1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Cabo Verde seeks both domestic and foreign investment to drive the country’s economic growth, and it focuses on tourism, transportation services, renewable energy, and export-oriented industries. The government increasingly promotes a market-oriented economic model in which all investors, regardless of their nationality, have the same rights and are subject to the same duties and obligations under the law. The current administration, elected in 2016, has been investing in administrative decentralization, reduction of the state’s role in the economy, and the empowerment of the private sector, all with a view to improving the business climate to attract investments. In addition, the government plans to reform and require efficiency of its State-Owned Enterprises (SOEs) through a privatization, concession, and public-private partnership agenda. Due to the COVID-19 pandemic, the Minister of Finance announced in April that the government would temporarily suspend implementation of the agenda.
Cabo Verde is pursuing a dynamic economic strategy to encourage investment in the country in a wide variety of fields. It has a clearly defined strategy for attracting investors, international financial institutions, banks, insurance companies, venture capital companies, bilateral partners, and all those interested in investing in the country in tourism, transportation, energy, technology, industry, and services, and other areas. In 2018 and 2019 the government organized a series of international investment forums, including in Boston. These events served as venues for Cabo Verde to disseminate the measures it is taking to realize its sustainable development ambitions and opportunities to develop new partnerships with international donors and investors. The government plans to hold additional conferences after travel restrictions caused by the COVID-19 pandemic are lifted.
The Cabo Verdean National Assembly approved a bill that creates tax benefits for foreign citizens who decide to buy a second home in Cabo Verde and grants permanent residence to all foreigners whose investment exceeds 180 million escudos ($2 million). In January, the National Assembly approved a law that establishes conditions for investment in the country by Cabo Verdean emigrants, including fiscal incentives. The law also establishes the framework for the establishment of a one-stop-shop for emigrants and special conditions to acquire specific banking products. The objective of the law is to capture foreign investment and improve the business environment of the country.
Cabo Verde TradeInvest (CVTI), the agency responsible for large-scale investment promotion, is the one-stop-shop for foreign investors. An investor can express interest, attach the necessary documents for formalizing a project, and monitor all the project approval stages through CVTI. The investment approval process has been expedited with the revision of the external investment code. Although bureaucratic procedures have been simplified in a number of cases, there is still room for improvement. Through CVTI, the government maintains a dialogue with investors using personalized meetings, round tables, conferences, and workshops.
Services provided for the investor:
- Help in formalizing an expression of interest and uploading project documents into CVTI’s platform
- Monitoring of the investment process using a monitoring code
- Facilitation of the payment of certificate issuance fee
CVTI also provides the investor/exporter support with the following services:
- Information about the country’s trade agreements and benefits (AGOA, ECOWAS, and others)
- Market information
- Organization of and participation in exhibitions, fairs, congresses, conferences, seminars or other events in the field of exports of goods and services in the country
- Contacts with other state institutions, providing or promoting partnerships, etc.
CVTI offers an After-Care service aimed at supporting investors after they obtain their Investment Registration Certificate and implement their investment project. CVTI assists investors in their implementation process, in resolving bureaucratic issues in conjunction with other public institutions, and in establishing reinvestment and export processes such as:
- Obtaining operating authorization and licensing
- Obtaining tax and customs incentives
- Obtaining work permits for foreign workers
- Obtaining visas for company workers
- Assistance with obtaining housing for foreign workers
- Assistance with registering workers with social security
- Assistance to investors and their families in the process of settling in the country
- Assistance with obtaining premises for company offices
- Introduction to service providers, such as banks, lawyers, accountants, estate agents
- Export assistance
For 2020, CVTI planned the installation of an investment portal (in Portuguese BUI – Balcao Unico de Investimento) to digitally handle all investment processes and bring more transparency and efficiency to small, medium and large investment projects. It is expected that many planned investment projects (CVTI was planning on approving 74 in 2020, mostly on the tourism sector) will be delayed due to the effects of the COVID-19 pandemic.
For investments of less than $500,000, ProEmpresa and the Casa do Cidadao provide similar services for investors. ProEmpresa, whose role is to promote micro, small and medium businesses, and investments, is currently focusing on helping existing companies survive the economic crisis caused by the pandemic.
Limits on Foreign Control and Right to Private Ownership and Establishment
The country is investment friendly. Foreign investors, regardless of their nationality, have the same rights and are subject to the same duties and obligations as Cabo Verdeans under the laws of Cabo Verde.
