Botswana Battles Illicit Financial Flows: A Growing Concern for the Country’s Development

Illicit financial flows (IFFs) are a significant challenge for Botswana, with the country struggling to curb the illegal transfer of funds out of the country. According to Global Financial Integrity, IFFs involve criminal transfers of illegally earned money to a foreign country. Corruption is often cited as a leading cause of IFFs, whether through actively participating in criminal activity or enabling it through inadequate oversight.

Estimated Losses Due to Illicit Financial Flows

Botswana has lost an estimated $20 billion between 2004 and 2013 due to IFFs, with the majority attributed to trade mis-invoicing, estimated at $12.8 billion. Other losses are attributed to tax evasion and corruption. On an annual basis, Botswana is estimated to lose more than $856 million.

Drivers of Illicit Financial Flows

Corruption is a major driver of IFFs in Botswana, accounting for 5% of the country’s illicit flows. Money laundering, counterfeit and terrorist financing, racketeering, and drug trafficking account for 35%, while tax abuse driven by major cross-border trade and finances accounts for the remaining 60%.

Impact on the Economy

The country’s reliance on foreign trade continues to risk its fiscal reputation and ability to stimulate citizen-owned economic activity void of state procurement. Botswana remains at risk of IFFs with sophisticated multinational operations that continue to find regulatory, treasury, and legislative loopholes that compromise its financial integrity.

COVID-19 Crisis: Heightened Risks of Illicit Financial Flows

The COVID-19 crisis has heightened risks of IFFs in Africa, with Sub-Saharan Africa losing an estimated $1.3 trillion between 1980 and 2013 due to IFFs. Botswana is not immune to these challenges, with unemployment rates as high as 46% in some rural areas.

Recommendations for Combatting Illicit Financial Flows

To combat IFFs and ensure the country’s development and service delivery capacity, Botswana must find ways to:

• Close regulatory loopholes
• Strengthen its financial oversight
• Adopt a feminist economy to improve public spending, economic participation, and equity ownership
• Find alternative strategies for stimulating citizen-owned economic activity instead of relying on foreign trade

References

• Dikuelo, P., 2016. Botswana Illicit Financial Flows Top P200bn Report.
• Kar, D. & Freitas, S., 2012. Illicit Financial Flows from Developing Countries: 2001-2010.
• Kraai, Z., 2018. Illicit Financial Flows Remain a Critical Challenge in Africa.
• Signé, L., Sow, M. & Madden, P., 2020. Illicit Financial Flows in Africa: Drivers, Destinations, and Policy Options.
• Weeks, J., 2015. Macroeconomic Impact of Capital Flight in Sub-Saharan Africa.