Tourism development or casino development? Part II

Friday, 20 December 2013 00:01 - - {{hitsCtrl.values.hits}}

What is Sri Lanka trying to achieve?

By Willie Weerasekera FAIM, AFAMI Money laundering Christine Duhaime (30 June 2013), Financial Crime and Certified Anti-Money Laundering specialist, observes that gambling in Macau generates revenues of $38 billion annually and over 75% of that comes from junket operators who independently operate VIP Rooms at the major casinos. The casinos are not involved in the operation of VIP Rooms and in fact the client lists (and clients) belong to the junket operators, not the casinos.i The 2013 Annual Report, of a US Congressional Executive Commission indicated that the Congressional members found that the gambling industry in Macau was reportedly tied to widespread corruption and the laundering of large amounts of money out of Mainland China. The Report cites a professor at the University of Macau who found that, conservatively, US$202 billion in proceeds of crime is funneled to Macau from China annually by junket operators through an underground network and not reported or declared. In a cable made public by WikiLeaks, a memo sent in December 2009 from the American consulate in Hong Kong to the secretary of state had indicated that [Macau’s] phenomenal success is based on a formula that facilitates if not encourages money laundering.ii Chinese anticorruption campaign impacting Macau’s future As much as the Macau administrators now have a vision of transforming Macau to be a more family and business friendly destination, there appears a trend towards curbing the illegal flow of funds as well. An important factor impacting the future of Macau relates to the anti-corruption campaign led by China’s new leader Xi Jinping. New regulations put in place last year in Macau requires junkets and casinos to report suspicious transactions and player lists each month, including details of when they played and how much they won or lost. Macau is set to implement a new money laundering law next year, which may allow authorities to freeze and seize assets.iii Junket operators, money laundering and Sri Lanka’s challenge Considering the importance of junket operators to draw in Chinese high-rollers due to Chinese exchange control restrictions and that losses sustained by Chinese gamblers in Sri Lanka would not be legally endorsable in Mainland China [Prof. Nelson Rose (2013)iv], how are the proposed IRs going to get the Chinese high rollers from China to gamble in VIP rooms in Sri Lanka? This is a vital question that needs answering. Equally, are junket operators to be licensed in Sri Lanka and if so what exchange control regulations will be applicable to them to monitor what money they bring into the country and what they take out as commissions and or winnings for the high rollers they bring in?

Social impact on local community Despite the global hype on the success of the casino business in Macau research by Y.K.P. Wan, X.C. Li and W.H. Kong on the social impact of casino gambling in Macau covering the local population conclude that while expansion of casino gaming in Macau has brought several social benefits, there are more negative impacts than the positive ones, hence it appears that the challenges outweigh the benefits to the local community. Among negative impacts highlighted were:

Uncontrolled development
Reduction in public leisure and green space
Heavy traffic and congestion
High dropout rate among students due to attraction of jobs in casinos
Increase in problem gambling
Increase in crime
Higher demand for counselling services and health treatment
Deteriorating quality of life
Local small business venture trade being taken by larger casino business