CVTI leads the approval of the investment project, which should also be registered at the Central Bank of Cabo Verde.
Other Investment Policy Reviews
No reviews have taken place under Organization for Economic Cooperation and Development (OECD). The first review of the trade policies and practices of Cabo Verde under the World Trade Organization (WTO) took place on October 6 and 8, 2015.
During 2018, the United Nations Conference on Trade and Development (UNCTAD) conducted an Investment Policy Review (IPR) at the request of the government of Cabo Verde. The IPR analyzed the legal and regulatory framework for investment. The report contains strategic analysis on how Cabo Verde can utilize FDI in the tourism sector to leverage -sustainable development.
In April, UNCTAD warned of the particularly negative effects that COVID-19-related reductions in tourism would have on small island developing states (SIDS), including Cabo Verde. UNCTAD projected that, among the group of SIDS, Cabo Verde’s GDP would be the sixth most negatively affected, with a GDP contraction that could reach 12 percent in 2020, considerably more pessimistic than other expectations. The country’s dependency on tourism, an 89 percent public debt relative to GDP (Note: This estimate is considerably lower than Cabo Verde’s internal calculations of an anticipated 132 percent public debt to GDP ratio.) and foreign currency reserves used to pay imports for a five-month buffer, places Cabo Verde as one of the most affected Lusophone countries. UNCTAD estimates that Cabo Verde will need $131 million in financial aid. UNCTAD cites the World Tourism Organization’s fear of a 20 to 30 percent contraction in tourism in 2020, and admits that this is likely a conservative estimate for countries dependent on tourism. UNCTAD also notes that, according to the Tourist and Travel World Council, during previous global economic shocks, tourism destinations took an average of 19 months to recover. UNCTAD urges financial institutions and donors to create access to no-interest funds and suspend debt payments until these countries can comply with their external obligations.
In an effort to improve the investment climate and reduce the government’s approval time for investment projects, the government established a maximum period of 15 days for analysis and attribution of Tourist Utility status and 30 days for approval of investment and export projects.
Cabo Verde has adopted measures to facilitate and stimulate business activity, including lowering the maximum personal income tax (IRPS) one-percentage point to 24 percent, and easing the Special Scheme for Micro and Small Businesses. The legislation has undertaken some new tax benefit measures, i.e., the elimination of double taxation, the release from payment in installments for taxpayers who had negative results or began their activity in the previous year, and the elimination of the obligation to pay the minimum installment.
The tax benefit package aimed to provide easier access to benefits. It reduced to 500 million escudos ($4.8 million) the investment level required to obtain contractual benefits and reduced the requirements on number of jobs created and expansion into new strategic sectors of the 50 percent investment credit. It also extended to 15 years the period for deduction of investment credit.
Laws commit the government to paying its bills within 45 days; the law further commits the government to paying interest on late payments. These measures were adopted to ensure predictability in the payment of the state’s obligations to companies. The National Assembly approved a law that limits public debt to less than 60 percent of GDP.
The 2020 State Budget includes benefits to attract private-sector investment, structured training opportunities aligned with market needs, and improvements in the business environment. The budget supports Cabo Verde’s PEDS 2017-2021 as it continues to prioritize security, privatization of SOEs, and FDI.
Registering a company is straightforward. In 2008, the concept of business-in-one-day was introduced to expedite the establishment of companies (Decree-Law 9/2008). The Commercial Registry Department (Casa do Cidadao), is a one-stop-shop where a company can be created and registered in less than a day. The overall business environment has become more efficient. The process for launching a business is now more streamlined, and licensing requirements are less burdensome.
As the agency in charge for the promotion and facilitation of investment in Cabo Verde, CVTI is the first point of contact for foreign investment in Cabo Verde. It offers an Electronic Platform, “One-Stop-Shop for Investments,” which is important for the promotion, settlement, and monitoring of investments in the country. The platform aims to increase the efficiency and effectiveness of the investment processes, improving understanding and communication between CVTI, its customers, other stakeholders, public and private entities, and project developers of domestic and foreign investments. The “One-Stop-Shop” offers a single platform containing all the necessary services.
