recent developments and prospects of macao’s tourism industry

7/27/2019 Recent Developments and Prospects of Macao’s Tourism Industry

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©2004 Monetary Authority of Macao

Recent Developments and Prospects of Macao’s Tourism Industry

Jay W. Pao

Abstract

As the leading or “dragon head” industry of the economy, tourism has been the focus

of attraction for local policymakers and academics. This paper discusses the

development background of the industry, and its recent progress. After reviewing the

existing literature on the link between tourism and economic development, the paper

underlines certain strategies for the tourism development in Macao through the

SWOT analysis.



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1. Introduction

The sustainability of tourism development has become a leading issue of Macao in

recent years. While the industry has grown dramatically over the last decade, such an

issue has been expanding in importance in line with the growing contribution the

industry makes to the territory’s economy as a whole.

Macao is a city with a blending of eastern and western cultures. Its unique landscape

and a mixture of Euro-Asian architecture attract tourists from all over the world. As

one of the principal industries in Macao, tourism employs approximately a third of the

territory’s workforce and generates about 40% of the territory’s gross domestic product (GDP).

Known as the “Monte Carlo of the Orient”, Macao is renowned for its gaming

activity. However, the tourism industry also comprises hotel and catering business,

recreational activities and MICE industry.1 With a population of about 450,000 and a

land area of 27.3 square kilometres, Macao received 11.9 million visitors in 2003.

Visitor arrivals continue to grow in 2004. On the other hand, the rapid growth of

visitor arrivals and the increasing significance of the tourism industry have given rise

to arguments regarding social and economic consequences.

The rest of the paper is organised as follows. The next section reviews the literature

on the relationship between tourism and economic development. Section 3 presents

an overview of the history of Macao’s tourism development and outlines the role of

tourism in the economy. Section 4 applies the SWOT analysis to the Macao tourism

industry. Concluding remarks are drawn in the final section.

1According to the Macao Government Tourist Office (MGTO), the MICE or “Meeting, Incentive,

Conventions and Exhibitions” is a synthesised tourism service that includes the arrangement of

symposiums, seminars, exhibitions, expositions, trade fairs, incentive events and cultural & sportevents.



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can make to development and the costs that it entails. In the conclusion, he argues

that many of the problems associated with the tourist use of environmental resources

in developing countries stem from market failure.

Tourism development has been advanced as a policy alternative, particularly for

developing countries, to aid economic growth. There are several arguments for this.

First, the demand for international travel continues to grow in developed countries.

Second, developing nations need foreign exchange earnings to aid their own

economic development and to satisfy the rising expectations of their growing

populations.

After studying the impacts of tourism development in a number of developing

countries, Diamond (1977) claims that only a limited number of developing countries

rely principally on tourism for their economic salvation. Iaonnides (1995) examines

the differences between the tourism structures in a number of developing countries.

Their history, in connection with the tourism industry and regulatory policies, are

examined and compared. It is concluded that developing countries have tended to

rely upon agriculture and other primary industries for economic growth. Moreover,

Picciotto and Rist (1995) support the above arguments and note that between 50% and

70% of the population of medium and low-income developing countries is directly

dependent on agriculture, supporting the necessity for full agricultural growth as a key

to industrialisation and further economic and employment growth.

Based on a panel data approach, Martin-Eugenio et al. (2004) study the relationship

between tourism and economic growth in Latin American countries between 1985 and1998. It is concluded that the tourism sector is adequate for the economic growth of

medium or low-income countries, though not necessarily for developed countries.

Furthermore, the results provide evidence that low-income countries seem to need

adequate levels of infrastructures, education and development to attract tourists.

Medium-income countries need high levels of social development like health services

and high per capita GDP levels.



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Similarly, Brau et al . (2003) examine and compare the relative growth performance of

14 “tourism countries” within a sample of 143 countries during the period 1980-1995.

