Why government is seeking to control lucrative gambling sector

Not much has been said since about MTN’s listing on the stock exchange, but government has since picked up another fight with the gambling industry, a lucrative business worth billions of shillings.

Junior Finance minister David Bahati revealed in January that plans were underway to ban the licensing of any new company or renewal of licenses.

Only last week, Finance minister Matia Kasaija, wrote to the gambling industry regulator, the Lotteries and Gaming Regulatory Board, reinforcing the ban as having been endorsed by Cabinet.

In both MTN’s—which last August recorded a Shs735b profit—context, and the gambling industry which is expected to generate about shs50b in revenues in the next financial year 2019/2020 starting July, the common denominator is, capital flight.

Capital flight, in economics, occurs when money rapidly flows out of a country, due to an event of economic consequence.
According to 2014 estimates by Ministry of Finance, Uganda loses about $400 million (about Shs1.05 trillion) annually in capital outflows in form of dividend payments to the shareholders. But with the footprint of foreign companies, particularly Chinese companies lately, fast expanding the losses could double.

Mr Bahati revealed last Friday that government is “serious” about the matter, and that they are working on a set of guidelines to contain capital flight.

“We started with the gaming industry because it is easy to control but the guidelines will cut across,” Mr Bahati told journalists at the launch of Mojabet, a gaming company.

Until 2007 when Sports Betting Africa opened shop in Uganda under the banner of rising popularity of the English Premier League with legions of football fans supporting rival clubs, sports was more of an entertainment. Today, for many, it is more about making (and losing) money. This trend is roughly the same across West, Central, East and Southern Africa.

According to the Lotteries and Gaming Regulatory Board, which regulates gambling in the country, Ugandans averagely spend at least Shs150 billion annually on gambling.

Exactly how big the industry is in Uganda remains vague but globally it is expected that, by 2022, the global gambling market could be worth $635 billion, according to findings by Dublin-Ireland based Research and Markets consultancy.

In light of this unprecedented growth, government wants to choose the players to bring this lucrative sector under its firm control. The government says it is also working on raft of policy measures to streamline the industry.

The new measures according to previous reports are aimed at containing the enormous capital flight and controlling the rampant wave of gambling which has forced many youths to substitute employment with betting/gaming.

Nitpicking investors
Mr Kasaija’s letter was post-scripted with a Cabinet resolution noting that, “after the current licences issued on sports betting expire, the state would have the monopoly on sports betting activities countrywide.”

While the directive is still reverberating across the gambling industry, there are suspicions amongst sector players that government is angling to edge them out.

Some secretive deals, which were burbling below the radar are beginning to come to surface.
Sources say there is a group of wheeler dealers in government who are trying to sneak into Uganda a betting company domiciled in Europe to operate as a monopoly. The sports betting company, which according to sources has the backing of a Finance minister, has promised among others, to generate more tax revenues and more jobs.

Other sources say the gambling industry is rife with corruption, and the blockade on new licensing and renewal of licences is a temporary action as government moots a cleanup exercise.

This, Mr Bahati denied, and said the industry would be “better regulated if it has few players.”
A March 2019 report by the Lotteries and Gaming Regulatory Board on the status of gambling industry in the country details that there are 49 licensed operators. Of these, one is a lottery company: 16 are casinos: 32 are sports betting companies: 17 are slot machine operators: three are bingo companies: and one deals in pool betting.

However, Lionel Kabenge, an industry player described the move as “absurd” especially given the manner in which it is being pushed.
“If government wants to nationalise or create monopoly—whichever they want to call it—there is no guarantee that the industry will be vibrant as it is,” Mr Kabenge said.

“Worse still, I don’t think capital flight is unique to our industry; if they claim it is the issue at hand, then the solution needs to cut across,” he said.

According to the Regulator, anyone applying for a licence for either sports betting and slot machines must provide, among others, proof of minimum capital requirement of Shs250 million, and Shs1 billion to open up a casino. Other financial requirements include an approved security guarantee of Shs500 million.

Mr Kabenge said such huge capital requirements are prohibitive to most Ugandans, and this means that the sector is only open to foreign investors.

“If I go out there to get a shareholder to get a loan, it has to make a profit, and then take it back. The local banks themselves are not quick to giving out such huge loans,” Mr Kabenge added.

Mr Isaac Imaka, the mobiliser of the betting and gaming operators described the move as “investor unfriendly as much as government has the obligation to regulate.”

“Regulation doesn’t mean that people involved should be thrown under the bus on accusations of either spoiling children or capital flight,” Mr Imaka said. He said what we need to do is to sit and dialogue.

Of specific concern to government is the issue of capital flight, which is as a result of the fact that nearly all the businesses are started or shored up by foreign investors.

In response, several gambling industry players opined that capital flight cuts across nearly in all sectors of the economy as its symbolic of liberalisation of capital accounts which came along with the structural adjustment programmes propelled by the Washington Consensus—World Bank and IMF—in the 1990s.

According to Mr Paul Lakuna, a research fellow at Makerere University’s Economic Policy Research Center (EPRC), what is happening is “not entirely capital flight; everybody is just obeying the rules of the game.”

“Given our monetary policy structure where we don’t have sovereignty and exchange rate is flawed because we no longer have closed capital accounts, such a decision of banning gambling is something that governments need to think through carefully,” Mr Lakuna said.
Given a number of externalities and adverse effects linked to the gambling industry, Mr Lakuna acknowledged that limiting players would be the ideal setup; “We cannot operate it as a perfect competition of free entry and free exit.”

“Where that cannot be maintained then it is prudent that regulations be tightened; thing like zoning: by creating a gambling district and removing gambling shops from the central business district, regulating advertising, regulating opening hours, name it. Things which should be done but are not hence triggering the problem.”

Similar to many African countries, Uganda’s population is young—of its 40 million citizens, 78 per cent are below the age of 30. This demographic imbalance has left many youth jobless with more than 22 per cent aged 15-24 unemployed, and an increasing number turning to gambling.

In 2016, Economic Policy Research Centre conducted a study which detailed that “on average, the poorest in society spend a higher proportion of their personal income on gambling compared to their richer counterparts.” The study also showed that approximately one in every four adults had engaged in some form of gambling in the 12 months preceding the survey.

Reports are also emerging that government wants to create a statutory body, to be known as the National Gamings and Lotteries Company, which will carry out government’s commercial interests in all licences to be issued later under a new licensing regime.
But with the recurrent revelation by the Auditor General that state-owned enterprises are saddled with losses mainly as a result of poor corporate governance, wasteful expenditure, and inadequate staffing, the proposal leaves a lot to be desired.

Government strategies

The government, in its yet to be approved National Investment Policy, says it has consistently pursued a private sector–led economic development strategy for its socioeconomic transformation. This strategy, the policy adds, is anchored on four broad economic policies: economic liberalisation; economic diversification; economic industrialisation and economic integration.

The economic liberalisation policy. Under economic liberalisation policy to woo foreign investors, and lifting the lid off the capital accounts, under the latter policy, investors are still free to plough their money into various sectors of the economy but also free to repatriate their profits; as and when they wish; to either enjoy the fruits of their sweat with their shareholders abroad or re-invest elsewhere.

The Structural Adjustment Programme, and specifically privatisation was premised on the need to stem corruption; enhance quality; productivity; and business efficiency which had been pushed to the back-burners by an inept and feeble civil service.

This imperative, according to government and its external partners would be better understood and implemented to the letter by private sector operators, whose primary interest would be profit. The government, on its part would render a better regulatory framework, security and infrastructure; and above all, allow them to repatriate their profits.