Africa is courting the international business market, as resources and burgeoning consumer demand draw foreign interest, especially from Asia. The hotel and casino industry is braced for the uptick in business…Maurice Levin studies the trend.
The sound of a gleaming roulette ball coming to rest on its number, or the ringing bells of a slot machine in a plush casino, evokes images of Las Vegas and Macau more readily than Sun International’s Federal Palace Hotel in Lagos or Peermont’s Grand Palm resort in Gaborone. But while the former two are fiercely competitive Meccas with limited projected growth, it is casino development in Africa which represents a relatively untapped growth node. Such are the assertions of the number-crunching research houses that analyse the global gaming industry. A study completed by international auditing group PricewaterhouseCoopers, released in June, has predicted that annual global gambling revenue will top US$155 billion by 2012. Isle of Man-based consultancy GBGC (Global Betting and Gaming Consultants) recently described African gaming as ‘upwardly mobile’. In a published report, GBGC concedes that a few years back the gambling industry was ‘mesmerised by the opportunities offered by Macau and Singapore and the newly-regulated European internet gambling markets’. A closer analysis of the research findings suggests that those markets are now saturated, and hotel and casino developers are looking for markets where gambling and its attendant culture is yet to be fully explored. GBGC has found that there are no openings for new entrants in the Asian and North American jurisdictions, while in Europe the markets are ‘highly competitive, highly taxed, and for start-ups, the entry barriers are often insurmountable’. The consultancy closed its research paper with a telling conclusion: ‘There are, however, other growth markets to be explored, not least across the continent of Africa’.
Africa is receiving unparalleled attention from large global companies, with substantial opportunities in oil and gas, mining and agriculture closely followed by demand in the areas of consumer products, telecoms, financial services and information technology. Businesspeople visiting bustling cities like Lagos, Accra and Yaounde conduct their working week on the continent, but fly out soon after, often to South Africa or on the long-haul flights through London to North America. This trend will be reversed in the next five to ten years, thanks to massive investments by leisure companies that regular international travellers will know well.
The ‘players’ at the gambling table
Sun International, the hotel chain founded in 1969 by Sol Kerzner, in partnership with South African Breweries (now SABMiller), is Africa’s largest casino operator by numbers of table and slots. It has gaming operations and hotels in South Africa, Lesotho, Namibia, Botswana, Swaziland and Nigeria. Industry insiders often remark that establishing hotels and casinos, not just in Africa, is a ‘bruising sport’, owing to the obstacles gaming companies face as regards government intervention, differing attitudes to conducting business, taxation, licensing and general bureaucratic ‘red tape’. In Nigeria, for example, Sun International chief executive David Coutts-Trotter says the company has successfully managed the challenges associated with an investment in that country. “We received close co-operation, although not without challenges, in opening our Federal Palace Hotel in Lagos in August 2008 after extensive refurbishment.” Following the promulgation of Lagos state’s new gambling law, the casino has been operational since December 2009. While the company‘s performance has been sound in recent years, Coutts-Trotter is realistic about the challenges gambling operators face in the near future. “In Africa, South Africa is currently the most significant casino market, followed by Egypt, but it’s reaching maturity, as can be seen from recent revenue performance, added to which the number of licences is regulated by law and almost all have been issued and built.”
He admits that capacity and quality issues outside South Africa provide both an inhibiting factor for business travellers and a ‘wide-open opportunity’ for potential investors. “In most places outside South Africa, hotel options are of insufficient quality for the business traveller, and this is why Sun International believes that a significant part of its growth potential lies on the African continent, and our investment strategy is focused on this.”
Conventional wisdom has always been that gambling, alcohol and cigarettes are recession-resistant stocks. The late tobacco mogul Anton Rupert’s first business was a dry-cleaning enterprise, which later went bust. He then stood back, studied the economy, observed that people drank and smoked in good times and bad, and founded what became the behemoth Remgro.
So, has the economic downturn affected Sun International’s business? Coutts-Trotter says that the slowdown has not been a considerable factor in the casino business, “although it proved to be a setback for business travel and investment.” The salient points of the company’s last published results, in March 2011, showed gaming revenue up by 8% on the previous year, while room occupancies were down 3% for the same period – the drop attributed to weakened inbound demand from UK and USA travellers.
So how do you succeed in Africa?
Coutts-Trotter offers the following advice: “Adapt to local conditions and market your casinos as aggressively as possible, as many people’s attitudes and views are based on the current very poor and low-quality offerings – in many cases illegal and with little foresight.”
With investment from seasoned hotel and resort operators, mostly with roots in South Africa, the African hotel, leisure and gaming landscape is improving fast, and pricing for premium five-star accommodation will become competitive as new developments commence trading. Watch this space!