By using standard OLS cross-country growth regression, the study concludes that the

tourism countries grow significantly faster than all the other countries, including

OECD and less-developed countries. The reason why they are growing faster is

neither that they are poorer than the average; nor that they have particularly high

saving or investment propensities; nor that they are very open to trade.

In the light of the above studies it is important to examine how the tourism-related

activity acts to support growth in the national and regional economies. However, the

lack of national statistics or other gauges makes the estimation of tourism-reliant

activities, such as employment level and tax collections, difficult. Also the level of

earnings will determine the extent to which tourism indirectly supports employment

in other sectors, yet such industry descriptive information is typically unavailable.

As Archer (1977) attests, Input-Output Analysis2 is frequently used to measure the

direct and indirect economic effects of additional tourist expenditure on an area or the

overall economic impact of total tourist expenditure. The method, for example, has

been utilised in the cases of small economy (Archer and Fletcher 1996), in accessing

the local impacts of recreation at environmental sites, and examining the discrete

impacts of different types of tourist activity (Andrew 1997). However, the use of an

input-output framework is not free of problems. Jones and Munday (2001) point out

that limitations in the detail of available expenditure data may require further primary

data gathering regarding tourist expenditure.

3. Tourism Development in Macao

Macao’s tourism industry has a relatively long history. Its development has been

closely linked to gaming. As a sub-sector of tourism, gaming has brought along the

development of other service sectors, and supports employment.

2

The Analysis shows how industries are linked together through supplying inputs for outputs of theeconomy.



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Since the Portuguese Macao Government announced the legality of gaming in 1847,

small and unregistered casinos had begun to appear. In 1930, a local businessman set

up Hou Heng Co., which won the exclusive right for the first time to carry out gaming

business. In 1937, Tai Heng Co. won the concession and operated three casinos.

Meanwhile, the tourist resources and establishments had begun to develop. However,

there were only three well-established hotels, namely International Hotel, Central

Hotel and East Asia Hotel in the 1950s. Until the Government granted the Sociedade

de Turismo e Diversoes de Macau (STDM) the franchise to operate casinos in 1962,

tourism then entered into a take-off era.

With the increasing number of Hong Kong visitors and the promotional efforts of the

Government, several hotels of international standards such as Lisboa, Santiago,

President, Hyatt Regency, Royal and Mandarin Oriental were established between the

1970s and the 1980s. Other than the hotel facilities, cultural attractions and events

have been developed for visitors to Macao. Moreover, different kinds of restaurants

have appeared and visitors have been keen on trying different cuisines in Macao.

For the last ten years, Macao’s top three tourism markets have been Hong Kong,

Mainland China and Taiwan, which together account for about 90% of visitor arrivals

(Chart 1). Since 1999, the tourism industry has embarked on an expansion path

driven largely by the surge in Mainland Chinese visitors. Visitor arrivals exceeded

10 million in 2001, and soared to 11.5 million in 2002. In 2003, in spite of the SARS

outbreak, the arrivals still rose by 3.1% (Table 1).

The visitor profile has undergone significant change recently. Following the

relaxation of “Hong Kong and Macao Tour” regulations by the Central Government

in 2002, the “Individual Traveller Scheme” was launched for 14 cities in Guangdong

province, Beijing and Shanghai during the second half of 2003. As depicted in Chart

1, Mainland China has overtaken Hong Kong as Macao’s largest source of visitors. A

total of 5.7 million visitors from the Mainland were recorded in 2003, compared to

less than one million in 1998. During the second quarter of 2004, Mainland Chinese



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visitors rose by an impressive 143.0% after rising by 49.1% and 63.6% respectively in

the previous two quarters. The continued relaxation of rules governing the entry of

Chinese visitors to Macao under the “Individual Traveller Scheme” is expected to

promote further rapid increase in Mainland Chinese visitors in the coming years.

