From Where We Sit
Zimbabwe For Millionaires:
Macau and the Unintended Consequences of Rapid Development
When the government of Macau opened up the casino sector to international players five years ago, the term, “Las Vegas of the East” was coined,
but the logistics of transforming a sleepy enclave with little knowledge of free market development into a gaming powerhouse is proving difficult,
despite the rosy press releases from casino moguls and government bigwigs.
Macau existed for over 400 years as a sleepy colony of Portugal, consisting of a small spur of land on the Chinese coast and two small outlying islands
in the Pearl River Estuary. A benevolent Socialism took root here, overseen by the government in Lisbon, and virtual monopolies proliferated in areas
ranging from banking to the press to utilities. Life for the overlords was slow, but comfortable, punctuated by long, lazy lunches on Portuguese verandas,
while the local Chinese labored long and hard in blue collar trades or as small shopkeepers. The only real excitement here was the occasional gang violence
that erupted over turf battles in the gambling underworld (which, by the way, was also a monopoly). Life was bucolic in Macau, but nothing ever really moved
forward. There were two hospitals, both considered rather backward, a poorly developed educational system (Macau was one of the last governments to
actually institute an educational requirement for its citizens), a quaint public transportation system that limped along, and an economy that relied on small
manufacturing, mom and pop retail, and a casino monopoly. Macau didn’t have an airport until the mid 1990s. Most people couldn’t find it on the map and
the sole impression it left was that of a Graham Greenesque land of shadowy underworld figures, Asia’s own Casablanca.
And now this. Steve Wynn. Sheldon Adelson. James Packer. Up to $20 billion to be invested in mega-resorts in an area where, until recently, 20% of the
people were illiterate and the average wage was in the $200-$300 a month range. The effect on Macau has been immediate and stunning, as one would
expect, but it is the law of unintended consequences, or unexpected challenges that the society is currently grappling with.
Before the casino liberalization, Macau, swollen over the years by illegal immigration from China, was one of the most densely populated places on earth.
Today, fueled by easy tourist access from China and the almost unimaginable human resources requirements in the construction and service sectors,
the infrastructure, already strained, is reaching critical mass. Both documented and undocumented workers clog the landscape. Apartment
buildings have been converted to dormitories in order to house this influx. Tourist arrivals have increased by a factor of six or seven creating gridlock
in the downtown area. Major construction sites, visible from almost any vantage point in Macau, can snarl traffic for hours, and create a tableaux of
dusty air and jackhammer noise that sometimes turn Macau into an almost Biblical depiction of hell.
Sheldon Adelson’s Sands Macao, which opened in May, 2004, was so successful that it paid for itself in less than a year
(and the construction cost was $365 million). This success spurred even greater speculation leading to unhealthy inflationary pressures—
the housing sector has been especially reflective of this, with purchase and rental prices spiking up (and sometimes down), creating havoc for much of the lower-middle
class citizenry.
The “buzz” in Macau has pulled in a lot of speculative investment, mostly from China—money is everywhere in Macau now. Also, the success of the Sands has
enriched the government which taxes casino revenue at close to 40%, a much greater tax rate than in Las Vegas. This windfall has created a
massive chunk of wealth for the government, but like a wage earner who wins the lottery, sudden wealth and sound spending decisions don’t always go
hand in hand. The last few years have been marked by some troubling failures. In the private sector, Fisherman’s Wharf, the themed entertainment-shopping
complex has been a bust. The project was several years late in completion and then was plagued by a serious accident at its opening. Tourist traffic has
not materialized there, and food and retail outlets generate paltry business, while many original tenants have pulled out. One of the anchors, Delifrance, has yet to open,
and rumors of unpaid bills have surfaced. In addition, poor engineering decisions have also hampered its success. The two major investors are now trying to
fob it off as an IPO.
The government’s hosting of the East Asian Games also was plagued by controversy. A $500,000,000 budget yielded empty stadiums, poor television
coverage and accusations of graft and incompetence.
Poor investment choices can be excused when one is new to the world of megawealth, but it is the inadequate infrastructure which is the current,
daily reminder that Macau is in the midst of overdevelopment.
Trash pickup is a constant problem for the government, with sanitation trucks constantly playing “catch up” in many of Macau’s residential districts.
This has resulted in unsanitary conditions in even the upmarket areas, where overflowing dumpsters strain the senses of sight and smell.
The Civic and Municipal Affairs Bureau and the Health Bureau have launched a cleanup drive in the worst areas, if only to stave off a dengue fever
outbreak which would damage the tourist industry.
