Gambling: briefing by Minister Erwin & National Gambling Board

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Trade and Industry

20 February 2001
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Meeting Summary

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Meeting report

21 February 2001

Chairpersons: Mr Davies and Mr Moosa

Relevant Documents:
Presentation from National Gambling Board and Minister Erwin (See Appendix)

Gambling in South Africa is a responsibility shared by provincial and national governments. The industry needs to be tightly regulated. Government must consider how many casinos the economy can support and the government's ability to monitor gambling must be increased. Limited pay-out machines do the greatest social damage so their numbers will be restricted and their maximum pay-outs will be set at R500. Government is clamping down on the current proliferation of illegal gambling machines and will also regulate Internet gambling.

The Minister of Trade and Industry was joined by both the Chairperson and the Chief Executive Officer of the National Gambling Board (NGB) to give a presentation on the current state of gambling in South Africa, including its socio-economic impact.

Mr Erwin said the fact that gambling is a concurrent national and provincial responsibility makes review and assessment more difficult. He said economies cannot support unchecked levels of gambling but must gauge its capacity to support the industry. He noted that in Australia and the USA there have been rapid rises and declines in the gambling industry.

The Minister wants to inquire into the government's ability to monitor gambling effectively, calling it a very complex industry in terms of finances and its impacts, including social. He suggested that limited pay-out machines do some of the greatest social damage and added that, for this reason, their numbers would be restricted. In addition, their maximum "pay-out" will be set at R500. He also noted a "mushrooming" of illegal gambling machines and said the government was making an attempt to clamp down on these. In addition, the government believes Internet gambling should be regulated. It is the government's duty to promote responsible gambling, he said.

The maximum number of casinos South Africa can have is 40. It currently has twenty-four. It is illegal for people under the age of eighteen to gamble and casinos must provide child-care facilities. The government provides telephone "help lines" to provide counselling to gamblers. So far, this service receives 500 calls monthly.

The Minister said it is unknown whether the economy can sustain such a large gambling industry. He noted South Africa has a much lower per-capita income than Australia. We must also come down harder on illegal gambling, he asserted.

He emphasised it is imperative that the industry be tightly regulated. He said the provinces must work with the national government to make strong and efficient regulations, the government must increase the monitoring of problem gambling and the industry must be monitored carefully; for example, certain areas and communities should not have casinos.

(Q) An ANC member asked about the provincial powers in terms of gambling.

(A) Minister Erwin answered that some provinces promulgated gambling laws without national concurrence. The industry was being over-traded. He noted that in Australia the provinces controlled over 180 000 pay-out machines with huge consequences. He said South Africa would have around 70 000 such machines only.

(Q) Chairperson Davies (ANC) said problem gambling is seen as a socio-psychological problem in developed countries and wondered if this were also the case in South Africa where there are huge disparities in wealth and so many poor and unemployed people. He also wondered to what extent people who are poor or have low incomes are gambling and if this is aggravated by limited pay-out machines. He asked if there might not be a more appropriate methodology for South Africa.

(A) The Minister responded the best way to find out what is happening in gambling is to regulate the industry tightly. Regulation will tell us who is gambling. Usually, the "big money" comes from the "high rolling" gamblers ie those who bet large amounts at the tables rather than those playing small amounts at the limited pay-out machines. He said the government does not promote gambling as an avenue of economic empowerment but, rather, takes a more restricted approach. He said the gambling industry requires a vigilant monitoring capacity and government wants to increase this capacity.

The Chairperson of the NGB added it is important that pay-out machines not pay more than R500. This is an important preventative measure as he thought this restriction would prevent the social problems such machines have caused in other countries. He added there would be a central monitoring system to which all these machines would be linked. This would monitor what the tendencies of gamblers are.

Minister Erwin interjected there must be a central monitoring system, that the government is not willing to go ahead without one and will go to court to ensure a central monitoring system, if necessary.

(Q) Ms Ntuli (ANC) asked the Minister if, in saying that the regulation of Internet gambling must be tightened, he meant that Internet gambling was legal in South Africa?

