Point 1: The national and provincial legal frameworks, regulations and statutes make clear and unequivocal provision for the presence of LPM gaming activity in South Africa and therefore in any discussion pertaining to the Bill, this important sector of the national gaming industry must be accorded the same rights and entitlements as casinos, the lottery and horseracing and cannot and should not be regarded or treated casually or separately to these other legitimate forms of gaming

Point 2: The formal and regulated issue of LPM Operator Licences in the provinces must be regarded a major deterrent to the resurgence of illegal gaming activity. There exists in South Africa a latent demand for slots gaming in non-casino environments as evidenced by the widespread proliferation of machines and operations during the illegal era. This latent demand must be addressed. and the correct and proper way of doing this is via the regulations and legislative framework governing LPMs.

Point 3: The National Gambling Bill communicates an inherent commitment to the fair and equitable licensing of operators. To date the horseracing industry the national lottery and the casino association have benefited from this policy of fairness and equity and it is now opportune and entirely appropriate that the SMME sector is able to participate too. This participation is through the LPM sector.

Point 4: More than any other form of regulated gaming in South Africa. the LPM sector enables PDI entrepreneurs a direct and highly visible (and therefore measurable) opportunity to participate in the growth economy. Furthermore the accepted business model for a route and site operation does not support the locating of machines in poor or lower-income areas.

Point 5: In terms of social impacts, credit must be given to the extent of the regulations within which LPM operations are to be established. operated and monitored. These regulations are considerable and provide ample opportunity for the authorities and the licensed operators to detect and remedy ant negative social impacts such as problem gambling. The LPM sector is likely to have a comparatively lower negative or adverse social impact than other forms of gaming. It is also very important that all stakeholders- and the broader public in particular - understand that the legislation governing LPMs does not permit the installation of machines in corner cafe's or supermarkets - the machines are only intended for licensed pubs. bars and clubs.

The Portfolio Committee on Trade and Industry (National Assembly) intends holding public hearings on the National Gambling Bill (B48-2003) and has invited interested parties and members of the public who would like to make written submissions and/or have an opportunity to give verbal evidence to do so by way of a formal public process.

The limited Payout Machine Association of South Africa (LPMASA) is an interested party and represents the interests of licensed operators and prospective licensees in the regulated limited gambling machine operator sector of the national gambling industry in South Africa.

In advance of (and in preparation for) the Portfolio Committees public hearing on the National Bill 2003 LPMASA has prepared this position paper that sets out arguments in support of the establishment of a nationwide regulated LPM industry. This position paper also seeks to directly address some of the prevailing anti-LPM sentiments and lobby that have surfaced over the past weeks and particularly since the Final [)raft (July 2003) of the National Gambling Bill was published and presented to the Portfolio Committee. Of grave concern to the LPMASA has been the publication in the national media of comments attributed to members of the Portfolio Committee calling for a -ban on the roll out of the LPM industry.

The LPMASA has a duty and responsibility to its members to present to the Portfolio

Committee and indeed to the public in general a robust and cogent arguments in

support of this particular sector of the national gaming industry. Just as the Casino

Association of South Africa vigorously represents the interests of licensed casino

Operators and the horseracing industry and national lottery maintain proactive lobbies

in support of their activities. so too must the interests of the limited gaming machine sector and its participants be fairly and properly presented in the public forum.

It must also be noted that this is the second time that a process of licensing LPM operators has commenced in South Africa. The first process was terminated and withdrawn prematurely and led to significant financial losses and widespread criticism by foreign investors that had hoped to participate in the LPM sector. We simply cannot afford to have this current process again terminated or further delayed. Such action would seriously, compromise the credibility of South African government tender procedures.

This position paper sets out the rationale behind the introduction of limited gaming machine activity in South Africa, and seeks to address some of the misconceptions and misinformation that exist regarding the introduction of LPMs into the national gaming dispensation. In terms of the LPMASA position vis-a-vis the National Gambling Bill, we submit that the following key points are germane to any constructive discussion on the matter at hand:

LPM GAMING IN SOUTH AFRICA

The National Gambling Bill. 2003. proposes to repeal the National Gambling Act. 1996, and to re-enact many of its provisions in a new form, while introducing new policies for the concurrent national and provincial regulation of casinos. racing. gambling and wagering.