All information pertaining to investing in Cabo Verde can be found on CVTI’s website, including Cabo Verde’s Investment Law, the Code of Fiscal Benefits, and the Contractual Tax Benefits-Incentives . The platform is helping to de-bureaucratize the investment process, ensuring that the process is completed within a maximum period of 75 days.
3. Legal Regime
Transparency of the Regulatory System
Cabo Verde is a model for much of Africa because of its transparency and good governance. The government is committed to improving the conditions for foreign investment and to encouraging a more transparent and competitive economic environment. In 2019, Cabo Verde ranked 41st on Transparency International’s Corruption Perception Index, making it third among sub-Saharan African nations, ranking behind Seychelles and Botswana.
Laws to promote exports, incentives to export, and free-zone enterprises stress the government’s commitment to encouraging investment in export-oriented industries. The tax regime encourages entrepreneurial activity, and government policies support free trade and open markets. Although bureaucratic procedures have been simplified in a number of cases, there is still room for improvement.
Public finance and debt obligations are in line with international norms and regulations on budget credibility, thoroughness, and fiscal transparency standards. Cabo Verde continues to improve its processes for the planning, execution, and control of its budgets. The Ministry of Finance launched a digital platform to publish the management of public accounts, taking transparency one step further. With this new web portal, any institution or citizen can observe the execution of the budget in real time. The Parliament approved a Public Finance Council to independently assess the sustainability of budget and policies.
International Regulatory Considerations
Cabo Verde is a member of UNCTAD’s international network of transparent investment procedures [http://caboverde.eregulations.org/]. Foreign and domestic investors can find detailed information on administrative procedures applicable to investment and income-generating operations, including the number of steps, name and contact details of the entities and persons in charge of procedures, required documents and conditions, costs, processing time, and legal bases justifying the procedures.
In January 2008, four years after the United Nations’ Resolution 59/210 recommendation, Cabo Verde graduated from Least Developed Country status to Developed Country status. On May 26 of the same year, five months after the World Trade Organization (WTO) approved its application, Cabo Verde’s legislature unanimously ratified the agreement and formally acceded to the WTO. Cabo Verde has not notified the WTO of any measures that are inconsistent with its TRIMS obligations.
Legal System and Judicial Independence
Cabo Verde was a Portuguese colony until 1975; consequently, its legal system is based on the civil law system of Portugal, and it has systematic codification of its general law. The 1992 constitution provides for a judiciary independent from the executive branch. The judicial system is composed of the Supreme Court, the Constitutional Court, and the regional courts. There is no interference from the government, and judges cannot be affiliated with political parties.
The Supreme Court of Justice has a minimum of five members, one appointed by the president, one appointed by the National Assembly, and three appointed by the Supreme Council of Magistrates. The Ministry of Justice and Labor appoints local judges. The judiciary generally provides due process rights; however, the right to an expeditious trial is constrained by a seriously overburdened and understaffed judicial system. Criminal defendants are presumed innocent and have the right to counsel, to a public, non-jury trial, and to appeal. Cabo Verde has modern commercial and contractual laws. The judicial system in Cabo Verde is widely seen as transparent and independent. There is no government interference in the court system, but judicial decisions are often delayed by years.
The right to private ownership and establishment is guaranteed under the constitution. Property rights are recognized and guaranteed by several Cabo Verdean laws, as well as by the constitution. There is a legal entity that records secured interests in property, both chattel and real estate. The legal system also protects and facilitates acquisition and disposition of all property rights.
Laws and Regulations on Foreign Direct Investment
Foreign Direct Investment (FDI) has greatly influenced the recent economic history of the islands. The continued implementation of sound macroeconomic policies have fostered solid inflows of FDI particularly in the tourism sector. Cabo Verde has adopted open if somewhat incoherent FDI legislation.
Law n. 13 / VIII / 2012, “the Investment Law,” of July 11, 2012, applies to both foreign and domestic investors, and it preserves the principle of freedom of investment. The law clearly states that investors of any nationality are welcome to invest, reflecting the government’s commitment to creating a dynamic business environment. The Industrial Development Statute regulates granting incentives and simplifies the investment approval process.
Other relevant legislation includes Law n. 41 / 2016 of July 26, 2016, which defines the mandate of Cabo Verde TradeInvest as the one-stop shop for external investors.
Competition and Anti-Trust Laws
Different regulatory agencies (depending on the sectors) are in charge of and responsible for competition-related concerns.
