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Report prepared by U.S. Embassy Praia, released August 1998 *.
This Country Commercial Guide (CCG) presents a comprehensive look at Cape Verde's commercial environment, using economic, political and market analysis. The CCGs were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. embassies through the combined efforts of several U.S. government agencies.
Cape Verde is a small island country which suffers from periods of drought, lack of raw materials and mineral resources, and high population growth. Its most important resources are the sun, the ocean, the wind and its people. As a result, the economy is fragile and heavily dependent on foreign aid and private transfers from the Cape Verdean emigrant community.
During the first five years after Cape Verde gained independence in 1975, the economy grew at an average annual rate of 11 percent. After 1980, however, GDP grew more slowly, due to a reduction in investment and foreign aid, a slowdown in agricultural production, and a reduction in the income from port services and traffic at the international airport. GDP grew unevenly but at an average annual rate of 7 percent from 1981 to 1989. This performance, however, deteriorated in the late 1980s, and internal and external imbalances emerged.
It was not until 1991 that the government of Cape Verde adopted a development strategy based on market-oriented policies, including an ambitious privatization program. It became strongly committed to the implementation of macroeconomic and structural reforms and to the development of institutions and infrastructure to exploit the opportunities offered by an increasingly competitive global economy. Despite slow progress in some sectors, Cape Verde's economic reform policies appear to be paying off, as new businesses are being created, investment projects are being implemented, construction is booming, and businessmen are eager to explore new import markets. Furthermore, trade and investment opportunities are likely to increase as tourism, fisheries and export-oriented industries become established in the country creating new opportunities to support these sectors.
One of Cape Verde's most important assets is its location which makes the country an invaluable crossroads for passengers moving across the Atlantic Ocean by air or sea. Cape Verde holds an untapped potential as a launch site for doing business with Portuguese speaking African countries as well as with countries in the West African region, and the international airport at Sal could become an airline transportation hub for the region. With that in mind, the government has placed emphasis on the development of airports, ports and telecommunications facilities.
Cape Verde depends almost completely on imports to meet basic consumer needs and for industrial products and inputs. Its trade balance is characterized by a constant and large trade deficit, with an average import growth rate of 14.96 percent, much higher than the average GDP growth rate. The total Cape Verdean import market in 1997 is estimated to be USD 195 million. Portugal is Cape Verde's most important trading partner. In 1996 it was the leading supplier, with a 40.9 percent share of the country's total import market. The U.S. share of imports was 3.6 percent.
With the government's policy of encouraging diversification of
import markets, many importers have expressed an interest in establishing
relations with U.S. suppliers. However, aside from the cultural
and language differences, several other factors have constituted
major bottlenecks to doing business with U.S. companies. First,
lack of access to commercial credit is a nearly universal complaint
among Cape Verdean importers who are accustomed to soft payment
terms from their Portuguese suppliers. Second, the high costs
of transportation adversely affect profit margins. Third, importers
fear that the small size of the domestic market may not be appealing
to American suppliers.
Chapter II. Economic Trends and Outlook
Major Trends and Outlook
Despite all the difficulties Cape Verde faces, a great effort has been done over the past seven years in the promotion of a market-oriented economic model aimed at the restructuring of the system and the promotion of private sector development and foreign investment. Financial and economic legislation has been revised and the government's role in the economy has shifted from that of a direct economic agent to one of a major promoter and regulator of the economic activity. Its policies have been endorsed and supported by the World Bank, the IMF and many multilateral and bilateral donors, including the U.S.
In 1997, the ministry of economic coordination laid out a four-year economic development plan whose centerpiece is Cape Verde's integration into the world economy, viewed as an option for self-sustained economic and social development. The plan establishes as top development priorities the promotion of market economy, private sector, and foreign investment, the development of tourism and other natural resources, the development of transport, communication and energy facilities and basic sanitation and environmental protection. Its ultimate objective is the building of a strong economic base that can bring about sustainable growth, new jobs, increased export-earning capacity, and, in turn, reduce a high dependence on remittances from abroad and official assistance.
In 1997-98, carrying out the priorities defined by the plan, the government of Cape Verde accelerated the implementation of the economic reforms launched in 1991, especially privatization of state-owned enterprises. Furthermore, several aggressive steps were taken, namely the signing of two major agreements: i) a stand-by agreement with the IMF to underpin a donor-supported domestic debt relief program calling for the creation of an offshore trust fund, and ii) an accord of foreign exchange cooperation with Portugal designed to pave the way for the convertibility of the Cape Verdean escudo (CVE).
Principal Growth Sectors
In the medium term, economic growth is likely to continue to come mostly from increasing efficiency in services sector and from investment. Growth is expected to result from:
Tourism. With an array of fine beaches, a warm and sunny climate, plus a population well known for their hospitality, tourism is one of Cape Verde's most important natural resources. Potentially a major source of foreign exchange earnings and a prime sector of foreign investment, the 1997-2000 development plan defines it as one of the country's strategic sectors. Despite the still small importance of tourism in the Cape Verdean economy (2 percent share of the 1994 GDP), its average annual growth rate in 1991-94 was approximately 31 percent.
In 1997, of 28 foreign investment projects approved in Cape Verde, 9 was in tourism representing $4 million. The government is committed to attracting foreign investment in the sector and it has placed the construction of tourism-related infrastructure at the top of it priorities. So far, the Italians lead foreign investment in the sector with three hotel complexes built on three different islands (Sal, Boavista and Sao Vicente). The 560-bed hotel resort opened in 1996 is operating at full capacity with charter groups from Italy arriving weekly. Early this year, Italian investors presented two new hotel projects totaling approximately $11 million.
Fisheries. Cape Verde's exclusive economic zone covers approximately 734,265 square kilometers of the Atlantic which explains why fisheries has been considered a strategic sector for the country's economic development. With a resource potential estimated at 43,000 to 50,000 tons/year, only approximately one third is now exploited due to the lack of adequate technology for deep water fishing and the need to modernize the fleet and the methodology used.
