Operating environment

Lack of economic growth

Unpacking the context

South Africa’s economy, ranked as upper-middle income by the World Bank, is currently one of the largest economies on the African continent. Historically, South Africa’s economy was mainly built on primary and secondary industries, such as mining and manufacturing, but in recent decades, and in line with global developments, growth has shifted to the tertiary sectors. Industries that presently contribute to the economy include finance, real estate and business services; manufacturing; and wholesale and retail trade.

Of the nine provinces in South Africa, three powerhouses stand out. Gauteng, Kwazulu-Natal and Western Cape collectively contribute a significant portion to the country’s value added. Unemployment remains one of the critical challenges faced by South Africa and, in light of the difficulties experienced by many businesses due to COVID-19 and the resultant lockdowns, unemployment is expected to rise significantly.

Responding to our context

PwC’s Gaming Outlook 2017-2021 forecasts the National Lottery gross gaming revenue to increase, but growth will be modest, averaging only around 0.7% per year. The NLC does not receive funds from the fiscus, and the dependence on a single source of revenue against rising inflation and an increase in the NPO ask has become a considerable challenge.

The NLC receives, on average, approximately 80% of its funding from the share of ticket sales. While the invigoration of the games has increased gross revenue, it does little to measure up against the growth and demand for funding received from registered NPOs. The NLC is further faced with increased competition from bookmakers and illegal lottery operators. The advent of the COVID-19 pandemic presents further challenges for the NLC, particularly concerning its impact on revenue.

The proposed amendments to the Gaming Bill could positively impact on the NLC. Amendments to the gaming legislation in the country could provide the enforcement powers the NLC to combat illegal lotteries as well as provide opportunities through licensing bookmakers for taking bets on the outcome of the National Lottery. However, the lack of alignment between the Provincial Gaming Legislation and the National Gaming Bill implies that illegal lotteries will remain a threat. Fantasy gaming is also not addressed by the legislated amendments.

4IR and South Africa’s response

Unpacking the context

The real economy and the digital economy are not mutually exclusive. The two have become one as technologies blur the lines between the physical, digital, and biological spheres

The vast and growing potential of 4IR is yet to be fully grasped. The information and communication technologies (ICT) sector and governments have a responsibility to unlock its potential for citizen service delivery, customer experience and innovative solutions to ensure a better life for all.

Furthermore, the increase of mobile and internet use comes with its own threats – namely cybersecurity. Prioritising cybersecurity capabilities is not only crucial for protecting organisations and their customers’ data, assets and reputations, but also fundamental to successful digital transformation.

Responding to our context

The NLC’s Enterprise Resource Planning (ERP) system aims to unlock the potential of 4IR from both an internal and external perspective. For the NLC, online gaming has changed the landscape as people want to participate in easily accessible games. We can no longer afford to treat online gaming as illegal. The survival of the industry requires an urgent assessment of limitations in the current legislation.

The NLC has set aside necessary investments to enable staff and external stakeholders to participate in and benefit from services through a secure infrastructure. We plan to introduce innovative methods of interaction, for example, through the use of mobile devices to allow stakeholders to take on new roles as enabled and empowered participants. To capitalise on these opportunities, the NLC will ensure that the developed technology roadmap encapsulates principles of flexibility, scalability, cost-effectiveness and risk tolerance in the infrastructure and enterprise environment. It must, however, be noted that introducing new services in a network often presents challenges, among them security. At the NLC, this is addressed through the enacted ICT governance framework.

In light of the changes that the pandemic has brought about in the way we work and interact, the organisation needs to explore innovative and agile methods in the delivery of the National Lottery and Sports Pools.

Poverty and unemployment

Unpacking the context

Stats SA’s estimate for the 2019 mid-year population puts the total at 58.7 million people. The rate of growth for the South African population has increased between 2002 and 2019. The estimated overall growth rate increased from approximately 1.0% for the period 2002–2003 to 1.4% for the period 2018–2019.

