Gambling Commission Review Report: dti report back on public hearings; dti 3rd Quarter 2011 Performance Report; National Consumer Commission 3rd Quarter 2011 Progress report

Meeting report

Gambling Commission Review Report: Departmental report back on the public hearings
Ms Zodwa Ntuli, Deputy Director-General (DDG): Corporate and Consumer Regulation, Department of Trade and Industry (the dti),  said that civil society’s voice had not been expressed and the Department was seeking a means to get access to forums for society’s voice to be heard as that was where the social effects of gambling were felt.

She said the regulatory environment was subject to concurrent jurisdiction between national and provincial. The National Gambling Policy Committee comprised of the Minister of Trade and Industry and the nine Members of the Executive Councils (MECs) of the provinces. National provided the oversight role while the provinces issued the licences.

Concerns had been raised over the lack of uniformity in how the industry was regulated. The Department wanted to reduce the cost of compliance in the industry and properly align the provincial structures and national legislation to prevent “forum shopping”. Broad-Based Black Economic Empowerment (BBBEE) requirements had to be applicable to all in the industry and thus co-ordination was crucial. The pace of transformation was slow, not only in ownership, but across the value chain. There was a need for the industry to commit to the targets set. There was a possibility of monopolies emerging which would make it difficult for new entrants to the market. Issues around policy and legislation; rules and regulations; co-ordination and implementation all still required attention. The Policy Council was not an effective or efficient mechanism, with meetings regularly not having a quorum. The next meeting would be on 27 March 2012. She said Parliament should request a coordinating structure for provincial legislation on issues of concurrent jurisdiction. She said there had to be restrictions on advertising. It had to be managed and monitored. There had to be guidelines and approval for the content of adverts. There was no framework currently to control Bingo, yet provinces were issuing licences.  Online gambling needed a particular, unique approach. She noted that concerns had been raised on how minors would be protected and on money laundering with regard to interactive gambling. The regulations needed to be improved to deal with these concerns. She said the current legislation was not flexible enough to accommodate technological innovations with regard to the broader online gambling. Online gambling would need further discussions and would require significantly more people with cyber skills. A cost/ benefit analysis would have to be done.  Racing, in all its forms, would be looked at as animal racing and, consequently, measures to deal with the welfare issues of animals. There was a need to look at a funding model for the Responsible Gambling Programme. Responsible gambling activities was not enough and it had to be aligned to a proper strategy, which had not been crafted yet. The review of the Lotteries Act would look at efficiency in the distribution of funds and deal with conflict of interest matters.

Mr J Hill-Lewis (DA) wanted the Committee to write to MECs urging their attendance at the March meeting. He wanted the Department to furnish the Committee with a list of regular non-attendees.

Mr X Mabasa (ANC) wanted a list of the benefits of gambling.

Adv A Alberts (FF+) asked how online gambling would be regulated, as even the United States of America (USA) had difficulty.

Dr W James (DA) asked if gambling was a regressive tax, if shareholder returns in the industry were good, whether there was a trade-off for provinces on the re-issuing of licences and whether the public good was served by the National Lotteries Board. Given good governance, for how long would non quorate meetings be tolerated.

Mr Macdonald Netshitenzhe, Chief Director: Policy and Legislation, the dti, said that it was difficult but do-able to regulate interactive gambling, but not online gambling. There was a need to analyse what could be done through the Policy Council and what needed legislation. He said the Policy Council was not working. On the list of benefits of gambling, he said that the public good was served through the disbursements it made and by the negative effects it attempted to mitigate. He said it was proper to adopt the welfare of animals a policy and the Department would work with veterinary services.

Ms Baby Tyawa, CEO of the National Gambling Board, said a social impact study on gambling had been undertaken. The fact that people had to go to a designated place to gamble did regulate gambling. The study showed that 78% of the population did not gamble. 80% of the balance gambled on the lottery and four per cent on horse racing. Of those who gambled, there was a bias towards the metro areas. Gambling was the second largest income for provinces, after the fiscus, so it was very important for them.

Ms Ntuli, said the gambling legislation was not there to get revenue but to control the industry. The industry was worth R17 billion and accounted for significant job creation.