Fish processing is made in industrial units that use only part of the production capacity, and there is a great potential in industrial fisheries which must be activated through private investment, both national and foreign.
The government's main priorities for the sector include modernization of the fleet, promotion of a strong and dynamic business community, development of infrastructure in fishing communities, and promotion of aquaculture projects and the processing industry.
Light Manufacturing. The government of Cape Verde provides attractive incentives to the establishment of labor intensive industries oriented towards the export market.
Only recently did industry begin making any significant contribution to the country's GDP, mainly as a result of foreign investments in garment and shoe production units. These units are export-oriented and represent 52 percent of total foreign investment in Cape Verde.
PROMEX, the official entity in charge of tourism and investment promotion, has carried out investment promotion campaigns in Portugal, Hong Kong, China, South Korea and South Africa, calling for the location in Cape Verde of traditional industries such as textiles, garment and shoe manufacture. The campaign in Portugal was focused on footwear while the one in the Far East focused on light manufacturing and tourism. Markets such as Italy, Spain, Brazil and Argentina, are targeted for the future.
Over time, a better established and dynamic export-oriented economy led by the private sector is expected to be the engine of growth and employment creation.
Budget Priorities and Privatization
In December, 1998, Cape Verde's new budget was approved by the National Assembly. For the first time, the budget presented to the legislators covers a three year span coinciding with the time period of the National Development Plan (NDP). Therefore it was meant to be the financial translation of the NDP.
Once again, austerity forms the central plank of the 1998 budget, aimed at reducing the inflation rate, a necessary condition for foreign exchange stability. The government's efforts are focused on achieving and maintaining macro-economic stability and on the observation of the European Union convergence criteria given its intention of making the Cape Verdean escudo convertible through its association with a currency of the European monetary system, in this case, the Portuguese escudo.
Approximately 34 percent of total budget ($305 million) is allocated to public investment projects which focus on i) economic reforms; ii) development of natural resources; ii) development of economic and transport infrastructure; and iv) promotion of human and social development. Infrastructure development takes the largest share of public investment (34 percent), followed by social development (30 percent).
Privatization: In 1997, the Cape Verdean government quickened the pace of privatization which was part of a five year World Bank-funded program. The first stage of the program came to a closure in December 1997. In June 1998, the World Bank agreed to assist the second stage of accelerated privatization with a $ 9 million fund from the International Development Association (IDA).
Several state-owned enterprises have been privatized, including three hotels, the national telecommunications company, Cabo Verde Telecom and the oil distribution company, Enacol. They were both sold to foreign companies. Two commercial banks, the Cape Verdean port authority, an insurance company and the power supply company are slated for privatization in the near future.
Balance of Payments
Cape Verde's balance of payments is characterized by a very large structural imbalance in the trade account, substantial surplus in the services account, significant net private transfers, and considerable net overseas development assistance. Foreign trade is characterized by modest merchandise export earnings, significant service exports, and high merchandise imports.
Traditionally Cape Verde's most substantial export earnings have come from non-factor services to international maritime transport. These earnings have increased recently as a result of rising services to international air traffic.
In the last three years there has been a positive trend in exports, mainly as a result of foreign investment, particularly in free-zone enterprises. While in 1992, banana, lobster, fresh and frozen fish represented 91.63 percent of Cape Verde's exports, with bananas in the leading position (50.36 percent of total exports), in 1995 shoe parts, shoes, lobster, garments and frozen fish represented 91.18 percent of exports, with shoe parts ranking first (37.5 percent of total exports). Banana exports fell to tenth position with a 0.49 percent share of total exports. In 1997, foreign investments accounted for exports of USD 10.8 million.
Despite this improvement in exports, the trade balance is still an important economic problem due to the continuous increase in imports. Exports cover only 3-5 percent of the value of imports. The average import growth rate in the period 1990-1995 is 14.22 percent, much higher than the average GDP growth rate of 4 percent.
Infrastructure Situation
Given the country's geographic location at the crossroads of three continents, transport and related services can be an important source of development activity.
However, limited port and airport facilities, and infrequent and costly air and maritime transport have been serious constraints to the development of an outward-looking economy.
In an attempt to overcome those constraints, the transport sector was the subject of a World Bank study which has been updated in the context of an $87 million transport and infrastructure project promoted and co-financed by the World Bank.
Ports: There are two deep waters ports - Porto Grande, in Mindelo, Sao Vicente and the Port of Praia, in the capital city - serving international traffic. Distribution of imported commodities throughout the islands is made from these ports.
In 1997, two new ports were built on the islands of Maio and Boavista, and modernization and expansion of Porto Grande was completed. Meanwhile, rehabilitation, and expansion projects are underway on other islands.
Airports: The largest airport is on the island of Sal, which is able to accommodate even the largest intercontinental aircraft. A new and longer runway is being built in Praia and will be able to accommodate Boeing 757s and other mid-sized aircraft. There is also a modernization project under consideration for Sao Vicente's airport. Other islands too are having their airport facilities upgraded.
Telecommunications: The telecommunications system which was saturated and substandard, is also being upgraded. In one of the recent measures taken, the government divested sixty five (65) of its shares in the state-owned telecommunications company, including forty (40) percent sold to a Portuguese company through international bidding.
A USD 7 million fiber optic project was implemented last year,
connecting all the islands, and recently the country was connected
to Internet through Cabo Verde Telecom. New telecommunications
services made available recently, include mobile telephone an
video-conferencing services. Paging, and video-text will be offered
soon.
III. A Political Environment
With historic links dating back hundreds of years, Cape Verde and the U.S. enjoy excellent relations. This relationship has been enhanced by the emergence of a vibrant multi-party system in 1991. As a result of that balloting, a moderately centrist political movement -- the Movement for Democracy (MPD) -- captured a governing majority in the national assembly and thus gained control of the prime minister's office and the government. The MPD was returned to power with a larger majority in the general elections held in December 1995.
