January 26, 2024
- Phil Savage, Head of European Affairs, IMGL
Time for Africa? Regulator’s big beasts visit Botswana
With a population of 1.1 billion many of whom live in developing nations, it is perhaps surprising that Africa could not be found a berth in the original list of BRICs. It is, of course, not a single nation (South Africa was added later to the BRIC grouping of nations), and its fragmentation into up to 55 separate nations masks a growth story that rivals many other regions. As far as its gambling industry is concerned its growth trajectory has been almost relentlessly positive (Covid 19 impacts aside) and it now represents an opportunity for those in other markets which may have stalled. For visitors from Europe, not only is Africa an expansion opportunity, it is also a refreshingly welcoming destination with a focus on the benefits of legalized gambling in terms of tax and employment which has been sidelined in Europe.
All of which goes some way to explain why the International Association of Gaming Regulators brought its 2023 conference to Botswana. IAGR has a track record of taking its conferences to the far-flung corners of the world. Major cities in the US, Europe and Australia have hosted in the past ten years but they have also visited Lima, Peru and Montego Bay, Jamaica. They have been to Africa twice before, but 2023 was the first time the regulator’s association ventured outside of South Africa.
As if to emphasise the genuine welcome for legalized gambling, the conference was opened by none other than His Excellency the President of the Republic of Botswana, Dr. Mokgweetsi Eric Keabetswe Masisi.
“The gambling industry in Botswana,” he said, “is part of our objective to transform and become a high-income economy by 2036. We are implementing an extensive licensing plan balanced with a robust responsible gambling campaign to harness the industry’s potential to generate sustainable employment opportunities which we estimate at approaching 3000 direct jobs. Its growth will bring investment into the country further creating new jobs and developing technological expertise.”
President Mokgweetsi Masisi’s message did not try to minimize the potential harms of uncontrolled gambling growth. “Gambling is a thrilling activity where the desire for instant gratification and material gain can outweigh moderation and restraint,” he commented. “This is why it needs regulating and this conference is an opportunity for our infant gambling authority to learn from experts and discuss ways to better implement worldwide best practices in our gambling regulation. As we bring our expertise together, we will find ways to address issues of illegal, problem and underage gambling.”
The conference heard from numerous experienced regulators on exactly these issues with many able to describe models of regulation which can be adopted depending on the legal and cultural situation on the ground. Visiting speakers felt there was an opportunity for African regulators to anticipate better how their markets will develop and so avoid some of the mistakes made elsewhere. There were numerous calls for evidence-based regulation and the involvement of academics at the event leant weight to the value their inputs can provide.
One of the strongest messages came from one of the very operators that inhabits the grey market. Adam Bjorn of Plannatech urged legislators to be pragmatic when it comes to setting rules and tax rates.
“Most operators want to be licensed. They value the status and they would like to contribute to the society they are in. The problem is regulators make it so unattractive and not just marginally but really unattractive. As a regulator, you should look at it as a business: your job is to capture market share. If you can gain market share for your licensed operators then you can do all the other things you want to do. So when it comes to regulations and tax the only real question to ask yourself is whether you are going to gain or lose market share to the grey market as a result.
Growing pains and gains
The conference was told that projections for the growth of legalized online gambling will see it reach $US 153 billion by 2030, a compound growth of almost 12 percent. This will generated unprecedented levels of foreign direct investment, taxation and employment but will also lead to regulatory challenges. These will come from broadly three areas: gambling harms, criminality and technology. As well as discussing the models of regulation which might best suit these challenges, attendees enjoyed numerous sessions which were designed to help them gear up personally and organizationally to the challenges ahead.
Lanre Gbajabiamila, Director General of Nigerioa’s National Lottery Commission led the call for collaboration among African states to flight money laundering, the financing of terrorism and syndicate gaming. He laid out the dilemma for African regulators who, on the one hand, want to encourage investment and innovation whilst, on the other, seeking to address some big risks. Before they can collaborate to tackle organized crime, they must first achieve synergy in terms of regulation and law enforcement. Whilst there are still big differences between the ways nations regulate and combat crime, criminals are able to exploit cross-border loopholes. “Countries which are susceptible due to weak or ineffective regulatory systems,” he said “empower and enable illicit practices through gaming platforms. We need to collaborate to solve this and close the gap by implementing KYC. We need to know our customers, our operators our licensees and need to ensure the mechanism for information sharing in order to work hand in hand.”
Gbajabiamila challenged his neighboring regulators to adopt comprehensive approaches which go beyond regulatory measures and equip agencies with the resources and expertise they need.
“We will fight this by cross-border collaboration, pulling information together then implementing stronger enforcement measures. The solution is to enhance financial intelligence units and support them legally and financially. That means creating policy awareness as well as educating the public. We need to utilise technology, strengthen our legal framework and our crime fighting agencies. We are all fighting the same cause so we should work together to achieve it.”
The challenge posed by the relentless march of technology is not confined to African regulators and there were many on hand from around the world to give advice on the implementation of AI, the implications of blockchain and the threats of cyber security. Rapid technological progress can be both a threat and an opportunity as demonstrated by presentations on smart responsible gambling in electronic gaming machines. This should allow the gambling industry to growing in a sustainable way emphasising trust, value, enjoyment and protection.
