Macau: A look at diversification of the economy

As reported by the Macau Daily Times, the state of Macau’s current economical system and Gaming’s dominance as tax income is seen as “unhealthy”. Two other industries (Real Estate / Financial Industries) are mentioned and this post is looking at both of these industries with a subjective view on the helpfulness of these:

In the context of diversification it would be interesting to understand how an increase in the real estate and financial industry would benefit the economic stability of Macau when a crisis occurs that would hit the Gambling business. In the following a reasoning:

Looking at real estate, the space in Macau is limited and current real estate projects tend to be in either of two categories:
– Public housing or government-financed projects (such as LRT)
– Casino developments in Cotai

The overall real estate market has seen a rise in recent years with rents as well as housing prices exploding. Principally speaking that rise is in line with expansion of the Gaming industry in Macau (more foreign workers, more long-term visitors, more local workers). As can be seen from below graphic, the average price of residential units has risen constantly over the last years, very much in line with growth in Gambling.

Average Price of Residential Unit

Hence what would be the case if a crisis in Gambling occurs? Depending on the severity of the crisis, there might be job cuts, laying off of foreign workers, less visitors in general and less long-term visitors. A crisis would definitely also cause a delay in any Gambling-related real estate development, e.g. new casinos or renovations to existing properties. Such has happened in 2008 with Sands Cotai halting its development for Plot 5 and 6, costing up to 11,000 construction workers to loose their job (albeit including China quota labor). With only 28-30,000 workers in construction in Macau, this is still a considerable amount of the construction workforce that had a hard time.

Hence rents would either not be able to be paid or re-negotiated with lower rent apartments becoming a scarcity and high-end apartments being abandoned. Give or take the extend of the Gambling crisis this might result in a real estate crisis as well. Hence an invest in real estate would not benefit the basic problem: reliability of revenue on sole industry “Gambling”.

Now, looking at the other proposed source of income: taxation from financial industries, such as bankings and insurances. Once again, Macau is a small area with a limited amount of residents. For as long as banking or insurances are not trying to do business outside of Macau (and have their taxable headquarter in Macau), the taxable income is limited to the revenue of these enterprises in Macau. And looking at the transactions currently happening, I would assume once again that these are driven tremendously by the main source of money in Macau: Gambling and Casinos.

Now, I do not have any specific data to analyze on that matter, same as I do not have any data on the influence on these figures due to Macau’s position as offshore financial centre, tax haven and free port, yet I would assume that given a crisis in the Gamling industries also the attractiveness of the financial industry of Macau would suffer.

I would understand the above two options stated especially risky as both are sources of income that are dealing with intangible services and not with hard goods, such as manufacturing. Even an IT industry would be established on a considerable different basis than the above described ones.

Hence I would recommend to consider also branching out into the following industries, to achieve a diversified economny:

  • Specialized Manufacturing
  • IT Services
  • Sustainable City Consulting
  • Regional Educational / Healthcare Hub

Yet in order for all of these industries to take root, certain incentives would have to created in the market.


An argument against solar power subsidies – by the Economist

A brief article a the Economist is briefly touching the area of green policies and why subsidising is bad. Especially Germany is pointed out as a bad example for solar panel subsidies, for it is one of the countries with the least sun exposure.

That is quite contrasting to the argument, Thomas L. Friedman is making in his book “Hot, Flat, and Crowded” in which he is applauding for the solar energy subsidies of Germany, as they started a market. The Economist however is complaining about the rise in silicon prices.

Summary of present world politics, the challenges Obama has to face in the term of his presidency

The Economist has published an article called “Obama’s world” on November 6th 2008 describing and summarizing the challenges Obama has to face in the term of his presidency.

The connection between China’s and the USA’s economy, the rise of Russia and its late struggle with Georgia, the Iran question, the wars in Iraq and Afghanistan. Nearly every newspaper in the US and many abroad are constantly following the bits and bytes of Obamas ascend to presidency these days and try to map out the most likely resolutions to be drafted, agreed on and absoluted.

However the outcome, the world is changing rapidly and the path it is going on a few might predict correctly.

Shareholder value – bliss of the world?

Recently I came into a discussion with a Russian colleague of mine, someone who had not only experienced the downfall of the Soviet Union, but also the rise of capitalism in his own country, the negative impacts of helplessness and the sheer amount of consume and money-spending.
The discussion circled around the concept of shareholder value. Surprisingly for me, my Russian colleague stood totally behind this topic, supporting it and emphasising on the fact that capitalism and free market theory are the only effective concept to guarantee the spread of wealth among people contrary to communism belief.

