Saturday, April 24, 2010

Singapore already reaping benefits from IRs: economist

They have helped to reduce unemployment, but full potential of IR effect not seen yet

SINGAPORE'S decision to allow integrated resorts (IRs) with casinos to be built here has changed this country for ever - and it is already reaping the benefits.

'Given that the IRs began hiring well before the opening of the properties, they clearly had a strong role to play in pushing down unemployment to 2.1 per cent,' says Leong Wai Ho, an economist with Barclays Capital.

And the full potential of the IR effect has not been seen yet either. 'Both are likely to operate at capacity from 2011 onwards at the earliest,' he adds.

Mr Leong believes success in the IRs will be judged with a range of factors like room occupancy and tourism spending. Intangibles like the branding and image of Singapore will be important as well, 'but relatively harder to measure'.

'More importantly, to me at least, the IRs testify again to our nimbleness and ability to deliver pivotal change at various points in our economic history,' he adds.

This said, it seems likely that more IRs will be built in the future.

Jonathan Galaviz, independent travel and leisure sector strategist, says: 'If the Singapore IRs generate significant returns on investment, then I believe it would be likely the government would revisit the issue of allowing more integrated resorts upon expiration of the current IRs' exclusivity period.'

And Singaporeans may not mind.

Derek da Cunha, author of Singapore Places Its Bets, says: 'By then the local population would have been inured to having casinos around.'

He adds that the government may also be receptive to having more casino resorts as only private monies are involved. This, he says, will not only give a significant boost to the economy but help in the 'continued evolution of the local architectural landscape and an economy that is giving increasing emphasis to the service sector'.

The success of the IRs is not a given, though.

The meeting, incentives, convention and exhibition (Mice) business is susceptible to economic cycles and theme parks generally take some years to generate profits. The strict junket licensing regulations here will not help either.

Mr da Cunha also adds: 'If Singaporean and PRs are the main contributors to the casinos' revenue, then some might argue that this ambitious project has not been a resounding success.'

A recent report by Bank of America Merrill Lynch (BoAML) estimates that about 50-60 per cent of the casino patrons at Resorts World Sentosa (RWS) are Singaporean. BoAML also believes that the casino attracts between 20,000-25,000 visitors on weekdays (with more on weekends).

The opening of the casino at Marina Bay Sands will reveal if the business and leisure travel sector (and, more specifically, the gaming sector) can grow.

The biggest competition for Singapore now is Macau.

A report by Global Betting & Gaming Consultants (GBGC) reveals that gross gaming yield (GGR) in Macau's market increased by 9.7 per cent in 2009 (year-on-year). GGR fell 13.7 per cent and 12 per cent in the Las Vegas and European markets respectively.

Casino revenues in Macau for the first quarter of 2010 were up 57.4 per cent to about US$5.1 billion compared to around US$3.3 billion a year ago.

Of course, Macau has over 30 casinos and Singapore must brace for competition.

'Macau is simply the largest market and, as such, you would expect all major casino companies to be trying to build their operations there,' says Sean Monaghan, managing director at AG Leisure Partners.

Interestingly, Singapore's IRs could pose a threat to other jurisdictions too. Vincent Khoo, an analyst at UOB KayHian (Malaysia), says there has been noticeably lower visitor arrivals to Genting Highlands from Singapore since RWS opened.

Apart from Macau, IRs are set to pop up all over Asia: in Taiwan, Vietnam, and the Philippines.

Fortunately, Singapore does not have to worry about this for the moment.

'One market that will have to play close attention to growth of new markets in Asia is Australia, which currently sees a large number of tourists from the likes of Taiwan, Korea, China, and India visit its casinos,' says Warwick Bartlett, GBGC chief executive.

But he added: 'The real test is whether these new properties will satisfy demand that is currently not being met, or if they are simply shifting the same gamblers and their money around different venues.'

Source: Business Times, 24 Apr 2010

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