Mr Lionel October, Director General, the dti, said that there appeared to be a sub text in the arguments against transformation; that it was costing the country. It was incontrovertible that the benefit outweighed the cost. He said shareholder returns were very good in some sectors which had resulted in the increase in the gambling tax. The gambling industry, with a growth of 7%, had outperformed gross domestic product (GDP) growth (that was the growth in other industries), but it had also suffered the most in the recession and therefore there had been a decline in the lotteries income.  Gambling had a disproportionate effect on the poor and therefore  needed to be tightly regulated. The level of gambling the country was prepared to tolerate had to be determined. The lotteries distribution had to be reviewed as it needed full time professional staff and had to be separate from the Lotteries Board.

Ms Ntuli said the next study by the Department would focus on online gambling.

Department of Trade and Industry on its 3rd Quarter 2011 Performance Report
Mr October said the report covered the key achievements, the budget and expenditure and key challenges.

Strategic Objective 1 (SO1)
The core objective was to revitalise and expand the manufacturing sector, grow international trade, develop an inclusive economy and create a regulatory environment conducive to stable business. Government spending was 30% of GDP. There had been massive imports growth and so five sectors had been designated for support. These were buses, canned vegetables, textile and clothing, leather and footwear, power pylons and rail rolling stock. The clothing and textile industry had stabilised and even showed a modest growth.

Strategic Objective 2 (SO2)
R20 billion in tax incentives under Section 12(i) were available. The Department had supported 808 companies in export marketing assistance and Nestle and Unilever would be making substantial investments in the country. There was a need to change the balance of trade with China. Wine had a 7% market share in China and could increase. It was looking to increase trade with Angola which had 20% economic growth.

Strategic Objective 3 (SO3)
The Department had presented the Small Medium and Micro Enterprises (SMME) review report. There was a need to expand incubators and to increase linkages between small and big business as this relationship was not well developed because of a previous history of marginalisation. The Co-Operatives Amendment Bill had been completed. The BBBEE Amendment Bill had been approved by Cabinet and there had been progress on the Saldanha Industrial Development Zone which hoped to launch in June. 112 enterprises had been supported by the Black Business Supply Development Programme. Through the Enterprise Investment Programme, businesses’ could qualify for a one third cash support for capital acquisition.

Strategic Objective 4 (SO4)
The Financial Reporting Standards Council and the Takeover Regulation Panel had been established.

Strategic Objective 5 (SO5)
The vacancy rate in the Department had decreased from 16.9% to 11.2% and 42.18% of staff were female. The Department was in the process of placing all of its incentive programmes online. Two pilot projects had shown that turnaround time’s had decreased from three months to two weeks. There was a new framework of governance with the CFO now being the Group CFO and therefore served on the audit committees of all dti entities.

Expenditure
Expenditure was at 98.2% of the budget. Expenditure in the previous financial year was R3.8 billion compared to the current R5.3 billion. The major expenses were for transfers for the Automotive Investment Scheme.

Challenges
⚫ High administration charges especially electricity and port charges.
⚫ Inadequate rail and port infrastructure
⚫ Global economic slowdown
⚫ The corporate governance of agencies
⚫ Slow State Information Technology Technology Agency (SITA) procurement processes

Mr Mabasa asked if the Department had a presence in the rural areas.

Ms S Van Der Merwe (ANC) wanted reporting on investment programmes to reflect the number of jobs created. Was Africa targeted for exports? What support was there for trading in these markets?

Mr J Selau (ANC) asked if the dti had plans to spread the manufacturing base away from Gauteng to other parts of the country.

Dr James asked what strategy the Department had on trade shows.

Mr N Gcwabaza (ANC) said the report had contained no information on agro-processing.

Mr B Radebe (ANC) asked what the Department did with entities which did not comply with good governance.

Dr M Oriani-Ambrosini (IFP) said 80% of the budget was transfers to industry. What was the economic cost of these transfers? Had the Department studied the Greek model as South Africa appeared similar to Greece?

Mr Kumaran Naidoo, Group Chief Financial Officer, the dti, said the dti managed its budget weekly basis and made payments on a daily basis.

Mr Yunus Hoosen, Chief Director: Trade and Investment South Africa (TISA), said the Department had done an analysis of products that could be exported to China. Amongst them were wine, cereals, fruit, fish, canned fruit, polypropylene, aluminium alloys, mining and mining safety equipment, wood pulp and paper. The dti assisted companies, both on an individual basis and in the form of national pavilions at trade shows, especially for the food sector. It had a presence at shows in China, Japan, and Europe.

