Regulatory environment central to the development of gaming in Africa

There is no doubting that Africa is on the move. It may have accounted for just 1 percent of the global total in 2020, but its gaming markets have shown compound annual growth of eight percent for seven of the last eight years driven by demand from a growing middle class and improvements in telecoms and payments infrastructure. Growth at that level means Africa outperformed the global gambling market four times over and is all the more remarkable when we consider that the figure represents the entire continent, not just the more advanced countries.

Expansion of both brick and mortar and online gaming has contributed to economic growth through employment and, to a limited extent, tax revenues (In 2014 Nigeria, for example, earned only US$5 million in tax revenue from an industry turning over in excess of US$4 billion. But it remains the case that much of the sector operates outside the law or offshore due largely to the policies of regulators. H2 Gambling Capital estimates put the offshore online gambling market at c.US$266 million in 2020, however this does not take into account the land-based black market, which for gaming machines is very significant in many markets. Infrastructural weaknesses form a natural brake on some markets at present, but as access to internet and online banking improve, it is regulation which will be the subject of increasing scrutiny.

Immature regulation is not a peculiarly African phenomenon, and neither is the result especially damaging. Yet. But, as markets grow, the calls for better regulation will grow too and for two main reasons. Firstly, the larger and more active the gaming markets the greater the potential for revenue raising through license fees and taxes. Governments and those that elect them will grow weary of watching revenues continue to leak offshore and will require that their regulators plug the holes or come up with more ingenious ways of preventing illegal gambling.

Secondly, with Gross Gaming Revenue (GGR) estimated at almost US$4.41 billion in 2020 and forecast to rise to US$7.21 billion (fig. i) H2 Africa Data Wall Q4 2020 in five years, there will surely emerge more numerous and more egregious examples of gambling harms. Whether these are addiction or other social ills, or money laundering and the financing of terrorism, each will bring greater pressure on regulators to act. What form this action takes and how regulations are framed will determine the shape and size of markets going forward.

South Africa

South Africa is the largest and most mature market in Africa accounting for 51 percent of African GGR in 2020 (fig ii). As figure iii (overleaf) shows, it was hard hit by the pandemic but is set to bounce back with GGR reaching US$5.7 billion in 2022. There is a tradition of sports betting and land-based casinos have been licensed by the nine provincial governments since the mid 1990s. The National Gambling Board of South Africa (NGB) is responsible for implementing national government policy which can best be described as ambivalent. South Africa’s parliament approved an Act well over a decade ago which was designed to bring online gambling within the law and make it safer for players. The National Gambling Amendment Act of 2008 introduced a number of definitions and clarifications required to regulate the online gambling space. It laid the foundations of a fair and secure environment regulated by the State in a way which protects the citizens and ensures transparent operation by the operators.

The Act also specified the procedure for applying for and acquiring gambling licenses, determining who has the authority to issue such licenses, what prerequisites have to be met by the company and/or the person applying for the license, and under what circumstances a licensing authority may cap the maximum number of gambling licenses.

Despite several false dawns, however, the Act has never been brought into effect, leaving online gambling to be regulated by the earlier 2004 Act. Successive Ministers of Trade and Industry fear unlocking the latent desire for gambling and gambling products and the harms that will bring. The reality is that this is happening anyway except that it is potentially unregulated and untaxed.

Nkoatse Mashamaite, Director Gambling Law and Policy at the South African DTI, said at a conference in 2020 that there was still an intention to develop all modes of gambling but within strict controls to prevent harms.

“Gambling must generate tax and employment,” he said, “but the prevention of harm is still the overriding concern.”

The 2004 law makes participation in any interactive games of chance illegal with the exception of sports betting. Casino operators desperate to compensate for last year’s closure of retail outlets by encouraging players online were told in no uncertain terms that this remains illegal. A statement from the NGB in September 2020 reiterated the position that all forms of interactive gaming are against the law and warned offending operators they risk criminal prosecution.

The statement went further, cautioning punters that they were also contravening the law by playing with these unlicensed and illegal operators and threatening fines of up to R10 million with the potential of a prison sentence of up to 10 years for those found to be playing at an online casino. On top of that, any winnings resulting from this type of play are liable to be confiscated by the state.

So far, so clear, except that no one is sure how serious the threats are. Anecdotal reports of the scale of illegal online gaming seem out of line with prosecutions and monies recovered by the regulator.

Meanwhile, the stable regulatory environment, whilst it may not be permissive, is at least giving operators clarity. Provincial regulators, which are responsible for licensing casinos and online sportsbooks have been very accommodating, allowing operators, who are also big employers, to diversify during Covid. Whilst there is no regulation allowing online casino games, that has not stopped bets being offered on live casino games either online or at bookmakers. It remains to be seen just how big the illegal market has to get before the government is prepared to acknowledge it and decide that regulation is the lesser evil.

Nigeria

Nigeria is widely considered one of the most exciting growth markets for gaming in Africa and at US$7 million in 2020 its GGR is the second largest on the continent. Its population is an estimated 206 million making it the largest of all the African nations and with World Bank-estimated GDP per capita of $2230 in absolute terms and local purchasing power of 2.4 times that amount, Nigerians are also among the richest. In any western country, those two indicators alone would have gambling operators reachign for their passports. But this is Africa and things are rarely so simple.

Operators have found ways to live with patchy internet infrastructure and high mobile data costs and an online sports betting and gaming explosion has also been fuelled by locally developed payment systems. However, a patchwork of out of sync regulations is a cause of frustration. Gambling at the national level in Nigeria is regulated by the National Lottery Regulatory Commission (NLTC). The law makes a distinction between games of skill (which are legal) and games of chance (which are illegal). Legal forms of gambling include the lottery, land-based casinos and sports betting, whereas roulette, dice games and non-skilled card games are considered illegal. There is no specific provision in the law to regulate online gambling but that has not prevented operators from obtaining national licenses from the NLRC.

