Singapore’s two integrated resorts are undergoing a $9 billion expansion as part of the city state’s bid to revive its flagging economic fortunes. But this may not be enough to drive Singapore’s next phase of growth.

(Apr 8): On a recent Saturday afternoon, the shops at Marina Bay Sands (MBS) were teeming with tourists, some of whom had paid $10 a head for a shopping mall version of a sampan ride down the Singapore River. Later that evening, the ballrooms upstairs played host to a glitzy convention of Los Angeles-based weight management product company Herbalife’s top distributors.

By most accounts, MBS is one of the best-performing properties under Las Vegas Sands, the gaming corporation helmed by Sheldon Adelson. The dramatic architecture of its three curved hotel towers, topped with the world’s biggest cantilever, has become an iconic representation of Singapore; more than a million pictures of its 57th-floor infinity pool are posted on social media. The complex, completed and opened nine years ago, was built at a cost of about $8 billion. Now, Las Vegas Sands will spend another $4.5 billion on expansion — a fourth, 1,000-suite hotel tower, a 15,000-seat entertainment arena and an additional 1,000 gaming machines on the casino floor.

The other integrated resort (IR) operator, Genting Singapore, will also bankroll an expansion at Resorts World Sentosa (RWS). It will lay out $4.5 billion to increase its gross floor area by 50% to accommodate a bigger Universal Studios and aquarium and add a new waterfront complex with two new hotels, and a public attraction. The casino in the basement will have 800 more gaming machines.

The combined $9 billion investment by the two IRs is equivalent to two-thirds of what the companies first spent on the two properties, and comes in exchange for an extension of their exclusive gaming licences until end-2030. Both Genting Singapore and Las Vegas Sands are betting on a lift from the enhancements, and expect to contribute to a boost in tourist arrivals to Singapore.

“This major reinvestment and expansion in Singapore underlines our belief in the business model and the future opportunities that lie ahead when we complete the development,” says Tan Hee Teck, CEO of RWS, in a statement.

“New luxury hotel accommodations and a world-class entertainment venue are exactly the catalysts we need to drive additional visitation to Singapore, and specifically to MBS,” says Rob Goldstein, Las Vegas Sands’ president and chief operating officer. “The expansion of our Singapore IR is a key component of our company’s strategic growth plan and also reflects the strong tourism and business potential in Singapore.”

The decision to allow casinos, as part of an IR, to operate in Singapore, was taken after much soul-searching. At the time, there was concern that Singapore could fade into obscurity, as other global cities — such as New York, London and Paris — reinvent themselves. “In the early 2000s, tourism was in the doldrums and Singapore had limited appeal beyond business travellers,” says Chua Hak Bin, senior economist at Maybank Kim Eng Research.

Eventually, the decision was made to have two complexes that would not only broaden the range of tourist offerings but also reinvent Singapore’s image. “We are not considering a casino, but an IR,” Prime Minister Lee Hsien Loong told Parliament in April 2005. Concerns about how casino gambling would erode values and increase vice activities were managed in view of the expected economic gains — as many as 15,000 jobs could be created in the IRs, and the spillover to other economic sectors would be substantial.

“The opening of the two IRs put Singapore on the map as a tourist destination,” says Chua. Indeed, after the IRs started operations in early 2010, tourist arrivals to Singapore rose steadily. There were high rollers from across the region, eager for new experiences, as well as tourists who flocked to MBS’s SkyPark for views of the city.

In the first nine months of 2010, the IRs contributed $3.7 billion to the Singapore economy in the form of tourists who came specifically for the two developments. Some 111,500 new jobs were created by the overall increase in tourism; about a quarter of those, or 30,300, were as a result of the IRs.

GDP growth in 2010 and 2011 was 14.8% and 4.9% respectively.

Today, hotels at both MBS and RWS operate at near-full capacity, while the meeting and exhibition spaces run full calendars. Last year, tourist arrivals to Singapore  rose to a high of 18.5 million, setting a record for the third year running.

Yet, some have observed that the IRs have lost their novelty value, particularly in the eyes of the high rollers. Annual gaming revenues at the casinos have been relatively flat y-o-y. Competing properties in the region have also emerged.