Mr Steven Halliwell, Director: Agro-Processing Unit, the dti, said exporting red meat to China was a long term process as foot and mouth disease requirements needed to be fulfilled and  was the mandate of the Department of Agriculture and Forestry.  The two big investments under the Section 12(i) tax incentive scheme by Nestle and Unilever were worth R3.4 billion.

Mr October said that the highest failure rate occurred with co-operatives. In the past South Africa had had world class co-operatives and was looking at proposed legislative changes to change the situation. All other countries gave large support to agriculture but this had stopped in South Africa after 1994 and the existing co-operatives had privatised. The secondary economy in agriculture needed co-operatives and marketing boards to be resurrected. He said the Department would provide details on jobs created from investments made. He said manufactured product exports had experienced growth but could expand further. It was hampered by the high cost of logistics and customs bureaucracy. A Department of International Relations and Cooperation (DIRCO) meeting had been planned to co-ordinate activity. There were legislative proposals to address underdeveloped areas of the country but the Department did not want to promote relocation rather it was a case of developing new nodes and attracting new investments. South Africa did not have a long term strategy regarding rare earth metals. There was a hotline for the payment of small businesses suppliers and the payment of these suppliers had been put in the performance contracts of the director – generals. He said the Department only regulated mergers and acquisitions. On wind solar power, he said there were lots of imports and local manufacturing was closing down. On Greece he said the correlation to be noted was the size of the manufacturing sectors and that Greece had neglected its manufacturing sector.

National Consumer Commission 3rd Quarter 2011 Progress report
Ms Mamodupi Mohlala, National Consumer Commissioner, said the presentation would focus only on the last three pages of the report. She said the unit was cash strapped and could not proceed with some projects.

Mr Kgabo Mantsho, Chief Financial Officer (CFO), National Consumer Commission (NCC), said the bank balance as at end February 2012 would be R813 553 and by the end of March it would have a negative balance of  – R2 688 427. This figure was exclusive of other projects costs.

Mr Ntseileni Netshitoboni, Director: Information and Communications Technology (ICT), NCC, said the unit needed a good call center. It had been unable to pay to license its Microsoft products and was working with temporary licences. This was also the case with anti-virus software. The website run by the Department needed to be handed over to the unit. It had not been able to implement the “opt out” register.

Ms Mohlala said the dti had agreed to give the shortfall of R1.9 million.  The other R13.2 million was critical for operations.

Ms Van Der Merwe asked to what extent these were for planned expenses - was the software, for example, not budgeted for?

Mr Gcwabaza asked why there was a decline in the payroll and queried the fees for the Auditor-General.

Mr Alberts asked if the NCC had a funding wish list.

Mr Hill-Lewis, by way of a particular incident related by him, raised the issue of businesses being disadvantaged by the NCC.

Ms Mohlala replied that a Deputy Commissioner had been appointed in January 2010 but had only officially taken office in November and that he received back pay for the intervening period in December therefore there had been a spike in salaries.

Mr Mantsho said the Auditor-General‘s fees was a projected estimate based on invoices received to that date. After consultation with the Group CFO that figure had been re-adjusted downwards.

Ms Mohlala said the opt out register was part of the National Consumer Protection Act (No. 68 of 2008). She said the lack of funds meant that the research unit activities and the awareness unit projects would be cut. The investigative unit would need to prioritise on the number of spot checks it could make and on the number of port visits it could undertake. When compliance notices were issued they would not be by courier but rather emailed and it would be difficult to prove that respondents received them. Regarding Mr Lewis’ case, she said the Commission did give respondents an opportunity to present their case and a process of mediation and arbitration ensued. Compliance notices were only issued when respondents did not have a strong case and this was invariably because they had not responded.  She said the documentation required by the Department had been sent to them regarding spending, building leases and IT.

Mr October said budgets were allocated a year in advance and the Department were not authorized to exceed this figure as it would breach Public Finance Management Act  (No. 1 of 1999) (PFMA) regulations and be an offence, He said all procurement processes needed to be properly followed especially for building leases and Information Technology (IT) procurement and the Department did have concerns over the procurement. Even though the European Union funding was not Government funds, the Department followed the same procedures as for Government funding and so the disbursement of funds too was subject to PFMA requirements.

The meeting was adjourned.