Whilst that may appear to be a functioning system of regulation, these licenses don’t grant access to local retail markets and that poses a real problem especially for start-ups and new entrants. Covid demonstrated that there will be a large and receptive market for online gaming in the future. For now, though, retail dwarfs online with betting shops operating as social hubs as well providing a brand platform for operators preparing for an online future. Retail licenses have to be acquired from one of 36 State Lottery Boards and the costs involved present a significant barrier to entry. A lack of regulatory alignment between state and national regulators, and confusion about where taxes are payable also give operators some headaches.

Those challenges are likely to multiply as harm prevention measures are brought in. State-level regulations are often written by experts brought in from mature markets in Europe. They are highly competent but do not always understand the realities of the local market. A requirement, for example, to monitor client profiles or activity, or track information like session times using their computers may be either impossible or beyond the budgets of operators.

The Lagos State Lottery Board recently issued a new set of regulations which, it seems, meet with the approval of operators and the NLRC. The possibility that these could be adopted more widely is one which could create a more stable market overall.

Kenya

Covid closures and the cancellation of major sports events had a devastating impact on the market in Kenya. Despite high mobile phone penetration and access to mobile banking, the sector tanked during the shutdown of retail gambling outlets. However, this was not the first market shock experienced by a country which has been on a regulatory rollercoaster in recent years as shown in figure v. In summer 2017, the government introduced a uniform 35 percent tax rate on GGR despite howls of protest and warnings that it would drive revenues offshore. A year later, in 2018, it was forced to u-turn and cut the rate on GGR to 15 percent while imposing a new 20 percent tax on winnings. Roll forward to May 2019 and the government, concerned by the rapid growth of sports betting, introduced a ban on gambling adverts outdoors and on social media. Then, in July of that year, Kenya’s gambling regulator, the Betting Control and Licensing Board (BCLB), declined to renew the license applications of SportPesa and 26 other companies. It claimed the reason was unpaid tax, which the operators denied. The move was too much for the country’s largest operators, SportPesa and BetIn, who both exited the market with SportPesa complaining of the ‘hostile taxation and operating environment in the country.’

Analysts have recently increased their growth forecasts again after new players entered the market in the second half of 2020, but the dip in the market shows the effect that regulatory uncertainty can have.

Other markets

Ghana has traditionally had brick and mortar casinos and licensed retail sports betting. The past two years has seen a gradual opening up of online which was accelerated during lockdown in 2020. Restrictions were eased quite slowly and with the global cancellation of sports events online sports betting was hit too. The response from the Gaming Commission of Ghana (GCG)was to allow previously prohibited online casino games on the operators’ platforms. This experiment was deemed successful enough for the regulator to consider regularizing online casino games within limits to protect brick and mortar operators. They are in the process of drafting appropriate legislation and are considering whether the regulations are sufficient to protect players. Roll out has been limited so far and the GCG has initiated a pause to review whether its rules are robust.

The Botswana Gambling Authority is following a similar path. Revenues of physical casinos in the country were hit by two separate lockdowns but the second lockdown, especially, encouraged operators to explore online. The regulator has responded cautiously, determined to ensure its rules are sufficiently robust is balancing anti-money laundering provisions and customer protections with a positive player experience.

Pan African regulation?

The significant differences between African countries and the market uncertainty this creates have led some people to call for a pan-African model of gaming regulation. IMGL member Yahaya Maikori, principal partner of Nigeria-based Law Allianz is unconvinced. He claims: “This sentiment is borne directly from European experience”.

Maikori points to wide variations in culture, religion, law and language across the 54 countries of the African continent. He argues that, with the possible exception of Morocco, there can is insufficient common ground with North African countries where gambling is either banned or significantly curtailed under Islamic law.

Even limiting the scope of such regulation to sub-Saharan Africa is not without its problems, he says, citing the Economic Community of West African States (ECOWAS) as an example.

“Only five of the 17 members have English as their official language. The rest are predominantly Francophone sprinkled with a few Portuguese and Dutch speaking countries. Though ECOWAS was intended to create a regional market, poor transportation connections, poor implementation of the protocol and poor communication arising from language barriers has substantially hampered intra-regional commerce between the member states. Ordinarily language should not be a barrier to trade but, in Africa, languages have deeper cultural, social, moral and traditional significance when compared to Europe.”

There is one forum which might provide an opportunity for discussions of this nature to take place and that is the African Union. This body, formerly known as the Organization of African Unity, has a new initiative called the Africa Continental Free Trade Agreement (ACFTA) which seeks to create a single African market, a step which the World Bank predicts would add 15 percent to current combined GDP.

Maikori says: “The AU’s initiative provides some hope, but the barriers should not be underestimated. While opportunities for ecommerce are at the forefront of the ongoing negotiations, the reality is that the journey has only just begun and the development of common gambling regulations will not be a priority in those discussions.”

Social Welfare

What seems beyond doubt is that effective regulation will become more important as the industry grows and faces the kind of challenges experienced elsewhere. Ineffective regulation and a large illegal market mean that players are unprotected from corruption and exposed to harm, but here too there are challenges. Regulatory protections such as Know Your Player (KYP) and affordability checks must operate differently in a market where email is a much less common means of communication and much of the population remains outside the reach of the formal banking system.

Changes to regulation are seen as inevitable as governments reconcile consumer appetite for gambling with the need to show the wider societal benefits of gaming. International operators active in African countries are rapidly gaining local market knowledge through partnerships with local firms. Their long-term interests will be best served by using their knowledge and experience to influence regulators and contribute to regulatory environments within which all parties can thrive.

Data and Graphics provided by H2 Gambling Capital