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Created
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10PRAIA22
2010-01-19 14:22:00
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Embassy Praia
Cable title:  

CAPE VERDE'S 2010 INVESTMENT CLIMATE REPORT

Tags:  EFIN EIND EINV ETRD ECIN ECON EAID KTDB TRSY 
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FM AMEMBASSY PRAIA
TO RUEHC/SECSTATE WASHDC 1911
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INFO RUEHDK/AMEMBASSY DAKAR 0657
RUEHPA/AMEMBASSY PRAIA 2857
UNCLAS SECTION 01 OF 13 PRAIA 000022 

SIPDIS

E.O. 12958: N/A
TAGS: EFIN EIND EINV ETRD ECIN ECON EAID KTDB TRSY
SUBJECT: CAPE VERDE'S 2010 INVESTMENT CLIMATE REPORT

REF: STATE 124006

UNCLAS SECTION 01 OF 13 PRAIA 000022

SIPDIS

E.O. 12958: N/A
TAGS: EFIN EIND EINV ETRD ECIN ECON EAID KTDB TRSY
SUBJECT: CAPE VERDE'S 2010 INVESTMENT CLIMATE REPORT

REF: STATE 124006


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



--------------



INTRODUCTION



--------------




2. 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.
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. In December 2009, Cape Verde became the first MCC
partner country to be selected as eligible for a second compact
after consistently displaying good economic and political
governance. In July 2005, Cape Verde had become 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 also be the first country to
finish successfully its MCC Compact in October 2010. 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.








3. For FY 2010, Cape Verde's MCC assessment included the
following scores:



Government Effectiveness 0.47 (82%)

Rule of Law 0.87 (94%)


Control of Corruption 1.30 (100%)

Fiscal Policy -2.30 (31%)

Trade Policy 65.5 (29%)

Regulatory Quality 0.41 (79%)

Business Start-Up 0.966 (56%)

Land Rights and Access 0.708 (46%)

Natural Resource Management 61.07 (16%)



Obs:

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).






4. In January 2008, four years after the United Nations
Resolution 59/210 recommendation, Cape Verde graduated from a
Least Developed Country to a Lower Middle Income Country. On
May 26 of that same year, five months after the World Trade
Organization (WTO) approved its application; Cape Verde's

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legislatures unanimously ratified the agreement and formally
acceded to the WTO.




5. Foreign Investments in Cape Verde have been mainly in the
areas such as tourism and light manufacturing. However, new
opportunities are arising which may result in great
opportunities for American companies. Sectors such as
construction (major Infrastructures),transportation and energy
are becoming areas of major investments. In terms of
transportation, Cape Verde's strategic and geographic location
places the country in a position to become a regional and
international shipping hub for both passengers and cargo.
Nonetheless, the country remains poorly served by insufficient
and inefficient maritime transportation, especially for
passengers. On the other hand, the energy sector in Cape Verde
is going through a crisis, and dramatic changes and investments
are expected soon. The government of Cape Verde is considering
a number of solutions to overcome its major development
challenges, and has begun to take strategic measures by
investing in alternative energy resources. The goal is to
produce 25% of energy needs from renewable sources by 2011, and
50% by 2020. There are also plans to make the island of Sal
fully (100%) reliant on renewable energy (a combination of
solar, wind, wave, and biofuel) in the next 5 to 10 years.
Cape Verde's ambitious growth plans will require big investments
in power and water infrastructure, and the use of alternative
energy may result in great opportunities for American companies.



--------------

OPENNESS TO FOREIGN INVESTMENT

--------------




6. Despite of Cape Verde's size, it has been consistently
considered, by the Wall Street Journal and the Heritage
Foundation as one of the countries with most economic freedom of
Africa, right after Botswana, and among the top 50 of the world.
In Cape Verde, the government looks to private investment as
the engine for the country's future economic growth. It strongly
seeks to attract investment that will stimulate business
activities and modernize the country's economic structure. The
greatest emphasis is placed on tourism and export-oriented
industries, energy, transportation services, and attraction of
foreign investment.






