IN RELATION TO

NATIONAL GAMBLING BILL

[B 48 – 2003]

19 SEPTEMBER 2003: 12H45 TO 13 H15

CHAIRPERSON, HONOURABLE MEMBERS OF THE COMMITTEE, LADIES AND GENTLEMAN,

With the passing of the National Gambling Act, 1996, the Democratic Government changed the face of the leisure industry in South Africa.

By introducing a regulatory environment within which this sub-sector of the leisure industry would operate, the legislature set norms, created legitimate expectations and achieved certain fundamental objectives, whether viewed from a policy, economic, political or jurisprudence point of view:

These include, inter alia :

• That gambling is an acceptable part of the leisure industry;
• That, properly monitored and controlled, certain types of gambling would be introduced under licensing, to form part of the Governments broader Black Economic Empowerment program;
• That government, through various initiatives, notably the Wiehan Commission, had done its homework properly in respect of the types of gambling it wished to regularise, and the impact thereof, socially, economically and politically;
• That unregulated gambling in the demarcated areas of gambling would be illegal and carry with it civil and criminal sanction;

This changed scenario posed a great and exciting challenge to black business, and particularly to broad based black business organisations such as FABCOS and NAFCOC; not only could these organisations mobilise their members to take significant ownership stakes in large capital projects such as land-based casinos, but through the introduction of legislation relating to the LPM market, an excellent opportunity presented itself for organisations such as FABCOS to plan this roll-out alongside the liquor licensing process, thereby regularising both illegal liquor trading and illegal gambling [it is widely estimated thate more than 250 000 illegal machines were operating throughout South Africa at the time].

FABCOS Tackled the challenge in two ways:

Firstly, by forming a consortium of investors with other broad-based empowerment groups through Tsogo Investment Holdings, and then, in partnership with SA Breweries, to form Tsogo Sun for the purpose of procuring a significant stake in the land-based casino market.

In order to do so, FABCOS and the other BEE groupings had to rely on significant loan funding to fund its portion of the proposed casinos.

Despite the good performance of this investment, the total outstanding debt in relation thereto still exceeds R1Billion.

Secondly, through its affiliate association, The SA Taverners Association ["SATA"], FABCOS went on a drive to remove illegal machines from its members’ premises to pave the way for liquor and LPM site licensing. The legislature had created an ideal opportunity to turn around the previous culture of defiance, resulting from the apartheid-era, with the hope that small black business could regularise and grow their business within the mainstream of the SA economy.

To this end, members responded positively, and removed illegal machines from their premises in anticipation of the regulated industry.

Furthermore FABCOS obtained loan funding from Nedcor Bank to facilitate its participation, on behalf of its members, as a Route Operator to supply liquor-licensed taverners with LPM’s.

Due to the various delays in this industry, the total BEE debt position in this regard, exceeds R30 Million.

Other submissions have or will no doubt deal with the estimated negative impact that the provisions of the bill will have on the land-based casino industry, and to avoid duplication, FABCOS will not deal with the details hereof.

It needs to be said however, that, given the funding methodologies employed by BEE groups like FABCOS, the negative impact on profitability will severely impair the ability of such groups to receive a dividend from this investment in the foreseeable future, if at all.

Whilst some job creation and development has therefore historically been achieved, the consequences of potential large scale retrenchments, no dividend receipts by BEE groups [together with the impact of that on their investment portfolios] and the negative impact on South Africa’s international competitiveness in this industry would be disastrous.

Section 26 of the Bill seems to be introducing new uncertainties in an industry which has suffered greatly from the delays in implementation.

We respectfully submit that the issues dealt with in this section will create greater uncertainty in those provinces where the licensing process has already commenced, with the associated negative impact on, particularly, small black business.

It is further of great concern to us that the portfolio committee members have been quoted publicly to say that they were opposed to this industry in its entirety.

This gives rise to concerns that the LPM industry may be sacrificed, or severely damaged by even further amendments to the Bill.

On this point we wish to make our position clear:

• Such a step would be contrary to the legitimate expectations created;
• It would be anti-competitive in relation to the rights [already created in law] of small business to participate in this sub-sector of the leisure industry;
• It would be unconstitutional;
• It would be contrary to best practice of jurisprudence in a liberal democracy such as South Africa [the excuse of potential "problem gambling" in poor communities is simply not tenable, given the distinct bias towards leisure, rather than gambling in this sub-sector]. The inclination of the legislature towards clamping down on this industry, for the purported reasons of social responsibility is an offence to the nation, particularly to the majority living in the townships of our country.

The provisions of the Bill which impede on the future profitability of land-based casino’s are, respectfully, fundamentally flawed, inasmuch as the legislature tries to address "problem gambling" [a small problem in relative terms] by restricting the industry from following normal international best practice business principles, in a free competitive environment [what information or statistics does the Committee have which is not in the public domain?]

As far as LPM’s are concerned, the provisions of S26 are likely to result in further uncertainty in the provinces, and particularly with regard to the rights of the Minister to intervene in areas which are clear provincial competencies.

This would also impact negatively on the retail liquor licensing process, to the detriment of the SA economy at large, and small black business in particular.

We trust that the portfolio committee will take these factors into account in arriving at their final conclusions.