The broad thrust of the National Gambling Bill, 2003. is to ensure that gambling in South Africa is properly regulated. socially responsible and conforms to uniform licensing norms and standards. The LPMASA fully supports the principles embodied in the Bill.

In the Preamble to the Bill. the authors note that the Constitution of the Republic of South Africa, 1996 (Act 10 of 1996). establishes that casinos, racing, gambling wagering are matters of concurrent national and provincial legislative competence (and that) it is desirable to establish certain uniform norms and standards applying generally throughout the Republic with regard to casinos, racing, gambling and wagering. so that (lnter aIia) the licensing of gambling activities is transparent. fair and equitable.

Section 27 (Limited Payout Machine) of the Bill states clearly as follows:

(4) In any province. provincial legislation may provide for a smaller number of limited pay out machines to be licensed -

Clearly, the National Bill, 2003. makes provision for the introduction and regulation of LPMs in South Africa. which approach is entirely consistent with the National Gambling Act, 1996. Since the very introduction of enabling legislation in respect of gambling in South Africa. the limited payout machine sector has been acknowledged as an intrinsic component to the overall gaming dispensation. along with casinos, the national lottery. horseracing and bingo. Furthermore. provincial legislation and the provincial Requests for Proposals in respect of casino licence applications have consistently made reference to government 5 intention to introduce regulated I

gaming in South Africa.

There can therefore be no question or doubt that since 1996 the South African government has provided for the introduction at the appropriate stage of limited payout machine gaming activity in the country. Similarly a number of interested private sector organisations have over the past years invested resources in anticipation of the requisite legislation enabling the roll Out of licensed. regulated LPM operations.

Mpumalanga Province was the first province to provide such an enabling legislation and a regulatory framework and in June 2003 officially launched the LPM industry in that province. Subsequently, the Western Cape Gambling and Racing Board and the Eastern Cape Gambling Board have both respectively issued Requests for Proposals from Limited Gaming Machine Licence Operators. At least two other provincial gambling boards are currently in the process of (or are preparing for) publishing similar Requests for Proposals.

Just as government. business and civil society now accept casinos. horseracing and the lottery as each having a place in the national regulated gambling dispensation. so too is the LPM sector entitled to such acceptance and legitimacy and it is on the basis of this understanding that the interested parties, including LPMASA. have acted.

In short. both the National Gambling Act. 1996, and the proposed National Gambling Bill. 2003. make clear and unequivocal provisions for the introduction of LPM gaming in South Africa. and as a result there exists at current date a substantial level of public and private sector activity in support of the roll Out of the LPM sector in provinces throughout the country.

The national and provincial legal frameworks, regulations and statutes make clear and unequivocal provision for the presence of LPM gaming activity in South Africa and therefore in any discussion pertaining to the Bill, this important sector of the national gaming industry must be accorded the same rights and entitlements as casinos. the lottery and horseracing. and cannot and should not be regarded or treated casually or separately to these other legitimate forms of gaming.

During his presentation at the official launch of the LPM industry in Mpumalanga. held on Friday 20 June 2003 in White River. National Gambling Board Chairman. Mr Chris Fismer, publicly stated that prior to the implementation of the National Gambling Act. 1996. and the vigorous clean-up of unlicensed gaming operations, some 150 000 illegal slots machines were in operation in South Africa. Anybody familiar with gaming in South Africa will have no difficulty in recalling the pernicious spread of these illegal operations in cities and towns throughout South Africa.

Between 1997 and 2003, the national and provincial gaming authorities have worked in concert with the South African Police Services and other arms of law enforcement to close down illegal slots machine operations and. where required. to prosecute offenders. Today, there exists little evidence of blatantly illegal gaming activity and the desire to maintain a highly regulated. controlled and legitimate scenario such as this is clearly embodied in the spirit and intent of the National Gambling Bill. The LPMASA folly supports these efforts and achievements to clean tip and eliminate illegal gaming activity. In his remarks during the aforementioned presentation. Mr Fismer stated that once the provinces had rolled out their LPM quotas. there could be no more than 40 000 slots machines in operation in South Africa inclusive of those machines located in the licensed casinos. This is a substantial reduction in the machines in operation when compared to the past illegal trading scenario.

