BY FRANCIS OKWEMBA
The recently imposed withholding tax on gambling winnings is expected to slow-down revenues for casinos, according to a new report, spelling doom to the many casinos operating in Kenya’s major cities and towns.
A report by Pricewaterhouse Coopers, Raising the stakes in Africa: Gambling outlook 2014-2018 (South Africa – Nigeria – Kenya), shows the 20% tax, coupled with a general slowdown in the economy, will cut growth in gambling revenues to 4.9% in 2014 and 4.1% in 2015. Currently the gross gambling revenue stands at 7.6%, an improvement over the 5.6% increase in 2012. The PwC report says the local casino market held up well in 2013 despite concerns about terrorism, particularly after the Westgate Shopping Mall attack in September last year.
The report predicts that the annual growth in the sector will peak at an average of 6.8%, rising from $18.4 million (Sh1.6 billion) in 2013 to $25.6 (Sh2.2 billion) million in 2018. Almost all forms of gambling are permitted in Kenya, including online and mobile gambling.
On the contrary, gambling is highly restricted in Nigeria. There are only three licensed casinos in that country with most forms of gambling being illegal, other than skill-based card games, backgammon, and the national online lottery.
Nonetheless casino gross gambling revenues have grown at double-digit rates during the past three years, including a 19.4% increase in 2013, according to the report. But, as a result of a slowing in the economic growth rate and the adverse impact on tourism due to the Ebola outbreak in the country, slower growth is expected in the industry. Growth is expected to drop to 5% in 2014 and to 4.5% in 2015. For the forecast period as a whole, gross gambling revenues will expand at a projected 7.7% compound annual rate to USD58 million in 2018.
“We expect slower economic growth to lead to slower gross casino gambling revenues in Nigeria and Kenya and continued slow growth over the next two years. We then look for a pick-up in growth in each country as economic conditions improve,” said Nikki Forster, PwC’s Hospitality and Gambling Industry Leader for South Africa.
South Africa recorded R16.5 billion gross gambling revenues in 2013 and is expected to hit R29.5 billion in 2018. Some casino operators in certain regions believe the slowdown in 2013 was due in part to growing competition from electronic bingo terminals, limited payout machines (LPMs) and sports betting shops, which are becoming more prevalent in the industry.
Of the three countries included in the analysis, South Africa has the largest overall gambling market as well as the largest land-based casino gambling market. Gross land-based casino gambling revenues totalled R16.5 billion in South Africa in 2013 compared with only R428 million in Nigeria and R195 million (Sh1.8 billion) in Kenya.
“The South African gambling industry is a vibrant and dynamic sector, but is facing the challenges of a slow economic climate and a changing regulatory environment. In particular the casino sector is facing increasing competition from other gambling facilities,” says Ms Forster.
Casinos never sleep
South Africans are increasingly attracted to land-based casinos and large shopping malls. This, together with a rise in the number of shopping centres, has resulted in a convergence in the retail, restaurant and gambling industries. There is a heightened need for casinos to find the best way to gain the competitive edge on their rivals and ultimately increase revenues. Nowadays it is essential that casinos are ‘on’. Being ‘on’ means creating 24/7 virtual open networks in the form of free Wi-Fi spots that connect people on the floor to casinos.
In addition, casinos need to adopt a scientific approach to their marketing and customer service strategies by analysing and identifying their ‘key players’ and understanding how best to engage with them.
“Overall, the gambling industry is vibrant and dynamic. However, as a business the margins are low, a large portion of the costs are fixed, regulatory compliance is stringent and profitability depends on volume,” Ms Forster says “On the whole, the outlook for the industry is positive, with the further rollout of LPMs and electronic bingo machines in the pipeline that will further contribute to the expected growth in revenues.”
