National Gambling Board, National Lotteries Board and Small Enterprise Development Agency: briefings

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
28 October 2005
NATIONAL GAMBLING BOARD, NATIONAL LOTTERIES BOARD AND SMALL ENTERPRISE DEVELOPMENT AGENCY: BRIEFINGS

Acting Chairperson

[email protected] for the documents]

SUMMARY
The National Gambling Board, National Lotteries Board and Small Enterprise Development Agency provided detail on their respective operations and zones of interest. Current programmes of action were elucidated and strategic plans explained. Presenters informed Members of latest achievements and challenges going forward. Financial information was conveyed, including salary scales.

Members asked numerous questions covering the contribution of gambling towards the ‘second economy’, respective contributions towards employment creation, the level of illegal gambling, the process to obtain gambling licences, broad-based empowerment initiatives, steps to transform ownership structures, the distribution of funds to needy organisations, questionable salary scales within the parastatal context, and the need for tangible development successes on the ground.

MINUTES
Professor B Turok was appointed acting Chairperson in place of the absent Mr Martins.

National Gambling Board Presentation
Adv T Majake (NGB Chief Executive Officer) presented latest developments in the gambling industry and the findings of various recent studies. He provided detail on the Responsible Gambling Programme and the socio-economic impact of gambling. Limited payout machines were explained, as well as the steps to eradicate illegal gambling. A register of approved operators had been established and a strategic plan formulated to advance key objectives. Gross gambling revenue per province and levy contribution per province were also explained.

Ms V Memani (Chief Financial Officer) then provided details on the financial statements and the current income statement. The Board had received a clean audit report from the Auditor-General. A new database of intangible assets had been created, and accumulated resources meant that more projects could be undertaken.

Discussion
Ms B Ntuli (ANC) asked what contribution gambling made to the ‘second economy’, and the level of black participation within the horseracing industry. She asked whether statistics were available on the number of jobs created by the industry. Clarity was sought on the level of contributions towards social services and education. Research should result in meaningful programmes to address shortcomings.

Ms N Khunou (ANC) asked what methods were in place to promote responsible gambling, and about the number of illegal operations currently in existence.

Mr L Labuschagne (DA) asked whether all casinos were linked to a central computer and whether payout machines were ‘rigged’ in many locations. He sought clarity on the nature of the Board in terms of being a non-profit institution.

Dr Nkem-Abonta (ANC) asked how an illegal gambler was defined, and the level of difficulty for a venue to obtain a licence. The process to obtain licences should not be too onerous. He asked what steps were in place to encourage gambling and promote small gambling operations.

Mr Cupido (ACDP) sought clarity on ‘person-to-person gambling’. He asked how the ‘problem gambler’ database would identify a gambler from a particular province, within another province.

The Chairperson asked for additional information on the tender process and existing steps to reduce corruption. Reasons for the socio-economic study had to be provided and presenters should refer to ‘broad-based empowerment’ as opposed to the obsolete Black Economic Empowerment model. The Committee noted the high salaries of management and reserved the right to exercise oversight in this regard. The amount of money accessed by the government in the form of taxes from the industry should be clarified.

Mr S Rasmeni (ANC) criticised the industry for the lack of transformation with regard to ownership. He asked when the issue would be finally addressed. The upgrading of existing sporting facilities was welcomed but new facilities had to be placed in poor areas to promote sports development. He asked whether the Board engaged with relevant departments to install new facilities.

Adv Majake responded that the Board would continue to promote black ownership within the industry. Regulations had created concurrent legislative competence between provincial and national authorities. The licensing of casinos occurred at the provincial level without national ‘interference’. Tension existed between the two sectors of regulation. The Wiehann Commission in 1994 had investigated gambling within South Africa and concluded that the industry should continue in a highly regulated environment. The South African regulatory system had received a high international ranking. Some 25 000 legal gambling machines existed, as opposed to 200 000 illegal operated machines in the past. Illegal machines had been confiscated or destroyed. The Board would pursue the policy of broad-based empowerment. The salaries of Board members should not be compared to the President’s, and the "myth of excessive salaries should be debunked".