Furthermore. the reality of the LPM roll out process suggests that. at most. by the end of 2004 only Mpumalanga Western Cape and Eastern Cape provinces will have LPMS in operation. Given these province's self-imposed limitations on the quantum of machines that will be made available for play Mpumalanga: 3000; Western Cape:

3000; Eastern Cape: 2000). it is unlikely that more than 8000 non-casino machines will be in play before 2005. This amounts to less than 6% of the machines in play during the unregulated, illegal trading period.

In short. any delays in the process of establishing a regulated LPM industry will play directly into the hands of unscrupulous. illegal slots machine operators. The very many negatives of such a scenario re-emerging in South Africa bear serious contemplation and the substantial gains and achievements made by the national and provincial authorities and the law enforcement agencies will have been squandered if illegal operations re-surface. There are clear and obvious benefits to be enjoyed by all stakeholders from having professional. regulated and licensed route and site operators instead of the uncontrolled and illegal trading scenario of the past.

The formal and regulated issue of LPM Operator licences in the provinces must be regarded a major deterrent to the resurgence of illegal gaming activity. There exists in South Africa a latent demand for slots gaming in non-casino environments. as evidenced by the widespread proliferation of machines and operations during the illegal era. This latent demand must be addressed and the correct and proper way of doing this is via the regulations and legislative framework governing LPMs.

A third key point that must not and cannot be ignored in any debate on the future of

LPMs pertains to SMME development. As mentioned earlier, the Preamble to the

National Gambling Bill, 9003 clearly states: "it is desirable to establish certain

uniform norms and standards applying generally throughout the Republic with regard to casinos. racing gambling and wagering, so that (inter alia) the licensing the of

gambling activities is transparent. fair and equitable."

Let us consider what constitutes transparent, fair and equitable licensing? For a start. the broad-based ownership of licensed gaming assets and equity in licensed gambling would represent fair and equitable licensing. In reality. four major holding companies control horse racing and one company has a monopoly over the national lottery. The fact remains that of all the sectors in the national gaming dispensation, it is only the LPM industry that is able to offer small, medium and micro enterprises the opportunity of participating directly in these activities. Illustratively, the benefits to SMME premises owners of participation in a licensed route and Site operation include:

· New gaming attractions and leisure amenities for customers

In addition the net revenue accruing to a site operator could feasibly be used to procure new site equipment. thus constituting a non-banking form of asset finance to which he/she would otherwise not enjoy access. Furthermore, the direct and measurable economic multiplier factor of an LPM operation is distinctly more attractive than in a casino or lottery. The net proceeds of a LPM operation are shared widely among as many, as 300 licensed site operators per route.

The LPMASA believes that all interested and affected parties debating the National Gambling Bill must respect the importance that this level of gaming activity holds for the SMME sector. Government at all levels is committed to SMME development and to job creation and of all the sub-sectors of the South African gaming industry, the LPM sector is the one than can most clearly demonstrate this commitment in action. Furthermore, the process of licensing these SMME operators represents an ideal modus operandi through which to bring these entrepreneurs into the formal economy as registered, licensed vat and taxpayers. There are significant economic advantages to be had from formalising these SMME operators and this too must be recognised.

The National Gambling Bill communicates an inherent commitment to the fair and equitable licensing of operators. To date. the horseracing industry. the national Iottery and the casino association have benefited from this policy of fairness and equity. and it is now opportune and entirely appropriate that the SMME sector is able to participate too.

A key finding deriving from the research and drafting of the new National Gambling Bill. 2003. is that the aims and objectives of Black Economic Empowerment have been properly met through the licensing of the casino operations. Mr Barney Pityana has been mandated to undertake further detailed investigation into the scope and nature of Black Economic Empowerment among South Africa's casino operations.

In the context of these findings. it is entirely appropriate to note that the provincial and national legislation intends that participants in the LPM sector will be drawn from previously disadvantaged communities. These direct participants will include pub and bar owners many of who until now have remained unlicensed, informal traders who operate outside of the fiscus and the formal banking sector.

