Susan O’Leary, Alderney’s director of eCommerce, discusses some of the key things operators should consider before entering the fray in Africa
We are delighted to have collaborated with iGaming Business on its Africa Focus 2017, which is now live.
As headline sponsor of this excellent report, we took the opportunity to write the publication's introduction, providing our views on the key issues operators need to consider before entering the African markets.
Our contribution to the special report is below. Alternatively, you can read the full publication here.
A CONSIDERED APPROACH
Africa is one of the fastest growing economies on the planet, particularly when it comes to technology. The communications infrastructure in the 54 countries that make up the continent are so advanced they make our tangled network of phone lines and broadband cables seem as basic as two plastic cups connected via a piece of string. The entire region has skipped desktop and gone straight to mobile; populations who have embraced smartphones and tablets and use them in all aspects of their everyday lives.
They like to bet and wager, too, and this perfect storm of superior technology and gambling propensity has caught the eye of operators and suppliers looking to expand their businesses into new and exciting markets. Africa certainly offers plenty in the way of opportunities, but as is always the case, throws up just as many challenges. The region may have a population in excess of 1.2billion, but regulation and licensing is patchy at best with some countries moving towards a proper framework while others are very much the wild west.
It is important, then, for operators and suppliers looking to march into Africa to carefully consider some of the hurdles they will have to clear along the way. The first, and most important, is what, if any, regulatory regimes are in place. If there is an existing framework it may only cover land-based play, online gaming may be illegal but the law not currently being enforced, or there may simply be no legislation in place either way. Each presents operators with a different set of challenges.
Mixing it with the locals
Some African countries will be more receptive to foreign operators and suppliers than others. As is often the case in emerging markets, lawmakers and regulators will be keen to protect the interests of local businesses. This may take the form of online firms having to enter joint ventures or partner with existing land-based operators, as is the case in New Jersey in the US. Other requirements may include operators having to establish a retail presence in the country, or entering into some sort of revenue share agreement.
It is also worth considering the political environment into which you are wading. Some African countries are a political and legal merry-go-round with ever-changing leaders, laws and liabilities. In Kenya, for example, the government is trying to push through a bill that will see land-based casino operators taxed at up to 20% on gross gaming revenue as the country looks to discourage gambling amongst its people. Such a huge rise in tax can turn a profitable business into a loss making one.
Another cause for concern is how easy it is for operators, suppliers and investors to withdraw money from the country. While businesses may be enthusiastic about Africa and the huge, and lucrative, potential it presents, it is vital to obtain a thorough understanding of each country’s legal and financial systems. At the end of the day, they are there to make money and if difficulties in extracting revenues generated in any given market are encountered, their initial enthusiasm will subside rather quickly, along with their profits.
Take the plunge
These factors will be enough to deter some, but others will take the plunge regardless. For those who do, it is important to remember what impact entering grey markets can have on their business in other regulated jurisdictions – Great Britain’s Gambling Commission, for example, states that if a single grey market contributes more than 3% of total revenue then a legal opinion must be sought to confirm it is lawful to conduct online gambling in that country. If not, their licence is in jeopardy.
Some African countries understand the issues this presents overseas operators and suppliers, and have acknowledged the need to embrace legalised online gambling to combat the substantial off-shore market, better protect players and raise revenues for their own tax coffers.
I recently attended BiG Africa 2016 in Cape Town, where conversation was buzzing as to how lawmakers should combine the incredible technological infrastructure they have at their fingertips along with the untapped potential of online gambling.
From our perspective at the Alderney Gambling Control Commission (AGCC), the best way African countries can go about this is to collaborate with us and tap into our fifteen plus years of experience licensing and regulating the egaming industry. We don’t want to tell lawmakers what they should and shouldn’t be doing, but we can certainly hold their hand and lead them through the minefield and safely through to the other side. We can help them shape their own regulatory structures, while educating them on best practices.
Clearing the minefield
We have done this previously with regulators in the US when Nevada and New Jersey set about their respective journeys towards legalised online gambling. But we see an opportunity to take things to the next level in Africa and help lawmakers – many of whom are willing to embrace legal egaming but simply don’t have the experience required to get it off the ground – establish sensible requirements that lead to sustainable and successful businesses in the long term.
Through proper collaboration, African regulators could spend time with the amazing team at the AGCC and learn from them. In return, online operators and suppliers seeking licensure in their country would be vetted and checked by us, and be granted an Alderney license if they meet our requirements. Our framework has been built to be flexible and nimble, so we can work with each country to fine tune the requirements they would like their operators and suppliers to adhere to.
We can also help them to educate companies both local and foreign as to the benefits of being licensed, and particularly by the AGCC. Assets such as being able to do business in other developed markets such as Europe and with licensed businesses in those regions. Licensing helps to advance the market and drive growth on a global scale, while companies
with investors and shareholders are considered more transparent and open when they carry and Alderney license.
African countries working with us can also benefit from our “gold plated” technical standards. For example, by standardising gambling equipment testing requirements across the continent from the outset, or building in cloud computing controls within the frameworks. This is bolstered by the AGCC’s specific experience in assisting licensees in achieving compliant operations across jurisdictional borders, with players and software offerings transferred from one country to another on a daily basis. This is becoming the norm in markets the world over, and Africa will be no different.
Do the right thing
Establishing a regulatory framework from the ground up takes time, which is another reason why we believe collaborating with the AGCC is the way forwards for African countries looking to get in on the action. Indeed, there is always a legal void created when lawmakers acknowledge an industry or market requires regulation and they set about taking the necessary steps to getting it done. This causes no end of headaches for business operating in this void while the laws and frameworks take shape.
We believe those who find themselves in that position – or are knowingly operating in African markets that are grey – should seek licensure regardless. Knowing that your business is adhering to internationally recognised best practices, the same standards expected in established and mature markets the world over – means they can hold their heads high safe in the knowledge they are doing the right thing. What’s more, as a growing number of countries move towards regulation, they will already be ahead of the curve.
Operators and service providers in mature gambling markets are likely to only partner with entities that adopt the same standards as they do, this can also be said for an exit strategy in the future whether by an IPO or a merger, both are common practice in the sector and a robust regulatory structure is fundamental to achieving this. When it comes to finance, it is also worth noting that the AGCC’s framework is endorsed by Moneyval and FATF in terms of full compliance with international AML and CFT standards.
When looking at the big picture, it is clear that Africa has the potential to become one of the largest online gambling markets in the world. The infrastructure is already in place – their payments systems are phenomenal – with mobile the dominant platform. What the market lacks, however, is clear and concise regulation and licensing, and that should encourage operators and suppliers to take a considered approach. Here at Alderney, we can help bridge the gap and unlock the true potential of the region.
All it takes is collaboration, understanding and a little patience.