In the emerging world of digital assets, in-game currencies and blockchain technology, the interplay between gaming platforms, digital asset trading platforms and the growth of in-game assets and currencies are the future. The emergence of play-to-earn gaming, which utilises blockchain technology like cryptocurrency and non-fungible tokens represent highly monetised gaming experiences. The use of volatile and often inflationary in-game currencies, as well as exposure to risky investment vehicles such as yield-farming, staking and in-game trading of currencies and in-game assets are attractive to speculative investors who are more likely to have existing problems with gambling.
One of the most practical pieces of advice was to limit the number of licensed verticals. More verticals means more complexity and that puts pressure on regulators who will struggle to approve each new product. International cooperation is helpful: it’s the only way for regulators to keep pace with the volume of new products being introduced into the market.
Devon Dalbock of GLI tailored his comments at the reality of operating in Africa where data is expensive and apps are targeted are lower tech devices. Africa has led the way with mobile payments which are the only payment solution for its unbanked population. Interestingly as online gaming has developed, there has been a corresponding rise in female participation. Overall testing should be balanced with need to appeal to younger generation through the latest technology. That does bring challenges for regulators as many are on the back foot when it comes to drafting and redrafting technical standards. The process is a lengthy and complex one but moves to approve products based on approvals elsewhere are a positive development as they enable products to be deployed in a controlled way.
Perhaps the biggest challenge of networked technology comes from cyber crime. The Gambling industry is a prime target for cyber criminals because the data we collect is very valuable. It’s not a matter of if but when you get hacked and attacks are also hard to detect. The only solution is constant monitoring particularly in such a dynamic market.
Children are the future
This truism is especially true in Africa where the average age of the population is under 30 making the protection of minors a big issue. Parents are increasingly aware – as they are digital natives themselves – that the digital world has risks so the relationship with them is also important particularly as most regulations prevent minors from consenting to digital services.
Engagement with young people is also more complicated than it first appears as they are not merely immature adults but have very different mentalities, preferences and values. It is perhaps more helpful to see them as Gen Z consumers as this will soon be the biggest generational group amounting to 70 percent of gambling operator’s customers. They may be natural gamblers in that they embrace the world of digital thrills and spills, but that is not all. They tend to be more socially responsible, campaigning and wanting to change the world. Their focus is international and they are going to be the generation to tackle climate change. Importantly, they will support, work for or patronise businesses that share their views. They are highly susceptible to social media and influencers and are less into stuff – consumer goods – preferring entertainment and experiences. Attitudes to sex and gender can be overstated, but female consumers are forming an increasingly important segment within the gambling audience. There is a danger that slot machines, for example, with oversexualised imagery become irrelevant to Gen Z. It is certainly not attractive to the 50 percent of players who are female. Successful operators will be the ones who respond by targeting women and that has an impact on the regulation of gambling and sponsorship where women’s sport is breaking viewing records. Trust is a key currency – reviews and services like trustpilot are familiar and will start to be adopted in online gambling. Try before you buy will become increasingly prevalent which means big bonuses.
Ensuring regulators are fit for the future
The IAGR conference ended with some crystal ball gazing as panellists worked through the implications of some key trends for the gambling industry. Tackling these will be a key part of future-proofing gambling regulation.
Payments: the trend away from traditional payment mechanisms (a key part of enforcement) towards vouchers eg neosurf) and crypto (not normally acceptable by licensed operators) will continue to pose challenges especially regarding AML. The recent appearance of Skins – in-game enhancements which are accepted as currency on some sites – only adds to this. Ongoing monitoring needs to be future focused and it is vital that regulators share information and knowledge. There is so much going on – NFT services, novel card breaking games, new ways that crypto and smart contracts are being dealt with – that it is impossible for any single regulator to keep track of everything. Internal processes and procedures have to be continually evaluated. Sadly, there is no such thing as ‘set and forget’ anymore.
Marketing: targeting consumers through affiliates, social media live streaming and influencer marketing is a trend being adopted by offshore operators. The market is so dynamic that regulators need to be proactive and agile in investigating and taking enforcement action.
Changes to gambling demographics: as we have seen, there are increasing numbers of women gambling online but the established support services for problem gambling are geared towards men. This is going to need to change rapidly. We are also conducting a social experiment whereby the youth and young adults are being exposed to gambling advertising at unprecedented rates and this is linked with problem gambling in later life. The use of prominent sports figures in advertising has particular cut through among young people. Using sports starts to “talk to young people” especially about things they have had no exposure to like casino gambling puts them in an alarmingly unprotected position. Quite rightly, some jurisdictions are restricting these developments but others should keep an active watching brief on these and similar developments.
Enforcement: This is a key part of the regulator’s duty to its licensed operators but requires creativity and ingenuity to stay ahead of the offshore industry. There are some good examples of novel disruption tools like referring directors to border protection services which may limit their travel. Website blocking and financial transaction blocking are last resorts but things determined regulators are turning to. Where an offshore party is regulated elsewhere else, a direct approach through that regulator can get a much higher response. Most regulators will communicate with each other and collaboration can be positive.