Meanwhile, economic growth in Singapore is flagging, amid uncertainties in the broader economic environment. And already, the Singapore Tourism Board is cautioning that the seemingly strong growth in tourism could lose steam from this year.

The government has been commissioning reviews of economic drivers in a bid to revive growth. Would the expansion of the IRs arrest any decline?

Beginner’s luck

Unfortunately, market watchers do not expect the expansion to give the same economic boost as the initial investment. “You’ll probably see an uplift, but it won’t be as sharp and the magnitude will also be less. The scale of investment is less than what it used to be and also will be [spaced out over] a period of a few years. The uplift will materialise in a more gradual manner,” says Irvin Seah, senior economist at DBS Group Research.

Having said that, the expansion will still be positive overall for the Singapore economy, particularly for tourism-related industries.

“It should give the Singapore economy a nice boost, both in reputation as an attractive investment destination as well as refresh the tourist attractions here,” says Selena Ling, head of Treasury research and strategy at OCBC Bank.

“Many other countries are stepping up their airport infrastructure and tourism attractions. Japan is currently requesting bids and proposals for three IRs across different cities. The Philippines and Macau are still building more casinos to cater for the high-end VIP market,” says Maybank Kim Eng’s Chua. “At the very least, Singapore’s move to expand the two IRs will help revive tourism and arrest the declining growth in visitor arrivals and tourism receipts.”

This investment could also be what is needed to create jobs, revive construction and support the property market and hospitality sector. Such big-ticket projects can also give a counter-cyclical lift to the economy, such as the growth the construction sector experienced during the 2007 to 2009 period while the IRs were under construction. “While there may be some leakage from the construction angle, since most of the labour is imported, there should be significant potential spin-offs in other areas,” OCBC’s Ling adds.

“When you talk about building IRs and hotels, you need to source a lot of other things that go into the daily operation of the business — the suppliers will benefit upfront. When they ramp up investment, that’s when they will start recruiting headcount,” says DBS’s Seah. “In the long term, once the investments take hold and start operating, they will definitely attract more tourists to Singapore. This is the impact that will flow into the entire economy. The related industries, such as F&B, retail and other theme parks, will also benefit.”

Longer-term vision needed

Ramping up the IR investment is also part of the long-term plan of the Singapore government. Song Seng Wun, a CIMB Private Banking economist, points out that the expansion is in line with the redevelopment of the Keppel waterfront as the port terminals are moved to Tuas. “We must not forget, while we are focusing on the IR upgrading, that it is really part of the redevelopment of the Downtown core,” he says.”

Says DBS’s Seah: “It’s the whole package; the government is also investing in the nature theme park in Mandai. The IRs will be an additional boost to the overall tourism and Singapore economy.”

Apart from potential GDP growth, Seah notes that the investment could result in additional revenue for the government coffers. “Beyond just additional revenue for the related industries and tourist arrivals, I see a positive aspect of this investment and that is with respect to the revenue raised for the fiscal coffers. The government has also raised the gaming tax, and if the profits from the two IRs increase, naturally the government coffers will benefit,” he says.

The taxes on the casinos are set to increase in 2022. Currently, taxes on the casinos’ revenues — at a rate of 5% for premium player takings and 15% for mass gaming takings — still account for only 3.6% of total tax collected.

On the face of it, the risks to the new projects should be limited. “Since the two IRs are already well established here, and this is a tested expansion plan rather than a greenfield project, the risks should be limited to a certain extent,” says OCBC’s Ling.

But there will be challenges for the IRs, namely the manpower crunch plaguing the entire services sector. Coupled with the typically higher costs of doing business in Singapore, compared with operations in other countries, the gaming companies are likely to deploy more technology in their new facilities. “How MBS and RWS will incorporate technology into the new facilities will be interesting to see. The upgraded IRs will have to rely less on people and more on technology to deliver services,” says CIMB’s Song.

Nevertheless, the enhanced IRs will still be only one driver of Singapore’s economic growth. And the gambit may also be quickly replicated, at a lower cost, in the neighbouring cities that are fast catching up as centres to do business. Even as the city’s skyline evolves, and continues to be Instagrammable, the enhanced physical spaces will not be enough for the transformation that Singapore needs to keep ahead of the competition.