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STATE OUT TO KILL GOOSE THAT LAYS GOLDEN EGGS

Through a series of poorly thought-through regulatory amendments, the government appears hell bent on destroying the casino industry, regarded as one of the world’s most successful and well regulated since the introduction of a new gaming dispensation in the mid-1990s, writes Jabu Mabuza.

South Africa’s casino industry is regarded as one of the world’s most successful and well regulated since the introduction of a new gaming dispensation in the mid-1990s.

Through a series of unco-ordinated and poorly thought-through regulatory amendments, the government now appears hell bent on destroying the industry it created.

In addition to substantial increases in rates and utility costs and deteriorating basic services such as water and power, SA’s gaming industry has been rocked recently by proposed regulatory changes with significant unintended consequences. These include:

A withholding tax on winnings from the national Treasury;

Increased provincial gaming taxes by the Mpumalanga, North West, Limpopo and, more recently, Gauteng governments;

Increased BBBEE requirements as a condition of licence by all provincial gaming boards; and New regulations affecting marketing activities and equipment certification by the Department of Trade and Industry.

While conceivably founded on good intentions, these actions have the potential to kill the goose that lays the golden eggs. In particular, the unco-ordinated nature of the amendments has resulted in proposals that have multiplier effects in undermining the sustainability of the industry.

While the Tsogo Sun group enjoys a strong balance sheet with low levels of gearing, other industry participants are not as fortunately positioned. In fact, if all of the proposed regulatory changes are implemented, they will almost certainly result in the destruction of empowerment wealth, if not corporate failures.

If currently stressed gaming entities do avert failure, investment in both maintaining and growing gaming and non-gaming facilities will be severely curtailed, including projects being pursued by Tsogo Sun.

This will, at best, inhibit job creation and, at worst, result in significant job shedding by the industry.

Politicians have also sought to undermine the gambling industry through anecdotal and unsubstantiated allegations that relate to the socio-economic impact of gambling, with scant regard for the facts.

The National Responsible Gambling Programme, the Gambling Review Commission and the Gauteng Gambling Board have all published reports which corroborate the view that it is not casinos which prompt problem gaming, but rather illegal and informal gaming platforms such as dice and fafi, as well as Lotto, which is one of the most accessible forms of gambling available to virtually the entire population, particularly the poor.

The aftermath of the gaming dispensation promulgated some 15 years ago resulted in the elimination of a substantial illegal industry. It eradicated some 150000 machines, accessible even to minors, which made a zero contribution to the fiscus in the form of taxes at a time when no responsible gaming programmes existed and the public had no protection from payout manipulation and criminal elements like drugs, loan sharks, money laundering and protection rackets.

The new industry has invested more than R20-billion in infrastructure, leading to the development of world-class entertainment destinations incorporating hotels, restaurants and eventing facilities, not to mention single-handedly reviving the arts through theatres, museums and the development of new cinema complexes.

More than 100000 direct and indirect jobs have been created, many of which gave employment to people with no previous work experience, in addition to BBBEE shareholding structures that are the envy of traditional industries struggling to transform.

From a Tsogo Sun perspective, we have been at the forefront of these developments – simultaneously driving growth through acquiring and supporting the leading hotel group in the country, Southern Sun, and leading industry consolidation by purchasing Century Casinos and the reverse merger of Gold Reef Resorts in the past five years. All this has resulted in a group with significant scale on a global basis that the country can be proud of.

Since the economic crisis in 2008, attention has focused on ensuring the group weathered the storm and continued to provide acceptable returns to its shareholders, maintained and enhanced its properties and provided a platform for future growth.

In this period, a strategic decision was taken that retrenchments would not be implemented and staff would be given increases, despite the hotel industry reporting the lowest occupancies on record.

The view we took as management was that economic cycles come and go, and that the impact of retrenchments on business morale was not worth the short-term cost savings that would be achieved.

In addition, Tsogo Sun continued to look for avenues to deploy capital, and we are currently investigating hotel, casino and property projects in four South African provinces and hotel opportunities in three African countries.

Unfortunately, as the local economic situation has begun to stabilise, the government’s radical shift in its stance on casinos, with little industry consultation, jeopardises this strategy.

The government wants to create additional jobs, stimulate investment activity, increase tax revenues and enhance BBBEE scores – all of which are capital-intensive – while simultaneously reducing the ability of casinos to trade.

The government holds all the aces, but something has to give.

A realisation is needed at the highest level that the industry is not an enemy of the state, but a comrade that efficiently delivers significant social benefits to society and billions in revenue.

Mabuza is CEO of the Tsogo Sun group and also chairman of the Casino Association of SA and SA Tourism

Source: Businesslive.co.za – Jabu Mabuza