I stood up to another idea: The superiorism of stakeholder value towards shareholder value, the idea that a company should be and actually already is part of society, its social networks and its social responsibilities. In my opinion shareholder value is only aspect of stakeholder value and only one of the aspects to be taken into account when a situation needs a decision.

Interesting enough our discussion went into a lot a lot a lot of details on how decisions are based on identities and values, on how companies should have what specific place in society, the role of governments in the way capitalism should act or enact and basically we both came to the same conclusion or at least we could agree to the same principle: that we are driven by ideas, that people are driven by values and that a system can never be just a system but is consisting of people. People grown up believing in principles and values.

Values they have inherited, they have learned. That our culture (see Hofstede) is telling us are worth to believe in.

Cultures, civilizations. Hofstede, Huntington.

In my opinion we need a change in present capitalistic thinking. Towards Stakeholder Value! A company cannot push away its responsibility towards society, government, competition, shareholders, employees, customers and suppliers. There is more to a company than pure concentration on the stockmarket. And I hope people in responsible positions will learn to base their decisions upon that.

Europe and the US

A letter to Mr. Friedman on regard of his article in the NY Times column.
Dear Mr. Friedman,
I’ve just finished reading your article on todays world’s view on America, i.e. the USA, and I myself, as a German, have to admit that my oppinion on the USA has been intrigued by happenings in Guantanamo Bay, the US Elections, Iraq and the Oil as well as other events in recent years. What is however bugging me – and I think a lot of Europeans think so – is the picture presented to the world of a USA neglecting its principles whenever it seems advantageous (think of Panama to Iraq). Laby Liberty seems to always look in the wrong direction…
However your references towards UN Security Council decisions make me remember two things:
1.) Samuel P. Huntington’s Clash of Civilizations in which he describes the struggle in the Western civilization between Europe and the US and – if I remember correctly – in which he suggests for the West to stick together considering the other rising civilizations in the world.
2.) A podium discussion with Prof. Dr. Dr. Homann about ethics and values in Germany, but also in the world. Prof. Homann sees the present defining struggle for values as critical issue for the future of our world. This struggle is represented in business negotiations, scientific discussions and… in global politics and UN decisions. Pointing to Hofstede and his cultural values it becomes eminent that the decisions we face to see taken are nothing else than an expression of what values, i.e. which cultural categories, become more important as the decisive factors in daily life.
I therefore can only and strongly agree with your point of view, that – even though the US is not liked – the alternative might not be better. Somehow this sounds like a choice between the lesser evil for Europe to decide, but I think the defining of such a choice in regards of evil or good would neglect the underlying cultural meanings. It is coming back to the question Huntington rises:
Is the Western civilization able to hold together, defending their values and views on the world (i.e. Hofstede categories) against the world or is a major shift taking place?
Yours sincerely,
Max-Leonhard von Schaper
Student in International Management (with Engineering)

Pfaffenbach for G8

Spiegel Online interview state secretary Dr. Bernd Pfaffenbach and questioned him on his way of work as a state secretary and especially as a sherpa for Mrs. Merkel in regards of the G8 conference.

Some background information on this. Dr. Pfaffenbach is in this position since 2004, thereby having held the office during the terms of office of two chancellors (Schroeder, Merkel). Interesting enough, his personal details as displayed on the website of Germany’s Federal Ministry of Economics and Technology vary from German to English version (in a few details).

Den Sherpas arbeiten vier Mitarbeiter eng zu, die sich ebenfalls regelmäßig auf G7- und G8-Ebene treffen. Es handelt sich dabei um die Finanz-Sous-Sherpas, die Außenamts-Sous-Sherpas,die Politischen Direktoren und eine Gruppe hoher Beamter für Nichtverbreitungsfragen (Senior Group). In der Regel handelt es sich bei den Sous-Sherpas um Abteilungsleiter des Auswärtigen Amtes und des Bundesministeriums für Finanzen. – Source: BMWI

Further structured, 4 employees of the sherpa meet with their counterparts on G7 and G8 level. They are the finance-sous-sherpa, the foreign-policy-sous-sherpa, the political directors and a so called senior group. Normally, the sous-sherpas are the heads of department of the foreign politics ministry and the federal ministry of finance.

However on the homepage of the Federal Ministry for Foreign Affairs it is mentioned that the Sherpa is support by

einem Sous-Sherpa für den Bereich globale Wirtschafts- Umwelt- und Entwicklungsfragen (Auswärtiges Amt) und einem Sous-Sherpa für den Bereich Finanzpolitik (Bundesministerium der Finanzen), sowie vom Politischen Direktor des Auswärtigen Amts für Fragen der Außen- und Sicherheitspolitik.

Meaning that there would be three supporters instead of four. According to the organization chart of the ministry, department 200 and 400 have G8 responsibilities. Which information is the right one?