The LPM sector provides the government with an exceptional opportunity to engage with these PDT pub-keepers and bar owners and to bring them into the formal economy as taxpayers and registered operators. It is also worth noting that as a result of the inherited liquor legislation. many PDI liquor retailers have simple been unable to secure liquor licenses. to obtain credit finance or to grow their businesses in the normal fashion. The LPM licensing process affords both the authorities and he applicants the opportunity to remedy this disadvantaging and to jumpstart these small businesses.

Illustratively, many of the licensed site owners in Mpumalanga are PDI entrepreneurs. It must be noted that these operators are not necessarily located in poor PDI residential areas, but have established enterprises in urban centres and CBDs. close to high pedestrian traffic flows and accessible to a broad spectrum of PDI customers. The success of these traders is indeed a visible manifestation of true economic empowerment at work, and represents the goals that government aspires to in regard to black economic empowerment.

LPMASA members are very cautious about establishing licensed sites in poor and low-income residential areas, obviously out of concerns regarding social impacts but:

primarily because poor and very low-income areas do not support the viability of route and site operations. Hence, the tendency is to identify established PDI sites located in higher volume and higher income urban areas, which practice mitigates an> adverse impacts on the poor. The economic knock-on effects of encouraging the growth of the PDI SMMF sector are not hard to see: increased GDP in local P131 areas. increased job creation. increased consumer expenditure and increased investment into new assets and equipment.

More than any other form of regulated gaming in South Africa, the LPM sector enables PDI entrepreneurs a direct and highly visible (and therefore measurable) opportunity to participate in the growth economy. Furthermore, the accepted business model for a route and site operation does not support the locating of machines in poor or very low-income areas.

The tabling of the National Gambling Bill in the Portfolio Committee for Trade and Industry provides the authorities, business and civil society with the opportunity to make comment on the entire spectrum of the gaming industry. of which the LPM sector is but one part. The LPMASA believes that the public hearings represent an opportunity for some of the misinformation and misunderstandings regarding LPMs to be clarified and properly addressed, particularly in the context of the proposed roll out of machines iii Mpumalanga and the Western Cape and Eastern Cape

There are a number of key points worth noting in this regard:

In the first instance, the provincial authorities have proceeded with extreme care and caution in the issuing of requests for proposals for LPM Operator licenses. To date, only Mpumalanga Province has proceeded into an operational phase. The Western Cape has received five applications and will likely issue three Iicences before the end of 2003, entitling the three licensed operators to roll out no more than 1000 machines each. The Eastern Cape has issued its RFP with a submission date of 11 November 2003. It is unlikely that the Eastern Cape will be operational much before the end of 2004

Second. the provincial regulations (in those provinces that have proceeded with LPM Licensing Projects) dictate that licensed premises be widely distributed (60% in metro areas and 40% outside the metro). not in close proximity to schools. churches and places of worship. and only those that are able to demonstrate an ability to restrict gaming to patrons over the age of 1 8-years. These principal machine location criteria have been rigorously applied and are in evidence in the judicious distribution of machines in Mpumalanga.

It is crucially important that any debate on LPMs recognises that these machines cannot and will not be placed in corner cafes or supermarkets. or in places where persons under the age of I8 years can gain access to the machines The authorities have made it explicitly clear that any transgressions to these location criteria will be dealt with punitively.

The third point refers to the nature of LPM recognises the machines have a capped bet or R5.00 and a capped payout of R500 and cannot be linked to progressive or other jackpots. and only a limited number of machines can be installed in any one sue What this means is that the machines are designed and configured for leisure and recreational gaming. and as a secondary attraction in the pubs or bars in which they are located. Members of the public seeking large wins will play in casinos or on the lottery the LPM operation does not provide the level of win that problem gamblers or regular punters seek, particularly because they are not linked to jackpots.

The act that the machines are located in licensed pubs, or in separate restricted-access enclosures in licensed pubs or in some instances restaurants (where children may he present) means that the Site operator is able to closely monitor the play and to identify incidents of problem gaming and take remedial action.

