2009 AGOA ELIGIBILITY REVIEW FOR CAPE VERDE

UNCLAS SECTION 01 OF 06 PRAIA 000194

SENSITIVE
SIPDIS

AF/EPS FOR MALLORY, USTR FOR HAMILTON, COMMERCE FOR BOYD,
TREASURY FOR IERONIMO, ITA/MAC FOR LOUCIF

E.O. 12958: N/A
TAGS: ETRD ECON EAGR ENRG PHUM XY CV
SUBJECT: 2009 AGOA ELIGIBILITY REVIEW FOR CAPE VERDE

REF: STATE 097769


1. SUMMARY: In response to reftel request, post provides the
following information on Cape Verde's AGOA Eligibility Report.
The full text will also be sent in Word format by e-mail. END
SUMMARY



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TPSC SUBCOMMITTEE ON AGOA IMPLEMENTATION

COUNTRY ELIGIBILITY RECOMMENDATIONS 2009

STATE SUBMISSIONS

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Country: CAPE VERDE

Current AGOA Status: Eligible



COUNTRY BACKGROUND SUMMARY: The Republic of Cape Verde is an
archipelago located in the North Atlantic Ocean 300 miles due
west of Senegal, off Africa's west coast. Cape Verde has a
population of approximately 500,000 people spread over nine
inhabited islands. The country's climate is extremely arid, and
prolonged drought frequently affects its economy. Only
one-tenth of its land is arable. Devastating famine and poor
agriculture production has led to a history of emigration.



There are more ethnic Cape Verdeans living abroad than living in
Cape Verde, mostly in the United States. This Cape Verdean
contingent keeps close ties with its country of origin and
contributes substantially to the nation's economy through
remittances. Cape Verde's geography, low proportion of arable
land, scant rainfall, lack of natural resources, and small
population make it a high cost economy, principally because
economies of scale in infrastructure and government programs
cannot be easily attained. The economy is service-oriented,
with commerce, transport, tourism, and public services
accounting for more than 60% of GDP. Cape Verde enjoys a
multi-party parliamentary democracy. Elections have been free
and fair, and the government has generally respected the human
rights of its citizens.





Comments on Eligibility Requirements




I. Market-based Economy




A. Major Strengths Identified



- A great 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. The government of Cape Verde (GOCV)
looks to private investment as the future engine of the
country's economic growth, with a focus on export-oriented
industries, tourism, transportation services, and attraction of
foreign investment.



- The World Bank's October 2009 annual report points to a
slight growth in business conditions in Cape Verde. The
archipelago moved up by one position on the Doing Business 2010
ranking to 146.



- In 2007-2008, Cape Verde signed a special partnership
agreement with the European Union, acceded to World Trade
Organization (WTO),and was the second nation ever to graduate

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from Least Developed Country (LDC) status.



- On July 23, 2008 Cape Verde became WTO's 153rd member after
eight years of negotiations. Cape Verde was the first African
country and the second LDC to ever join the WTO through a
negotiation settlement.



- The country's macroeconomic evolution continues to be
monitored by the IMF under a Policy Support Instrument since it
was signed in July 2006. According to the October 2009 IMF
report, Cape Verde fully achieved its Policy Support Instrument
(PSI) objectives, particularly with regard to foreign reserves,
and reduction of budget and public debt. Cape Verde's economic
and policy performance remains strong and was able to overcome
the global financial crisis due to prudent choices in
macroeconomic policies that allowed the country to created
buffer through an increase of international reserves and low
domestic debt.



- Real GDP growth rate in 2008 was 5.9%, down from 6.7% in
2007, as a result of declining foreign direct investment in the
tourism and private investments. Average inflation rose from
4.4% in 2007 to 6.8% in 2008, largely in response to the
increase in oil and food prices. In 2010, inflation is expected
to remain low based on current predictions for a good harvest in
2009, as well as low food and energy import prices.



- The banking system continued to show strength, according to
several indicators of profitability and stability. The low
exposure to international market was the resilience factor,
however, the sector has some vulnerabilities associated mainly
credit risk, heavy reliance on emigrant deposits and excessive
credit exposure in real estate.



- The exchange rate peg continues to serve Cape Verde well as
an anchor for financial stability.



- Due to the rapid growth in financial services, the Central
Bank continues to work towards strengthening its supervisory
capacity in order to maintain the reputation of the country's
banking. As a result, the growth of offshore operations will be
limited.



- In July 2005, Cape Verde became the third country to sign a
five-year Compact with the Millennium Challenge Corporation.
The $110 million Compact supports Cape Verde's overall national
development goal of transforming its economy from aid-dependency
to sustainable, private-sector led growth. Cape Verde is
expected to be the first country to finish successfully the
Compact by June 2010. The Compact's 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.



- Foreign investors receive substantial advantages and fiscal
and customs incentives. Over 20 state-owned enterprises have
been privatized including the national telecommunications
company, the banks, and the power supply company. In 2002 and
2003, the government privatized the public urban transportation
company (TRANSCOR) and the food import and distribution company
(EMPA). The GOCV intends to move forward with privatization of
the port authority (ENAPOR),and the pharmaceuticals
distribution company (EMPROFAC); privatization of cold storage
facilities for fishing products (INTERBASE) took place in late

2005.




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- The government has been successful in its fiscal and
monetary reforms, particularly with the implementation of a
value-added tax (VAT) since January 2004. Although the
government reduced the income tax rate in 2008 (up to 10% for
individuals and 5% for companies) tax revenue is expected to
continue to grow quickly, in line with steady economic growth.