(A) Minister Erwin answered there is nothing anyone can do to stop Internet gambling; the industry will grow despite any attempts to stop it. He said Internet gambling can also be a front for money laundering and other crimes, so the government chooses to monitor it.

The NGB CEO added that gambling is inevitable. The challenge for the government is how to best regulate it. In addition, he said, the provincial governments have very few sources of revenue.

As for the Internet, he said, there is little we can do. There are three possibilities: we can ignore the problem, like an ostrich; we can try to stop Internet gambling, but this will be unsuccessful; or we can regulate it and face the challenges. The real question is how best to regulate the Internet.

(Q) Ms Dudley (ACDP) asked if they should consider banning advertising about casinos, as has been begun with cigarettes. She said her six-year-old child had been pestering her to take him gambling and she did not like his awareness of casinos.

As to the Internet, she suggested they investigate further options and not be so hopeless about it. She said a lot of money is leaving the country via Internet gambling, a loss the country cannot afford.

(A) Minister Erwin responded that Internet technology makes the Internet impossible to police. If you issue a licence, you are responsible for both its successes and failures. He said it is short-sighted to not see the potential risks of this industry. He suggested they try to avoid situations where they see the possibility of failure and emphasised they must work together on this.

(Q) Mr Bruce (DP) said, in terms of gambling, "supply creates demand". He wondered, then, if providing casinos meant to increase the demand for gambling opportunities. He said the Americans may be right in calling limited pay out machines "one-armed bandits". He suggested a complete review of gambling in this country and asked when the lotto would pay-out to the charities it sponsored.

(A) Minister Erwin replied that problems result from regulation but the industry must be regulated nevertheless. He said they need common standards, although the responsibility to administer the standards is provincial. As for "one-armed bandits", this kind of gambling is the easiest to control. Table gambling is the hardest, he added.

(Q) Ms Ntuli (ANC) asked if they could look at the locations of casinos, saying they should not be close to poor villages since they bring suffering to families. She asked if they could regulate this.

(A) Minister Erwin responded one weakness of the Act is there is insufficient co-ordinating control and that policy and regulation should be separate. He said the impact of a casino on a village is not the regulator's responsibility once the licence has been granted. The location of a casino is a matter of policy; also, casinos go where bidders want them. The Minister revealed that, in hindsight, he would not put casinos near shopping centres.

As to the idea of Black Empowerment groups operating casinos, the Minister said their "pockets are not deep enough" and he does not want groups to borrow in order to put up a casino. He noted that only "big players" can afford to put up casinos.

(Q) An ANC Member asked about the role of the machine manufacturers.

(A) Minister Erwin said they have a very important role. The "odds" a machine gives must be reasonable and reliable. He said the government would only use machines it can monitor directly. Each machine must be linked to a central system and provinces will have immediate access to information about their own province.

(Q) An NCOP Member asked how binding the licencing manual is.

(A) The Minister said they are currently debating a common licencing manual with the provinces.

(Q) An ANC Member pointed out that gambling impacts on the quality of life for poor people and therefore warrants review.

(A) The Minister agreed that the government is concerned about the negative effects gambling can have on people. This is why it is restricting the number of limited pay-out machines.

The NGB added that South Africa may have a limited number of casinos but illegal gambling proliferates in South Africa. There may be 80 000 to 100 000 machines outside of casinos at this time. What is required is proper law enforcement and well-regulated casinos. He said gambling is viewed as a "triumph" by industry promoters and a "tragedy" by various others. The reality is that gambling is a trade-off that must be balanced so the positive aspects outweigh the negative ones.

Chairperson Moosa agreed, saying they need to try to understand the impact of gambling and set common regulatory standards with the provinces.

(Q) Chairperson Davies suggested they break down the information gathered according to the different forms of gambling ie the benign versus the more harmful.

(A) Minister Erwin concurred, saying they could hope for new amendments this year and a "tightening up" of policy following more precise studies. He noted there is now little capacity to counsel provinces or to deal with differences between them.

