1. 1 Jabu Mabuza Chairman Casino Association of South Africa 19 September 2003 Jabu Mabuza Chairman Casino Association of South Africa 19 September 2003 By THE NEW NATIONAL BILL: WHAT DOES IT MEAN FOR EMPOWERMENT AND OTHER GOVERNMENT PRIORITIES IN THE CASINO SECTOR ? PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE & INDUSTRY

2. 2 Introduction CASA endorses and welcomes many of the proposals contained in the new bill, including, and among others: –Rationalization of the roles of policy makers and regulators –The need to respond to the issue of problem gambling CASA regrets that there was insufficient consultation with: –The gambling industry, including horse racing –Empowerment stakeholders –Organised labour –Tourism bodies –Organised commerce –Financial community, especially international and local investors

3. 3 The Urban Gambling Industry Prior To 1996 Prior to 1996: A Substantial Illegal Industry –Widespread: up to 150 000 illegal machines in all urban centres –Easy access to all & no age restrictions –Not regulated –Public not protected –Payout percentages manipulated –Winnings often not paid –Often associated with criminal elements (drugs, loan sharks, protection rackets) –No taxes –No responsible gambling programmes –Almost totally controlled by whites: no empowerment in equity, management, procurement, etc

4. 4 Legal Gambling Industry Prior To 1996: The Rural Resort Model Prior to 1996: The Legal Industry –Limited to “Homelands” 15 casinos (six subsequently closed, three sold, six remain) Not widely accessible –Only one operator, unlike today –Largely self-regulated Including a responsible gambling element –Limited empowerment components Mainly institutional investors –6 890 slot machines –Significant tourism infrastructure contribution in rural areas: Sun City, Wild Coast Sun, Thaba N’chu

5. 5 New Dispensation: Government’s Mission Accomplished (1) The Process Whereby the New Industry was Established: Two government commissions, extensive consultation and thorough process National Gambling Bill 1996: US/Canada/Australia model of “must see” entertainment destinations –And subsequent Provincial legislation Comprehensive regulatory framework –Created a successful and well regulated casino industry –Rigid probity standards and consumer protection Supply of gaming, out of control with previous government, now fixed and contained Highly competitive licensing process Delivered significant non-gaming infrastructure and meaningful public benefit projects: –Two world class convention centres and associated facilities –Tourist attractions, eg Apartheid Museum, bird and wildlife centres, sports facilities –Hotels –Other physical infrastructure, such as roads, which has acted as a catalyst for other new investment

6. 6 New Dispensation: Government’s Mission Accomplished (2) Nearly R30-million p.a. in community social investment RFPs and subsequent regulations determined comprehensive response (NRGP) to the issue of problem gambling: –NRGP established as a public/private sector partnership of government regulators and industry with R10-million budget p.a. –Internationally recognized as among the best in the world Stability and accountability

7. 7 CASA Casino Association of South Africa Voluntary association with legal standing –All casino operators Representative of –30 657 employees –Seven operators, four with international investors –30 casinos –R12-billion in new investment since 1996 –5 141 new hotel rooms since 1996 –R6-billion annual gross gaming revenue –R1.7-billion annual tax bill –R715-million annual pre-tax profits –R2.5-billion spent with suppliers, 25% of whom are PDIs Black Economic Empowerment –PDIs have 60% voting control, on average, in the casino sector –PDIs have 38% economic interest, on average, in the casino sector

8. 8 Asking The Question Given the achievements of this government in establishing a legal and regulated framework for gambling, and given the successes achieved by the new casino industry, both of which are much envied by the developed world, it begs the question: –Why was a totally new Bill necessary when the original objective was to rationalise control of policy between national and provincial governments? –Why was there no research into, and consultation about, the new and unacceptable provisions which only appeared in draft 11, being the version of the Bill before you? –Why was there no consultation at all with other vitally interested parties such as organised labour, the tourism sector, public safety agencies, Nedlac, not to mention critical sectors of the gambling industry, such as horse racing It is not good enough for the Department to expect the Portfolio Committee to take responsibility for this

9. 9 Key Issues Ministerial discretion to increase the amount of available gambling in SA Removing ATMs from all casino complexes and entertainment centres, race tracks, etc. Making it illegal, after the fact, to have casinos located in undefined close proximity to schools Making credit illegal, including the use of credit cards and placing money on deposit Enforced six hour closures (coincidently a full shift) No discounted or complimentary hospitality services or tourism packages Requiring already-built casinos to retrofit so as to make gaming areas invisible

10. 10 Likely Impact of the Bill In Its Present Form (1) Significant decline in casino revenues (up to 25%) leading to -8 000 to 10 000 jobs lost with the majority among less skilled workers -Hugely reduced dividend stream and probable collapse of already fragile empowerment structures -Certain breach of existing license conditions, especially in empowerment arena, leading to legal action in courts throughout the country -Possible constitutional challenges -Closure of marginal casino operations -Cross-subsidisation of tourism events and infrastructure compromised -Significant revenue loss (± R400m) for provinces and national treasuries

11. 11 Likely Impact of the Bill In Its Present Form (2) -Stakeholders (concessionaires, suppliers, etc) and indirect employment seriously affected -New investments iced, and capex involved in retrofitting could mean mothballing of non-gaming facilities -CSI affordability compromised -Undermining South Africa’s image as a country where it is safe to invest and do business It is common cause that other sectors of the gambling industry, including major employers such as horse racing, will be devastated, with serious consequences for associated sectors such as agriculture

12. 12 Casinos And The Poor Legitimate government concern for the welfare of poor South Africans, shared by industry Barriers to entry in the casino sector mean that the poor do not utilise casino facilities in meaningful numbers –Cost of casino gambling –Cost of non-gaming entertainment –Entrance fees –Cost of transport Measures in the Bill will not ameliorate the position of the poor, relative to casinos, because: –Poor people do not have credit cards, or qualify for credit –Free and discounted services are only available to qualifying customers Research in South Africa demonstrates that casino-type gambling is predominantly a middle-class activity. It also shows that the poor favour other forms of gambling

13. 13 Addressing The Unintended Consequences Of The Bill (1) Can we do more about addressing the issue of problem and compulsive gambling, and can we do things better? This will require a greater investment from industry, through the NRGP, in public education, and additional measures are in process to accomplish this with the SA Responsible Gambling Trust (SARGT) But perspective is needed. Why introduce measures that will: –Not fundamentally contribute to helping the 1% of people who are compulsive gamblers –Inconvenience the vast majority of casino customers for whom gambling is harmless recreation –Jeopardise the future of an industry which is an international success story for this government –Give rise to a resurgence of illegal industry with no restrictions

14. 14 Casino companies are obliged to protect shareholders, and will cut costs to maintain profitability –Jobs are biggest variable cost –Reduced purchasing from suppliers –Reduced dividends to empowerment partners This government achieved considerable and internationally- acknowledged success with its gambling policy and framework. Dramatic policy changes, as in the new Bill, must result in government similarly assuming responsibility for the outcome and consequences Addressing The Unintended Consequences Of The Bill (2)

15. 15 More Appropriate, Informed Way Forward Time for more perspective on the casino industry Research into commercial and socio-economic implications More in-depth consultation and understanding of stakeholders’ position Peoples’ rights in a free society Remove negative provisions from the bill Consult on measures –That will not result in political, economic and thus social problems –That will sustain tourism funding and investments –Broaden and entrench sustainable BEE –That will effectively minimise compulsive and problem gambling Go forward in partnership together to advance government’s political objectives while maintaining a healthy, contributory industry