- Procurement processes are open and transparent.






B. Major Issues/Problems Identified



- Cape Verde's economy continues to be highly vulnerable to
external factors and dependent on development and donor
assistance. Therefore, authorities continue their efforts to
ensure ongoing donor support and access to concessional lending
as Cape Verde graduated to medium-developed country (MDC) status
in January 2008.



- The Government has copyright laws and signed treaties that
provide protection for intellectual property rights (IPR),but
it has not ratified international agreements on IPR protection.



- The privatization of the national airline, TACV has once
again been postponed. The government has still not decided on
the privatization of the national airline (TACV),although the
company is having serious financial problems the privatization
of TACV is a very sensitive issue given the proximity of the
legislative and presidential elections.



- Current energy generation continues to be insufficient to
meet current needs of the population and therefore inadequate to
cover for the projected growth of the tourism industry. Cape
Verde is highly dependent on fuel from external sources for
energy production.





II. Political Reforms/Rule of Law/Anti-Corruption




A. Major Strengths Identified



- The law provides for an independent judiciary, and the
government generally respects this provision. The constitution
provides for the rule of law, due process, fair trials, and
equal protection under the law.



- Corruption is criminally punishable, and parliament has added
three additional prosecutors to enforce these laws. There is no
indication that corruption is a significant problem.



- In 2009, Cape Verde moved up two places in the ranking of the
International Transparency report (from 49th to 47th of 180
countries) and continues to have the second leading positions
among African nations after Mauritius.



- 2009's Ibrahim Index of African Governance shows Cape Verde as
the second best performing country in Africa. Mauritius,
Seychelles and Cape Verde were Africa's best-governed countries,
according to Harvard University's Kennedy School of Government
2009 Report.


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- Due to political and social stability, there have been no
political or religious conflicts.



- The December 2006 legislative and presidential elections were
judged free and fair by international observers, although the
need for amendment to the Electoral Code was recognized and a
need for stricter voter identification and registration
processes.



- Nationwide municipal elections were held in May 2008; the
main opposition party made significant gains, and these gains
were fully respected.



- Significant reforms were made to the money laundering law
reinforcing Cape Verde's determination to combat corruption and
drug related crimes.






B. Major Issues/Problems Identified



- The judicial system is overburdened and lengthy delays in
trials and lengthy pre-trial detention are common. There were
credible reports that police continued to beat persons in
custody and in detention, despite Government efforts to stop
such practices.



- While there were mechanisms for investigating citizen
complaints of police abuse and beatings of detainees, police
officers have acted with impunity.



- Although a 1999 constitutional revision mandates the creation
of an independent ombudsman with defined powers, no ombudsman
has been elected to date.





III. Poverty Reduction



Major Strengths Identified



- Ninety-eight percent of school-aged children are enrolled in
school and complete basic compulsory education, with no major
difference between rates for boys and girls.



- National Poverty Alleviation Plan enacted with World Bank
funding. In March 2002, the IMF/World Bank rated Cape Verde's
Interim Poverty Reduction Strategy Paper as "good" and approved
a 3-year, $11 million Poverty Reduction and Growth Facility in
April 2003.



- Relative to other African countries, Cape Verde has a lower
percentage of population living in poverty, lower HIV/AIDS
infection rate, lower birth rate, and longer life expectancy.



- Cape Verde has one of the highest literacy rates of Africa
approximately 80%, and among the ages of 15-25 it reaches the
96% rate.


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B. Major Issues/Problems Identified



- Limited data on poverty.



IV. Workers' Rights/Child Labor/Human Rights




A. Major Strengths Identified



- The Government generally respects the human rights of its
citizens.



- The Constitution recognizes core international labor
standards and the law prohibits forced or compulsory labor,
including by children. The GOCV has ratified ILO Convention 182
on the worst forms of child labor.



- Recent legislation criminalized child trafficking, as well
as the use of children in prostitution or pornography. Victims
can collect compensation in civil courts.






B. Major Issues/Problems Identified



- The government seldom enforces labor laws and conducts
minimal labor inspections. Workers and children generally do
not benefit from the legal protection of labor laws.



- There are no established minimum wage rates in the private
sector.



- Child labor remains a problem.



- ILO Convention 138 on minimum age has not been ratified.



- Juveniles are incarcerated together with adults and pre-trial
detainees with the general prison population.



- Violence and discrimination against women, domestic violence,
child abuse, child labor, and juvenile crime were problems.




V. International Terrorism/U.S. National Security




A. Major Strengths Identified



- Full public support for United States; overflight and use of
air bases offered in wake of September 11, 2001 attacks. In
2002, the GOCV ratified 10 counterterrorism conventions. The
GOCV enacted a strong anti money-laundering law in December

2002.


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- New security equipment (supplied under the Safe Skies for
Africa Program) installed in late 2003/early 2004. Cape Verde
received Category 1 status for its civil aviation in September

2003. TACV's (Cape Verde's National Airline) Boeing fleet
received ETOPS Certification in 2005.



- European council officials approved in late 2007 the special
partnership agreement with Cape Verde. The EU sees this special
partnership as advantageous due to Cape Verde's exceptional
geopolitical position. Issues of security are of particular
interest given that it allows EU to extend its peripheral
borders. This partnership also defines the financing procedures
through the European Development Fund (EDF) with the approval of
the European Investment Bank (EIB).



- Cape Verde continues to cooperate jointly with the United
States and Europe in security matters.




B. Major Issues/Problems Identified



None.
STEWART