printable banner

U.S. Department of State - Great Seal

U.S. Department of State

Diplomacy in Action

2012 Investment Climate Statement - Cape Verde


2012 Investment Climate Statement
Bureau of Economic and Business Affairs
June 2012
Report
Share

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. Cape Verde is the first country to have successfully concluded a Millennium Challenge Corporation (MCC) compact, and in February 2012, Cape Verde became the first country ever to sign a second compact after consistently displaying good economic and political governance. The first compact (110 Million USD) has 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. The second compact funds of US$ 66.2 million will be used to carry out wide-reaching reforms in the water and sanitation and land management sectors. These compacts continues to support Cape Verde's overall national development goal of transforming its economy from aid-dependency to sustainable, private-sector led growth

For FY 2012, Cape Verde’s MCC assessment included the following scores:

Government Effectiveness 0.41 (90%)

Rule of Law 0.89 (93%)

Control of Corruption 1.25 (97%)

Fiscal Policy -6.1 (15%)

Trade Policy 66.9 (20%)

Regulatory Quality 0.48 (86%)

Business Start-Up 0.977 (74%)

Land Rights and Access 0.764 (73%)

Natural Resource Management 64.91 (24%)

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

Foreign Investment in Cape Verde has principally been in tourism and light manufacturing. However, new opportunities may result in more opportunities for American companies. Sectors such as construction (major Infrastructure), transportation, maritime security, 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. Nevertheless, 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 with changes and investments happening.

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. GOCV had a goal to produce 25 percent of electricity from renewable sources by end of 2011, which was exceeded, and 50 percent by 2020. There are also plans to make the small island of Brava 100 percent powered by renewable energy (a combination of solar, wind, wave, and biofuel) in the next five to ten 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.

Currently, Cape Verde is the African country with the highest penetration of renewable energy. The solar park of Praia, which occupies an area of 13 hectares, started operating in November 2010, almost one month after the inauguration of the first solar power station of the archipelago on the island of Sal. With those investments Cape Verde already attained its 2010 goal of 25 percent renewable energy penetration.

OPENNESS TO FOREIGN INVESTMENT

Foreign Investment in Cape Verde has principally been in tourism and light manufacturing. However, new opportunities may result in more opportunities for American companies. Sectors such as construction (major Infrastructure), 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; including maritime security. Nevertheless, 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 with changes and investments happening.

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. GOCV had a goal to produce 25 percent of electricity from renewable sources by end of 2011, which was exceeded and 50 percent by 2020. There are also plans to make the island of Brava 100 percent powered by renewable energy (a combination of solar, wind, wave, and biofuel) in the next five to ten 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.

CONVERSION AND TRANSFER POLICIES

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 foreign investor status through GOCV’s 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 repayment, 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 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 CapeVerdean and Portuguese 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, arbitration will be carried out in Cape Verde and in Portuguese, unless the parties agree on another location and language. The decision of the single referee or the arbitration committee is final and there is no appeal.

PERFORMANCE REQUIREMENTS AND INCENETIVES

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.

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.

Fiscal Incentives:

- 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 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.

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 percent 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 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%;

- Tax deduction on profits reinvested in similar activities;

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

- 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 )

 

RIGHTS TO PRIVATE OWNERSHIP AND ESTABLISHMENT

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

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 estate. There is also a legal system that protects and facilitates acquisition and disposition of all property rights.

 

TRANSPARENCY OF REGULATORY SYSTEM

According to the Heritage Foundation’s Index of Economic Freedom, in 2012 Cape Verde’s economic freedom was ranked 66th freest in the world, 4th out of 46 countries in the Sub-Saharan Africa region, and its overall score is much higher than the regional average.

The Cape Verdean government is committed to 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.

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.

The overall entrepreneurial environment benefits from high levels of regulatory flexibility and efficiency. The tax regime encourages entrepreneurial activity, and policies support free trade and open markets.

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:

 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 INVESTMENTS

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 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 were establish in Cape Verde to benefit from tax advantages in their transactions with non-residents.