Ms Memani added that the Board wanted to retain skills and attract competent individuals but remuneration would be monitored to prevent excesses, and would remain within public sector benchmarks. The Department was satisfied with the present arrangement.

Adv Majake stated that person-to-person gambling had not manifested within South Africa to the same degree as in other countries. The practice referred to private gambling between two individuals. The government had reduced the extent of monopolies within the gambling industry, but the nature of the industry meant that a small group of large players would remain. The rigging of payout machines did not occur and an education campaign for the general public was required to reduce levels of ignorance and myth surrounding gambling. Payout machines were tested in accordance with set standards.

Mr T Magasa (NGB Chief Operating Officer) declared that all machines received random number testing to ensure randomness. Gamblers had to understand the rules of probabilities in gambling.

Adv Majake concurred that the creation of jobs within the second economy remained a concern that would be addressed. Approximately 55 000 jobs had been created within the industry. The Board would act upon research findings to mitigate anomalies.

Ms T Moja (MGB Deputy Chairperson) stated that gambling operators were involved in social development and sports activities, and all licence bids had to include such initiatives. Provincial regulators would work with operators to create skills and educate potential employees and industry participants. Illegal gambling had an adverse impact on the Board and the state as no taxes were paid.

Ms Memani stated that investment revenue arose from money invested in a call account on a short-term basis to generate interest. Only two tenders per annum had exceeded R250 000 and the Tender Committee had scrutinised all bids carefully and then the Board had made the final decision. Adv Majake added that R1 billion had been raised in taxes for central government per annum.

Dr Nkem noted that an onerous process to obtain operating licences would result in an increase in illegal activity due to high levels of rejection. The industry and state would suffer in terms of lost revenue.

Adv Majake replied that limited licences were available at the provincial level and limited payout machine licences were open to all. Certain criteria had to be adhered to. The Board was aware of the identity of illegal operators.

National Lotteries Board briefing
Professor Ram (NLB Chief Executive Officer) explained the functions and objectives of the Board and provided detail on its latest financial statements. The Trust Fund balance sheet and income statement were outlined. He also highlighted budget priorities and the findings of a recent social impact assessment. The Board provided information on ticket sales per province and the amount of total distribution. They further focused on specific charities and social activities. Strategic objectives for 2006/7 were explained. Boardmembers’ salaries were determined by the Minister in conjunction with the Minister of Finance. The Chairperson received a salary equivalent to a Director-General within the public sector.

Discussion
The Chairperson stressed that Members had to exercise oversight with regard to parastatal salaries.

Ms Chen (DA) asked whether the Trust Fund was a subsidiary of the Board that required a combined balance sheet. The relationship between the Trust Fund and the Board had to be clarified.

Ms Ntuli asked what happened to unclaimed winnings and whether the Board focused on deep rural areas in the development of the second economy.

Mr Labuschagne highlighted certain administration irregularities in the processing of applications for financial assistance. Organisations had to submit new applications before a response to the original application was received. Correct applications were submitted but rejected for spurious reasons. Proof of correct documentation was available in many instances. High-performance bonuses paid to management were questionable in the face of inadequate staff numbers and skills levels. He asked why R488 million had been carried over and not distributed to needy organisations. Clarity was sought on the level of possible largesse within the Lottery system, and comments made by the Auditor-General on the financial health of the Board.

The Chairperson asked whether ‘roadshows’ were intended to access funds and not to promote gambling among the poor. The Committee would assist the Board in finding solutions to problems and to improve contact with the Department. The Committee was wary of Board’s proposals to increase revenue and details of proposals would have to be carefully considered. A report on illegal lottery activity should be forwarded to Members.

