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16 April 2008

Programme Director,
Distinguished Guests,
Ladies and Gentlemen,

Thank you for the opportunity to say a few words at this important event which brings together regulators and key stakeholders in the gambling industry.

The gambling industry in South Africa operates as a regulated industry. As you know, the basic architecture of the current regulatory framework emerged in the early 1990s, following the report of the Wiehahn Commission of Enquiry into gambling in South Africa. Prior to 1994, gambling activities, apart from horse race betting, were illegal in most of the territory of South Africa. The exception was of course, in the so-called independent bantustans, where casinos were established in terms of legislation then operative in those territories.

By the end of the apartheid period however, a sizeable illegal gambling industry had sprung up in the major centres of the country. At one point it was estimated that there were as many as 2 000 illegal casinos operating more than 150 000 illegal gambling machines.

Public opinion on gambling at that time, as well as today, locates itself somewhere along a spectrum between two extremes. At the one extreme is a view that sees gambling as inherently evil and undesirable and something that ought therefore to be prohibited. At the other extreme is a view that sees gambling as an inherently harmless entertainment activity, on par with other forms of entertainment, whose roll out therefore holds out the unproblematic promise of jobs, investment, tax revenue and a boost to the tourist trade. Government opted in the mid 1990s, to steer a middle course between those two extremes and that remains our position today.

The key recommendation of the Wiehahn commission that prohibition would simply drive the industry underground, and leave consumers at the mercy of unscrupulous operators, was accepted. But policy since then has also operated on the premise that gambling cannot simply be treated as an entertainment activity like any other. It is an activity with its own specific features that could potentially be associated with adverse socio-economic consequences that consequently demand tough policy and regulatory scrutiny.

While engaging in gambling games is at one level a form of recreation, punters are also attracted by the prospect of winning, and indeed, by winning on such a scale that their lives would be transformed immeasurably. Of course, as you all know better than I do, the odds against this happening are very long indeed. The only consistent winners of gambling games are the operators and the bets of punters are the basis of the revenue of a very extensive industry.

At issue is not the many perhaps even the majority, of punters who are people spending relatively small parts of their discretionary income on a harmless night out at the casino, and whose losses can be regarded as payment for the entertainment experience. However, policy and regulation must be concerned at a tendency toward addictive and compulsive behaviour on the part of a minority of gamblers, people who as the slogan has it "do not know when to stop". Policy and regulation needs also to take into account the implications of the high levels of poverty and inequality, and economic exclusion of the black majority in this country that render low income people potentially vulnerable to abusive targeting, with exaggerated promises suggesting that engagement in gambling offers a way out of poverty.

In these circumstances, the approach that government has adopted since 1994, has been that gambling will be permitted, but subject to regulation. Regulation determines, inter alia, the forms of activities that are allowed, the number of outlets permitted in different areas and in the various forms of activity, the technical specifications of machines and the legislation also empowers regulators to ensure that actual or potential punters, are protected against predatory practices by operators.

Programme Director;
Ladies and Gentlemen;

I believe that this broad approach will continue to find majority support among the public, in government, and in Parliament. Those favouring outright prohibition, or outright liberalisation, will I believe, for the foreseeable future remain in the minority.

If we look at the economic impact of gambling since 1994, we can see that the industry has made a sizeable contribution towards capital investment, infrastructure development, tax payments and employment. The years between 1997 and 2000 saw the gambling industry making fixed capital investments of around R 10 billion, representing 2,1 percent of total South African fixed capital investment over that period. As a result of conditions imposed on gambling licenses, these investments reached beyond the development of the gambling site itself, leading to the emergence of new hotels, shopping malls, entertainment centres, and convention centres. As a result, in the 10 years since gambling was legalised in South Africa, casino resorts have added almost 6 000 hotel rooms to South Africa's tourist infrastructure. In 2005, the gambling industry contributed about R2,7 billion to government coffers, of which about R1,8 billion was provincial gaming tax and value added tax. The casino industry alone, is estimated to have created about 100 000 direct and indirect jobs. Gross gambling revenue grew from R5,6 billion in 2003, to R10,1 billion in 2006. While these developments are all welcome, it is precisely in the last figure that the double edged sword of the industry can be identified.

A study commissioned by the National Gambling Board in 2003, ranked South Africa 14th on a list of 50 leading nations ranked by land based gross gambling turnover. We were ranked above countries like China, Singapore, South Korea, the Netherlands, Brazil, New Zealand and Sweden. The same study indicated that South Africa would have been ranked 29th among the same group of countries on the basis of its gross domestic product (GDP), and concluded that considering this our country's ranking of 14th in terms of gross gambling turnover, implies a relatively large gambling sector.