In December 2011, the financial sector consisted of:

- Nine commercial banks (Banco Comercial do Atlântico, Caixa Económica de Cabo Verde, Banco Interatlântico, Banco Cabo-Verdiano de Negócios, Banco Espírito Santo, Banco Africano de Investimentos, Ecobank, Green Bank, and Novo Banco)

- Thirteen Nonbanking institutions

- Fourteen International Financial Institutions Off Shores;

- Three management companies for Securities and Pension Funds

- One Stock Exchange (BVC);

- Two insurance companies (Garantia and Impar).

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 mainly are well controlled through a limited exposure and strict compliance with prudential ratios.

At the end of 2010 (latest information available), the banking sector, excluding the IFIs and offshore banks, had:

- A network of 105 branches covering all municipalities in the country;

- 141 ATMs and 1985 debit machines available in all islands;

- Internet banking offered by the four major banks; and

- Debit cards, credit cards and prepaid Visa.

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.

The Ex-Im Bank 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.

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.

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

COMPETITION FROM STATE-OWNED ENTERPRISES (SOEs)

In industry, interference from state-owned enterprises (SOEs) in Cape Verde is a relatively minor concern. With the exception of certain 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 (CSR)

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 reactive than proactive. For example, a recent outbreak of Dengue Fever 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, if not in the world. The government is composed of an approximately equal number of males and females. For example, eight of eighteen ministerial positions are currently held by women. 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 in general they were all peaceful.

CORRUPTION

In 2011, Cape Verde ranked 41st on Transparency International’s Corruption perception index, it was second among African nations trailing only Botswana.

Corruption is criminally punishable by law. Giving or accepting bribes 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 Judicial 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

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 above 21 percent creating jobs is a major concern for the Cape Verdean government. The government supports the stimulation of national production and foreign investments 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 180 per month; but consensus is yet to be reached.

FOREIGN-TRADE ZONES/FREE PORTS

The following five laws, the External Investment Law, the Industrial Development Law, the Industrial Statute, the Enterpot 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

 

2004

2005

2006

2007

2008

2009

2010

 
 
                 

CVE in Millions

6,037.80

7,231.40

11,484.10

15,339.30

15,749.60

9,477.66

9,285.46

 

Exchange Rate

88.7

88.6

87.9

80.6

75.3

79.4

83.3

 

USD in Millions

68.07

81.62

130.65

190.31

209.16

119.37

111.47

 
                 

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

0.0

17.6

0.6

3.4

3.7

74.7

   

2010

0.7

28.5

4.3

27.9

2.6

29.6

   

2011 Jan - Sep

0.0

22.1

47.8

13.9

3.3

12.5

   
                 

BY ISLAND

Maio

Boavista

Sal

Santiago

S Vicente

Others

   

in %

               

2005

0.0

0.0

21.4

70.8

1.7

6.0

   

2006

3.5

0.1

77.6

12.1

5.8

0.6

   

2007

1.5

19.0

38.1

34.8

1.9

4.7

   

2008

0.5

13.4

39.4

35.6

1.4

9.8

   

2009

0.2

22.2

31.3

45.3

0.4

0.6

   

2010

0.0

28.4

54.0

16.3

0.0

1.2

   

2011 Jan - Sep

0.0

22.1

66.8

11.1

0.0

0.0

   
                 

BY ACTIVITY

Services

Industry

Commerce

Others

Others

 

in %

Tourism & Real Estate

Financial

Others

 

2005

22.8

38.1

1.4

23.2

9.7

4.8

4.8

 

2006

90.7

1.3

5.9

1.6

0.5

0.0

0.0

 

2007

79.8

7.8

6.1

0.0

2.4

3.8

3.8

 

2008

78.8

8.3

3.2

0.0

2.7

6.9

6.9

 

2009

90.8

0.0

3.9

0.0

5.1

0.1

0.1

 

2010

91.8

7.0

0.0

0.1

0.1

0.9

0.9

 

2011 Jan - Sep

98.7

0.0

0.0

1.3

0.0

0.0

0.0

 

 

WEB RESOURCES

www.bcv.cv Central Bank

www.ine.cv Institute of Statistics

www.minfin.cv Ministry of Finance

www.governo.cv Government

www.incv.gov.cv Legislative press



Back to Top
Sign-in

Do you already have an account on one of these sites? Click the logo to sign in and create your own customized State Department page. Want to learn more? Check out our FAQ!

OpenID is a service that allows you to sign in to many different websites using a single identity. Find out more about OpenID and how to get an OpenID-enabled account.