Potable tap water has become another health issue here—periodically, dry spells in China (where Macau’s water is sourced) cause salinity levels to rise
well beyond WHO safety guidelines—this is a major inconvenience for the tea-drinking locals, as well as a danger for those with heart problems and
high blood pressure. The problem is compounded by the budget strain on the poor who are forced to buy bottled water. A de-salinization plant is needed
here, but the political muscle of competing forces makes it hard to put such an expensive enterprise on the agenda. Or as Jose Duarte, a Macau economist,
stated in the September issue of Macau Business:
“…while committees have been created, it is not clear
what exactly their mandate is or how they are going
to coordinate their activities. Nothing has been
determined about the time frame involved, technical
alternatives being considered, or the authority the
committees have to decided upon or recommend
a particular solution….”
Air quality is also increasingly becoming a health issue in Macau. While not “front and center,” as it is in Hong Kong, the huge construction sites in Macau
release fine particles of dust into the air, which can cause or exacerbate lung, skin, and eye problems. This, in turn, taxes an already
under-funded health care system. The development is also creating traffic problems—a perfect storm of newly “middle class” local drivers, wealthy
Mainland Chinese car owners, increased taxi and bus service, and an almost unimaginable number of super-sized construction vehicles
clog many of the busiest streets in Macau, creating traffic jams that often double or triple traveling times from point to point. Stealing a page from
Bangkok’s experience, the legislature has discussed a desperately needed light rail system, but so far, it hasn’t progressed beyond the talking stage.
Of all the problems faced by this total transformation of Macau, none has become more heated than the topic of human resources. Macau, never a big source
of skilled labor, has experienced a chain reaction in the labor market which has affected virtually all corners of the society. The lack of skilled and semi-skilled
labor touched off a massive hiring frenzy of import labor which has left the area awash with Nepalese, Mainland Chinese, Thais, and Filipinos, as well as a large
influx of Western engineers and project managers. This has not only put a strain on the infrastructure, but has also upset the local labor unions; in addition, young high
school graduates, tempted by inflationary salaries at the casinos, often opt for casino work, forcing tertiary institutions to recruit outside of Macau.
Perhaps the most serious side effect is experienced by the small local business community, which can’t compete with casino salaries and often have
to go out of business for lack of workers. This is especially damaging to the character of Macau, whose Chinese/Portuguese identity was inextricably
linked to small shops and restaurants. The government has countered by funding the development of Macau’s world heritage sites, but the ultimate
success of this, as culture competes with gaming, is questionable.
To be sure, Macau’s current problems are not unique—Las Vegas has been grappling with infrastructure/growth issues since its inception as a gaming
town in the 1940s. Rather it’s the increasingly unclear future that has investors and citizens concerned. The opening of the gaming sector
was initially pitched as a win-win situation, fueling exuberant, some would say wild, speculation. But, a sudden downturn in the property market and the
looming bankruptcy of Fisherman’s Wharf have illustrated that, as the brokerage houses disclaim, assets can go down as well as up. Instead
of a win-win, we are now looking at a more conventional business environment which produces both winners and losers. As Lui Che-woo, Chairman
Galaxy Entertainment Group put it: “Each company has to find its own way to survive in the market.”
The numbers will provide little comfort to punters. Hotel rooms are set to increase by 50%, gaming tables and slot machines by 130% and 200% respectively.
While hotel occupancy rates in Las Vegas are usually over 90%, in Macau they have been hovering at just over 70%. Las Vegas has also been more successful
at diversifying its economy. Tourists stay an average of 3 nights per visit and spend about 41% on gaming. Their non-gaming revenue per arrival is about $240.
Tourists in Macau, on the other hand, stay only 1.2 nights per visit and spend about 73% on gaming; non-gaming revenue per arrival is only $22.
Rob Hart, executive director of research, Morgan Stanley, does not see an overnight market for Macau. He notes that only one out of two tourists stay in Macau overnight, and of that group, only half pay for a hotel room, the others opting to doze in the sauna or stay at
the gaming tables. (data from Macau Business, Sept, 2006)
Helen Keller once said, “Life is a daring adventure or nothing.” Life in Macau is an adventure, but one that currently has many investors and locals holding on with white knuckles, hoping that as it hurdles forward it doesn’t buckle and collapse under the weight of its own ambition.
If anyone can manage the rebirth of Macau, it is the Chinese who are rightfully famous for their resilience, perseverance, and ability to survive under
adverse conditions. One hopes, though, that human frailty, specifically greed and selfishness in the guise of progress doesn’t, in the end, undermine
the “new Macau.”
Macau, October 2006
© Schackne Online
Update:(Also see Mohammad Cohen's interview with Rob Hart in Macau Business, December 2006)