Cape Verde has a mixed presidential/parliamentary system of government. Day to day authority for government policy and implementation rests with the prime minister, his cabinet and the national assembly. The president of the country is elected directly by the people and serves as chief of state. He shares responsibility for foreign affairs and defense matters, but is required to consult closely with the government on these issues. The judiciary in Cape Verde generally operates independently and free of undue influence. There is a supreme court, headed by a president, which is spearheading the effort to broaden the concept of the rule of law and the proper role of an independent judiciary in a democratic system of government.
By all indications, corruption is rare. Nevertheless, opposition political parties and businessmen with no connections to the governing party have accused the MPD of favoritism in the awarding of contracts. In particular, companies with ties to cabinet ministers and family members of the prime minister have been successful in obtaining what many consider an unusual number of government projects and contracts for services.
IV. Marketing U.S. Products and Services
Distribution and Sales Channels
There is great receptivity for American goods and services in the Cape Verdean market. In the past, U.S. products have reached the Cape Verdean market either through bilateral cooperation projects, or informally through the Cape Verdean community in the U.S. (New England mainly).
Distribution and marketing facilities are not yet fully developed and the principal methods of selling are: retail outlets, an agent or distributor, selling through established wholesalers and selling directly to the government.
A limited number of agents do currently conduct business with foreign firms and some have been inquiring about representing American firms. Agents and distributors commonly represent several product lines. It is advisable that a company attempting to break into the market retain a person resident in Cape Verde who should be fluent in Portuguese. If the exported product requires servicing, qualified personnel and a reasonable inventory of spare parts must be considered. European competitors inevitably market their geographic proximity as a competitive advantage; they are often able to provide a technician or part on short notice.
Many of the products sold in Cape Verde pass through wholesale organizations. Most of the wholesale establishments and modern retail outlets are concentrated in the two main urban centers: Praia and Mindelo.
Private sector enterprises can purchase goods directly or through an agent, while public sector companies are required by law, to make their purchases through procurement tenders. The procurement is typically financed by a multilateral lending institutions such as the World Bank or the African Development Bank.
Therefore, opportunities do exist for companies willing to develop their own marketing, distribution and maintenance networks.
Forms of Business Organizations
Branches of foreign companies may not be established until they are registered with the registrar of companies.
Joint ventures are allowed and encouraged in many sectors, namely in fisheries, the airline business and telecommunications.
The most common forms adopted by businesses in Cape Verde include: 1) branch of a foreign company; 2) joint-venture; 3) limited liability company and 4) stock corporations. Other business forms include regional offices, sole proprietorships, local agency or distributorship arrangements, and state or partially state-owned companies. Franchises are not a factor as yet in the Cape Verdean business environment.
Advertising and Trade Promotion
Advertising is done mainly through newspapers, television and radio. There are two widely read weekly private publications and an official one which comes out three times a week. Television is government controlled and it broadcasts six hours a day. The national television also has special agreements with French and Portuguese channels which allow them to be broadcast in Cape Verde . There is a state-owned radio station with headquarters in Praia, the capital, and a private one in Mindelo, the second largest urban center.
Radio and television spots are the most widely forms of advertising. Trade fairs are sporadic but nevertheless a popular means of reaching the Cape Verdean buyer. Packaging is important to the Cape Verdean consumer. Eye-catching, colorful designs, and small, reusable containers appeal to the consumer.
Major newspapers are:
-- "Novo Jornal Cabo Verde", C.P. 118, Praia, Cape Verde, Tel: (238) 61 64 96; Fax: (238) 61 38 24;
-- "A Semana", C.P. 36 C, Praia, Cape Verde, Tel: (238) 61 39 50; Fax: (238) 63 22 71;
-- "Correio 15", C.P. 18C, Tel/Fax: (238) 63 19 19
-- "Terra Nova", C.P. 166, S.Vicente, Cape Verde, Tel:
Chapter V. Leading Trade Prospects for U.S. Business
5.1. Best prospects for non-agricultural goods and services:
1 - General Consumer Goods (GCG)
2 - Airport Ground Support Equipment (APG)
3 - Port/Shipbuilding Equipment (PRT)
4 - Hotel/Restaurant Equipment (HTL)
5 - Telecommunications Equipment (TEL)
6 - Telecommunications Services (TES)
7 - Architecture/Construction/ Engineering Services (ACE)
8 - Travel/Tourism Services (TRA)
9 - Commercial Fishing Equipment (CFE)
10- Renewable Energy Equipment (REQ)
11- Management Consulting Services (MCS)
12- Automotive Parts/Service Equipment (APS)
13- Autos/Light Trucks/Vans (AUT)
14- Computers Peripherals (CPT)
Consumer goods offer the best prospect because of lower tariff and non-tariff barriers. Additionally, higher living standards are stimulating the demand for importation of many non-traditional consumer items.
Supporting equipment for light manufacturing, tourism, fisheries, transportation and telecommunications which constitute the focus of the country's economic development strategy also offer good prospects.
2. Agricultural products:
3. Significant Investment Opportunities
The ongoing privatization of state-owned companies such as the insurance company, the commercial bank and the national airline provides one of the best opportunities for foreign investment. International Market Insights reports (IMIs) will be produced as the process goes on.
A major $87 million infrastructure project funded by the World Bank has generated important market opportunities for port and airport support equipment.
The government of the United States acknowledges the contribution
that outward foreign direct investment makes to the U.S. economy.
U.S. foreign direct investment is increasingly viewed as a complement
or even a necessary component of trade. For example, roughly 50
percent of U.S. exports are sold by American firms that have operations
abroad. Recognizing the benefits that U.S. outward investment
brings to the U.S. economy, the government of the United States
undertakes initiatives, such as Overseas Private Investment Corporation
(OPIC) programs, investment treaty negotiations and business facilitation
programs, that support U.S. investors.