The meeting was adjourned.

21 FEBRUARY 2001


To provide an update on the progress with regard to the promotion of responsible gambling in South Africa focusing on socio-economic impact of gambling.

While the majority of South Africans gamble with little or no adverse consequences, the percentage of adults with gambling problems is bound to increase with time as gambling becomes more socially acceptable and accessible.

The South African gambling industry is still in its infancy stages, and has experienced growth and expansion through the legalisation of various gambling activities. Concerns are also growing about the 'downsides' for society, and in particular the impacts on so-called 'problem gamblers'.

Section 13 (1)(b) and (c) of National Gambling Act provide that:
"members of the public who participate in any licenced gambling activity shall be protected and that society and the economy shall be protected against over-stimulation of the latent demand for gambling."

At the first meeting of the National Gambling Board (NGB), after its appointment on 29 April 1998, the Board's chairman, Mr. Fismer highlighted that:

"gambling is a sensitive industry, and it can become a liability when not run properly. That responsibility is on our shoulders. Never lose sight of the ordinary citizen and the damage we could do to him."

In his address to the National Gambling Board (6 August 1999), Minister Erwin further stressed on the importance of balancing the socio-economic effects of gambling with the resulting positive effects. "All the evidence in our society points to the fact that if we are not watching this, we are going to create some problems. We must be well informed of what is happening in the whole industry so we have a better picture of what effect it has on our society. The positive effects, economical effects and possible negative and socioeconomic effects".

The South African gambling industry has grown considerably over the past 3 years. From the determined quota of 40 casino licences countrywide, 22 casinos are currently in operation (November 2000). These operations have a total of 13 741 gambling machines and 471 gambling tables, compared to about 10 222 machines and 364 tables at the same time last year.

The horse racing industry has long been in existence and still has a significant market share and contribution to the gambling industry. The Gauteng Province has licenced 17 Bingo operations, of which 8 are operational, with 3 527 seats. Limited payout machines (LPMS) are also due to be rolled-out early in the year 2001 (maximum of 50 000 machines countrywide).

March 2000 saw the coming into being of the National Lottery. The first National Lottery game, the Lotto has an average jackpot win of several million rands per week and has proven to be attractive to most South Africans. The operator's (Uthingo) Game Plan includes introducing various games with proven universal appeal, as well as games developed specifically for South Africa, introduced at regular intervals. In October 2000 National Lottery scratch cards (Iza Fast) were introduced to the market. The lotteries are accessible to communities previously inaccessible to legalised form of gambling and are available from more than 5 000 outlets countrywide.

The growth of the gambling industry provided access to gambling opportunities to communities and individuals previously inaccessible thereto. From the Human Science Research Council baseline research (June 2000) conducted on behalf of the NGB, it is estimated that approximately 4% of the adult population in South Africa engage in gambling activities (legal and illegal). This percentage could be higher, noting that fieldwork for the research was conducted during March and June of 2000, when the Lotto had just been launched. Accordingly, the percentage would be expected to increase with the introduction of other forms of lotteries and limited payout machines. The Internet also allows access to a wide range of gambling opportunities into homes, posing fresh challenges for regulation, harm minimisation and taxation.

From the consumers' perspective, a major benefit of gambling is recreation. Gambling therefore attracts individuals who derive pleasure from the venues, the social interaction, the risk of one's money, and the thrill of anticipation, while also buying the hope of a win. Noting the newness of the industry, there still has to be empirical investigations conducted to determine both the economic and social benefits of the gambling industry in South Africa.

The [most fundamental] policy objective of government has been the incentive to exploit gambling as a source of taxation revenue, job creation and economic empowerment. A further task presents itself however, as the function for government policy is stretched and now involves regulating the gambling industry in a manner, which will help bring the greatest net benefits to society as a whole. A challenge for government policy is thus, that of striking a balance between limiting social costs of problem gambling while not significantly reducing benefits to be derived there from.

Financial loss is the main trigger for problem gamblers, which then gives rise to a range of social and personal repercussions.

