OBG talks to Jorge Sarmiento, President & COO, Philippine Amusement & Gaming Corporation (PAGCOR); Thomas Arasi, President & COO, Solaire Resort & Casino; and Clarence Chung, Chairman, Melco Crown (Philippines) Resorts Corporation

Jorge V Sarmiento, President & COO, Philippine Amusement & Gaming Corporation (PAGCOR); Thomas Arasi, President & COO, Solaire Resort & Casino; and Clarence Chung, Chairman, Melco Crown (Philippines) Resorts Corporation

Interview: Jorge Sarmiento, Thomas Arasi, Clarence Chung

What makes Manila a competitive gaming and entertainment destination, and what would make it more attractive to investors and tourists?

CLARANCE CHUNG: The Philippines was one of the top five GDP growth countries in 2012, with a year-on-year growth rate of nearly 6.6%. We see immense potential for the country, which has a rapidly emerging gaming and entertainment market that is backed by demand from local residents as well as the increasing number of international tourists evidenced by the double-digit growth rate in arrivals over the past couple of years.

Supported by a forward-thinking government that is committed to advancing the tourism industry, the Philippines is well placed to cater to the increasingly affluent and growing middle class markets from across Asia, who continue to seek new travel destinations and experiences throughout the region.

JORGE SARMIENTO: Manila and its environment have much to offer as a tourism destination. We have shopping opportunities, culinary varieties for every palate, Spanish colonial-era heritage sites like Intramuros, a wide range of nightlife entertainment establishments and convention venues. While many of these key ingredients for success are present, there is also much work to do improving the essential support infrastructure, such as airport and seaport terminals, access to and from air and sea ports, ease of travel between Manila and the countryside, and ensuring peace and order, to promote Manila as an integrated tourism destination.

To address this, the Department of Tourism (DoT), the Department of Public Works and Highways (DPWH) and PAGCOR are funding the connection of Roxas Boulevard and the Manila Bay sunset to Intramuros, so the area can complement Entertainment City.

Additionally, the elevated expressway connecting the airports to Entertainment City will begin construction in January 2014. On a regional level, the DPWH is working to implement a highway to connect the existing light railway transit system to the southern Cavite area. All of these transport projects would significantly boost access to Entertainment City, expanding its potential target market.

THOMAS ARASI: Manila already has the firm foundations necessary to make it a top global gaming and entertainment destination. It is centrally located in East Asia and no farther than a four-hour flight away from nearly all major cities in the region. Furthermore, we have lots of daily flights to the ASEAN countries, North Asia as well as select cities in the Middle East.

The government has carved out a 120-ha site for Entertainment City where four large casino properties will be located. Entertainment City’s location is strategic given that it is less than 5 km away from the Ninoy Aquino International Airport and close to the Makati Central Business District. The government has also created an attractive tariff regime making the Philippines a go-to destination for junket operators and international VIP players. Foreign junket players are taxed at only 15% of gross gaming revenues versus 39% in Macau.

Its large base of young, English-language-proficient, service-oriented workforce, which has made the Philippines the de facto business process outsourcing capital of the world, is also ideal for the gaming sector, where a number of the same skills are required from staff. The cost of employing a dealer in the Philippines is only a quarter of that in Macau, a major gaming destination.

Arguably, infrastructure is a bit of a challenge but the government is working hard in solving it. Bottlenecks for incoming visitors at the airport are being worked out and construction for the elevated roadway connecting the airport to Entertainment City is due to commence in early 2014. When open in 2015, this route will cut travel time between Entertainment City and the airport down to just a few minutes.

How attractive are regulations for investment?

ARASI: PAGCOR has always been a very supportive regulator in terms of growing the gaming sector and putting it on the regional gaming map. Despite some industry issues that have affected all the Entertainment City gaming licensees, PAGCOR has remained steadfastly committed to honouring the arrangements spelled out in the licence agreements. Going forward, what is essentially needed is for PAGCOR and other government agencies to continue to be supportive and consistent with the present policies and regulations.

SARMIENTO: A regulatory framework based on best practices that promote predictability, fairness and transparency in the industry’s governance is the incentive itself that encourages investment. Predictability and transparency of rules and regulations over the gaming industry raise the level of comfort of investors to give priority to non-gaming amenities for their investment funds. High visitor arrivals generally mean good business for the casino, whereas investors are largely motivated by the quality of gaming regulation.

CHUNG: Melco Crown Philippines aims to offer entertainment attractions in the Philippines that appeal to a variety of local and international tourists. These investments would not be possible if not for the incentives generated by the favourable tax rate for VIP players.

What economic benefits are expected to be generated from the growth of the country’s gaming and entertainment industries?

SARMIENTO: Clearly, the two major benefits would be tourism revenue and employment. The DoT’s National Tourism Development Plan (NTDP) includes the leisure and entertainment sector as one of the nine key development areas. Thus, the government officially expects this sector to be a major contributor to the achievement of its national tourism targets. Gaming and tourism, as with all types of hospitality-based activities, are labour-intensive. In this respect, our country exhibits a unique strength as we have a large pool of English-speaking and naturally hospitable workers.

The gaming and entertainment industry will play a major role in the tourism sector, acting as a driver of revenue and employment. In particular, the highly profitable gaming components generate the financial muscle to deliver non-gaming amenities such as hotel and entertainment venues with the highest standards of quality on a massive scale. In terms of employment, all four casinos at Entertainment City are expected to generate around 40,000 direct employment positions. In addition, we have support and auxiliary services that will be nurtured by the facility, creating several multiplier effects that would benefit the local economy.

CHUNG: Construction of our integrated resort in Manila’s Entertainment City, City of Dreams Manila, is continuing on schedule and expected to be completed by mid-2014. It will include mass-market and VIP gaming facilities, five-star luxury hotels and specialty restaurants and bars. Our total investment in this project is expected to be $680m and we expect the facility to contribute to further diversifying the Philippines’ tourism industry, leading to sustainable economic growth – as has been the case in Macau. In addition to expanding tourism, let us not forget that the new integrated resort in Manila will also create job opportunities, including for the construction sector. With more employment available, and from a variety of industries, this can only be more good news for the people of the Philippines.

ARASI: Gaming is the new sunrise industry in the Philippines. It dovetails with the government’s drive to promote the tourism sector by increasing foreign visitor arrivals from 4.2m in 2012 to 10m by 2016.

The gaming sector offers many employment opportunities for Filipinos. We believe that the local workforce has what it takes to staff the domestic gaming sector given its service-oriented culture and strong English-language proficiency. The Solaire Resort & Casino has created more than 4000 jobs, and the other properties to be opened at Entertainment City would most likely require a similar number of employees.

It would not be farfetched that eventually, as the Philippine gaming industry grows, there will be more employment opportunities in the sector. This in turn will allow more Filipinos working in similar industries abroad to come back home to live in the Philippines.

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Jorge Sarmiento, Thomas Arasi

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The Report: The Philippines 2014

Tourism chapter from The Report: The Philippines 2014

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