VI. Trade Regulations and Standards
Tariffs and Import Taxes: in August 1991, import tariffs were streamlined. The previously cumbersome system (including over 80 rates with specific tariffs) was replaced by 10 ad valorem rates ranging from 5% to 50%. In addition to these duties, imports to Cape Verde are subject to a general customs service tax of 7 percent and a consumption tax on non-priority goods, ranging from 5 percent to up to 60 percent for hard liquor.
Customs valuation: is made in accordance with the definitions of Brussels' convention.
Import Licenses: as a result of pre-election overspending and higher than expected imports in 1995, products previously allowed to be imported freely have been included on the negative list of products which require an import license. These goods (food items, ie. corn, rice and sugar; petroleum products; arms or munitions; etc.) considered strategic by the government now represent some thirty (30) percent of total imports. In addition to that, the government has re-established the system of quotas. For liberalized products, the prior import license has been replaced by a simple declaration of importation. However, by early 1999, the government plans to completely liberalize trade.
Export Controls: given the significant structural deficit of the trade balance, there are no controls on exports. On the contrary, a new law passed in 1993 provides a variety of incentives to exports.
Import/Export Documentation
1) Commercial Invoice - Two copies of the commercial invoice, in both Portuguese and English, should accompany the shipment. An accurate and specific description of the goods should be given, together with FOB value and an itemized description of expenses. The shipper's name and address as well as that of the consignees should be shown, plus date and any other usual details.
2) Pro-forma Invoice - may be required by the importer to obtain an import license.
3) Bill of Lading/Air Waybill: There are no regulations specifying the form or number of bills of lading required for any particular shipment. A bill of lading customarily shows the name of the shipper, name and address of consignee, port of destination, description of goods, listing of freight and other charges, number of bills of lading in full set, and the date and signature of the carrier's official acknowledging receipt on board of the goods for shipment. The information should correspond to that shown on the invoices and packages.
4) Insurance Certificate - it is required that transport insurance on imports be placed with the state insurance company whenever goods are under the ownership of a Cape Verdean national.
5) Import License - six copies of the import license for controlled goods; four copies of the declaration of importation for liberalized goods.
6) Phytosanitary Certificate - Plants, seeds and animals, and vegetable and animal products should be accompanied by a sanitary certificate issued in the country of origin and may be subject to inspection at the port of entry..
Temporary Entry: temporary entry is authorized for cooperation projects, diplomatic missions and to temporary foreign workers.
Import Restrictions: narcotics are prohibited. Pharmaceuticals may only be imported by public institutions.
Standards: Cape Verde uses 220 v 50 cycles for electricity and the metric system of measurement. Operating standards usually follow the Portuguese or European norm.
Free Trade Zones/ Warehouses: a decree law in May 1989 created the legal basis for a free trade zone. Entrepot activities can be undertaken, such as the storage of goods without payment of duties, with storage periods ranging up to four years. Recently, a new law was passed, regulating free-zone enterprises. Enterprises that export goods or services may apply for free-zone status without being located in a free zone.
Membership in Free Trade Arrangements: Cape Verde is a
member of the Economic Community of West African States (ECOWAS)
and it benefits from the Generalized System of Preferences and
the Lomé Convention, thus providing investors with preferential
access to West Africa, the United States and Europe.
VII. Investment Climate
Openness to Foreign Investment. The government looks to private investment as the future engine of economic growth in Cape Verde. It seeks to attract investment that will modernize the country's economic structure and stimulate any and all business activities.
This favorable attitude towards private initiative is embodied in the foreign investment legal package passed between 1989 and 1994 which guarantees national treatment for foreign investors.
More recently, the government refined these laws and related regulations in order to expedite approval for new investments destined to start up new ventures or expand existing ones. In the new law all sectors of activities are now open to foreign investment. However, in keeping with the country's special features such as preferential access agreements with Europe, the ECOWAS and the U.S., low wages and the high availability of unskilled workers, and moderate tropical climate, target sectors are light manufacturing, tourism and fishing.
Foreign investment in the ongoing privatization of state-owned enterprises has been encouraged. In some instances, however, shares are reserved for Cape Verdean investors. Joint ventures with local investors are highly encouraged.
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 and undisputed repatriation of dividends, profits and capital from foreign investment operations.
Current law provides that upon request to the Bank of Cape Verde, revenue/profits, capital gains, and loan repayments may be transferred overseas within 60, 90, and 30 days, respectively.
The Bank of Cape Verde will pay interest on all transfers with waiting periods of more than 30 days, starting on the 31st day. Timely transfers may not always be possible when requests cover large sums and affect Cape Verde's balance of payments; in such instances, the government will order that the transfer be made in installments, generally every three months over a period of no longer than two years. Recently, private sector operators have complained of delays as a result of liquidity shortfalls in the banking system.
The estimated annual U.S. Dollar value of local currency likely to be used by the Embassy is 1.1 million at the official exchange rate.
Significant devaluation is not likely to occur over the next year.
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 fairly, on the basis of prevailing market prices, or the actual market value of the property on the day of expropriation. Compensation will be prompt and may be repatriated at the exchange rate in effect on the day of expropriation.
The embassy is not aware of any specific case of expropriation of private property by the government in the recent past and given the almost complete repudiation by the voters of the former ruling party and its one-party system with total control of the economy, it is very unlikely that any government would consider confiscation of private property as a policy.
Dispute Settlement. Disputes between foreign investors and the government will be settled either through 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 another site and language is requested and agreed upon by both parties. The decision of the single referee or the arbitration committee is final and cannot be appealed.
The embassy is not aware of any foreign investment disputes over the past few years.
Cape Verde has a functioning judiciary which appears to operate independently and free of undue influence.
Performance Requirements/Incentives. The government does not place a premium on investments that respond to a long list of overall development objectives. Instead, it favors investments that are either exportoriented or diversify geographically and technologically the country's industrial base.
