Regulating the African grey market

Africa’s regulatory climate is evolving but, as Joanne Christie explains, it has a some challenges to overcome before achieving the level of consistency experienced in Europe.

When it comes to igaming regulation, it’s fair to say that Africa is lagging behind many other parts of the world. According to H2 estimates, the percentage of igaming activity on the continent that was ‘white market’ was just 47.1% last year, whereas in Europe the percentage was 75.1%.

Unfortunately, H2 predictions for the coming years don’t suggest a great deal of improvement in the balance between white and grey markets is likely, at least not imminently, with the percentage only expected to be just over 50% by 2023.

In some respects, recent Africa regulatory changes seem to be taking the continent backwards instead of forwards when it comes to moving the market to a more regulated position. Take South Africa, for example, which is by far and away the most developed regulated market in Africa.

Lawmakers in the country have recently tabled a Gambling Amendment Bill that would seem certain to drive more online activity in the country into the illegal market. In addition to the fact it does nothing to open up the online gaming market, it also recommends measures that are likely to have a huge impact on the highly lucrative betting on lottery market that exists in the country.

And in Kenya, government officials caused chaos in the licensed market when they raised the gambling tax to 35% of revenues, from 7.5%, in January this year. The move led a number of operators to pull out of the market and saw SportPesa terminate its sponsorship of the Kenyan Premier League and the other sporting teams it sponsored.

However, there are some bright spots in Africa, says Yahaya Maikori, senior partner at Nigerian law firm Law Allianz. “Botswana is way ahead in terms of regulation; in the online space they are ahead of even South Africa,” he says. “Botswana has already included online gaming in their regulation, although Botswana has only two million people, which is just a small portion of one of the states in Nigeria.”

Lack of understanding
Part of the problem in getting to a more regulated position across the continent is that there has been a lack of understanding from governments and regulators when it comes to gambling, particularly online gambling. “As it stands right now we are not getting any government support,” says Hammed Rashid Tunde Ali, former chairman of the Ghana Gaming Commission and now a consultant to igaming firms. “Until recently they didn’t really understand what gaming was all about. Right now the industry players have to do more to increase awareness.”

In many countries in Africa there are also negative perceptions about the gambling industry, many of which are rooted in religious or tribal perceptions about the morality of gambling. This has fed through to regulators, says Garron Whitesman, partner at South African law firm Whitesman Lurie Attorneys.

“There still continues to be a regulatory suspicion, particularly in developing countries – we see this in India, we see it in China and we see it across Africa – about gambling even though gambling is prolific. I think it is endogenous to policymakers. I think there is a fundamental lack of understanding as well, but having said that we do see it changing.”

But this change is often hamstrung by resourcing constraints, says Maikori. “Most regulators are just getting used to the idea of the gaming industry, especially sports betting, which is very popular in Africa, and they are also just getting used to the idea that the whole industry is technology driven. Then they find themselves not as resourced as they need to be to know exactly what is happening.

“Most are at the point where they are wondering, ‘do we regulate this industry or do we ban it?’ I think they realise they are better off regulating it but do they have the resources to regulate this industry? That is where most of the jurisdictions are right now.”

In Mozambique, another of the bright spots in terms of regulation in Africa with four or five licensed sportsbooks already taking online bets, this is one of the issues hampering further development  of its regulated market, says Felix Mukaxe, gaming inspector  at the Mozambique Gaming Board. He says he was forced to cancel his planned trip to iGB Live! earlier this year due to  budget issues. “One of the constraints that we have is that we are a government department. Our gaming board is a government department, not independent, so we work with budgets which are very tight sometimes. That means we have challenges to attend conferences in Europe.”

Talking tax
Nevertheless, countries such as Mozambique are increasingly becoming interested in attracting more operators to their markets due to the potential to raise much-needed taxes. “We have taken that decision to make our market grow because before that the market was very small and it was not growing but with online gaming it is growing,” says Mukaxe. “We are increasing our tax revenues and another benefit is that we use part of the revenues for good causes, for social causes, so we benefit from that.”

Unfortunately, in Africa – and it’s worth mentioning this has also happened in more developed parts of the world – some governments get carried away at the prospect of additional revenues and end up setting tax rates too high to allow their market to thrive.

In cases such as Kenya, we’ve yet to see a backtracking of the punitive tax rate and Maikori says this has definitely slowed the market. “The tax change did not only dampen spirits, a couple of people have pulled out.”

Some policymakers are more willing to listen to the sector than others, however. James Mpiirwe, board secretary at Uganda’s National Gaming Board, admits Uganda made the same mistake as Kenya, but says it quickly reversed the decision. “We increased ours to 35% as well and got a very bad backlash from the sector. It was done by parliament, misadvised and we got a backlash from the operators so we withdrew very quickly.”

The issues with setting tax are tied in to the more general lack of understanding, says Whitesman. “Setting gambling taxes is a sophisticated exercise as it is. You’ve got to know what you are doing.  I think it has got to be realistic and I don’t think that the regulators quite appreciate by and large that gambling businesses don’t work on as large a margin as they think they do. I think they are under the impression that all gambling businesses simply print money.”

Could operators be part of the solution?
While there may currently be a lack of understanding among some Africa regulators, Mukaxe says Mozambique, for example, is keen to learn from companies operating in highly regulated markets in Europe. “We are willing to partner with good operators from Europe that can bring technology to Mozambique and help us to consolidate our regulation and to consolidate our market.”

Mpiirwe says that one of the reasons Uganda revised its gambling legislation in 2016 was to make the country “more attractive to international operators”. Although enforcement of illegal operators is minimal in Africa and operators can quite easily set up unlicensed operations,  Whitesman says there has been a shift in attitude in recent years and  that operators themselves are now driving the move towards greater  regulation.

“We have seen a change in mindset in the last five years or so. You will always get operators that will be prepared to operate in a grey and/or black environment, but what we’ve started to see, and I think it started with the increased state-by-state regulatory regime  that started to come through in Europe, is that most decent operators  are starting to adopt the mindset of being regulated in virtually every  single territory that they can.”

Although the pace of change may be slower than some would like, most seem to agree that the impetus is certainly there for a substantial increase in regulation in Africa. “I can see it is improving,” says Ali. “In the next five years I am sure most of the regulators will be up to date and with internet penetration also improving the prospects look much brighter.”

Whether or not the increase in regulation will drive a significant change in the number of illegal operators in the market remains to be seen, but it seems that many African regulators are at least moving in the right direction.