2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011
Report

Overview of Foreign Investment Climate

The government of Cape Verde (GOCV) looks to private investment as the engine for the country's future economic growth, with a focus on export-oriented industries, tourism, transportation services, and attraction of foreign investment. Significant effort has been made over the past ten years to promote a market-oriented economic model. Policies have been endorsed and supported by the World Bank, IMF, United States, and many other donors. In December 2009, Cape Verde became the first Millennium Challenge Corporation (MCC) partner country to be selected as eligible for a second Compact after consistently displaying good economic and political governance. Previously, in July 2005, Cape Verde had become the third country to sign a five-year Compact with the MCC. The $110 million Compact supported Cape Verde's overall national development goal of transforming its economy from aid-dependency to sustainable, private-sector led growth. Cape Verde was the first country to successfully conclude its MCC Compact. Compact funds have been used to improve the country's investment climate and reform the financial sector; improve infrastructure to support increased economic activity and provide access to markets, employment, and social services; and increase agricultural productivity and raise the income of the rural population as well as carry out key policy reforms needed for sustained economic growth.

For FY 2011, Cape Verde’s MCC assessment included the following scores:

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Measure

Year

Index/Ranking

TI Corruption Index

2011

46

Heritage Economic Freedom

2011

65

World Bank Doing Business

2011

132

MCC Gov’t Effectiveness

2011

0.37 / 74%

MCC Rule of Law

2011

0.81 / 94%

MCC Control of Corruption

2011

1.09 / 97%

MCC Fiscal Policy

2011

-2.8 / 33%

MCC Trade Policy

2011

67.6 / 22%

MCC Regulatory Quality

2011

0.45 / 77%

MCC Business Start Up

2011

0.98 / 76%

MCC Land Rights Access

2011

0.706 / 52%

MCC Natural Resource Mgmt

2011

64.82 / 12%

Note: Each indicator has the country’s score and percentile ranking in its income peer group (0% is worst; 50% is the median; 100% is best).

In January 2008, Cape Verde graduated from a Least Developed Country to a Lower Middle Income Country. On May 26 that same year, five months after the World Trade Organization (WTO) approved its application, Cape Verde’s legislature unanimously ratified the agreement and formally acceded to the WTO.

Foreign investment in Cape Verde has traditionally been in the areas of tourism and light manufacturing. Looking forward, however, new investment opportunities are developing which may prove attractive to American companies. Sectors such as construction (major infrastructure), transportation and energy are areas of significant growth. In terms of transportation, Cape Verde’s strategic geographic location places the country in a position to become a regional and international shipping hub for both passengers and cargo. Despite this, the country remains poorly served by insufficient and inefficient maritime transportation, especially for passengers. Within the energy sector, Cape Verde is striving to overcome its dependence on foreign resources with a great deal of investment in renewable energy projects. Several infrastructure projects financed by international financial institutions are underway, along with renewable energy projects supported by other donor states and institutions.

The government of Cape Verde is striving to overcome one of its major development challenges - near complete historical reliance on imported fossil fuels for energy generation. The government has articulated a goal to produce 25% of energy requirements from renewable sources by end of 2011, and 50% by 2020. There are also plans to make the island of Brava 100% supplied by renewable energy resources (i.e., solar, wind, wave, and biofuel) in the next 5 to 10 years. Cape Verde’s ambitious growth plans will require big investment in power and water infrastructure, and the use of alternative energy may result in great opportunities for American companies.

Progress on this goal can already be seen as Cape Verde has the highest penetration of renewable energy of all African countries. Praia’s solar park which occupies an area of 13 hectares started operating in November 2010. In October 2010, the first solar power station of the archipelago was initiated on the island of Sal. Wind energy was first introduced to Cape Verde in 1994, and it still is limited to just 2 percent of national consumption. Four new wind farms with the capacity of 28 MW are expected to be operational by the end of 2011 on the Islands of Santiago (10 MW), Sal (8 MW), S. Vicente (6 MW) and Boavista (4 MW).

Taking all of these operational projects into account, Cape Verde already attained its goal of 25% energy generation from renewable resources.

Openness to Foreign Investment

In recent years, foreign investment in Cape Verde has been mainly in the areas of tourism and light manufacturing and could provide U.S. companies new investment options.