Through 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 firms, regardless of the location of their markets, can benefit from the following incentives:
-- a 100 percent tax exemption on all dividends from any activity started with foreign capital and earned during the first 5 years of operation. After 5 years the tax rate is 10 percent. The same tax exemption applies whenever such dividends are reinvested in the same or another economic activity.
Enterprises producing goods and services exclusively for export (free-zone enterprises) also benefit from:
-- 1. tax incentives: exemption from corporate and complementary taxes (a complementary tax is levied on all income generated in the country) on profits for the first 10 years of operation; after 10 years, the combined tax rate will be no more than 15 percent; tax holiday on dividends and profits paid to shareholders for the first 10 years of operation; after 10 years, the maximum rate will be 15 percent; lifetime exemption from indirect taxes; 2. customs incentives: duty-free imports of equipment and materials used in the production; duty-free imports of raw materials and finished and semi-finished goods used exclusively in production; 3. other incentives include, reduction of the regular company registration fee; exemption from declaring capital contributions (equity participation); free access to foreign currency accounts; and free recruiting of foreign workers.
Export incentives apply to export and re-export operations. They do not apply to fuel or export of free-zone enterprise activities. They include:
-- 1. tax incentives: taxes on profits (export earnings divided by total sales) are lower during the first 5 years that enterprises export or re-export. This period my be extended up to 10 years, as long as the enterprise begins producing 50 percent of its exports or re-exports in Cape Verde by the fifth year of export operations; otherwise, the tax reduction will be equal to one-half of export earnings divided by total profits; 2. customs incentives: no duties are imposed on raw materials, finished goods, semi-finished goods, and other materials used exclusively in the production of goods and services for export.
The following incentives apply to enterprises, except free-zone enterprises, involved in a specific sector:
Industry: exemption from corporate and complementary taxes during the first 3 years of operation; tax deduction for profits reinvested in the same or different industrial activity; tax deduction for expenses incurred in training of local work force; tariff exemptions on construction material and capital equipment imported to start up new industrial activities; tariff exemptions on raw material and other inputs imported for production during the first 2 years of operation, with progressively higher customs duties (25, 50, and 75 percent) in the following 3 years of operation.
Tourism: exemption from real estate transfer and property taxes; exemption from rental taxes and taxes on business profits for 5 years from the date operations begin, except for taxes on services and transfer of public goods; 50 percent discount on (1) the taxes just mentioned and (2) complementary taxes on profits for the 10 years following the first five;
Tax deduction on profits reinvested in other tourist or industrial activities; tax deduction for expenses incurred in training the local work force; duty-free imports of construction material, machinery, cruise ships, and all other material required for installation of tourist facilities.
Fisheries: fully equipped fishing vessels are exempt from all duties, import taxes and the customs service tax; engines, spare parts, devices and other material used to construct fishing vessels are exempt from import duties and consumption tax; machines, material tools and equipment used in fishing activities benefit from the same incentives mentioned above; fuel for fishing vessels, fish processing plants and seafood warehouse installations are exempt from consumption and customs service taxes.
Right to Private Ownership and Establishment. The right to private ownership and establishment is guaranteed in the constitution.
Protection of Property Rights. Property rights are recognized and guaranteed in several Cape Verdean laws, including the constitution. There is a legal system of recording 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. Although since 1990 Cape Verde has had copyright laws, it has not yet adhered to international agreements on intellectual property rights. It has recently signed several treaties that provide protection for intellectual property rights. Details, however, are not yet available.
Regulatory System. Laws and Procedures. The current Cape Verdean government has taken a number of steps to improve the climate 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 principal of equal treatment for foreign investment, affirm the government's commitment to a dynamic business environment and the industrial development statute to regulate the granting of incentives and a simplified investment approval process.
Recently approved laws on the promotion of exports, on incentives to exports and on 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 greatly expedited with the recent revision of the external investment code. The Center for Tourism, Investment and Export Promotion, PROMEX, 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 coordination. An application is submitted to PROMEX, and within thirty days the investor should get a reply. If government action is not forthcoming, within 30 days, approval is automatic.
In order to benefit from incentives regarding capital transfers, external investment operations must be registered at the Bank of Cape Verde.
There is no indication that corruption has been an issue.
Efficient Capital Markets and Portfolio Investment. There is no capital market as yet in Cape Verde. The World Bank has been assisting the government of Cape Verde in restructuring the financial sector. The first step in this process was the division of the Bank of Cape Verde into a central and a commercial bank.
The postal savings and loan system has also been restructured and modernized, and has become a true commercial bank. No stock market or stock exchange exists in Cape Verde, although preparation is underway to launch one in 1998. Most private financial services are absent. In 1996, in an attempt to promote national private sector, the government in conjunction with three state-owned enterprises created "A Promotora", the first venture capital company. Bank credit is available to foreign investors under the same conditions as those 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.
Portfolio investment in Cape Verde is extremely limited and depends on the limited ability of the Bank of Cape Verde. Even social security funds are kept in noninterest bearing accounts because the Bank of Cape Verde is unable to effectively lend and guarantee the proper interest return to the accounts.
Political Violence. One of Cape Verde's strengths lies in its political and social stability. In recent years, however, there have been some cases in which labor unions opposing the ruling party have promoted strikes which have in general been peaceful.
Bilateral Investment Agreements. Cape Verde has bilateral investment agreements with Austria, Germany, Holland, Portugal, Switzerland, Italy, China and Angola.
OPIC and MIGA. Cape Verde is a member of the Multilateral Investment Guarantee Agency (MIGA) and it benefits from the loan guarantee program of the Overseas Private Investment Corporation (OPIC).
Labor. Creating jobs is one of the fundamental concerns of the Cape Verdean government. It therefore proposes to stimulate national production and foreign investments to create jobs and promote entrepreneurial initiatives.
While unskilled labor represents some 30 to 40 percent of total labor force and is readily available, technical, managerial and professional talent is more difficult to find.
