22 AUGUST 2007







1.     Introduction. 22

2.     The economic impact of gambling.. 23

2.1 The cannibalisation impact. 23

2.2 Additional public expenditure. 33

2.3 Debt. 34

2.4 Savings. 34

2.5 Money laundering.. 34

3.     The Social impact of gambling.. 45

3.1 Problem gambling. 45

3.2 Crime. 46

4.     Consequences of legalising interactive gambling.. 56

5.     COSATU’s position on the Bill. 67

6.     Advertising.. 68

7.     Conclusion. 79


1.       Introduction


COSATU welcomes the opportunity to comment on the National Gambling Amendment Bill. COSATU believes that before amending the National Gambling Act of 2004, government should have undertaken proper research that would investigate the impact of gambling on the poor[1].We are opposed to any form of legalisation of gambling.  We view gambling as a self-destructive vice that does a lot of harm to society. It gives false hope and promises to people that they can escape the misery of poverty, instead often plunging them into debt and deeper poverty.  Instead of directing resources to productive investment, gambling takes away from the poor to the rich. It promotes greed. John Maynard Keynes once said that the only people who win from gambling in the long term are those who operate the gambling. The Bill states its aim to “regulate” interactive gambling. However, the Bill effectively promotes it.


COSATU calls on the Committee to reject the Bill. As discussed below, there are various economic and social problems associated with gambling, and we do not believe that government should be facilitating new forms of gambling likely to lead to its proliferation. Instead, COSATU believes that government should be more strongly regulating the gambling industry and in particular combating interactive gambling that is currently occurring, in line with the existing National Gambling Act of 2004.


2.       The economic impact of gambling


There are five major negative impacts of gambling on the economy: the cannibalisation impact; additional public expenditure; debt; savings; and money laundering.


2.1 The cannibalisation impact. The so-called cannibalisation effect refers to the reduction in the economic activity of other activities when a new activity comes to a community, resulting in shifts in residents expenditures from the previous economic activities to the new one. Expanding gambling activities will lead to reduction in consumption of some goods and services. This will result in job losses. Unlike the cannibalisation effect in other economic activities, the resulting net job loss in the case of interactive gambling will be significant since interactive gambling does not create a significant number of jobs.  For example the introduction of the lotto negatively affected spending on many sectors such as retail.  Poor people redirect their consumption away from other areas, including food, clothing and health because of gambling.


2.2 Additional public expenditure. Regulating interactive gambling will require additional public expenditure. The additional public expenditure will counter the tax revenue that may be generated from legalising gambling. Regulating and supervising interactive gambling will be costly. Monitoring interactive gambling equipment and software should require specialised skills and technology. There are also costs that will go with monitoring registered websites.  The additional public expenditure required is not socially productive (although it would be necessary), as it does not directly lead to an improvement in people’s lives. In this case public expenditure would be effectively subsidising the interactive industry.




2.3 Debt. Chronic gamblers tend to fund their addiction through borrowing or savings. Crippling debt is one of the most common outcomes of a gambling problem. Gambling can lead to people being short of money to spend on other things. At the farthest end of the scale, problem gambling can lead to serious debt and bankruptcy. The fact that online gambling uses credit cards makes it even more difficult to curb severe debt. Leading financial institutions in the United States and in the United Kingdom block cardholders from using their credit cards for transactions identified as online gambling[2]. Credit card transitions are “coded” to indicate what is being bought or sold. The financial institutions can withhold credit by blocking codes associated with undesirable activities such as online gambling.  Since credit card cards are the lifeline of many interactive gambling providers, blocking online gambling can prevent credit cardholders from taking too much debt.  Some banks in UK penalise their clients when using their credit cards to gamble by charging higher rates.


Debt and bankruptcy resulting from gambling increases the cost of credit throughout the economy. This means that online gambling could be problematic not only for the individuals directly involved, but also from a broader macroeconomic perspective.


2.4 Savings. Gambling accounts for an ever-increasing share of household expenditure Increased expenditure on gambling is funded by a run-down in household savings. Problem gambling among the elderly can also erode their retirement savings; this segment of the population tends to have higher savings as well as being more dependent on these savings. Savings in South Africa are low relative to comparable economies, and hence moves that would be likely to further reduce savings should be discouraged.


