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Interregional cooperation is the “key” to attract investment

Viviana Chan

The stock of direct investment in Macau from Portuguese-speaking countries increased by almost 19 percent between 2014 and 2020. The president of the Macau Management Institute, Samuel Tong, says that the MSAR needs to expand its market in order to continue to be an attractive destination for foreign investment. The leader even states that the connection with the Greater Bay is the “key”; not the ruin of the city

2020 was a tough year for Macau. Foreign direct investment fell by 14.5 percent compared to 2019, totaling just over 300 billion patacas. The sharp drop, however, was not reflected as much in investment from Portuguese-speaking Countries (PLP), which only declined by 0.02 percent to 9.75 billion.

Lusophone Footprint surrenders to Portugal

Since 2014, the Directorate of Statistics and Census Services (DSEC) has released data on foreign investment by specific territories. According to them, the stock of direct investment in Macau from PLPs increased by almost 19 percent between 2014 and 2020. However, the vast majority still comes from Portugal (99.8 percent).

Samuel Tong explains that it is not easy to specify the origin of the investment, as “many companies choose tax havens as their headquarters”. This phenomenon does not allow the published data to correspond to reality, as “even capital from Portugal and the Portuguese-speaking bloc can enter Macau from tax havens”. However, it considers the volume of Portuguese-speaking investment to be small, when compared to other regions and countries.

Small Market, Big Potential

According to the DSEC, PLPs rank only eighth as a source of foreign direct investment. At the top of the list is Hong Kong (84 billion patacas), followed by the Cayman Islands (69.47) and Mainland China (58.77).

Samuel Tong points out that Macau mainly attracts investments in the areas of high-end services, tourism and hotels, giving the example of the Portuguese multinational Hovione, a pharmaceutical company that settled in Macau decades ago. In this sense, he believes that this Portuguese sector can be competitive in the Chinese domestic market and that this expansion can be done through Macau. Another example that stands out is the Brazilian aeronautical industry, which can take advantage of the Zhuhai market – strong in this sector. For that reason, he praises that the Deep Cooperation Zone between Guangdong and Macao in Hengqin enables the expansion of Macao’s market and, consequently, makes the region more attractive for investment.

“Key” to Boost Investment

After the creation of the Macau Special Administrative Region, the Agreement for the Strengthening of Economic and Trade Relations between Mainland China and Macau (CEPA) was signed to expand Macau’s market. However, to this day, “the gaming industry remains the main destination for investment, whether from Mainland China or abroad”, he says. But this split-off interregional cooperation within the scope of the Greater Bay is the “key” to diversify and increase investments, namely those from the Portuguese-speaking world, he explains.

Citing statistical data, Samuel Tong also addresses foreign investment destinations, which are generally linked to the gaming industry and financial activities, constituting 67 percent of total investment.

In his view, foreign capital assesses several aspects before choosing a destination, the first being always the size of the market. “The objective of the investment is to make a profit. A small market does not attract foreign investment, because any investment has risk and investors are looking for high return and low risk. In a small market, they face high risk and the projected profit is not worth it.”

On the other hand, the investment environment and infrastructure are also important factors. As the economist lists, “the transport networks, energy supply, human resources, salary level and Executive effectiveness are evaluated.”

Model “Perfect for Macau”

Faced with the problem, the economist points to the model used in Singapore, lavishing praise: “Trade development is promoted through inter-regional cooperation agreements, which serves as a perfect example for Macau”, he points out. “Singapore is a small market, however, investing there means being able to expand business to the Association of Southeast Asian Nations (ASEAN), the United States, Japan, China, among other partners”, he explains, adding that he wants this market extension. to Macau “through the Deep Cooperation Zone in Hengqin and the Greater Bay”.

“The first investments will stimulate economic development and, later on, Macau will be able to attract new investments”, taking into account the economic diversification plan launched. But it is also necessary to “gather the conditions” for this and, therefore, he expects the authorities to create more and better conditions to stimulate the development of industries, namely an innovative tax regime, land policies and human resources.

Everyone wins

Some say that for one to win, the other must necessarily lose. Macau’s integration into the Greater Bay has raised this issue, but Samuel Tong dismisses it. “Investing in certain areas in Macau or Hengqin does not mean facing competition from other cities or regions”. The academic explains that the introduction of new industries usually follows a strategy and that the supply chain is set up in different regions, giving an example: “In Zhuhai you can set up production and Macau can serve as an exhibition platform.”

Macau enjoys the advantages of being a free trade port and not having tight controls on capital inflows and outflows. Foreign investment will benefit the local and peripheral economy”, he predicts.

As Far As Far Away

Another advantage of Macau’s inter-regional integration is the ability to diversify tourist attractions. The academic emphasizes the difficulty or even impossibility of attracting visitors from cities within an hour or two by plane just to visit the city. In this chapter, he refers to the importance of Hengqin: “When Asian tourists visit Europe, it is difficult to imagine that they visit only one historic city, as there are so many to see. Therefore, tourism in Europe normally includes visiting a number of countries. Macau package should include more attractions.”

Covidian reality

In view of the current measures to prevent Covid-19, the economist confesses that Macau’s dependence on Mainland China has been consolidated. This circumstance also forces Macau to apply the restrictions practiced on the mainland, so as not to lose the flow that, until recently – before the outbreak practically closed the city – was observed. For that reason, he believes the zero-case policy should be followed, as it ensures that the bad results are only “temporary” and that relaxing travel restrictions will reverse the trend.

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