Labor laws are relatively generous to employees and the recent revision of the labor code made labor contracts more flexible.
There are no local minimum wages in Cape Verde. Minimum wages and wages in general are established according to the policy of each firm. The cost, productivity, and availability of labor is favorable. Prevailing wages, although not among the world's lowest, are competitive at under USD 0.70 per hour.
Relations with the ILO have been good although recently labor unions opposing the ruling party have been bringing complaints before the ILO governing board involving the workers' right to go on strike.
ForeignTrade Zones/Free Ports. Taken together the following five laws: the external investment law, the industrial development law, the industrial statute, the entrepot law, and the law of free-enterprises constitute a package of free zone legislation in everything but name. They constitute a strong package of incentives for exportoriented 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.
Capital Outflow Policy. 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.
Foreign Direct Investment. In 1997, foreign direct investment in Cape Verde amounted to approximately US$ 39 million of which 15.4 percent was in the fisheries sector, 10.2 percent in tourism, and 74.4 percent in industry and transportation. However, this statistical picture provides a distorted view of the actual dynamics of foreign investment in Cape Verde which has really concentrated in tourism. Such a distortion is due to inadequate basic infrastructure that has delayed the implementation of several major projects in tourism. Significant changes are expected in the near future with the completion of a US$ 12.5 million tourist resort currently under construction. In addition to that, recently an Italian business group presented two new hotel projects estimated at US$ 11 million.
Some of the already established foreign investment companies,
namely the 100 percent exporting ones in light manufacturing are
now implementing expansion projects thus promising significant
increases in exports generated by foreign investment.
1. Value of Foreign Investments:
| 1996 | 1997 | 1998E |
| 18.0 | 39.0 | 9.0 |
2. Exports Generated by Foreign Investment:
| 1996 | 1997 | 1998E |
| 8.0 | 10.4 | 34.0 |
Major Foreign Investors. Most important foreign investors have come from Portugal and other European countries, namely Italy and Spain. Asian investors from Hong Kong are also present, and they have been one of the major targets of the Cape Verdean foreign investment promotion agency. Italian investors are the leaders in the tourism sector, while the Portuguese dominate light manufacturing. Last year, the presence of an American investor in shipping had a great impact on investment figures.
Corruption. Corruption is criminally punished. Cape Verde has laws, regulations and penalties to combat corruption. Giving or accepting a bribe is a criminal act and conviction could result in up to 8 years in prison.
To combat corruption effectively, the Cape Verdean government
established the high authority against corruption. Other institutions
in charge of combating corruption include the judiciary police,
the prosecuting counsel and the courts.
VIII. Trade and Project Financing
Banking System. Financial services to the private sector are limited, with the result that the existing system is considered inadequate to efficiently and effectively satisfy the private sector's needs for credit. Until 1993, the Cape Verdean financial system comprised two public institutions, the Banco de Cabo Verde (BCV) and the Caixa Económica de Cabo Verde (CECV). The BCV was the principal financial institution in the country, combining the functions of a central bank, commercial bank and a development bank. The BCV, however, has limited experience and expertise with the essentials of a modern economy, especially in investment and export policy. As a result, entrepreneurs who wanted to start a new business or expand an existing one were indirectly discouraged from doing so. The CECV operated somewhat like a savings bank.
With the liberalization of the economy and the subsequent reform of the financial sector, the BCV was divided, in September 1993, into a central bank and a commercial/investment bank called the Commercial Bank of the Atlantic (BCA). While this was an encouraging sign, the bank remained majority state-owned, and because of the lingering bureaucratic tradition, major changes that would directly benefit private sector customers have not been felt. The BCA corresponds with some twenty international banks. In the U.S. it corresponds with American Express and Citibank.
The CECV has undergone a complete restructuring and modernization. New statutes changed it from a public institution into a corporation and a universal bank. The portion of the share capital reserved for the private sector has not been raised. The CECV is, however, expected to be privatized sometime this year. It currently offers normal banking services, including international operations.
The CECV's structure is allowing it to offer relatively quick service which is highly beneficial to the development of the private sector. The CECV corresponds in the U.S. with Chase Manhattan Bank and the Bank of Boston.
Legislation which allows for establishing private banks was passed in March 1993. There are no restrictions on establishing foreign banks. The law requires authorization from the central bank and that 50% of the workers be Cape Verdean nationals.
Two Portuguese banks Totta & Açores, and Caixa Geral de Depósitos have opened a branch in Praia, while the Banco Nacional Ultramarino (BNU) and Banco Mello have opened a representational offices that may lead to full branches.
Although the legislation does not foresee any foreign exchange controls affecting trade, in practice, due to the fragility of the Cape Verdean economy, there may be at times some constraining measures.
General Financing Availability. In spite of financing being generally available for short term private sector projects, one of the greatest obstacles commercial borrowers are faced with is lack of access to credit. Consequently, it is the general rule that medium to long term public sector projects are financed by multilateral financing institutions such as the World Bank, the African Development Bank or by foreign aid programs. Current non-discriminatory credit facilities available in Cape Verde include bank loans, letters of credit and lines of credit (the BCA itself provides no lines of credit). In order to promote the development of private sector activity, several lines of credit are being established such as the one sponsored in part by the World Bank to allow the participation of the local private sector in the privatization process underway.
How to Finance Exports/Methods of Payment. Traditional trade finance instruments such as letters of credit, documentary collections and funds transfers are available to the exporter. Although an irrevocable letter of credit eliminates the commercial risk of an export sale, and to some extent it also protects the buyer, it is not the most attractive instrument to the importer due to its high cost and to the time that it may take. So American exporters should consider the possibility that the European competitor may be willing to offer payment terms more favorable to the buyer.
