Foreign investment in Cape Verde – the development propeller

Cape Verde was not blessed with natural resources capable of boosting the economy just with the production of one specific commodity. No prospects to find oil, natural gas, copper or diamonds that would catapult the country to the fast lane of economic growth. The country is stripped from known natural resources other than the sea, the wind and the sun. Yet, Cape Verdeans don’t see this as a limitation and have been striving since its independence - back in the 70s of the preceding century - to put the country in the front row of the African best achievers. And they have succeeded!

The key for success is simple.

First, the archipelago is Atlantic centred. It’s half way between Africa, Europe and America. It’s the last chance to see Europe before entering Africa and vice-versa. The number of economic agreements with neighbouring geographies shows how well governments have been using the location of the archipelago to have access to markets and draw the attention of investors. The United States of America’s African Growth Opportunity Act, the Special Partnership Agreement through the Generalized System of Preferences (GSP+) - which allows preferential access to all Cape Verdean exports to the EU free of tariffs and quotas - and the Economic Community of West African States (ECOWAS) are all good examples of how Cape Verde has prompted its location as a development accelerator.

Secondly, Cape Verde is a realm of political stability in Africa. The country has managed to avoid undesired political turmoil and unrest. Democracy works under a well-defined and respectful political spectrum. Montesquieu lessons were learned giving place to a legal and de facto separation between judicial, legislative and executive powers, something not always seen in Africa. The country has a place in the World Trade Organization and is no longer part of undeveloped countries club. It is a few notches up in the development scale.

The country is investment-friendly and particularly appealing to alien investors. As said, in addition to a stable legal environment where you may find the acceptance of most of the contracts used in international trading and transactions, foreign exchange controls are easy to deal with (albeit Central Bank’s approvals may be required). Low risk of exchange-rate fluctuation of the currency – pegged to the Euro at a rate of CVE 110.27 per Euro since 1999 and a well-developed financial sector, are also the main strengths of the country.

The country is also competitive is terms of investment taxation. It was never the plan to portray the country as a low taxation heaven often related to islands in other exotic places. Tax breaks are not generally available and are subject to the merits of the investment. Tax incentives may be described as follows:

• Corporate Income Tax, credit up to 50% of the eligible investments (namely in tourism, industry, air and sea transportation services, port and airport services, renewable energy production, manufacture and installation of renewable energy equipment, scientific research and investigation, industrial activities, as well as in IT) and 30% in other areas;
• Stamp Duty exemption on the financing of investments;
• Customs duties exemptions on the imports of materials, equipment and other goods used in the investment; and
• Exemption of Wealth Tax (IUP) on the acquisition of investment property.

High end investments may be awarded with customized tax incentives, if same: (i) exceed CVE 3.000.000 (roughly € 27.000.000); (ii) is deemed relevant by government; and (iii) creates 100 direct job positions. These requirements are reduced in half or three quarters if the investment is deployed to less developed areas.

The Cape Verde International Business Centre (CIN), which comprises (i) the International Industrial Centre (Industrial Free Zones), (ii) the International Centre for Commerce (Commercial Free Zones), and (iii) the International Centre for the Provision of Services, has reduced CIT rates of 5%, 3.5% and 2.5%. Investments in the securities market, international financial institutions and holding companies may also have access to tax holidays.

Putting taxation aside as a plus, other facts also worth pointing out:

Arbitration is generally accepted as a dispute solver. The judicial system also works, particularly in the main islands, and is starting a path of specialization so judgements are faster and attain high quality standards. Entrance and employment visas are easy to get so investors may enter and depart expeditiously without having to plan weeks ahead visits to the territory. In general, public administration is easy to interact, either at a central government level and the municipalities (despite the number of islands, the country is not yet divided in administrative regions prompting another decision level).

Public spending and international funding are options no longer available to continue developing the country. Foreign investment is now, more than ever before, perceived as the right development propeller. The investment opportunities for all sort of investors are there, either you see it as an individual investment in the country or part of a regional strategy starting or expanding to Cape Verde. Two relevant examples:

Privatization of the State owned companies: TACV (National Airline Company), ELECTRA (Energy), concession of ports and airports operations and services and public-private partnerships (e.g. for the new projects underway – deep sea port, cruise terminal).

Energy sector: important regulatory changes are underway aimed to transform the country 100% supplied by renewable energy sources, combination of solar, wind and waves (25% electricity already provided by renewable energy sources), which will require major investments in the power sector.

On 30 July 2016, the new vest of the Cape Verde Agency for Promotion of Investment and Exports, now named "Cape Verde Trade Invest" has been approved as the first step of the reform of the current model. The Cape Verde Trade Invest is currently the main contact point for investments and exports above CVE 50.000 or equivalent in foreign currency, except for what concerns to the promotion and management of the investments in the tourism sector (including within the Special Tourism Development Zones) and the International Business Centre, which are temporally assigned to the Minister of Economy and Employment.