The report went on to analyse the participation in gambling activities by income categories. It found that a significant percentage of people in the income brackets of less than R500 per month, of R501 – R1 000 per month and R1 001 – R2 000 per month, were involved in casino gambling and betting on horses, as well as participating in the National Lottery. In my view, this highlights the complex and difficult challenge that regulators face in achieving an appropriate balance.

Our regulators need on the one hand, to create conditions under which the industry is able to realise its economic, employment and potential Broad Based Black Economic Empowerment (BBBEE) benefits, but they need simultaneously to ensure that it does this in ways which do not involve over stimulation, particularly in respect of low income people and low income communities. People in income categories of less than R500 per month, or of between R501 – R1 000 per month are probably beneficiaries of social grants. We know from a study that has been undertaken in the Western Cape Province, that significant numbers of social grant recipients are in fact spending a sizeable part of that money on gambling activities. This surely cannot be a socially desirable situation. And thus, while it is undoubtedly the case, as a later study commissioned by the National Gambling Board concluded, that addictive and problem gambling in South Africa, is no worse than in other countries, due cognisance needs also to be given to the likely social impact, and likely target market of particular gambling activities.

The 2003 study to which I have referred, not surprisingly indicates that participation by low income people is greater in forms of activity which do not require facilities that such people are unlikely to have access to, such as computers to engage in internet gambling. Likewise if the outlets are located nearby, such people are more likely to engage than if they have to travel some distance to an outlet.

Programme Director;

We in government and in Parliament are well aware that the gambling industry, like many others, is a dynamic sector in which there are emerging new forms of activity, including activities that transcend national borders. Internet gambling is already a reality, and we are aware of other potential new developments such as person to person betting through the medium of betting exchanges, as well as long standing ambitions to introduce other established activities that do not exist in South Africa like grey hound racing. These developments are posing challenges which regulators in other jurisdictions, as well as in our own, are having to grapple with. The recent National Gambling Act Amendment Bill, which seeks to permit under certain conditions, internet gambling activities, received a rough passage in Parliament, with one province in the National Council of Provinces opposing it. Committee members expressed serious concerns at evidence given by prominent members of the National Responsible Gambling Programme, to the effect that gamblers and even children will find it increasingly easy and convenient to gamble via cell phones and on the internet.

Chairperson; I believe that the experience of the passage of this bill speaks volumes about the national mood toward gambling in this country. Legislators will not be in a hurry to introduce new forms of gambling activity merely because they exist elsewhere, and/or, because there are possibilities that South African firms might have a competitive advantage in developing those activities inside the country. Such considerations will have to be weighed against the potential social impact and in particular, the market to which such activities are targeted.

Forms of gambling that may actually, or potentially, be directed at low income people and the poor, and/or which are sustained by exaggerated promotion activity, are not likely to be looked on kindly by legislators. Operators of existing licensed activities need also in my view to engage in serious introspection, which the gambling regulators need carefully to oversee. Among the questions which I would suggest need to be posed in this regard, are the following:

* Have practices of bussing people to casinos from low income areas, which we know existed in the past, now been discontinued, and if not, why not?
* Are steps being taken to ensure that limited payout machines are not specifically targeted at people in low income areas?
* Have the matters under the heading "Standards for Gambling Premises" in Section 17 of the National Gambling Act, relating to matters like location of ATMs and notices about dangers of addictive gambling, received attention from the casino and Limited Payout Machines (LPM) industries even in the absence of formal regulations, and if not why not?
* Are procedures to exclude identified problem gamblers operating effectively?
* How should the industry and regulators respond to a 2007 research report by the National Gambling Board suggesting a low level of responsiveness to existing campaigns and initiatives to promote responsible gambling ?
* And are the industry and the regulators acting together to clamp down on illegal activities?

With respect to the last point, let me say that we expect compliance with, and enforcement of the law. The fact that some or other activity has emerged illegally does not mean that it is merely a matter of time before we give in and legalise it. Nor should operators of illegal activities assume, that even if the activity they are engaged in illegally is eventually legalised, they will be the ones to be granted licenses. Let me be clear. We do not regard operators of illegal activities as trailblazers that will eventually be rewarded, but as criminals that need to face the full force of the law.

Programme Director;
Ladies and Gentlemen;

I have tried to share some of my own personal views, as well as to sketch out how I understand the climate of public and political opinion within which the regulation of the gambling industry needs to locate itself. I have tried to be frank, but I have also indicated that we see a future for this industry as a socially responsible entertainment activity, drawing its revenue mainly from discretionary consumption expenditure of people who can afford to pay for the entertainment offered by the industry.

If the industry acts to locate itself clearly in this space, and if it avoids the evident temptation to prey on low income people and the poor, I believe we will be able to work together toward a bright future in which all of us benefit.

I thank you for your attention and I wish you luck with this conference.

Issued by: Department of Trade and Industry
16 April 2008
Source: Department of Trade and Industry (http://www.thedti.gov.za)