The results of this study agree with the findings of Vong’s (2009) study, that the benefits of casino development in Macau have lagged behind the negative impacts of this development. Overall, five years after opening up the casino market, local residents report feeling a decline in their quality of life because of the social, environmental and inflationary impacts of gaming tourism (Vong, 2009). Singapore protecting the vulnerable Despite the economic gains demonstrated in the Singapore case study according to the Strait Times report (September 2012), seven in 10 gamblers who sought help in counselling centres for their addiction said the casinos were the main reason for their money woes. It is reported that the Australian Productivity Commission (APC) found that five to ten people are affected for every individual who is a problem gambler. These include spouses, children, parents, co-workers and employees. In a survey conducted in 2011, Singapore’s National Council for Problem Gambling (NCPG) found that 2.6% of Singapore residents are problem or “probable pathological” gamblers (NCPG 2012, 11). This translates to 98,500 Singapore residents (SingStat 2012, 23) multiply this by even 5 it makes up around half a million individuals being impacted. The vigilance exercised by the authority in Singapore is reflected in the extent of supervision of casino operations. In September last year, Genting Singapore Plc., operator of Resort World Sentosa was fined S$600,000 for breaching laws against reimbursing casino entry fees payable by locals. Marina Bay Sands, operated by Las Vegas Sands Corp, was fined a total of S$917,000. It included S$474,000 in penalties for inadequacies in its video surveillance system, and S$92,000 for allowing some locals to enter the casino without paying the statutory entry levy of either S$100 for 24-hour access, or S$2,000 for a year’s entry.v Singapore protecting its brand lesson for Sri Lanka The Singapore Government had given careful consideration to any possible negative impact on the brand Singapore due to too close an association with casinos and any unflattering news stories on the subject. The concern being that it could undermine the republic’s attractiveness to the financial services industry and other investors, as well as tourists, enticed by its reputed probity and good governance. In the case of Macau we observe how the destination has developed the image as a successful destination for ‘casino gaming’ as opposed to a ‘leisure tourism’ destination. Reuter Hong Kong (Sett. 5, 2013) reports that whilst the current formula works for Chinese high rollers and junket operators who bring them in from the mainland, this has raised concerns in Macau about the government’s overreliance on gambling revenue. Thus a movement towards a revision of strategy is reported in the Chinese Government’s 12th Five-Year Plan, which pledges to support Macau’s development as a “world tourism and leisure centre”. Note: “leisure” as opposed to “gaming” tourists. However, Jonathan Galaviz, chief economist for tourism and leisure consultant Galaviz and Co, believes Macau needs to add a “full spectrum of leisure activities, with gambling a small piece of the picture” to move up the global tourism rank and that it will take decades, not years. Similarly, according to University of Macau associate professor of business economics Ricard Siu, Macau is expected to transform from a largely casino gaming city to a more family and business travel destination but that it is unlikely to change without more operators making more big bets on world-class non-gaming attractions. Protecting Sri Lanka Tourist destination image Sri Lanka should take the Singapore examples and give serious consideration to protecting its own image as an unspoilt Asian leisure tourist destination – the image on which 100% of its tourism industry is dependent on. The leisure segment is the backbone of Sri Lanka Tourism. A 100% of the nation’s tourism investment is built around it. Is Sri Lanka trying to place all that at risk by as some appear to suggest – making Sri Lanka the casino hub of South Asia? To have newspaper captions such as ‘Sri Lanka new Macau,’ ‘South Asia’s new casino capital’ and so on could with time damage the image Sri Lanka has developed as an unspoilt leisure destination. Such a change could result in the destination losing out on its core differentiators. As the WTO ‘Handbook on Tourism Destination Branding’ (2009) notes: “Too often countries fail to identify their core brand personality as a result of political pressure, short-term commercial interest, or just because they are caught up in the whirlwind of everyday business. This risks commoditising a destination and leaving it vulnerable to the first wave of a recession. It is therefore important that all stakeholders understand both the role of a destination brand as a competitive identity and the need for a single-minded approach based on the destinations greatest strengths.” vi (Italics and bold added) Question of carrying capacity The finding on the social implications in Macau is equally relevant to Sri Lanka as regards its policy of concentrating casinos in any one locality. In tourism there is the concept of the carrying capacity of an area. Macau with local population of around 600,000 now faces the inflow of an average of 2.3 million visitors a month. How this has negatively impacted the culture and lifestyle of the locals needs no amplification. If Sri Lanka attracts 2.5million visitors as intended (excluding the high season factor) we will be averaging around 208,000 visitors per month. Assuming that they all pass in and out through Colombo, even if around 30% of them (62,000 per month) start visiting three or four IRs (for gambling and non gambling casual visits) concentrated in one locality one could imagine the impact on that local community. Chinese leisure travel motivators Whilst the Chinese are noted for their interest in gambling, it is important for destination development planners to consider the reality that the primary motivator for every Chinese outbound traveller is not gambling. Obviously there is the niche market of those whose primary interest is gambling. Of the Chinese visiting the USA in 2012, only 10.5% had included casino/gambling as one of their travel characteristics out of seven listed. Equally, only 9.1% had visited Las Vegas. Of course Chinese visiting a country could, as recreational gamblers, visit a casino if there is one around. Such is quite different to being a primary motivation for travel. A Nielson study (2011) on travel motives of Chinese leisure travellers rate their key purpose of travel as sightseeing 80%, shopping 63%, cultural tourism 30%, relaxation 30%, eco-tourism 23%, visiting friends 19% and special interest 12%. If one discounts travel to Hong Kong and Macau, the next top destinations in order of the percentage travelling to (2010) France 9%, Taiwan 5%, Australia 8%, Japan 8%, Singapore 7%, USA 6%, Thailand 6%, and Germany 5%. Chinese leisure travellers are driven by their own motivations and aspirations and if Sri Lanka is to attract them that would be a separate challenge – a casino alone will not be the motivator. Not glorified casino hotels The message is quite clear: If Sri Lanka is to proceed with establishing IRs, they should be genuine IRs and not glorified casino hotels. They must stand the test based on the Singapore model. As observed by Prof. Mazzarol et al. to be considered, an IR they should incorporate ‘iconic world class non-gaming luxury facilities’. It is not simply a case of luxury hotels providing rooms, restaurants, spars and conference and event facilities with a casino operation. If that were not the criteria, would any five star hotels in Colombo including the planned Shangri-La, if they included a casino, be recognised as an IR? What then are the iconic world-class non-gaming luxury leisure resort attractions that are included in the proposed IRs to attract tourists for non-gaming family leisure vacations? Casino license exposed to a new ball game All concerned should be upfront with the community on the reality that establishing an IR is not as simple as passing on an existing casino license to a new luxury establishment. The business model that emerges by the integration of the casino license within an IR takes the casino operation to an entirely different level. Unless properly legislated and controlled it brings in all the dangers that Macau has been exposed to. Given these realities Sri Lanka has three options: 1. Not to permit casino gambling. 2. Permit the establishment of casinos in glorified casino hotels under the guise of them being IRs and face the negative consequences. 3. Adopt the Singapore IR strategy and business model with all the safeguards including that relating to Junket operations and money laundering, whilst: a. Ensuring the protection of the image of Sri Lanka as a leisure tourism destination and not move on the road towards becoming a casino centre – making the casino factor a niche in its armoury and not damage the larger ‘leisure’ tourism image. b. Have in place a Casino Control Act, a Casino Regulatory Authority and a National Problem Gambling Protection Program and requisite funding for their efficient administration and control. May decisions taken now in the longer term not create a mix of negative social and economic consequences, which are considered regrettable in retrospect.