Sun International’s shining lights at a glance
Sun City, GrandWest Casino in Cape Town (Africa’s largest casino), Sibaya in Durban and Carnival City in Brakpan.
Tsogo Sun
Tsogo Sun is now the fifth-largest gaming and leisure group in the world by market capitalisation. The group operates through two main divisions, Tsogo Sun Gaming and Southern Sun Hotels. The group owns 14 casinos and 94 hotels, (owned, leased and managed), primarily in South Africa, but also in seven other countries across Africa and in the Middle East. Tsogo Sun also owns the Sandton Convention Centre and the Gold Reef City Theme Park in Johannesburg. The merger between Tsogo Sun and Gold Reef Resorts has created an entertainment and gaming giant larger than any in South Africa, and the group will be among the top 50 listed companies on the JSE, with a market capitalisation of around R18bn.
Rob Collins, Managing Director of Tsogo Sun Gaming, says the company’s gaming revenue has been hit in recent times. “The most significant trend we’ve seen in recent years within the gaming market has been the significant slow-down in casino growth as the recession took hold.”
He highlights further challenges the business will face in the future. “Although our casinos have held revenues well, we don’t have pricing power and cannot increase revenue by any form of inflationary factor and cannot increase capacity without regulatory approval.” Collins says the challenge now is to innovate with new products and ‘experiences’ to ensure that ‘no two visits are the same’.
Peermont
Gaming company Peermont, while mostly operating hotels, casinos and resorts in South Africa, does have a significant investment in Botswana – the Grand Palm Resort in Gaborone being the flagship of five properties it owns and runs in that country.
Mark Jakins, the company’s head of operations and group marketing, says the major problem with its Botswana investment is the imminent approval of a fourth Gaborone casino licence, with the right to operate 160 slot machines and 10 tables in central Gaborone. “This will dilute the gross gambling revenue (GGR) of existing casinos already operating in the Gaborone area,” he says.
“Botswana continued to deliver healthy growth in local currency terms, with revenue growth of 12.8% in pula to P61.5 million (R64.9 million), as a result of an exceptional increase in gaming revenues of 34% on the prior period to P28.8 million,” commented company CEO Anthony Puttergill, at a recent results announcement. Hotel revenue growth in Botswana has been negatively affected by the ongoing civil servants’ strike, which has reduced the demand for government conferences. EBITDA (earnings before interest, taxes, depreciation and amortisation) grew by 11.4% to P20.5 million (R21.7 million).
The bustling Emperors Palace Casino and Resort in Johannesburg, is the jewel in the Peermont crown.
Cobalt Capital
John Storey, the private equity whizz-kid who founded M Cubed Holdings Limited, a JSE-listed financial services company that managed nearly R60 billion in investments, says Nigerian gambling has a stigma of ‘underhandedness’. Cobalt Capital, the Johannesburg-based investment house he now heads, has built two casinos (Abuja and Owerri) in Nigeria in the past four years, with another on the way. “The big gamblers can’t even drive to the casinos because the roads are always blocked,” he says. “Nigeria is chaotic, with small-scale bucket-shop casinos run out of old and dilapidated buildings, with a dedicated following I might add…and if we had our time over we would never have made a foray into that country, never.”
KaiRo International and Millionaires Gaming Management Africa
KaiRo International is a Gibraltar-based casino operator with casinos in Dar es Salaam (Tanzania) and Blantyre in Malawi. Millionaires Gaming Management Africa operates casinos in Mombasa, Kenya and Accra in Ghana. Marketing and PR contacts at both companies strictly barred an interview with Business Traveller Africa, but information on their gambling activities was gathered from their company websites.
Know your hold ‘em from your Omaha – the types of poker played around the world
Draw Poker – A complete hand is dealt to each player, face-down, and after betting, players are allowed to attempt to change their hand, by discarding unwanted cards and being dealt new ones.
Stud Poker – Cards are dealt in a prearranged combination of face-down and face-up rounds, with a round of betting following each.
Community Card poker – A variation of Stud, players are dealt an incomplete hand of face-down cards, and then a number of face-up community cards are dealt. Texas Hold ‘Em and Omaha are the best examples.
Talk the talk – Poker jargon
•Bet – place a bet using your chips. The value of the chips should be decided before the game.
•Blinds – bets placed by the two players on the left of the dealer before the cards are dealt.
•Fold – you don’t like your cards and don’t want to bluff – you will take no further part in the game.
•Check – stay in the game, but do not add a bet.
•Call – match previous peoples’ bet(s)
•Raise – to bet more after someone has already bet – everybody else must call your bet to stay in the game – or they must fold.