The Cape Verdean government has been consistently improving the conditions for foreign investment, promoting a transparent and competitive economic environment. The basic Cape Verdean foreign investment laws establish the principle of equal treatment for foreign investors and affirm the government’s commitment to the creation of a dynamic business environment. Cape Verdean people are friendly to Americans as the culture is widely considered to be open to foreigners and diversity.

Cape Verde - Doing Business 2011

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Indicators

DB2011 (out of 183)

Global Ranking

132

Starting a Business

120

Dealing with Construction Permits

89

Registering Property

104

Getting Credit

152

Protecting Investors

132

Paying Taxes

100

Trading Across Borders

55

Enforcing Contracts

38

Closing a Business

183

Conversion and Transfer Policies

The government affords foreign investors important guarantees such as privately managed foreign currency accounts which can be credited only in foreign currency from abroad or from other foreign accounts in Cape Verde. In addition, it allows undisputed repatriation of dividends, profits and capital from foreign investment operations. To benefit from these advantages the investor has to qualify for foreign investor status through its official agency Cabo Verde Investimentos.

The regulatory legislation specifies that for the initial five years of operation, dividends may be freely expatriated without tax and that for the next fifteen years dividends may be expatriated with a flat tax of ten percent. Incentives for outward investment in developing countries are not included in the legislation, but they have been provided on an ad hoc basis.

Current law permits a foreign investor to request the Bank of Cape Verde to transfer loan payments, revenue/profits, and capital gains overseas within 30, 60, and 90 days respectively.

Cape Verde benefits from the absence of exchange-rate risk in relation to the Euro (CVE pegged to the Euro). Since 1998, Cape Verde has pursued a fixed exchange rate policy by pegging the CVE (Capeverdean Escudos) to the PTE (Portuguese Escudos) and, since 4 January 1999, to the Euro, at a rate of CVE110.27 per Euro. This fixed exchange rate arrangement is maintained through a credit facility granted by Portugal to Cape Verde called the Credit Facility Contract. It is managed jointly by a Cooperation Agreement Foreign Exchange Commission body named Comissão do Acordo de Cooperação Cambial (COMACC).

Both residents and non-residents may hold foreign exchange accounts, subject to government approval and regulations. Most payments and transfers are subject to controls.

Expropriation and Compensation

In the event of expropriation, or acquisition of privately owned property by the government for the public’s interest, the government will compensate the owner, on the basis of prevailing market prices, or the actual market value of the property on the day of expropriation. Compensation may be repatriated at the exchange rate in effect on the day on the day of expropriation.

Dispute Settlement

Disputes between foreign investors and the government will be settled either by recourse to a single referee or an arbitration commission. Referees may be foreigners. If so, they may not have the same nationality as the parties involved in the dispute. Should there be difficulty in reaching an agreement over the nomination of the referees, referees may be appointed by a recognized national body or international organization, with the ultimate authority being the International Center of Settlement of Investment Disputes (ICSID). Generally, the arbitration will be carried out in Cape Verde and in the Portuguese language, unless the parties agree on another site and language. The decision of the single referee or the arbitration committee is final and there is no appeal.

Performance Requirements/Incentives

The Capeverdean government offers local and foreign investors the same incentives. The incentives do not carry performance requirements. Instead, the government favors investments that are either export-oriented or diversify geographically and technologically the country’s industrial base.

Through existing international agreements, exporters have preferential access to the markets of Europe, West Africa and the United States. Incentives to firms that export their entire output (free-zone enterprises) are the most generous, but all foreign firms investing in Cape Verde, regardless of the location of their markets, can benefit from the following incentives:

Tax Incentives:

-Entitlement to a full exemption from tax obligations applicable to all dividends and profits, generated during the first five years of operation, on condition that foreign capital is reinvested;

-Provision of tax exemptions on amortizations and interests accruing from foreign investment related financial transactions;

-Standardization of the tax regime (10% of sole personal income (IUR), after the sixth year of activity, considering the bilateral clauses, stipulated in agreements observed by the Cape Verde and the foreign investor’s country;

-Tax-exemptions on dividends and profit taxations shared by stakeholders during the first five-year period of production activity;

-Tax-exemptions on dividends which are reinvested; and

-Tax-exemptions on amortizations and interests.

