The “Shawarma Effect” is a coin termed by Get Real Philippines more than a decade ago to describe the Filipino’s unique preference for imitation rather than innovation. Back in the early 1990s, shawarma, the vaguely Middle Eastern sandwich-like treat, was introduced in the Philippines and became instantly popular, setting off a viral proliferation of shawarma kiosks in every shopping center, transport terminal and other spots with a modicum of pedestrian traffic. Hence the spread of any sort of commercial fad is now known as a “shawarma effect”; we have seen examples of it in recent years in the seemingly instantaneous (and in most cases, short-lived) appearance of stands selling cheap magic trick props, siomai and those weird, tasteless, powder-and-shaved ice concoctions called “scramblers.” If a special report in this paper last week is any indication (PH bets on high-end casinos to become top gaming hub, June 15), we can now add casino resorts to the list of manifestations of the “shawarma effect.”
Most, but not all, of the activity is concentrated in the state-run Bagong Nayong Pilipino Entertainment City in Parañaque City, where Bloomberry Resorts Corp’s. Solaire Manila is the first of four planned casino complexes, including the Belle Grande Manila Bay (Belle Corp.); Manila Bay Resorts (Tiger Resorts Leisure and Entertainment Inc.) and Resorts World Bayshore (Travellers International Hotel Group Inc.). Projections by the Philippine Amusement and Gaming Corp. (Pagcor), the Department of Tourism, and industry advocates paint a rosy picture of gambling’s future contribution to the country’s economy. Pagcor is forecasting gambling revenues to reach $2.5 billion in 2013, a 25-percent increase from 2012. Lawrence Ho, the chief executive officer of Macau casino operator Melco Crown Entertainment Ltd., believes that by 2018 the Philippines can reach the level of Singapore or Las Vegas, who have yearly revenues of $5.9 billion and $6.1 billion, respectively. The biggest dreamers behind the Philippines’ gaming industry envision the country challenging Macau—the world’s most successful gaming economy, with annual revenues over $37 billion—within a few decades.
Apart from the immediately obvious obstacles to successfully promoting the Philippines as a “gaming destination”—an appalling international airport and the fact that the center of the gaming industry is located in a flood-prone, gridlocked city—the more significant reasons why optimism for gambling’s potential contribution to the economy is misplaced are the misconceptions that are driving it.
The first misconception is that gambling is a constant-growth industry; it is not. Industry performance in strong gaming locations has shown that a “saturation point” is reached more quickly than planners first realized. In Singapore, for example, revenues at the city-state’s two casino complexes, Marina Bay Sands and Resorts World Sentosa, fell by 28 percent and 20 percent, respectively, in 2011 from the year before (neither company has released its 2012 data yet), which the casinos’ operators and Singaporean authorities attribute to the wearing-off of the “novelty factor”—now that neither complex is brand-new, their attractiveness to visitors is declining; the effect is probably more noticeable in Singapore, where visitors routinely outnumber residents, because the government imposes tight controls on residents’ access to the casinos as a way to minimize gambling-related social problems.
The problem of saturation has been obvious in the United States for years. In Las Vegas, success as a gambling hub in the 1960s and 1970s gave way to a period of stagnation through the 1980s, which only began to end when the city’s gaming industry began to diversify from its traditional “high-end gambling mecca” image to a more family friendly environment featuring many more nongambling attractions. The problem of over-saturation is still evident in Atlantic City, New Jersey, America’s second gambling city. In 2012, buoyed by the recovery of the gaming industry from the years-long downturn caused by the 2008 economic crisis, the $2.4-billion Revel megaresort opened to much criticism that “Atlantic City doesn’t need another casino” from much of the local population and media. The critics were apparently right, because this past March—less than 12 months after it opened—Revel was forced to file for bankruptcy protection after suffering staggering losses and being unable to pay millions in construction loans.
Even Macau’s seemingly well-managed and seemingly bulletproof gaming industry is not immune to the shawarma effect. Despite posting healthy revenue growth, forecasts of gaming revenues likely reaching a plateau or even declining in the next few years have prompted city officials to suspend further development, and shift their economic focus to diversifying the territory’s economy, according to a recent in-depth analysis by Euromonitor International.
Part of the problem of saturation, or more specifically, why governments apparently allow their gaming industries to reach a saturation point, is that there is a misconception that casino revenues are primarily driven by tourist visitors. To a large extent, this misconception has been formed by the location of gambling areas in small places like Singapore or Macau, or strategic locations with small permanent populations like Atlantic City, Las Vegas, or Reno, Nevada that can draw on relatively nearby large populations—Atlantic City is about an hour from Philadelphia and New York; Las Vegas is approximately four hours’ drive from Los Angeles; and Reno is about the same distance from the San Francisco Bay area. In areas with a large local population, such as most US states where casinos operated by various Native American communities are located, the majority of the casinos’ patrons are residents. Even cities like Macau, which absolutely have to rely on foreign visitors, are visited far more often by people from the nearby area than those traveling long distances.
According to the Macau Statistical Yearbook, 27 percent of the city’s tourist arrivals are from nearby Hong Kong, while about 58 percent are from mainland China.
And finally, there is a misconception that casinos produce an economic multiplier effect. A cursory understanding of the nature of gaming resorts is enough to debunk this particular myth; the entire casino experience is built on isolating the customer from the outside world. Any spillover of visitor revenue to the local community is at the expense of the casino, which is of course why most good establishments go to great lengths to provide an all-inclusive experience of entertainment, food and lodging. In terms of job generation, after the initial and temporary burst of activity from construction, most casino jobs are low-skilled, low-wage positions. Because of these factors, research (for example, a study published just last month by researchers at Auburn University and the College of Charleston) has found that aggregate tax revenues are not increased by a statistically significant amount, even when the taxes paid by the casinos are included. In other words, the general effect of casinos is primarily to regressively redistribute money that is already in the economy, rather than adding to the economy in a significant way.
So while there is not anything necessarily wrong with the plans for expanding the Philippines gaming industry, there is nothing particularly advantageous about it, either. Casinos should not be considered an easy solution for economic growth, and subjected to the shawarma effect.