2.5 Money laundering is one of the negative externalities that could result from legalised interactive gambling.  Money laundering involves physical movement of funds derived from illegal activities into a form that is less suspicious to law enforcing authorities. These proceeds from crime are introduced to the traditional or non-traditional financial institutions or the retail economy.   It is not easy to curb money laundering because of the diversity of its forms, participants, and settings. It can involve respectable institutions unwittingly providing services to customers who participate in dubious activities.  A large number of money laundering cases involve movement of funds across national border. Interactive gambling can be a useful vehicle for money launderers.    


3.       The Social impact of gambling


The social impact of gambling can range from productivity loss, bankruptcy, crime, suicide, illness, abuse, divorce and separation, social services and treatment costs.  The social impact of gambling is not confined to the problem gambler. It most certainly affects others such as spouses, children, extended family members or close friends.


The history of gambling is that of a stigmatised behaviour that has passed through numerous cycles of guarded acceptance and prohibition. The recent spread of gambling in South Africa has been characterised by attempts to neutralise the stigma associated with this behaviour. Nevertheless, there are very real personal and social problems associated with gambling.


3.1 Problem gambling. Pathological gambling is a progressive disease that devastates not only the gambler but everyone with whom he or she has a significant relationship. Studies on the impact of gambling found a strong correlation between greater availability of gambling and pathological gambling.[3]  The Bill will increase the numbers of pathological gamblers.


Some of the consequences of problem gambling – even if not at a pathological stage – at the personal level can include an increased level of depression and anxiety, impaired judgement, reduced tolerance with other people, and loss of self-respect. Negative effects on work and study can include poor performance, high absenteeism, lower productivity, and unemployment or difficulty in maintaining employment. Research has found that effects on interpersonal relationships can include physical and emotional abuse, family and relationship breakdown, and exposing children to greater risk of experiencing physical distress.


3.2 Crime. There is positive correlation between crime and gambling. Gambling addicts resort to criminal activities in order to finance their habit. Theft, robbery and fraud are some of the things that problem gamblers sometimes engage in. 


Gambling is also a haven for organised criminal syndicates. Gambling operators usually refuse to acknowledge this for fear of losing wealthy clients. Anti-money laundering laws provide some constraint but are not 100 percent effective. In addition to money laundering, experience in other countries suggests that criminal syndicates are often involved in the actual operation of gambling as well.


4.       Consequences of legalising interactive gambling


While gambling brings various social and economic problems, as discussed above, there are specific problems associated with interactive gambling. The nature of interactive gambling makes it more difficult to control or moderate, either by the individual gambler, the casino, or others. It is more difficult to control how much money is spent when someone is just sitting at a computer using credit cards, than when one is actually in a casino spending hard cash. The fact that someone can be engaged in more than one interactive gambling game simultaneously also makes it more likely that spending will get out of control. Further, internet gambling is doubly addictive, given research that suggests that the Internet can be addictive itself.


In interactive gambling it is also much more difficult to regulate who participates. Under-age people will be able to participate in interactive gambling – whether through cellphones or the internet – much more easily than in conventional casinos where patrons can be physically screened for their age. Even if controls are put in place to regulate the age of interactive gamblers – for example through a registration system – this will be very easy to bypass (for example through access to the identity number of an adult). One example of poor enforcement is the failure of blocking children’s access to pornography using cellphones. Further, the system at conventional casinos where a gambler with problems – for example a pathological gambler or someone who has neglected their children at a casino – can be physically banned from the casino, will be much more difficult to enforce when it comes to interactive gambling. A registration system that gathers personal and financial information is also likely to be vulnerable to misuse (for example identity theft and scams).


Decriminalising online gambling will increase the number of online gamblers.  Even though the number of people currently participating in online gambling may be relatively small, the enabling of legalised online gambling is likely to increase this number.


The big players in the casino industry will enter the interactive gambling market if this is legalised. This is because online gambling requires less investment than conventional casinos. Even though the brick and mortar casinos are an undesirable social activity, they do have some positive economic benefits. Benefits of physical casinos are job creation and linking to other productive economic sectors such as tourism and retail.