Table 1: Visitor Arrivals and Tourist Receipts, 1994-2003

Visitor Arrivals Arrivals Growth Tourist Receipts*Exports of Services* Year

(103) (%) (MOP 10

3) (MOP 10

3)

1994 7,833.8 0.1 21,266,970 21,676,675

1995 7,752.5 -1.0 24,717,968 25,128,7111996 8,151.1 5.1 24,681,515 25,908,290

1997 7,000.4 -14.1 23,578,192 25,226,452

1998 6,948.5 -0.7 21,102,872 22,696,303

1999 7,443.9 7.1 19,849,006 21,657,019

2000 9,162.2 23.1 24,167,212 26,328,221

2001 10,279.0 12.2 27,870,221 30,273,269

2002 11,530.8 12.2 32,489,237 35,615,459

2003 11,887.9 3.1 38,795,320 41,769,744

*Figures refer to current prices.

Source: Tourism Indicators and Gross Domestic Product YearBook, Statistics and Census Service(DSEC), various Issues.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Chart 1: Visitors Arrivals by Place of Residence,

1994-2003

Mainland China Hong Kong Taiwan Others

Source: DSEC.



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Tourism plays a significant role in Macao’s economy. Tourist receipts, for example,

amounted to MOP38.8 billion in 2003 and accounted for 92.9% of total service

exports in Macao’s national accounts (Table 1). Table 2 shows the contribution of

tourist receipts to the GDP from the year 1994 to 2003. During the period, tourist

receipts contributed an average of 3.5 percentage points to the territory’s GDP growth

while Macao’s economy grew at an average of 3.2% after adjusted for negative

contributions of other GDP components.

With two excitements of gaming and motor sport, Macao has long been known as the

“Monte Carlo of the Orient”. After Macao’s handover to its Motherland in 1999, the

SAR Government had decided to bring an end to the monopoly of the gaming

industry and liberalised the gaming market with an aim to transform Macao into a

centre of gaming, cultural events, conference and exhibition. It undertook a bidding process for three gaming concessions, and 21 companies around the world

participated in the bidding. In February 2002, three new casino licenses were

awarded. One went to the Sociadade de Jogos de Macau, SJM - the subsidiary of the

incumbent STDM, and the remaining two were awarded to companies with strong Las

Vegas connections, Wynn Resorts (Macau) and Galaxy Holdings.

Year

Real GDP

(MOP 103)

1994 53,754,568 4.3 1.7

1995 55,526,251 3.3 3.2

1996 55,293,517 -0.4 -2.1

1997 55,139,122 -0.3 -3.0

1998 52,618,754 -4.6 -3.3

1999 51,021,436 -3.0 -0.8

2000 53,380,560 4.6 9.5

2001 54,560,222 2.2 8.1

2002 60,031,687 10.0 10.2

2003 69,409,642 15.6 11.5

Notes: 1. Figures refer to constant prices (1996).

2. The contribution of tourist receitps to real GDP growth is equal to the change in the tourist receipts divided by

GDP for the previous year.

Table 2: Contribution of Tourist Receipts to Real GDP Growth, 1994-2003

19.4

Tourist Receipts

(MOP 103)

Receipts

Growth (%)

42,426,937

3.7

7.2

-4.6

-6.8

-7.9

-1.9

16.8

18.6

20,785,245

25,641,319

29,960,478

35,526,007

24,681,515

23,011,106

21,190,249

23.4

GDP Growth

(%)

% Contributions to

Real GDP Growth

24,129,542

25,867,266



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Under the new contracts, effective April 2002 (for SJM) and June 2002 (for the

others), the gaming operators agreed to pay a special gaming tax equivalent to 35.0%

of their gross revenue. In addition, the operators also agreed to pay 1.6% of gross

revenue to the Macao Foundation for social, cultural, and economic development,

1.4% (for SJM) and 2.4% (for the others) of gross revenue for the development of

urban construction, tourism and the Social Security Fund. Moreover, the three new

gaming concessionaires are obligated to fulfil their projected investment of MOP17.5

billion (Table 3). If proven a success, significantly more investments are expected to

flow into the territory in the coming years. Some of the investment has already been

realised as new casinos have been constructed and the existing ones have been

renovated.



