Economics of gambling

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By 2017-04-11

By Abdul Samad

The gaming industry, better known as the business of casinos, was in the limelight before the presidential election in January 2015.

President Mahinda Rajapaksa backed the initiative of the then government to pass a Bill in Parliament to issue licences for a few mega scale investments in Colombo. This included both local and foreign direct investment. Quite expectedly, there was strong opposition to the Bill by the UNP and the country's respected clergy. Social reasons articulated the main argument against such a policy implementation. Main stream media made things worse for the then regime. The government was portrayed as the national enemy.

With the unity government assuming power, President Maithripala Sirisena executed two policy decisions on the industry.

n The licences issued by the previous government were revoked, effectively pulling the plug on investment to the tune of $800 million.

n The government also announced a onetime levy of Rs 1 billion on each licence held by the existing operators. This resulted in the closure of two of the oldest establishments in the industry.

Political instability

The objective of this article is to outline the economic loss to Sri Lanka because of this policy implementation. An article dated 10 February 2015 on Forbes magazine by author Muhammad Cohen makes the following scathing remark on Sri Lanka and the President.

"President Maithripala Sirisena, cancelling the three casino projects has made Sri Lanka a textbook example of political risk when it comes to investing in Asia's emerging markets."

In effect, the author is directly questioning the political stability of Sri Lanka. He further gives a loud message to the international business community about the business environment in Sri Lanka. One of the projects to be called off was the Crown Colombo project, owned by Australia's largest gaming operator Crown resorts. Prime Minister Ranil Wickremesinghe made the following statement to the media (Guardian- dated 1 Febuary 2015):

"Packer says he will not come. Who asked you to come?" Prime Minister Ranil Wickremesinghe said in a statement released by his office. "Please don't come – not in this lifetime.

"We need only good investors ... we don't want an economy relying on casinos."

Ranil Wickremesinghe is generally considered as the most intellectual politician in Sri Lanka currently. Every government has its own ideologies and policy preferences.

n Does it give authority to a politician in a responsible position representing the country to humiliate an international investor like this?

n The broader view of international investors on Sri Lanka, its politicians, and its policy-makers.

Both, Forbes and the Guardian are international publications. The long term implications of such abrupt, short-tempered statements can be detrimental. In the case of Sri Lanka, it cannot be more visible. FDIs in Sri Lanka for the year ended 2016, were a mere $300 million. Foreign reserves are at record low levels. FDIs in 2014 stood at $ 1.8 billion. Sri Lanka ranks at a lowly 110 out of the 190 countries surveyed on ease of doing business index. Sri Lanka's best friend, the EU has invested $ 200 million in the two years of unity governance.

The Sri Lankan economy lost investment worth $1.5 billion owing to this abrupt, politically motivated, catastrophic policy-making. The economy was also deprived of over 3,000 jobs. Sri Lanka also lost its grand plan to take the tourism industry to the next level, and portray itself as the epicentre of entertainment and finance of South Asia.

Fill the vacuum in investment?

Prior to orchestrating such policy decisions, a government must have two clear answers. How does the regime plan to fill the vacuum in investment? Which policy or industry will replace the loss to GDP caused by halting projects?

In this case, none of the questions has been answered. As mentioned before FDIs are at record levels, while GDP has shrunk by almost 2 per cent. These are two significant achievements of our internationally acclaimed Finance Minister. GDP growth in 2016 was recorded at 4.7 per cent whereas Sri Lanka can easily achieve 7 per cent plus growth on the backdrop of strong macroeconomic fundamentals.

This, also raises the question whether these policies were implemented solely to gain political leverage? Were the decisions made in the best interest of the county and its citizens?

It is also imperative, that as citizens of this country we know what the country has been deprived of. I will quote a few countries and provide information on how they have been able to mould this industry to bring great economic benefits for their citizens.

Macau, a special administrative region of China is the most renowned destination for the gaming industry, famously known as the gambling capital of the world. It attracts 2.5 million tourists annually. The region has a population of just over 600, 000. Sri Lanka tourist arrivals at the end of 2016 stood at 2.2 million. The population is just over 20 million.

Macau gets more tourists than its own population. The industry is worth nearly $20 billion contributing more than 50 per cent to GDP. Macau's GDP was $ 7 billion at the end of 2002. It has seen a jump of almost 800 per cent and was valued at $60 billion at the end of 2015. Per capita stands at $71,000 as of 2014. Sri Lanka's per capita is less than $4000. Chinese are the main tourists to Macau.

