a global pandemic, which caused unprecedented (temporary) shuttering of the SAR’s casinos, but also the concession re-tendering process – a massive multi-billion-dollar affair involving the pledges of up to 97 percent of each gaming operators’ investments during the 10-year period to non-gaming.
Amongst this process, the term ‘diversification’ was repeated often.
But looking at brass tacks: from January to July, Macau’s government coffers got nearly MOP51.62 billion ($6.42 billion) in revenue from gaming revenues alone – 84.4 percent of the total revenue. Total revenue during the period amounted to 60 percent of what the government is expecting for the entire year.
So, was there any chance that the Macau government could reach its revenue goals without such a resurgence in the gaming industry? And is this ‘diversification’ push actually a reality?
Veteran economist José I. Duarte notes that it is “possible” that Macau can achieve some type of economic diversification, “but that does not mean it will be easy, fast, or painless”.
The expert concisely notes that the term ‘diversification’ needs to be well clarified and with a timer set, noting “those matters are not well-defined enough to underpin further (plausible) speculations about the extent and timeline of the process.”
The unknown factor
Sam Hou Fai, the only (likely) candidate for Macau’s next Chief Executive, is someone who is not often mentioned in the gaming scene (unless you’ve been in court recently).
His move to seek the top role after Ho Iat Seng’s unexpected decision to not seek a second term (a historical first) is already causing waves, as his connections to the commercial sector and views on gaming have not been widely publicized.
But Macau has already been undergoing changes to its legal framework to try and reign in what it deems to be bad behavior.
First, went the junkets.
Then, the illegal money exchangers – with strong support from China.
But not all of this has to do with timing.
“There is a general aim of monitoring and limiting ‘uncontrolled’ money flows, regardless of recent or circumstantial oscillations,” notes the economist.
Sure, China has been trying to control capital outflow for some time, and Macau was an obvious target given its proximity to the country’s most profitable province (Guangdong) and the fact that it’s the only place that allows casino gambling in the country (because it’s an SAR).
So, while the desired recovery in Macau’s economy has been lauded by many, it’s not something that’s guaranteed.
“The recovery growth rate seems to be slowing down (not unexpectedly), and the economy may stabilize at a lower level than before. But we need more data to confirm (or not) such trends,” indicates Duarte.
Then, what exactly does this mean for the new Chief Executive? What shoes does he have to fill? And given his limited access to the casino sector (publicly at least), what does this entail?
The renowned economist opines that the former top judge’s limited exposure to the industry “is not necessarily a handicap, and Sam Hou Fai has been in Macau for long and in privileged observation (and action) positions.”
And it doesn’t only rest in his hands.
“The administration has (and can attract) people who may properly assist the CE in matters relating to the economy (or others), which may be outside or far from his immediate experience or knowledge. The post requires leadership skills and wisdom, not universal subject mastery.”
José I. Duarte
Going forward
This may not clarify the image of what will happen when the (likely) new Chief Executive assumes his role. But operators and the general public in Macau are in the same boat when it comes to this election.
Nothing is clear as to what could change.
Macau’s laws are alterable.
The 10-year contracts can, in theory, be modified if the government deems it necessary (although current chatter deems it unlikely).
The current situation doesn’t actually lead to a strong reason to limit gaming operators’ presence in the SAR, especially their financial contributions, as visitors are spending less and less.
“We seem to be reverting to patterns similar to those observed before, which raised many questions and reservations. We have mostly (very) short-term visitors with relatively low spending profiles. It is a matter that deserves further scrutiny and invites careful analysis. Consolidating such features could bear unwanted stress on the local community and infrastructure,” states Duarte.
No matter what, capital commitments have already been made by the gaming operators. And they will be held to them.
Whether the political winds blow in their favor remains to be seen.