Guarantees

-Legal protection of private property rights, regarding foreign investment;

-Unconditional transferability in convertible currency, of net profits and dividends;

-Privately managed foreign currency accounts; and

-Freedom to hire foreign workers to form up to 10% of the permanent labor force.

-(Decree Law 89/ IV/ 93 of December 13)

Sectors Specific Incentives

Industry:

-Exemption from corporate taxes, consumer tax and general customs emoluments on the import of goods, equipment and listed materials;

-Exemption of sole personal income (IUR) on incomes generated in each new industrial establishment that has been previously registered within a three-year period;

-Free export of goods;

-Tax deduction of reinvested profits. (Law Decree 108/ 89, of December 30); and

-Industrial Activity Law (Law Decree 13/ 2010, of November 8).

Tourism:

-Exemption from general customs duties over imports of materials used for exclusive construction or installation of tourism facilities;

-Exemption from real estate transfer and property taxes;

-100% tax exemption for the first five-year period; 50%; exemption for the subsequent ten years;

-Tax deduction on profits reinvested in similar activities;

-Tax deduction for expenses incurred in training the local taskforce;

-Tourism Utility Act (Law Decree 11/ 94 of 14 February 1994);

-Duty-free imports, customs waivers on goods and materials required for export products;

-Free export of goods. (Law Decree 42 / IV / 92, of 6 April 1992)

In order to benefit from these advantages the investor has to qualify for a "foreign investor status” through Cabo Verde Investimentos.

Right to Private Ownership and Establishment

The right to private ownership and establishment is guaranteed under the Cape Verde’s constitution. Foreign investment is an important growth engine for the economy and therefore there are no restrictions on ownership by foreign nationals.

Protection of Property Rights

Property rights are recognized and guaranteed in several Cape Verdean laws, as well as by the Constitution. There is a legal entity that records secured interests in property, both chattel and real. There is also a legal system that protects and facilitates acquisition and disposition of all property rights.

Transparency of the Regulatory System

Cape Verdean government is committed to continuously improving the conditions for foreign investment and encouraging a more transparent and competitive economic environment. The basic Cape Verdean legislation affecting foreign investment is contained in the external investment law and the law of industrial development. These laws establish the principle of equal treatment for foreign investment and affirm the government’s commitment to the creation of a dynamic business environment. The industrial development statute regulates the granting of incentives and simplifies the investment approval process.

Laws on the promotion of exports, incentives to exports and free-zone enterprises stress the commitment of the government to encourage investment in export-oriented industries.

Bureaucratic procedures have been simplified in a number of cases. The investment approval process has been expedited within the revision of the external investment code. The Capeverdean Agency for the Promotion of Investment, Cabo Verde Investimentos (CI), has become a one-stop shop for external investors. In general, external investment operations are subject to prior authorization from the minister in charge of economic affairs. An external investor must present the following information to CI:

A Letter address to the Minister of Finances, c/o Cape Verde Investments

-Two completed forms (Authorization for External Investment and Operation of External Investment forms)

-Summary of the project

-Forms of identification (owners/ operators)

-Resume

-Banking information

-Environmental assessment of the project/ business

-Address of the project/ business

Efficient Capital Markets and Portfolio Investment

Cape Verde has a small but relatively strong, efficient, and well managed financial sector supervised and regulated by a single institution, the Central Bank of Cape Verde.

The financial sector consists of:

- Credit institutions (banks and other institutions such as qualified by law);

- Special credit institutions (credit unions and savings banks);

- Nonbanking institutions;

- Insurance companies;

- Stock Exchange.

In the 1990s, the statute of International Financial Institutions (IFIs) was created for institutions whose activities are directed primarily to non-residents. Most IFI banks in Cape Verde are "foreign branches" or subsidiaries of Portuguese banks which establish in Cape Verde to benefit from tax advantages in their transactions with non-residents.

In December 2010, the financial sector included:

-9 commercial banks (Banco Africano de Investimentos Cabo Verde, S.A.; Banco Cabo-verdiano de Negócios; Banco Comercial do Atlântico; Banco Espírito Santo Cabo Verde, S.A. ; Banco Interatlântico; Caixa Económica de Cabo Verde; Ecobank Cabo Verde, S.A.; Green Bank, S.A.; Novo Banco, S.A. )

-13 Nonbanking institutions

-14 International Financial Institutions (IFIs);

-3 Management companies for Securities and Pension Funds;

-1 Stock Exchange (BVC);

-2 Insurance companies (Garantia and Impar).