A fourth important point that must be highlighted is the linking of every licensed LMP in the country to the Central Monitoring System (CEMS). a prescription that at this point in time does not apply to any other form of licensed gaming in South Africa. The CEMS provides the authorities. the route operators and the site operators with valuable up-to-date daily information on machine play and win. From this information, the authorities are able to determine gross gaming revenue in specific geographic areas, which may or may not corroborate reports of negative social impacts. The CIMS is a sophisticated data management and audit system that will assist the authorities to closely monitor LPMs throughout the country and to take whatever steps are deemed appropriate once the data is analysed. Such a national monitoring system is not yet even in place for casinos or the horseracing sector in South Africa.

In terms of economic impacts. the CUMS enables the provincial and national authorities to monitor levies and taxes and to ensure that these deductions are paid at source. thereby benefiting the fiscus and the provincial revenue stream. The system is intended to be fair to the government, fair to the player, fair to the site operator and fair to the route operator.

Finally, and very importantly, the scope and scale of LPM activity also needs to he placed in its proper context. The National Gambling Board's research in 2003 into the South African gambling industry demonstrates that the national propensity to gamble, measured as a percentage of national disposable income. is 1.9%, of which casinos receive 1.3% of all revenue and the balance of 0.6% is likely to be shared almost equally between the national lottery, horseracing and LPMs i.e. only 0.2% each. This clearly demonstrates the huge differential between the public's spend on gaming in casinos and anticipated public spend on LPMs.

In terms of social impacts. credit must be given to the extent to which LPM operations are to be established. operated and monitored. The regulations governing the LPM sector are considerable and provide ample opportunity for the authorities and the licensed operators to detect and remedy any negative social impacts such as problem gambling. In short, the LPM sector is likely to have a comparatively lower negative or adverse social impact than other forms of gaming. It is also very important that al stakeholders - and the broader public in particular - understand that the Iegislation governing LPMs does not permit the installation of machines in corner cafes or supermarkets - the machines are only intended for licensed pubs, bars and clubs.

The purpose of this position paper is to present the IPMASA position in support of the introduction of a regulated limited payout machine industry> in South Africa. Whereas there appears to be a critical anti-LPM lobby forming in anticipation of the public hearings on the National Gambling Bill, it is important that government. business and civil society share informed views on the subject without succumbing to emotional reaction.

There is no doubt that gaming in South Africa needs to be regulated and carefully monitored and the IPMASA fully supports this principle. We do however regard as patently unfair and unjustified attempts by lobbyists and other spokespersons to portray the LPM sector as having the potential to create widespread adverse social impacts among poor communities - this is a biased. subjective and un-informed viewpoint and we would urge the Portfolio Committee on Trade and Industry and all other local. provincial and national authorities to more fully consider any reaction 1.0 such arguments.

Given that less than 100 licensed LPMs are currently in play in South Africa, it is simply untrue for anyone to claim that there is definitive or other research or data to support claims that a regulated LPM industry causes (or could cause) negative social impacts. Research of this nature simply does not exist at present date. What do exist are precedents - good and bad - in other countries where LPMs have been introduced. In countries where government has eschewed regulation and proper monitoring in favour of uncontrolled licensing (and examples exist) there have been significant adverse social and economic effects. Conversely, in Australia (to cite a example), the LPM sector is highly controlled and plays an important role as a popular and low-impact recreational pastime for pub patrons, generating substantial taxes and levies for government coffers.

The facts are that the LPM industry has its rightful place in the South African amine dispensation and it brings with it an enormous opportunity in terms of SMME and PDI economic development. Any attempt to ring-fence LPM gaming from casino gaming, horseracing or the lottery must therefore be resisted and rejected. These are all equally important components of the national gambling framework and must therefore be regarded as interlocking parts of the same system.

The IPMASA commits itself to working closely with the national and provincial gaming authorities. and with the National Responsible Gambling Programme. in order to ensure that the roll Out of legislation and LPM operations in South Africa is conducted properly. legitimately and with all due recognition to the interests of broader society. The IPMASA requests that the Portfolio Committee for Trade and Industry invites the chairman of the IPMASA, Mr Simon Gold, and his colleague Mr Sam Buthelezi, to make an oral presentation to the proposed public hearings. Mr Gold can be contacted on (021) 409 3605 or 409 3600.