In Australia, according to the Productivity Commission (1999), the incidence of problem gambling is highest amongst those that play gambling machines and participate in horse racing, and lowest for those partaking in lotteries. The availability and popularity of gambling machines outside casinos indicate that they were associated with 65% to 80% of problem gamblers receiving counseling. Implications for South Africa are that the phenomenon of problem gambling is likely to escalate with the introduction of LPMs.

The main impacts stem from characteristics of problem gambling and these are identified as: personal, work and study, financial, legal, interpersonal, community services.
Source: Productivity Commission, 1999

Research from other countries has further indicated that for every problem gambler, up to about 12 other people are affected (family, friends, colleagues). The problem stretches beyond the individual gambler and touches upon the lives of others. Impacts of problem gambling include:

• Personal: stress, depression, anxiety, ill health, suicide
• Financial: debts, loan sharks, asset losses, bankruptcy
• Legal: theft, fraud, embezzlement, imprisonment
• Interpersonal: neglect of family, domestic/other violence, divorce, community services, loads of the public purse and charities
• Work and Study: poor performance, absenteeism and job loss

The current regulatory environment has shortcomings as each provincial licencing authority has its own legislation and as a result, policies for gambling in the country lack coherence. The NGB is in the process of standardising practices, promoting uniform norms and standards throughout South Africa and is tasked to formulate national policy with regards to problem gambling.

The regulatory framework has however been designed with the intention of controlling legalised gambling activity, ensuring the society and economy is not over-stimulated, thus possibly lessening the extent of problem gambling. The pre-determined quotas of 40 casinos countrywide, only allowing 5 LPMs per site, clear determination of unsuitable sites where the LPMS cannot be located, maximum bets of R5 and limited payout of up to R500 with no provision for linked jackpots on LPMs are some of the measures aimed at ensuring the market is not over-stimulated. Furthermore, the licencing conditions as set out in the provincial legislation, require licencees to commit to engaging in programmes which will address problem gambling.

A regulators' meeting was hold on 24 August 2000 to discuss the process of establishing systems that would address problem gambling at a national level, as recommended in the HSRC Social Impact of Gambling in South Africa research report. Consensus from the regulators' forum was that all industry stakeholders need to be involved in policy development and contribute significantly towards addressing the phenomenon. The process of ongoing consultation with role players is crucial in the development of policy around problem gambling and the promotion of responsible gambling behaviour. Of more importance for the industry is to take a proactive rather than a reactive stance when it comes to problem gambling. It is the responsibility of the stakeholders to ensure that the integrity of the industry is maintained, as well as to ensure that adequate systems are in place to effectively address the impending problem of problem gambling.

On 27 September 2000, the NGB convened a one-day workshop with the majority of gambling industry stakeholders as participants. Stakeholders present were representative of the national regulator (NGB), Provincial Licencing Authorities (PLAs), licenced operators (Casino, Bingo, Horse racing, Lottery operator [Uthingo], potential operators of LPMs [LPMASAI]).

Discussions within this forum centered on identifying practical and workable aspects for implementation as well as identifying issues that should be considered when formulating policy for promoting responsible gambling in South Africa. A proposal emanating from the workshop was that the NGB should attend to the establishment of an advisory structure, which would advise on appropriate policy measures relating to problem gambling. The main purpose of the body would be to promote responsible gambling throughout the country. Such a structure would furthermore be:

• Representative of all role-pIayers and industry stakeholders
• Responsible for establishing mechanisms for sustainable funding for problem gambling programmes including: education and awareness raising, treatment and research.

The NGB has taken up the task of establishing the proposed national structure.

The Directorate of Gambling, Lotteries and Liquor Regulating Office is engaged in a process of conducting a study that will focus on economic impact of Gambling and Lotteries. The study is scheduled to be conducted between March and June this year. This study will be used as a basis of engaging stake holders in the Advisory Council and will also act as a catalyst for research and program of action. Discussions with the HSRC are at an advanced stage regarding this study.




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