Overall the banking sector is relatively small, with a limited supply of financial products. However, it is well managed and encompasses good performance indicators;

Credit risk is generally well controlled through limited exposure policies and strict compliance with prudential ratios.

At the end of 2008, the banking sector, excluding the IFIs and offshore banks, had:

-A network of 81 branches covering all municipalities in the country;

-904 employees;

-109 ATMs and 1006 Debit machines available in all islands

-Debit cards, Credit cards and prepaid Visa cards

Bank credit is available to foreign investors under the same conditions as for national investors. The private sector has access to some credit instruments such as loans, letters of credit and lines of credit. The legal guidelines for accounting systems are clear but are not completely consistent with international norms.

The Ex-Im Bank of the United States has institutional ties to national commercial banks.

The Cape Verdean stock market, Bolsa de Valores de Cabo Verde (BVC), is fully operational. It has been most active in the issuance of Bonds. Foreign investors must open a bank account with a local bank in Cape Verde before buying stocks or bonds from BVC.

Principal Financial Sector Legislation:

-Banks the Special Credit Institutions: Law No. 3/V/96 - 1 July;

-Insurance: Decree Law No. 52 F/90 4 July and Decree-Law No 1 /2000, January 31;

-The Securities Market: Laws No. 51, 52 and all 53/V/98, May 11, 98

-IFIs: Laws No. 43/III/88 of 27 December, 60/VI/2005 - April 18, Decree-Law No 12/2005- February 7, and 44/2005 - June 27.

Banking, insurance and securities market regulations are in compliance with international regulations and meet international best practices.

Competition from State-Owned Enterprises (SOEs)

Across most industries, interference from state-owned enterprises (SOEs) in Cape Verde is of relatively minor concern. With the exception of certain specific segments of industries which remain protected (e.g., freight handling at the airport), private and state-owned enterprises compete freely and without major interference from the government. In these “liberalized” markets, both private and state-owned enterprises have the same access to credit, markets, and business opportunities. SOEs in Cape Verde are most active in the transportation sector. SOEs are generally managed by a board of directors which is nominated by the Minister in charge of the respective sector. Overall, there is little government interference in the day-to-day management of SOEs and they are generally evaluated based on their economic or financial performance. However, even though most directors are not politically appointed, they must maintain the confidence and support of the government. All SOEs are required to produce annual reports and must submit their books to independent auditors.

Corporate Social Responsibility (CRS)

The private sector, government and regulators are becoming increasingly aware of the importance of environmental and social responsibility in Cape Verde. Many companies conduct campaigns to promote social awareness in areas such as health, environmental protection and cultural preservation. Companies’ specific CSR efforts in Cape Verde tend to be more reactionary than proactive. For example, a recent outbreak of Dengue in the country was met by public awareness campaigns launched by some local companies. All investment projects are required to provide an environmental impact study prior to approval. In terms of women’s issues, the government of Cape Verde is a leader in the region. The government is composed of an approximately equal number of males and females. While there is still room for improvement, relative to other countries in the region, Cape Verdean women tend to have good representation among businesses in the country.

Political Violence

Cape Verde’s strengths are its political and social stability. There have never been any political or religious conflicts. In recent years there have been some incidences of strikes, promoted by labor unions, but all peaceful and law abiding.

Corruption

According to Transparency International's 2010 Corruption Perceptions Index, Cape Verde ranked 46th in the world and the third best in Africa (behind Botswana and Mauritius).

Corruption is criminally punishable by law. Giving or accepting a bribe is a criminal act and conviction could result in up to eight years in prison. To combat corruption effectively, the Cape Verdean government established the High Authority against Corruption. In addition, the Parliament has added three additional prosecutors to enforce the law, yielding a grand total of 16. Other institutions active in combating corruption include the Judiciary Police, the general prosecutors and the courts. Bribery or the corruption of political officials and/or public servants is not of major concern, though there have been rumored incidents in the recent past which were met with public criticism and media vigilance.

Under U.S. law, American companies and their affiliates are subject to the Foreign Corrupt Practices Act, which strictly prohibits the bribery of foreign officials.

