Botswana’s Attraction of Foreign Direct Investment: A Double-Edged Sword?

As Botswana seeks to diversify its economy by attracting foreign direct investment (FDI), it must also address the risks associated with money laundering and terrorism financing.

The Risks of FDI in Botswana

Despite being a major hub for second-hand car dealerships, Botswana has not conducted an assessment of risk vis-à-vis money laundering and terrorism/financing of terrorism. A recent report by the Institute for Security Studies (ISS) highlights several key vulnerabilities in Botswana’s finance and company regulatory regimes.

Al-Qaeda agents have used the country’s booming second-hand car market as a cover for their activities.
Investigations have linked company directorships to Kenya, where terrorism-related activities are understood to be taking place.
Botswana is seen as a soft target due to its relatively weak finance and company regulatory regimes.

The Need for Strengthened Laws and Enforcement Mechanisms

The situation with regards organized crime in Botswana was aptly captured in the country’s report to the UN Congress on Crime Prevention and Criminal Justice, which highlighted the need for strengthened laws and enforcement mechanisms.

Botswana needs to prioritize strengthening its laws and enforcement mechanisms to prevent money laundering and terrorism financing.
The government must also ensure that the vetting mechanism for foreign individuals is robust and effective in preventing individuals with questionable motives from entering the country.

Criticism of Government Strategy

In an effort to attract FDI, Botswana has implemented a strategy that includes lucrative government subsidies, grants, loans, and tax breaks for businesses that propose to employ Batswana. However, this dispensation has been criticized for bringing in individuals of questionable motives and business credentials.

The mechanism to vet foreign individuals is very weak.
Several instances of foreign nationals implicated in scandalous activities have criminal records in other countries.

Inconsistencies in Company Regulation

The revised Companies Act (2007) permits individual-owned closed corporations, which appear to facilitate more private dealings within companies. However, this is inconsistent with the spirit of international money-laundering standards.

There is no obligation on authorities to verify the integrity of persons forming a company or registering a business name as a sole proprietorship or partnership.
The beneficial owners of domestic or foreign companies being formed are not required to be disclosed.

Conclusion

As Botswana continues to attract FDI, it must prioritize strengthening its laws and enforcement mechanisms to prevent money laundering and terrorism financing. The government must also ensure that the vetting mechanism for foreign individuals is robust and effective in preventing individuals with questionable motives from entering the country.

Key Takeaways

Botswana’s finance and company regulatory regimes are vulnerable to money laundering and terrorism financing.
Al-Qaeda agents have used the country’s second-hand car market as a cover for their activities, while investigations have linked company directorships to Kenya.
Botswana is seen as a soft target due to its weak regulatory regimes.
The government’s strategy to attract FDI includes lucrative subsidies, grants, loans, and tax breaks, but this has been criticized for bringing in individuals of questionable motives and business credentials.
The vetting mechanism for foreign individuals is very weak and must be strengthened.