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Table 3: Investment Projects of Gaming Concessionaires

SJM

Term of Concession: 18 years (1 April 2002 to 31 March 2020)Date of Operation: 1 April 2002

MinimumInvestment: MOP4.7 billion

Investment Plans: Renovations of its eleven casinos, building an extension to

"Hotel Lisboa & Casino", "Ponte 16" and "Fishermen Wharf"

Employment: Approximately 15,000 persons.

Taxes andContributions for

Each Year: 1. Special gaming tax (35% of the Gross Revenue)

2. Contribution to the "Macao Foundation" (1.6% of the Gross Revenue)

3. Contribution to the development of urban construction, tourism and

social security fund (1.4% of the Gross Revenue)

4. The responsibility for dredging watercourse

Wynn Resort

Term of Concession: 20 years (27 June 2002 to 26 June 2022)

Date of Operation: To be confirmedMinimumInvestment: MOP4.0 billion (In 7 years)

Investment Plans: The first casino, which includes resort, hotel and entertainment theaters,

will be operated before the end of 2006.

Projected to Employ: To be confirmed but at least 2,000 to 3,000 persons.Taxes andContributions for





Galaxy Holdings

Term of Concession: 20 years (27 June 2002 to 26 June 2022)

Date of Operation: 18 May 2004 (The Sands Macao) and 4 July 2004 (Galaxy Casino-hotel)MinimumInvestment: MOP8.8 billion (In 7 years)

Investment Plans: Development of the Venetian Macao, the Sands Macao, and Galaxy

Casino-hotel.

Projected to Employ: 8,000 to 10,000 persons.Taxes andContributions for





Source: Macao Gaming Yearbook 2002.



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4. SWOT Analysis of Macao’s Tourism Industry

After its establishment, the Macao SAR Government has headed towards the direction

of promoting cultural, leisure as well as business travel, with the objective to develop

Macao into a broad-based tourism hub. With the support from the Central

Government and the determined policy of the SAR Government, the tourism industry

of Macao has undergone significant changes, and at the same time, achieved

remarkable performance. The following list the strengths, weaknesses, opportunities

and threats (SWOT) of Macao tourism, which could serve as the basis for strategic

planning for the industry.

4.1 Strengths

(i) The unique historical background and Sino-Portuguese cultural features give

Macao a distinctive advantage. The territory has a vast valuable cultural

heritage, which marks its status as one of China’s leading gateway to the

outside world and one of Portugal’s premier outposts in its pre-colonial

domination of Asia;

(ii) Other than interests generated by the traces of cultural miscegenation, Macao

is a city where glamorous events take place all year around. Thousands of

visitors make the trip to Macao to attend specific events and festivals, such as

the Arts Festival, Grand Prix, the International Fireworks Festival and the

International Music Festival;

(iii) The simplified entry procedures are useful for the development of tourism

industry. As a gateway to southern China, most visitors are not required toapply for a visa in advance to enter Macao. In addition, Macao has established

an excellent transportation infrastructure that provides extremely easy access

for travellers. With the operation of Macao International Airport since 1995,

tourists may enter Macao conveniently by land, sea or air.



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4.2 Weaknesses

(i) There are limited natural resources for tourism development in Macao. Due to

the lack of a deep-water harbour, for example, the outward transportation of

Macao still largely relies on Hong Kong channel;

(ii) Owing to the lack of tourism facilities to lure the visitors, the average length

of stay of visitors in Macao is rather short at about one day;

(iii) Macao has been suffering from a shortage of qualified local workforce for its

continuing tourism development. The quality of service is very important to

make the visitors feel comfortable and return. The industry is still lacking in

manpower for service improvement.