Singapore's Marina Bay Sands, opened in 2010, is a standalone gaming centre. Built at a cost of $8 billion, it generates annual revenue to the tune of $3.2 billion per annum. On average, 110,000 visitors are welcomed on a daily basis, i.e. 40 million tourists annually.

Pillars of service industry

A comparison with the Sri Lankan industry would be deemed as a joke. It is also worth noting the positive effect it has on the economy of Singapore. Service sector contributes 75 per cent to GDP. Entertainment and financial services are the two pillars of the service industry. Singapore's GDP at the end of 2016 was $307 billion, ranked 36th in the world. Per capita is at an impressive $53,000.

Las Vegas, in America is world renowned for its entertainment services, specializing in the gaming industry. The industry was worth around $7 billion as of 2011. It raises and adds a new dimension to US tourism. It also provides thousands of jobs in the State of Nevada.

It's also one of the main sources of tax revenue for the local government. Las Vegas attracted 47 million tourists as of 2016. Gross State Product of Nevada was at $141 billion at the end of 2015. The region acclaims to be a truly global tourist destination.

Genting Highlands, in Malaysia is home to a massive gaming centre and theme parks, one of the highlights in Malaysian tourism. The country receives about 13 million tourists annually and has gone from being a third world country to a fist world nation within one generation. GDP stands at $300 billion plus, with per capita at a healthy $11,000. It's truly become a tourism behemoth in the region.

Sri Lanka's loss

Sri Lanka's geographical and strategic setting has much to do with its entry into the gaming industry. As a member of the SAARC region, Sri Lanka is easily accessible to Indians and Pakistanis. We must realize the region houses about 1.5 billion people. India has the fastest growing middle class population which is well above 400 million. According to Casino owners in Sri Lanka, Indians are the highest visitors to Sri Lanka for gaming. Gambling is illegal both in India and Pakistan.

Recent rise in economic relations with China has led to a large number of Chinese visiting the country, only second to Indians.

China is a large market for the gambling industry. A recent crackdown on corruption by the government in China largely restricted Chinese travellers to Macau. It is the perfect time for Sri Lanka to take advantage. With the ever-increasing Chinese presence, the industry would realize its potential much faster.

By restricting the growth of this industry, the unity government effectively shut Sri Lanka's doors to such a massive market. It also gave the opportunity for countries like Malaysia, the Philippines and Singapore to further eat into tourism revenue regionally.

The government also killed the larger plan of the Rajapaksa regime to position Sri Lanka as a high end travel destination.
There has been continuous debate on debt, slow economic growth and steep rise in cost of living. I put forward a question to my readers. When a government makes such abrupt, short-sighted and catastrophic policy decisions, how can Sri Lanka ever overcome the above-mentioned problems? Realistically, it's the inability of the administration to introduce and execute ground-breaking policy decisions that has resulted in such poor economic performance. The masses never had a clue of the great economic benefits the industry would bring. Only the negatives were discussed on political platforms while mainstream media added to the glory of negative publicity.

The question arises, who are the biggest losers? Is it the media that made millions with TRP ratings? Is it the officials of the government, who have created new ministries with no productivity, but continue to spend public funds to import new vehicles for ministers and increasing their allowance?

No, it is Sri Lankan that lost the plot. The dream to be a developed country with a technocratic society looks a distant dream. Has the government been able to compensate for the losses? Have jobs been created in alternative industries? I'm afraid, there are no answers.

The personal objective of a few power hungry politicians put together with regional politics is solely responsible for this debacle.

It is the fundamental responsibility of politicians to ensure the greater good of the citizens which is kept at the lowest in Sri Lankan politics.

Conclusion

Sri Lanka missed a golden opportunity to be a regional powerhouse in tourism and entertainment. This would have also added a new dimension to the tourism industry. Do beaches and cultural heritage offer enough to have a sustainable tourism industry?

Gambling is no longer considered as an aristocratic gentleman's sport. It is more a form of entertainment that appeals to the rich.

For a country ravaged by a war for three decades, there seems to be light at the end of the tunnel. With the events of January 2015, this looks a foregone chapter in Sri Lankan economics, only to the detriment of our people. Strong leadership and political stability can still revive the lost cause, but with the government, it is more a sorry state of affairs to say the least.

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