7. The government is in the process of refining laws and related
regulations in order to expedite approval for new investments
and to expand existing ones. Due to existing preferential access
agreements with large world markets, low wages and the high
availability of unskilled workers, as well as a moderate
tropical climate, the sectors enjoying highest priority are
tourism, transportation, services, fishing and light
manufacturing.




8. Foreign investment in the ongoing privatization of
state-owned enterprises has been a major objective of the
privatization effort. The majority of public companies
privatized to date have been acquired by Portuguese investors.
In some instances, however, the Government of Cape Verde
reserves shares for Cape Verdean investors. The government
encourages joint ventures with local investors.




9. The 2009 Index of Economic Freedom ranked Cape Verde 77th in
the scale of overall economic freedoms, and 7th out of 46
countries in the Sub-Saharan Africa region, and its overall
score is much higher than the regional average.




10. Cape Verde has been consistently considered one of the least
corrupt nations in Africa. 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.
Out of the 180 countries surveyed, only 49 achieved a score of
5.0 or more.

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11. In 2010 doing Business Report, Cape Verde occupies the
146th place out of 183 countries analyzed.



CAPE VERDE - DOING BUSINESS 2010:



Indicators DB2010 (out of 183)

-------------- --------------

Global Ranking 146

Starting a Business 136

Dealing with Construction Permits 83

Employing Workers 167

Registering Property 126

Getting Credit 150

Protecting Investors 132

Paying Taxes 112

Trading Across Borders 58

Enforcing Contracts 38

Closing a Business 183



--------------



CONVERSION AND TRANSFER POLICIES



--------------




12. The government gives 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 a foreign investor status
through its official agency Cabo Verde Investimentos.




13. 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.




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




15. 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 to the PTE and, since 4 January 1999, to the euro, at a
rate of CVE110.27 per euro. This fixed exchange rate arrangement
is a credit facility granted by Portugal to Cape Verde - Credit
Facility Contract- and managed by a joint Cape Verdean and
Portuguese body named Comissao do Acordo de Cooperacao Cambial
(COMACC).




16. Both residents and non-residents may hold foreign exchange

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accounts, subject to government approval and regulations. Most
payments and transfers are subject to controls.







--------------



EXPROPRIATION AND COMPENSATION



--------------




17. 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



--------------


18. 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 Portuguese,
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 AND INCENTIVES



--------------




19. The 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.




20. 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. In order to benefit from these advantages the
investor has to qualify for a Foreign "Investor Status" through
Cabo Verde Investimentos.




21. Fiscal Incentives:

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- Entitlement to a full exemption from fiscal 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 Fiscal 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 capital has been reinvested;



- Tax-exemptions on amortizations and interests.






22. 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;



- Freedom to hire foreign workers up to 10% of the permanent
labor force. (Decree Law 89/ IV/ 93 of December 13)






23. Sectors Specific Incentives:

Industry:

- Exemption from corporate taxes, consumer tax and general
customs emoluments over imports of goods, equipment and listed
materials;

- Exemption of Sole Personal Income (IUR) over incomes generated
in each new industrial establishment that has been previously
registered within a three-year period;

- Free export of goods;

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



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% fiscal exemption for the first five-year period;

- For the ten years following the first five, the fiscal
imposition shall be 50%;

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- 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 emoluments of goods and materials
required for export products;

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



--------------



RIGHT TO PRIVATE OWNERSHIP AND ESTABLISHMENT



--------------




24. The right to private ownership and establishment is
guaranteed under the constitution.



--------------



PROTECTION OF PROPERTY RIGHTS



--------------




25. 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 REGULATORY SYSTEM



--------------




26. The current Cape Verdean government is committed to
continuously improve the conditions for foreign investment and
to encourage 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.




