South African industry experienced healthy growth last year

The industry already made a "substantial" contribution to the economy, with direct gaming taxes and levies - excluding company tax and VAT - to provincial governments. These amounted to us$ 201.5 million last year, up 9.8% from 2010, said PwC gaming industry leader for SA Nikki Forster.

However, changes were on the cards. Finance Minister Pravin Gordhan announced in the February budget review that a national 1% tax, based on casinos’ gross gambling revenue, would be introduced next year. Regulations, taxes and levies on the industry are currently imposed at a provincial level.

Ms Forster said the 1% tax, over and above provincial taxes, would lead to a 16.9% increase in taxes and levies for casinos next year and a 16.1% overall increase in taxes and levies for the industry when compared to this year.

The heavily regulated gaming industry generally operates with low margins, and profitability depends on volumes. Analysts have said the weak economic environment has put pressure on the industry, with consumers having less disposable income to spend.

But Ms Forster said the outlook "remains positive, and the further roll-out of limited payout and bingo machines, and the possible introduction of online gaming will further contribute to the expected growth in revenues". She said casino operators "are also expanding or upgrading their properties to offer a better experience to gamblers and non-gamblers seeking out quality entertainment," she said.

Casino operator stocks have generally outperformed the JSE all share index over the past 12 months, which has gained almost 15%. The PwC report shows that South Africans spent us$ 28.8 billion on gambling last year, which equates to more than us$ 895 per adult.

Turnover, or the total amount spent by gamblers, is projected to increase at a 6.3% compound annual rate over the next five years to reach us$ 39.1 billion in 2016. Casino gaming comfortably remains the largest category, and generated us$ 1.66 billion in gross gaming revenues (the amount gambled less the amount returned to the gambler) last year, which was 80.7% of the total.

Sports betting came in second, with us$ 246.3 million in gross revenues last year, while limited payout machines (gross revenue of us$ 134.3 million last year ) and bingo (us$ 26.3 million ) have shown significant growth off a low base and are expected to continue this upward trend, according to the report. A total of 50,000 limited payout machines are authorised to be rolled out nationally, but only about 7,500 had been deployed by mid-2012, leaving "ample room for growth", the report says.

"Gambling, like most industries, is affected by the economy," Ms Forster said. She said the industry had improved particularly since the 2010 Soccer World Cup. "We expect a steadier economic profile during the next five years and steadier turnover growth," she said.

However, Avior Research hotels and gaming analyst De Wet Schutte said projected turnover increases for the gaming industry of 6.3% a year over the next five years was "not very positive", as operators’ costs were rising. The industry was still operating in a "tough environment", and with consumers under pressure, and the projected tax increases, margins may be squeezed even further, he said.