Professor Ram replied that the Trust Fund was not a subsidiary of the Board and no combined balance sheet existed. The Fund had no staff or expenses. Grants were provided to both the Board and the Trust Fund. The unclaimed prizes fund consisted of R150 million and players had one year to claim prizes. Unclaimed prizes would be divided between the Trust Fund and the prize pool after one year. The Board only provided capacity-building funds for rural areas. The maintenance of sports facilities could not be funded by the Board. Any upgrades were undertaken in consultation or partnership with relevant municipalities. A breakdown in the timing of applications was a rare occurrence due to the information technology system in place. Distributing agencies were appointed by the Minister with no accountability to the Board or consequently to Parliament. The National Lottery had created 30 000 direct jobs within retail stores. Extensive procurement was also involving empowerment companies. The majority of Trust Funds went to the second economy.

The Chairperson declared that the lack of agency accountability to Parliament was a major concern that required further debate and action. The Committee requested a detailed report from the Board on the matter.

Professor Ram stated that the Board received 8 000 applications per annum that were scanned and therefore were unlikely to be lost. Funding was not provided for fixed assets, such as building infrastructure. The criteria for the distribution of funds were tightly specified and rejection was likely if the application was weak. Applications had to concentrate on specific areas of focus. The Trust Fund did not possess a surplus fund from the Treasury. Resources were obtained strictly from public participation. An internal audit team would be outsourced as a promised audit facility within the Department of Trade and Industry campus had not materialised.

The Chairperson declared that a suitable mechanism was required to ensure that Members’ questions and complaints were adequately addressed by relevant entities.

Small Enterprise Development Agency briefing
Ms A Damane (SEDA Chief Executive Officer) presented a progress report on the Agency that had been in existence for ten months. The amended National Small Business Act had created SEDA. She provided detail on the objectives and functions of the Agency. A service delivery network would be established to promote development of small businesses. A new strategy was in place in line with the objectives of the legislation. The Agency provided a progress report on the roll-out of programmes within the provinces and the type of relationship between SEDA and municipalities.

Discussion
The Chairperson asked how the Agency dealt with institutional blockages and other hindrances. Specific detail was required on processes and the staff composition of regional offices.

Ms Damane acknowledged that roll-out challenges existed but significant success had been recorded in the poorer provinces. Resources would be pooled within provinces within one institutional framework to promote efficacy. Trained individuals would be placed in centres to deliver services.

Mr Labuschagne stated that the briefing was confusing in identifying which regional offices were currently in operation, and which still had to be initiated.

Mr V Malunga (SEDA Executive Manager: Networks and Operations) stated that the Agency had consulted with provincial governments prior to setting up operations, in order to obtain additional resources and vital support. Co-operation was currently outstanding from the Western Cape, Gauteng and Limpopo provinces. The roll-out had been initiated in the North-West province and extensive provincial government support had been obtained. A provincial co-ordinating office had been established in Mafikeng.

The Chairperson asked what services were offered at provincial branch offices. Ms Damane responded that branch offices assisted potential Small-, Medium-, and Micro-Enterprises (SMMEs) with advice and support. Products were constantly re-evaluated to determine their efficacy and relevance.

Mr T Gubevu (Executive Manager: Products and Services) stated that a strategy plan had been developed and services and products had been rationalised. Start-up brochures had been produced and information on the tender process formulated. The Agency sought to reduce the failure rate for small enterprises.

Ms Ntuli noted that infrastructure existed in many rural areas that remained under-utilised. Practical solutions were needed to achieve results.

The Chairperson insisted that regular progress reports be provided to the Committee. He proposed that the Agency make a special briefing to Parliament in the near future to informing other Members of its purpose and strategy. An information package should accompany the briefing. The Agency could obtain the support of all Members in promoting its mission within their respective constituencies.

Ms Damane referred to a communication campaign currently on the SA Broadcasting Corporation (SABC) channels that promoted the Agency's activities. Additional leadership capacity was required to drive the process. Certain obstacles had been identified that had to be addressed.

The Chairperson declared that Parliament’s National Assembly could assist in removing obstacles that hindered progress. Mr Gubevu added that identified obstacles would be explained to Members in due course. The management was determined that the Agency would be a success.

The Chairperson stated that a suitable method should be devised to overcome obstacles. The Committee should receive progress reports on a bi-monthly basis and examples of communication material in circulation.

The meeting was adjourned.