Foreign investment: Big need for spending on basic services

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Cape Verdeans are a welcoming people – a characteristic reflected in the countless variations on the simple phrase “How are you?” in Kriolu (Creole), the spoken idiom that replaces the country’s official language of Portuguese when islanders talk to each other.

In the different dialects spoken in the windward and leeward islands, the alternatives run from the basic “tudo dretu ?” (everything straight?) to the gentle “tudo tranquil ?”, the hip-sounding “tud kul ?” and innumerable others. Greetings are accompanied by long handshakes and, for women, kisses on both cheeks.

In economic terms, Cape Verde extends a particular welcome to tourists and foreign investors. As a source of growth and employment, tourism – forecast by the government to grow from about 200,000 arrivals in 2005 to 1m in 2015 – already dominates an economy devoid of natural resources and highly vulnerable to drought and desertification.

According to Victor Fidalgo, head of the Cabo Verde Investimentos promotion agency, tourism and related property developments account for more than 90 per cent of foreign investment, which has grown from about $17m in 2001 to $509m last year.

Accumulated inward investment, which totalled just over €1bn between 2000 and 2006, creating an estimated 9,400 jobs, is projected to grow by another €3bn over the next six years, creating employment for another 16,700 people, overwhelmingly in the tourism and construction sectors.

José Brito, minister of economy, growth and competitiveness, says the surge in tourism projects helped Cape Verde achieve a landmark goal in self-sufficiency last year when foreign investment exceeded international development aid for the first time.

As the first of dozens of large-scale tourism and property developments move towards completion and more enter the pipeline, Cape Verde faces the challenge of upgrading its inadequate infrastructure to keep pace.

If official projections prove correct, tourism will swell the population of the islands with hundreds of thousands of visitors expecting facilities and services in keeping with the upmarket Mediterranean- and Caribbean-style holidays promoters are already advertising.

Although privatisation and market liberalisation have produced improvements – Cape Verde is expected to have three competing mobile phone companies by next year, for example – some basic services remain unreliable. Praia, the capital, is prone to occasional blackouts and air connections between islands are subject to delays and cancellations.

On the positive side, a big road-building programme is under way and the country’s first marina, promoted by German investors, opened last month in Mindelo bay on the island of São Vicente.

A 253km fibre-optic network links the islands and has helped increase the number of internet users to more than double the African average. Negotiations have also begun with China on the development of a loan-backed e-government project to provide administrative services online.

Mr Fidalgo says foreign investors are already beginning to show an interest in energy, water, transport, health, finance and other services. But they need the guarantee of strong tourism growth to make investments in these areas viable, he says. “If we’d suggested investing in energy or water five years ago, when there were no significant tourism projects in the pipeline, investors would have just laughed.”

Over the next 10 to 15 years, tourism and property will continue to attract the lion’s share of investment. As well as hotels and holiday homes, Cape Verde plans three casinos on separate islands. Talks have already begun with potential investors, including a Chinese group.

While the government backs tourism as the motor of growth, it is also keen to diversify the economy into what José Maria Neves, the prime minister, describes as an internal services centre, which takes full advantage of the country’s mid-Atlantic location.

Acknowledging that extensive diversification will not be easy, Mr Brito says a transformation strategy approved in 2003 identified fisheries, air and maritime services, logistics and finance as prospective development areas.

The islands’ fisheries potential, he says, lies in valued-added processing and marketing rather than catching fish. Talks with Spanish and Chinese groups on fish freezing operations are understood to be at an advanced stage.

Cape Verde offers competitive incentives and has developed what John Duggan, a Lisbon-based partner with PwC, calls an investor-friendly business climate that has largely dispensed with “obsolete officialdom”. Armando Rodrigues, a Praia-based PwC colleague, says most delays in project approvals are caused by disagreements between central government and municipal authorities.

Investors are exempt from corporate tax for the first five years and subsequently pay 10 per cent, compared with a standard rate of about 30 per cent. “Our goal is to keep tax rates competitive,” say Mr Fidalgo, who sees Mediterranean and Caribbean resorts as Cape Verde’s main competitors for investment. However, some local businessmen complain of “subjectivity” in the application of tax regulations.

Accession to the World Trade Organisation, expected to be approved later this year, will align Cape Verde’s business regulations more closely with international practice. But Mr Brito notes there will also be a “political issue to resolve”, as the domestic private sector considers existing foreign investment legislation to be already too open.

Banking liberalisation is steadily improving access to competitive finance packages for investors, says Fernando Rodrigues of the Portuguese bank Banif, which this year acquired 46 per cent of Banco Cabo-verdiano de Negócios (BCN), one of the country’s five commercial banks.

Cape Verdeans appreciate the effort made by visitors who try a few words in Kriolu . To ask where the bank is, for example, the phrase is: “Ondé k’e bonk ?” The sentence investors hope not to need is: “N ka tem d’nher ” – “I don’t have any money”.

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