Types of Export Financing Insurance. Several federal agencies, as well as certain state governments, offer loan guarantee programs and other types of financing assistance for exporters. The U.S. Department of Agriculture's Commodity Credit Corporation (CCC) administers the Export Credit Guarantee program (GSM-102) to insure financing for sales of U.S. agricultural products. Other Washington-based agencies offering financing and insurance programs include the International Finance Corporation (IFC), the Overseas Private Investment Corporation (OPIC), the U.S. Small Business Administration (SBA), the Export-Import Bank of the United States (Eximbank).
Project Financing. The U.S. Trade and Development Agency (TDA), the World Bank and the African Development Bank provide funds to finance feasibility studies and other planning services for major projects that are economic development priorities of the country.
List of Cape Verdean Banks and their U.S. Correspondents:
IX. Business Travel
Business Hours. Government, banking and industry hours are Monday through Friday 8:00 am to 12:00 pm and 2:00 pm to 6:00 pm. Commercial hours are Monday to Friday 8:00 am to 12:30 pm and 3:00 pm to 7:00 pm and Saturday 9:00 am to 1:00 pm.
Holidays:
January 1, New Year's day
January 20, National Heroes' day
Ash Wednesday
Good Friday
May 1, Labor day
July 5, Independence day
August 15, Assumption day
November 1, All Saints' day
December 25, Christmas
Travel Advisory and Visas. U.S. citizens must have visas and inoculations against yellow fever if they are coming from an endemic area. Hepatitis A, typhoid and tetanus immunizations are strongly recommended. Tourist groups may be visa-exempt when they inform officials in advance through a local travel agency.
Currency. The local currency is the Cape Verdean Escudo (CVE) which is not convertible outside the country. Exchange rate is approximately CVE 100.00 for USD 1.00.
Credit Cards. Although the use of credit cards is not yet nationwide, some hotels accept the main international cards such as American Express. Exchanges are more easily made at financial institutions.
Transportation. Regular direct flights connect Sal island with New York, Lisbon, Paris, Amsterdam, Munich, Zurich, Bergamo and Johannesburg. In the summertime there are charter flights connecting Sal to Boston. Direct flights link Praia with Dakar, Bissau, Banjul and Conakry. Scheduled domestic air service connects Sal, Praia and Mindelo with most of the other islands. International shipping companies make regular stops at Mindelo and Praia. Small vessels operate inter-island services. Taxis are
Getting There. The fastest and the most common way to get to Cape Verde is by air. South African Airways in its route New York-Johannesburg makes daily stops at Sal international airport. Average air fare is approximately $1,000. Another alternative is through Lisbon, on Portuguese TAP.
Taxis and rental Cars. There are taxis on all the islands, particularly in the main urban centers. They are reasonably priced, numerous and available on main streets. The minimum charge is CVE 100.
Rental cars are available in Praia, Mindelo and Sal. Special arrangements can also be made on other islands.
Accomodations. Accomodation is available on all the islands. There are good hotels on major urban centers. However, one should guarantee booking, either directly or through a travel agency, before departing. Room rates range from CVE 3000 to 7000.
Telecommunications. A satellite earth station in Praia links Cape Verde with the rest of the world. Fiber optics undersea cable connects all the islands. Cape Verde can be direct-dialed. International access code: 011. Country code: 238.
Cape Verde is 4 hours ahead of EST in Winter and 3 hours ahead in Summer.
Health. Sanitation is fair in Mindelo and Praia. Although these cities and other smaller villages have hospitals and healthcare centers, medical care is inadequate. All water supplies are unsafe for drinking. Bottled water is readily available. Uncooked vegetables should be avoided.
Climate and Clothing. Cape Verde has a dry, temperate climate
with little temperature variation throughout the year. September
is the warmest month - 26°C (80°F), and February is
the coolest - 21°C (71°F). Rain is scarce; most falls
between July and October. Strong northeast winds blow almost constantly.
X. Appendices
Population (mid-1995 estimate) : 411,000
Population Growth Rate (1997) : 2.7%
Religions: Catholic, Protestant
Government System: Democratic Republic
Language: Portuguese (official); Cape Verdean Creoulo (national)
Workweek: Monday-Friday
| 1996 | 1997 | 1998E | |
| GDP | 430.6 | 420 | -- |
| GDP Growth Rate (%) | 4.0 | 3.0 | 4.5 |
| GDP per Capita (1 usd) | 1,087 | 1,046 | -- |
| Government Spending as % of GDP | 57.5 | 45.5 | -- |
| Inflation (%) | 6.0 | 8.6 | 3.5 |
| Unemployment (%) | 30.5 | 31.4 | -- |
| Foreign Exchange Reserves | 82.0 | 54.1 | -- |
| Average Exchange Rate for USD 1 | 81.73 | 93.19 | -- |
| Foreign Deb | 410.8 | 227 | -- |
| Debt Service | 38.1 | -- | -- |
| U.S. Assistance | 5.8 | 3.1 | 3.1 |
E = estimates
-- = Not available
Sources: Bank of Cape Verde, 1997-2000 Development Plan, Ministry of Economic Coordination
| 1994 | 1995 | 1996 | 1997 | |
| Exports | 5.0 | 8.9 | 12.8 | 13.8 |
| Imports | 191.4 | 252.2 | 237 | 211.1 |
| Cov.Rate(%) | 2.6 | 3.5 | 5.4 | 6.5 |
| U.S. Imports | 4.8 | 8.2 | 8.5 | -- |
| Country | 1994 | 1995 | 1996 | 1997* |
| Portugal | 34.5 | 39.8 | 40.9 | |
| Netherlands | 8.0 | 7.9 | 7.6 | |
| France | 13.8 | 4.0 | 5.6 | |
| Japan | 5.0 | 5.1 | 5.5 | |
| United | States | 2.3 | 3.3 | 3.6 |
| Belgium | 2.9 | 7.3 | 3.2 | |
| Brazil | 3.4 | 4.3 | 3.1 | |
| Germany | 4.0 | 4.1 | 3.0 |
Source: Boletim do Comércio Externo. *1997 data unavailable.