4.3 Opportunities

(i) Macao will apply for inclusion of the “Historical Monument of Macao” in the

World Heritage list of UNESCO in 2005. Recently, it has undertaken work in

preparation for this application and tried to raise the profile of Macao through

heightening public awareness of its cultural tourism features and publicising

extensively Macao’s unique blend of Chinese and Portuguese cultures;

(ii) The economic relationship between Mainland China and Macao has been

getting closer day by day. The Macao Government is committed to a long-

term vision to develop Macao into a gateway to the Mainland and the Pan-

Pearl River Delta (PPRD) Region. With the prospect of completing the Hong

Kong-Zhuhai-Macao Bridge and closer cooperation between Macao and other

cities in the PPRD region, the number of Mainland visitors is expected toincrease at a fast pace, hence facilitating the tourism development of Macao;

(iii) In recent years, the MICE tourism has been developing in Macao, and could

be a new source of tourism growth in the future.



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4.4 Threats

(i) The size of the local economy is very small and most of the economic sectors

depend largely on external factors. For this reason, the tourism-related

industries had been adversely affected by external shocks such as the Asian

Financial Crisis and the SARS outbreak;

(ii) Since the majority of tourists arriving in Macao by air are from Taiwan, the

Mainland-Taiwan issues may affect the decision of Taiwanese people to visit

Macao or use Macao International Airport as a transit point;

(iii) Countries such as Australia, South Korea and Malaysia have increasingly

competed with Macao in the gaming market. Macao’s competitors have tried

to strengthen customer loyalty and broaden their customer base;

(iv) Since July 1987, the Chinese Government authorised the first welfare lottery

(i.e. lottery that raises funds for financing welfare programmes) in

Shijiazhuang. It is reported that sport and welfare lotteries have been operated

in many major cities across the Mainland and offered to 90% of population in

the Mainland (Access Asia Limited 2002). In this context, possible relaxation

of existing regulations on gaming in Mainland China remains a potential threat

to Macao.

4.5 Development strategies for the Macao tourism industry

Based on current observations, tourism and gaming would remain Macao’s

development priorities. The time is now favourable for positioning Macao as a well-

established tourism destination and improving its related services, thus enhancing theindustry’s overall competitiveness and the dominant role it plays in Macao’s

economy. Concrete measures for discussion are highlighted as follows:

(i) Tourism is labour intensive and requires skilled workforce. As the tourism

industry employs around 30% of the working population in Macao, the

Government should place great importance in training adequate workforce

for the development of the industry;



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(ii) MICE tourism brings in high consumption tourists and enhances the

average length of stay. The promotion of the MICE industry will help to

strengthen the position of Macao as a major tourism city in the region;

(iii) Regional or joint marketing programmes should be launched. Emphasis

should be placed on the alliance made between Macao, Hong Kong and

Guangdong through their corresponding authorities to jointly promote the

three destinations, as they are in close geographical proximity and have

fairly distinct cultures and landscapes complementing one another;

(iv) Artificial landscapes should be constructed to complement the natural

ones, in order to realise an ingenious combination of nature and

craftsmanship. By developing diversified, multilevel recreational

activities and merging the occidental culture into oriental one, Macao can

be shaped as a comprehensive recreational land;

(v) Macao should aim to develop into a comprehensive and relaxing holiday

destination, luring different kinds of tourists with large varieties of leisure

activities and entertainment.

5. Concluding Remarks

The tourism industry of Macao is entering into a new development phase, as a number

of tourism and entertainment facilities have started operating or will be completed

soon. The three gaming concession operators are right on track with their investment

plans of entertainment complex that promise to give Macao a striking scene in a few

years. Coupled with the key infrastructures, the new tourism elements will largelyenrich the tourist attractions on offer, giving Macao a boost in arrivals. However, all

these tourist attractions would require effective promotional strategy and marketing

efforts to build up reputation among the international travellers.

Looking forward, the tourism industry of Macao is facing both opportunities and

challenges. The continuous surge in visitor arrivals has put the supporting facilities

and carrier capacity of Macao to a test. The industry and the Government should



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place great emphasis on enhancing the service standards, as service quality and

hospitality received plays a key role in travellers’ impression about a tourism

destination, and hence its sustainable success.



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