Unemployment has increased during the past few years. While the official unemployment rate increased from about 23% in 2009 to nearly 30% in 2019, the expanded unemployment rate increased from less than 29% in 2009 to almost 40% in 2019. Not everybody is equally negatively affected by unemployment in South Africa, however. It appears that the youth are specifically hardest hit by unemployment, with 56.4% of economically active youth aged 15 to 24 unemployed while 35.6% of the youth aged 25 to 34 are unemployed. The highest levels of youth unemployment are found among youth with a matric qualification or lower.

For more than two decades, South Africa has sought to address poverty and inequality with a wide range of initiatives, including the use of fiscal policy to support redistributive measures. The social wage – which refers to the government’s investment in education, health services, social development, including social assistance to vulnerable households and individuals, as well as contributory social security, public transport, housing, and local amenities as a redistributive measure – has played a notable role in the government’s efforts to reduce poverty and inequality. However, high unemployment remains a critical challenge for South Africa as the country struggles to generate sufficient jobs.

Responding to our context

The National Lottery differs from other gaming categories in that it is operated to generate funds for charitable, sports, arts and other worthy causes rather than as an entity focused on maximising returns for shareholders.

The NLC’s primary aim when considering funding for impact hinges on the sustainability of the project, with emphasis on the number of jobs created and sustained through its funding.

During the 2019/20 financial year, the organisation created 9 295 jobs through its funding. In terms of the secondary beneficiaries, a total of 333 004 people reported having being served or reached with various services offered by the NLC’s beneficiaries during the year under review. These are beneficiaries that have directly benefitted from NLC funded programmes or projects.

Responding to our context

Unpacking the context

Research abounds regarding the importance of labour markets and education factors in explaining inequality. A decomposition analysis suggests race, education, and labour market income are the main contributors to the observed high level of inequality. The imbalance of opportunity in education is particularly influential in the transition to tertiary education, where despite a high return, access to higher education remains limited.

The influence of education on inequality raises concerns regarding low-income families that lack easy access to credit markets and incur the relatively high costs of sending a child to college. This serves as a significant barrier to enabling sufficient levels of education to support active participation in the semi-skilled and skilled labour market.

Responding to our context

The NLC’s investment in early childhood development (ECD) is a sign of our commitment to provide a solution to the factors contributing to inequality. To holistically intervene, the training and development of educators at ECD centres was also included in funding provided, of which 709 practitioners have since obtained qualifications ranging from NQF 1 to NQF 4.

The climate crisis

Unpacking the context

For the first time in human history, atmospheric carbon dioxide, the gas most responsible for global warming, is at a terrifying 415 parts per million, a record-breaking surge in atmospheric pollution.

Global warming is causing long-lasting changes to our climate system, which threatens irreversible consequences if it is not acted upon. Drastic warming of more than 4 – 6 °C is projected for South Africa over the next few decades, making climate change one of the most critical developmental risks to South Africa.

South Africa’s National Climate Change Response White Paper (NCCRWP) and the NDP, present a vision for an effective response to climate change. The NCCRWP and NDP address the immediate and observed threats of climate change to the country’s society, economy and environment and provide the basis for tracking South Africa’s transition to a climate-resilient society and lower-carbon economy.

Responding to our context

Extensive work has been done to translate the National Climate Change Response Policy into practical action, including the introduction of a Climate Change Act. The Minister of Environmental Affairs also published a draft National Climate Change Adaptation Strategy for public comment during May 2019. This is central in attaining the National Climate Change Response Policy objective of effectively managing the impact of climate change. The establishment of a Presidential Climate Change Commission, which was proposed as part of agreements reached at the 2018 Jobs Summit, have also been confirmed and will become a key platform for facilitating South Africa’s ‘just transition’ to a low-carbon economy. The Department of Environmental Affairs has furthermore released three climate change reports. In line with material impacts of the climate crisis on the most vulnerable in our society, food security and water preservation were areas that featured prominently in the NLC’s funding agenda during the year.