| 1996 | 1997 | 1998E | |
| Foreign Direct Inv. | 18.0 | 39.0 | 19.0 |
| Exports Generated | 8.0 | 10.4 | 34.0 |
Source: PROMEX
1. Contacts in Cape Verde:
U.S. Embassy
Economic Commercial Section
Department of State
Washington, DC 20521-2460
Tel: (238) 61 56 16; Fax: (238) 61 13 55
Cape Verdean Trade Associations:
Câmara de Comércio, Industria e Serviços de
Sotavento
C.P. 105
Praia, Cape Verde
Tel: (238) 61 72 34; Fax: (238) 61 72 35
Mr. Orlando Mascarenhas, President
Câmara de Comercio de Barlavento
C.P.728
Mindelo, Sao Vicente
Tel: (238) 31 46 85; Fax: (238) 31 46 86
Mr. Edmund Carvalho, President
Associação Comercial de Sotavento
C.P. 78
Praia, Cape Verde
Tel. (238) 61 29 91; Fax: (238) 61 29 64
Mr. Alfredo Barbosa Fernandes, President
Associação Comercial de Barlavento
C.P. 62
Mindelo, Sao Vicente, Cape Verde
Tel. (238) 31 32 81; Fax: (238) 32 36 58
Mr. Augusto B. Evora, President
Major Cape Verdean Importers
Adega, S.A.R.L.
C.P. 40, Praia, Cape Verde
Tel: (238) 61 54 80; Fax: (238) 61 54 79
Supermarket products
ABM & Partners, Lda.
C.P. 109, Praia, Cape Verde
Tel: (238) 63 10 23; Fax: (238) 63 10 33
Wholesale of grocery products and construction material.
ALUCAR
C.P. 375, S. Vicente, Cape Verde
Tel: (238) 31 11 50; Fax: (238) 31 51 69
Automobiles
Sociedade Comercial Vasconcelos Lopes, Lda.
C.P. 116, S.Vicente Cape Verde
Tel: (238) 32 19 92; Fax: (238) 31 55 89
Grocery products and appliances
Braz de Andrade (the major importer from U.S.)
C.P. 75C, Fazenda, Praia, Cape Verde
Tel: (238) 61 22 71; Fax: 61 31 43
Food items, appliances, construction material
Edmundo Rodrigues Barbosa & Fos. Lda.
C.P. 154, Praia, Cape Verde
Tel: (238) 61 55 84/85; Fax: 61 12 89/ 61 35 42
Supermarket products
Manuel Gomes dos Anjos & Fos. Lda.
C.P. 86/88, Praia, Cape Verde
Tel: (238) 61 38 92; Fax: 61 68 8
Grocery products, houseware
C. de Vasconcelos e Herd. Lda.
C.P 4, Praia, cape Verde
Tel: (238) 61 55 47/8; Fax: 61 55 46/9
Houseware, appliances
Estabelecimentos Bossa Nova Lda.
C.P. 129, Praia, Cape Verde
Tel: (238) 61 38 56/ 61 41 91; Fax: 61 16 12
Grocery products, houseware, appliances, construction material, hotel supplies
Irmãos Correia Lda.
C.P.307, Praia, Cape Verde
Tel: (238) 61 69 98; Fax: 61 48 33
Wholesaler of beans, grocery products, tires.
Banks in Cape Verde:
Banco de Cabo Verde (Central Bank)
C.P. 101, Ave. Amilcar Cabral,
Praia
Tel: (238) 61 55 30; Fax: (238) 61 19 14
Banco Comercial do Atlântico (BCA)
C.P. 474, Ave. Amilcar Cabral
Praia, Cape Verde
Tel: (238) 61 30 09; Fax: (238) 61 30 00
Caixa Económica de Cabo Verde
C.P. 199, Ave. Cidade de Lisboa
Praia, Cape Verde
Tel: (238) 61 55 61; Fax: (238) 61 55 60
Banco Totta & Açores
C.P. 595, Rua Justino Lopes, 1-2nd.
Praia, Cape Verde
Tel: (238) 61 16 62/42 70; Fax: (238) 61 46 12
Caixa Geral de Depósitos
Achada de St. Antonio
Praia, Cape Verde
Tel: (238) 62 22 91; Fax: 62 20 79
Banco Nacional Ultramarino (Rep. office)
C.P. 19/C, Ave. Cidade de Lisboa
Praia, Cape Verde
Tel: (238) 61 42 32; Fax: (238) 61 42
Banco Mello (Rep. office)
C.P. 469, Ave. Amilcar Cabral
Praia, Cape Verde
Tel: (238) 61 72 50; Fax: (238) 61 72 51
Other Cape Verdean Agencies:
Center for Tourism, Investment and Export Promotion (PROMEX)
C.P. 89-C
Praia, Cape Verde
Tel: (238) 62 27 36; Fax: (238) 62 27 37
Mr. José Sá Nogueira, President
I.A.D.E. (Institute of Assistance to Entrepreneurial Development)
C.P. 581
Praia, Cape Verde
Tel: (238) 61 44 44; Fax: (238) 61 24 34
Privatization Agency
C.P. 323
Largo do Ténis, Cruzeiro, Praia
Tel: (238) 61 23 19; Fax: (238) 61 23 34
Mr. Sergio Centeio, Director
Others
Embassy of Cape Verde in the United States
3415 Massachusetts Avenue, N.W.
Washington, D.C. 20007
Tel: (202) 965-6820; Fax: (202) 965-1207
General Consulate of Cape Verde in Boston
535 Boylston Street - 2nd Floor
Boston, Massachusetts 02116
Tel: (617)353-0014; Fax: (617)859-9798
**International
Copyright, United States Government, 1997 (or other year of first
publication). All rights under foreign copyright laws are reserved.
All portions of this publication are protected against any type
or form of reproduction, communications to the public and the
preparation of adaptations, arrangement and alterations outside
the United States. U. S. copyright is not asserted under the U.
S. Copyright Law, Title17, United States Code.
[end document]
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