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Enhancing Private Sector Competitiveness in Cape Verde

Last Updated: June 2007
IDA at Work: Enhancing private sector competitiveness in Cape Verde

Challenge

World Bank and IMF-supported reforms undertaken by Cape Verde during 2001-2002 considerably strengthened the macroeconomic situation. The country has a well-developed poverty reduction strategy based on a 1997-2000 National Development Plan, which sets macroeconomic stability and private-sector led growth as some of the key objectives.

Approach

The Growth and Competitiveness Project's overall objective is to broaden the base of private participation in Cape Verde's economic growth, enhance private sector competitiveness and further develop its financial sector. This would be achieved through a series of actions supported by the project, notably: (a) financial sector reform, including pension reform; (b) investment climate reform; (c) post privatization and divestiture reforms; and (d) private sector and institutional capacity building. The project would thus help sustain the government's poverty alleviation efforts by generating increased employment opportunities through improved international competitiveness.

Results

The corporate tax rate was reduced from 35 to 30 percent. Import fees and taxes were significantly modified and lowered. Concurrently, customs taxes were streamlined and various import taxes were eliminated.

Highlights:
- The electronic VISA program introduced in Cape Verde has been growing steadily, improving the existing financial infrastructure. It has become available on all of the islands and has generated approximately US$15.6 million in more than 112,900 transactions since it began operations in December 2004.
- A study on the insurance sector was completed and preparation of appropriate legislation is underway. Arbitration reform is on track with legislation enacted and respective regulations approved by government. Also, arbitration facilities have been established in the Chambers of Commerce, equipment has been purchased, and 23 trainers have been trained.
- Preliminary studies about pension reforms have been completed. The integration of the two contributory pension schemes for formal sector workers effectively began on August 2006. As a result, more than 11,000 pensioners have been transferred.
- A multi-sector regulatory agency is now operational.
- The Matching Grant Fund (MGF) with direct support to the private sector has been an overwhelming success. This fund which is executed by the two Chambers of Commerce, has had an impact on the competitiveness of local enterprises. More than 105 projects have been financed, totaling more than US$800,000. Several enterprises and associations have seen these efforts pay off: for example, taxi drivers received English classes; tourist guides were trained for the first time; institutional capacity strengthening in one company led to a US$40 million investment.

Contribution

- There are very few donors in Cape Verde and IDA supported the government’s National Options Plan and Vision 2020 when no other donors were available.
- IDA funding helped fill a financial gap and roll out an E-Government program.
- The Project was also a catalyst for Millennium Challenge Account funding of more than US$100 million which will be used for developing port infrastructure, and creating a more competitive business environment.
- Finally, support for the Matching Grant Fund enabled the Chambers to scale up their services to the private sector.
- Project cost is estimated at US$13.5 million of which IDA provided US$11.5 million.
- IDA has supported several programs aimed at creating an enabling business environment in Cape Verde. This project complements other projects in the Bank's Country Assistance Strategy (CAS) for Cape Verde, which also relate to advancing Cape Verde's international competitiveness, such as the ongoing Privatization and Regulatory Capacity Building Project and the Capacity Building Project for Private Sector Promotion which closed in 1999.

Next Steps

Based on the successful progress so far, the team will process a supplemental credit for US$3 million to scale up the program.

Learn More

Growth and Competitiveness Project (2003-2008)
Project documents


For more information, please visit the Projects website.



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