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How Kenya is shooting itself in the foot with punitive measures to tame the betting industry

30th August, 13:54

Nowhere has this been more clearly demonstrated than in the recent changes to regulations on the online betting industry in Kenya. The crackdown started in May when the government deported 17 other foreigners and also suspended their online payment services of affected betting firms for allegedly failing to comply with industry rules. Global CEOs ranked policy uncertainty as the biggest threat to doing business in Africa at 49% above availability of key skills - 45% and over-regulation - 43%.

Boosting a large pool of its population highly educated, strategically located at the heart of Africa and practicing a liberal economy where market forces carries the day, Kenya has over the years cut a figure for itself as one of Africa's favorite destination for investment.

In 2018, for instance Kenya was ranked 61 among 190 economies in the ease of doing business by the World Bank annual ratings. The country improved an impressive 19 positions upwards from position 80 it held in 2017.

As a result of the improved 'ease of doing business' Kenya's foreign direct investment (FDI) rose 27.53% in 2018 to hit a new high of Sh164.84 billion ($1.648 billion) up from Sh129.26 billion ($1.292 billion) in 2017.

An aerial view of Nairobi City

The Ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operations stronger protections of property rights.

Now nowhere is a country's 'ease of doing business' tested than on emerging industries with little or no legal framework and more so where a section of the population may term it amoral like betting for instance.

Kenya Revenue Authority (KRA) offices at Times Tower

Betting is, and always has been, an industry that divides opinion down moral lines. However, whatever individual feelings people harbour towards the sector, betting has been around since the beginning of time and will no doubt continue as long as humans exist.

Governments have always had two options literally; fight them or join them - either come up with policies to legislate the industry properly and in return generate some much needed tax revenue, jobs and provides security to the users, or attempt to ban it entirely and end up pushing the industry into the black market where the law of the jungle reigns supreme.

Kenya's growing gambling industry

Kenya leads Africa in sport betting and gambling

Nowhere has this been more clearly demonstrated than in the recent changes to regulations on the online betting industry in Kenya, where the government have brought in a tax regime on a whim that so far looks hellbent to terminally cripple the industry. Overnight, one of the fastest growing industries in the country has been taken down leaving destruction in its wake.

The gambling industry in Kenya has several sub-sectors including gaming, lotteries, sports betting and prize competitions. Kenya currently has more than 50 licensed betting firms and casinos.

Kenyans place their bets at one of the many betting spots in Nairobi on July 30, 2016, along Market Street.

Last year, the industry reportedly contributed Sh10 billion ($100 million) to public revenues, providing much needed social services where nearly 40% of the country still live on less than $1-a-day. Furthermore, the betting and gaming industry is also one of the largest employers of young people in the country as well as the main sponsors of the national football league.

According to the Finaccess 2019 survey report, 1.9% of adult Kenyans participate in sports betting. The Finaccess survey tracks financial inclusion, and is conducted once every two years by the Kenya National Bureau of Statistics in partnership with the Central Bank of Kenya and the Financial Sector Deepening (FSD) Trust. The 2019 survey was administered on a nationally representative sample of 11,000 households.

Gamblers in a betting shop in Kenya

The betting industry has however since fallen out with one of its biggest supporters - Kenya Revenue Authority (KRA). The Kenyan taxman claims that at least 27 betting firms in the country have not been remitting taxes to the government and is demanding Sh61 billion ($610 million).

The crackdown started in May when the government deported 17 other foreigners and also suspended their online payment services of affected betting firms for allegedly failing to comply with industry rules.

Kenyan government goes rogue

File image of CS Fred Matiang'i.

The Senate Committee on Justice, Legal and Human Rights found KRA, Betting, Control and Licensing Board (BCLB) and Interior Cabinet Secretary Fred Matiang'i heard that the government officers decided to be a law unto themselves.

Nakuru Senator Susan Kihika accused the Interior Ministry of disregarding the rule of law after Gamcode Ltd (trading as Betin) told the senate committee that its directors Leondro Giovando and Demonico Giovando were deported despite holding valid work permits.

"People were deported when their issues were still in court...If this is not impunity then I have no other word to call it," said Ms Kihika.

Sportpesa CEO, Ronald Karauri.

Market leaders SportsPesa and BetIn went to court to compel the government to follow due process and despite the High Court granting interim orders restraining the regulator from interfering with business operations or stopping the firms from continuing to trade until the matter was heard in court the government didn't give a hoot. Sportpesa is yet to have its license restored.

It baffles even the harshest critics of the betting industry how the Kenyan taxman willingly went to bed with betting firms for years only to cry foul now. It leaves a lot to be desired, to say the least.

In 2018, SportPesa was awarded the top taxpayer's honour for the third year in a row for its immense contribution to the economy by non-other than Kenya Revenue Authority.

Sportpesa CEO Ronald Karuri receives award from KRA's Emma Mwambia on March 15, 2018. (courtesy)

KRA was all praises of the betting firm and said the company has been very compliant in remitting its taxes.

"We want to thank and appreciate you for the role you play in the economy. It is our hope that you continue to grow." Emma Mwambia, a representative from KRA said.

The company which was previously paying 7.5% as gaming tax had fully complied with the changes that pushed it to 35% even as it pursues dialogue over the new policy.

The clampdown is doing more harm than good

Kenya Revenue Authority head office.

The clampdown on the online betting market in Kenya especially on the manner it was carried out has only succeeded in raising a large red flag to the international investment community, and called into question the attractiveness of investing in any industry in Kenya when you have a regulatory environment so vulnerable to the whims of self-interested Ministers and a legal environment so toothless.

PwC, which has been surveying the world's chief executives since 1997, surveyed 1, 378 chief executives in more than 90 territories regarding the global business climate in 2019. The survey was conducted between September and October 2018.

EACC Headquarters in Nairobi

Global CEOs ranked policy uncertainty as the biggest threat to doing business in Africa at 49% above availability of key skills - 45% and over-regulation - 43%.

The CEOs lamented how policy uncertainty has become as destructive and inhibiting to developing political economies seeking entrance into the new, information-driven international political economy as uncivil contests between the state and society had been in the aftermath of decolonisation.

ethiopiangazette Addis Ababa, the capital city of Ethiopia (ethiopiangazette)

In terms of policy uncertainty Kenya now ranks high on international CEOs radar going by the latest onslaught on Kenya's fast-growing betting industry.

Following the onslaught some businesses have started to favorably look at Kenya's rival and have decided to pitch their tenth in Ethiopia. Sport betting is quickly gaining momentum in Addis Ababa.

It is not so much as to whether betting should be banned in Kenya or not, it is simply a matter of following due process as what Kenya loves to pride itself in doing. Well, it seems Kenya may have just decided to 'throw the baby out with the bathwater'.

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