27. 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 Capeverdian
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:


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- 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



-------------- --------------


28. Cape Verde has a small but relatively strong, efficient and
well managed financial sector supervised and regulated by a
single institution which is 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.




29. In the 90s, 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.




30. In December 2008, the financial sector included a total of
36 institutions with the following distribution:

- Five (5) commercial banks (BCA, CECV, InterAtlantico, BCN and
BAI )

- Six (6) Nonbanking institutions (The Promoter, Quota Exchange,
ECV financial services, SISP, Cape leasing international);

- Twelve (12) International Financial Institutions (IFIs);

- Three (3) management companies for securities and pension
funds (IFIs);

- One (1) Stock Exchange (BVC);

- Two (2) insurance companies (Garantia and Impar).




31. Overall the banking sector is relatively small, with a still
limited supply of financial products. However, it is well
managed and encompasses good performance indicators; Credit risk
are well controlled through a limited exposure 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;


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- 904 employees;

- 109 ATMs and 1006 Debit machines available in all islands

- Debit cards, Credit cards and prepaid Visa cards




32. 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 totally consistent with
international norms.




33. The Ex-Im Bank has institutional ties to the national
commercial banks.




34. The Cape Verdean stock market, Bolsa de Valores de Cabo
Verde (BVC),is in full swing. 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.




35. Financial Sector Main 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, DL No 12/2005- February 7, and 44/2005 - June 27.




36. Banking, Insurance and Securities Market Regulations are in
compliance with International regulations and meet international
best practice.



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POLITICAL VIOLENCE



--------------




37. 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 in general they were all
peaceful.



--------------



CORRUPTION



--------------




38. 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. Out of the 180 countries
surveyed, only 49 achieved a score of 5.0 or more.



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39. 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 and parliament has added three
additional prosecutors to enforce the law. Other institutions
active in combating corruption include the judiciary police, the
prosecuting counsel and the courts. Bribery or the corruption of
political officials and/or public servants is not a major issue
of concern here though there have been rumored incidents in the
recent past which were met with harsh 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



--------------


40. 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



--------------




41. 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



--------------




42. With the unemployment rate running 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 investments to create jobs and promote
entrepreneurial initiatives.




43. 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.




44. 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

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month; but consensus is yet to be reached.







--------------



FOREIGN-TRADE ZONES/FREE PORTS



--------------




45. The following five laws, the external investment law, the
industrial development law, the industrial statute, the
enterprise law, and the law of free-enterprises, constitute a
package of free zone legislation. 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



--------------



CV in Millions Exch. Rate USD in Million



-------------- -------------- --------------



2001 1,562.7 121.6 12.8



2002 4.517.2 117.3 38.5



2003 3,276.4 97.8 33.5



2004 6,037.8 88.7 68.0



2005 7,231.4 88.6 81.6



2006 11,484.1 87.9 130.6



2007 15,339.3 80.6 190.3



2008 15,749.6 75.3 209.0









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BY COUNTRY OF ORIGIN in %



Angola Spain Italy UK Portugal Others



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* 0.0 17.6 0.6 3.4 3.7 74.7







* Jan to Sept















BY ISLAND in %



SVicente Sal Boavista Maio Santiago Others



-------------- -------------- -------------- -------------- -------------- --------------



2004 0.4 0.4 18.5 0.0 12.1 69.0



2005 0.7 0.7 8.9 0.0 29.6 60.8



2006 3.6 3.6 49.4 0.0 7.5 37.7



2007 1.5 1.5 39.0 2.5 27.7 28.1




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2008 1.1 1.1 42.2 1.5 30.4 24.4



2009* 0.1 0.1 28.6 0.2 24.4 39.3







* Jan to Sept



























BY ACTIVITY (in %)







Service Sector Non Service Sector



-------------- --------------



Tou- Real Finan-



rism Estate cial Others Industry Commerce 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 6.6 60.5 0.0 0.3 0.0 1.3 31.3



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* Jan to Sept
MYLES