Macau’s Casino Industry: Driving the Economy!

Posted by: on Aug 17, 2012 | No Comments

When it surpassed Las Vegas as the world’s biggest gambling industry in 2006, that too by a huge margin (more than 5 times the revenue of Las Vegas), it left everyone amazed. And since then Macau’s gaming industry hasn’t looked back.

With a land area of 29 sq kms, Macau’s natural environment lacks major resources like forests or woodlands, arable land and pastures. This makes Macau’s its economy largely dependent on the service industry, of which a large share of the inflows is generated by the tourism and gaming industries.

It was in 2001 when Macau’s government ended the monopoly concession system, that the gaming sector saw a massive fillip. With the government granting concessions to three casino operators initially, an increasing number of operators suddenly emerged on the scene.

Macau’s Economy in the Last Decade

Macau’s economy grew in leaps and bounds during 2001 – 2010, courtesy the flourishing tourism industry. According to data released by Platinum research’s Macau gaming sector update, the GDP of the state grew at a CAGR of 16.4% from 2001 to 2010. In fact, Macau’s GDP per capita growth in 2010 was so strong, at US$ 49,745, that it surpassed that of China, Taiwan and Hong Kong combined, at US$4,430, US$18,603 and US$31,758, respectively.

Tourist arrivals to Macau escalated at an impressive CAGR of 10.5%, though most of the visits were made from mainland China, a region that has contributed the most to the revenues of the gaming sector of Macau. The geographical proximity of Macau to China has made the former an ideal and a convenient tourist destination for the people of mainland China.

In fact, much of the growth of Macau’s economy, of which the major contribution comes from the tourism industry, has been credited to the large number of tourist inflows from mainland China.

Macau Gaming Industry

Revenues from the gaming sector have been on a constant rise over the past few years. The annual gaming revenues from 2001 to 2010 grew by a CAGR of 31%, contrary to the marginal increase the Las Vegas Strip witnessed duringthe same period.

The graph precisely illustrates how Macau’s gross gaming revenues overtook that of the Las Vegas Strip in 2006.

Contribution of the Gaming Sector to the Economy

The contribution of the gaming sector to the economy is immense. For instance, in the first 11 months of 2011, the Macau government earned gaming taxes of MOP85.5 billion, which equals 35% of the total gross revenues scored by six casino operators. And there’s more! This tax was actually 83% of the government’s total revenue for the period. Before the sector got liberalized in 2001, taxes from this sector amounted to merely 50%.

Employment

It is rather obvious that when the gaming sector’s contribution to the economy is so large, the employment generated by this industry would be significant too. The working population in casinos, restaurants and the hotels has been on a rise, which has directly bettered the employment rate in Macau.

Although Macau’s population increased at a CAGR of 2.5% from 2001 to 2010, the unemployment rate declined steady from 6.3% in 2001 to 2.9% in 2010. The only period in which there was no decline in the unemployment rate was during the global financial crisis.

Job increases were witnessed in the construction, cultural, hotel and restaurant and gaming industries. In fact, the working population in the cultural, recreational and gaming industries surged by a whopping 187% from 2001 to 2010, further highlighting the significance of casinos in the overall economy.

Foreign Capital

The gaming sector was also responsible for bringing substantial foreign capital into Macau for expanding the sector and building new casinos. When the monopoly made its way out of Macau, foreign casino operators like Sands China, Wynn Macau, MGM China and Melco Crown were given licenses to operate casinos in the state, on the condition that they abide by the gaming taxes and levies and would contribute to the investment target of the government.

The total investment by these companies was about MOP16.4 billion. Foreign companies are still vying to increase their investment in new casinos, provided the government approves the proposal.

The gaming sector has added to the revenues of other service industries as well. For instance, the hotels owned by various casino operators earn huge revenues from accommodation, retailing and food and beverages. And with the number of tourists visiting Macau casinos rising steeply, hotel occupancies have been witnessing an escalation.

Gaming policy

The Gaming Inspection and Coordination Bureau, also known as DICJ, is the main government unit that oversees the operation of different gaming activities.

To start the operation of a lottery sale, lucky draw or similar activities, a permit has to be issued by the Gaming Inspection and Coordination Bureau, which requires the submission of a notification to the concerned government department 10 days before the application.

Casinos

Macau boasts of 33 casinos, of which The Venetian Macau is the biggest. While the Macau Peninsula has 23 casinos, 10 are located on the Taipa Island and all these casinos operate under a government franchise and follow a common set of rules.

Gambling has been a legal practice in Macau since 1851, while a licensing system was there for gambling operators until 1863. In 1934, the ownership and operation of the casinos was centralized resulting in big casinos dominating through private negotiations.

The gaming industry was regulated by the STDM monopoly for as long as 39 years, which ended in 2001. Under this, casino operators were granted the casino license. These included American companies like Las Vegas Sands and Wynn Resorts.

Currently, Galaxy Rio Casino, Casino Lisboa and Sands Casino are the most popular casinos of Macau, attracting the most number of tourists.

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