Legalising interactive gambling can also bring in international players who will simply dominate the industry. This is not the type of investment that South Africa needs.


The legalisation of gambling will also have implications for provincial revenue[4]. Licensing gambling contributes significantly to provincial revenue.  Since interactive gambling will be licenced by the national authority, provincial licensing authorities will lose given that online gambling will displace some expenditure in casinos.


5.       COSATU’s position on the Bill



  COSATU recognises that there is interactive gambling that is taking place, irrespective of the fact that the current Act is prohibiting interactive gambling. It has been unable to proliferate because of criminalisation.  The Bill would be likely to lead to an increase in interactive gambling with the associated economic and social problems. We therefore (not withstanding our general opposition to legalising gambling) call upon government to enforce the existing legislation instead of encouraging the activity. COSATU calls on the Committee to reject the Bill. Instead, we would like to see stronger oversight of the existing legislation. We also call for strengthening of the existing legislation in particular regarding advertising, as discussed above. There should be stronger regulation of advertising of interactive gambling hosted by companies registered in other countries but targeting the South African market.


Section 36 (d) on Amendment of section 57 of the principal Act where the Board is tasked with “monitoring the performance of interactive gambling sector”.  The DTI needs to provide some information on how performance will be measured e.g. the number of jobs created versus turnover. We also need clarity on Section 39 which deals with delegation. Delegating the board’s powers suggest poor enforcement capacity.


6.       Advertising


COSATU proposes strict regulation of promotion of interactive gambling by advertising, similar to regulations governing tobacco advertising. Advertising gambling services increases gambling addiction. Restrictions of advertising gambling should not be restricted to interactive gambling, but all forms of gambling. South African websites or media advertising gambling should be penalised.


In Australia, it is a criminal offence to advertise online gambling on “websites where it is likely that majority of that site’s users are physical present in Australia[5].   Those who favour legalising online gambling claim that is not possible to criminalise online gambling because the internet does not have borders. Breaching Australia’s Interactive Act of 2001 carries a maximum penalty of AU$220,000 per day for individuals and AU$1.1 million per day for corporations. Placing an advert on a web site that is targeting Australian users regardless of where that gambling site is located is unlawful. 


The most prominent interactive gambling providers that are catering for South African gamblers are registered in Swaziland, Cyprus and The Netherlands. Their gambling infrastructure is located in South Africa. If online gambling is not prohibited on South African web sites, gambling providers will operate where the South African government has no control while continuing to target South African gamblers.  Legislation similar to that in Australia should be considered in this regard. South African gambling companies registered in other countries should be prohibited from advertising on websites that are predominantly used by people resident in South Africa.




7.       Conclusion


COSATU is opposed to the expansion of legalised gambling. We believe that the government should be moving in the direction of reducing this social ill.  Gambling has a lot of negative economic implications. Revenue that the state will collect from legalising gambling will be countered by the cost of regulating and monitoring interactive gambling.  Legalising interactive gambling will not create jobs. Instead it will displace expenditure from other sectors of the economy. This will result in net job losses. 


COSATU is thus making an urgent call  to the Committee to reject the Bill. The Bill would result in the proliferation of interactive gambling, which has strong negative economic and social consequences. We acknowledge that the problem of interactive gambling occurring with foreign registered gambling enterprises needs to be dealt with. However, legalising interactive gambling in South Africa will only worsen the situation. Instead, we believe that there needs to be stronger implementation of the existing legislation. Further, there needs to be a tightening up on advertising aimed at the South African public promoting interactive gambling hosted by foreign registered companies.

[1] COSATU Special CEC in December 2001 called upon the government to commission a study on the impact of the gambling on income distribution, poverty, addictive gambling and social cohesion after the introduction of the Lotto.


[3] Lesieur, H & Custer, R. Pathological Gambling: Roots, Phases and Treatment. Annals of the American Academy of Political and Social Sciences. 474:146-156

[4] COSATU is opposed to raising income through licensing casino whether it is the national or provincial government.  Gambling affects the poor the most since they use a larger proportion of their income gambling.  Revenue from the gambling is tantamount to regressive taxation.