Bilateral Investment Agreements

Cape Verde has bilateral investment agreements with Angola, Austria, Belgium, China, Germany, Holland, Italy, Portugal, Russia, United Kingdom, Sweden and Switzerland.

Since the end of 2007, Cape Verde enjoys a Special Partnership with to the European Union as a Peripheral Region Nation.

OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) (http://opic.gov/) offers political risk insurance, which includes coverage for exchange inconvertibility, expropriation, and war. Cape Verde is also a member of the Multilateral Investment Guarantee Agency (MIGA).

Labor

With the unemployment rate currently above 21%, creating jobs is one of the fundamental concerns of the Cape Verdean government. The government supports the stimulation of national production and foreign investment to create jobs and promote entrepreneurial initiatives.

The cost, productivity, and availability of labor are favorable. Unskilled labor represents some 30 to 40 percent of the total labor force and is readily available. Technical, managerial and professional talent is more difficult to find.

There is no minimum legal wage in Cape Verde. In general, wages are established according to the policy of each work place. There have been proposals to establish the minimum wage at CVE 15.000 per month which is approximately USD 203 per month; but parliamentary consensus is yet to be reached.

Foreign Trade Zones/Free Ports

The following five laws constitute a package of free zone legislation: the external investment law, the industrial development law, the industrial statute, the enterpot law, and the law of free-enterprises. They comprise a strong set of incentives for export-oriented industrial firms, which permit broad flexibility of location. The free-zone enterprise law introduces a new status for enterprises that produce goods and services exclusively for export or to sell to other free-zone enterprises in Cape Verde.

Foreign Direct Investment Statistics

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2001

2002

2003

2004

2005

2006

2007

2008

CVE in Millions

1,562.7

4,517.2

3,276.4

6,037.8

7,231.4

11,484.1

15,339.3

15,749.6

Exchange Rate

121.6

117.3

97.8

88.7

88.6

87.9

80.6

75.3

USD in Millions

12.8

38.5

33.5

68.0

81.6

130.6

190.3

209.0

BY COUNTRY OF ORIGIN

Angola

Spain

Italy

UK

Portugal

Others

in %

2004

0.0

24.1

0.0

0.0

5.8

70.1

2005

0.0

1.5

5.1

0.1

29.7

63.6

2006

0.3

27.5

4.4

5.7

5.8

56.3

2007

6.8

12.3

5.0

5.1

8.0

62.8

2008

6.3

13.7

1.5

6.2

9.0

63.3

2009 Jan - Sep

0.0

17.6

0.6

3.4

3.7

74.7

BY ISLAND

S Antao

S Vicente

Sal

Boavista

Maio

Santiago

Others

in %

2004

0.0

0.4

18.5

0.0

0.0

12.1

69.0

2005

0.0

0.7

8.9

0.0

0.0

29.6

60.8

2006

0.0

3.6

49.0

0.0

2.2

7.5

37.7

2007

0.0

1.5

39.0

2.5

1.2

27.7

28.1

2008

0.0

1.1

42.2

1.5

0.4

30.4

24.4

2009 Jan - Sep

0.0

0.1

28.6

7.4

0.2

24.4

39.3

BY ACTIVITY

Services

Industry

Commerce

Others

in %

Tourism

Real Estate

Financial

Others

2004

18.5

0.3

1.6

0.0

5.1

5.6

68.9

2005

0.5

9.1

15.9

0.6

9.7

2.6

61.6

2006

0.4

56.8

0.8

6.0

1.0

0.3

34.7

2007

2.6

56.8

6.2

4.9

0.0

1.9

27.6

2008

0.2

66.3

6.6

2.6

0.0

2.2

22.1

2009 Jan - Sep

6.6

60.5

0.0

0.3

0.0

1.3

31.3

According to the department of statistics of Cape Verde’s Central Bank the value of foreign direct investment for the years 2009 and 2010 (2010 until September), is expected to be 9,479 and 6,728 CVE million, respectively. However, these data is neither official nor definitive.

Web Resources

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Cape Verde’s Central Bank

www.bcv.cv

Cape Verde’s Stock Market

www.bvc.cv

Ministry of Finance

www.minfin.gov.cv

Government Page

www.governo.cv

Institute of Tourism

www.observatoriodoturismocv.org

Institute of Statistics

www.ine.cv

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