The man sitting across the table picks his words fluently, as one who thoroughly knows his subject. It is a Wednesday morning and the interview with Letsebe Sejwe, the acting Chief Executive Officer of the Botswana International Financial Services Centre (IFSC) unfolds at a rapid clip, almost at a blur.
The background to this interview is a story The Telegraph carried a week earlier detailing how Tax Justice Network (TJN), an international Non Governmental Organisation had initiated an index to investigate global financial secrecy. The 2011 Financial Secrecy Index (FSI) in question, launched in Paris, assessed how secretive countries’ international treaties, laws and regulations have become. It cast Botswana in bad light.
Out of 72 countries researched, Botswana ranked 49th, a position that sets it close to countries that most aggressively provide secret and illicit financial flows in the global financial system. According to TJN, after establishing the IFSC in 2003, Botswana dumped foreign exchange controls, “facilitating easy transfer and repatriation of swindled profits”. Further, the story revealed that the 2010 Harvard International Review noted that Botswana is destined to become a strong secrecy jurisdiction, through which the continent’s siphoned development revenue is funnelled.
Among other things, Sejwe was concerned about TJN’s perception that on the heels of the IFSC’s establishment, foreign clients have evaded corporate tax using the trick of mispricing. “It is deeply worrying to see Botswana and other new entrants from Africa being encouraged in some quarters to move towards tax haven status given the damaging effect tax haven secrecy has on developing countries. Until recently, Mauritius was the only African tax haven,” said the Co-ordinator of TJN, Africa, Alvin Mosioma. “Such efforts undermine the ongoing process at the African Union (AU) to address corruptive practices such as illicit financial flows from the continent.” Tax havens, the TJN insisted, worsen the resource curse, which can hit Botswana as it depends on the export of commodities.
Sejwe sought to allay the perception that Botswana is edging toward tax haven status. More importantly, he detailed the IFSC’s role in the regional and global international financial services equation. “Ours is a developmental goal and we are not a tax haven,” Sejwe said.
Emphasing that the IFSC model is based on that of Dublin, Sejwe said the IFSC was a major cog in government’s broader diversification initiative, meant to “wean us off our overdependence on the mining sector”. As a core investment vehicle, the IFSC plays a role in quickening business activity in the export of services from Botswana. “This creates high value employment, helps the transfer of skills and technology into the economy and deepens the sophistication of our commercial and financial system.”
The IFSC chief executive detailed how his institution is promoted through a competitive and transparent tax incentive framework that is spelt out in the Income Tax Act. This, he said, meshed with how Botswana’s strong comparative advantage, buoyed by sound micro-economic fundamentals, have aided the services export sector.
The scrapping of foreign exchange controls, rather than abetting sleaze, as suggested by TJN, gives investors the freedom to carry out international financial transactions and to repatriate their profits freely. Supporting this point, Sejwe reeled off Botswana’s strong points.
“We carry the highest investment grade sovereign credit rating in Africa which is important during capital raising and for general risk management,” he said. “Transparency International has ranked us the least corrupt country in Africa which speaks to international perceptions about our low levels of corruption.”
Further, he said, the CATO Institute and the Heritage Foundation both rank Botswana as the second freest economy in Africa.
“Botswana is respected internationally in both financial markets and politically and we enjoy perception in the manner in which we approach most issues,” Sejwe said. For example, the IFSC model and regulatory approach follows the highest standards of regulation and transparency. Apart from internal regulation, Botswana is a signatory to the Financial Action Task Force and is a member of the East and Southern Africa Anti-Money Laundering Group. Botswana’s Peer Review Process ÔÇô centering on its ability to freely enter into international tax information agreements ÔÇô have been assessed by the OECD.
“We are currently working with the OECDE and the World Bank to fully comply with this process,” said Sejwe.
Given the growth potential in SADC, the IFSC is unsurprisingly seeing significant investment flowing into “predictable sectors in Africa of energy, property and resources”. With South Africa market creeping toward saturation, some banks and other financial institutions from there are expanding into the rest of Africa in search of new opportunities. Botswana, through the IFSC offers the first frontier.
Sejwe said IFSC registered companies number just under 50. “You will appreciate that many of these are brass plate companies,” he said.
Therefore, he said further, the IFSC in its quest to develop Botswana as a world class financial and business services hub, would see little relevance in the argument about illegal financial flows.
“If a genuine investor comes to Botswana, we guarantee that there is no restriction on profits ÔÇô companies can freely transact and repatriate their funds,” he said.
The risk management checks provided by the NBFIRA, the non-bank regulator and the Bank of Botswana, significantly weed out the chances of misconduct. “No IFSC company cited for misconduct and if that were to happen, the company would be revoked.”