The law establishes the regime of protection of competition applicable to all economic activities, carried out on a permanent or occasional, in private, public and cooperative basis.
Decree Law 53/2003 substituted Decree-Law Nº 2/99 of February 1
Issue date: 24/11/2003
Date of Entry into force: 23/01/2004
Expropriation and Compensation
The investment law protects against direct and indirect expropriation. Private property is protected against requisition and nationalization, except for public interest reasons (Investment Law, art. 6.1). In the event of expropriation, 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 of expropriation. The Investment Law provides for the right to seek constitutional guarantee or other forms of dispute resolution provided by any agreement between the investor and the Government. There has been no reported case of unlawful expropriation, and the government has never shown any pattern of discriminatory behavior against foreigners.
Legislative Decree No. 3/2018 approved the new legal regime for economic and financial operations with foreign countries and foreign exchange operations in Cabo Verde. It liberalized economic and financial relations with the outside world, especially capital transfers which are no longer subject to verification and prior authorization by the central bank. Only in exceptional circumstances will the government be able to impose temporary restrictions on economic and exchange transactions
In case of noncompliance of investment projects, the law states that land can be recovered by state and made available to new investment projects.
ICSID Convention and New York Convention
In 2011, Cabo Verde became a contracting state to the International Centre for the Settlement of Investment Disputes (ICSID convention). Cabo Verde is not a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
Investor-State Dispute Settlement
In March 2019, representatives from a Brazilian telecommunications company and the government of Cabo Verde reached an agreement to resolve a dispute regarding telecommunications company Cabo Verde Telecom (CVT). The Cabo Verdean government settled out of court, agreeing to buy back the equivalent of forty percent of Cabo Verde Telecom (CVT) for $29.4 million. Cabo Verde believed that the previous owner, a Portuguese company, had violated agreements by agreeing to sell shares held in CVT to the Brazilian telecommunications company without the prior permission of Cabo Verdean authorities.
International Commercial Arbitration and Foreign Courts
Disputes between the government and investors concerning the interpretation and application of the law which cannot be resolved amicably or via negotiation are submitted for resolution by the judicial authorities, in accordance with Cabo Verdean laws. Disputes between the government and foreign investors on investments authorized and made in the country, if no other process has been agreed upon, are settled by arbitration.
The law favors arbitration as a mechanism for settling investment disputes between the government of Cabo Verde and foreign investors, under national and international dispute resolution rules, and the courts recognize and enforce foreign arbitral awards. Generally, arbitration will be carried out in Cabo Verde and in Portuguese unless the parties agree on another location and language. Arbitration is generally accepted as a dispute resolution mechanism. The decision of the single referee or the arbitration committee is final and there is no appeal.
Law 108 / VIII / 2016 approved the legal regime of tax arbitration, through Decree-Law no. 20/2018, of April 23, 2018, and regulates the arbitrators’ performance, appointment, the requirements to be an arbitrator, and the reasons for refusal, replacement, and removal. In 2018, the Tax Arbitration Center was created to promote the resolution of disputes regarding tax matters, and its statutes were approved (Decree-Law no. 25/2018, of May 24).
- The principal national arbitration statute in Cabo Verde is the Arbitration Law No. 76/VI/2005 of August 16, 2005.
- Law No. 89/IV/93 of December 13, 1993, provides that disputes between the State of Cabo Verde and foreign investors shall be resolved through arbitration and conciliation subject to Cabo Verde arbitration law.
- Decree-Law No. 35/2010 of September 6, 2010, provides that disputes related to the validity, interpretation, and non-fulfillment of insurance agreements may be addressed by arbitration.
- Decree No. 8/2005 of October 10, 2005, provides for institutional arbitration.
Cabo Verde made major developments in resolving insolvency by enacting a law that introduces a reorganization procedure and simplifies continuation of the debtor’s business during insolvency proceedings. The law provides a framework that allows creditors more involvement in important resolutions regarding the insolvency proceedings. The law was enacted in December 2015, entered into effect in September 2016, and is expected to contribute to improving Cabo Verde’s ranking in the Doing Business Report in the near future (2019 Resolving Insolvency ranking: 168). Bankruptcy is not criminalized in Cabo Verde.
10. Political and Security Environment
Cabo Verde is considered a free country by the Freedom House Index. In 2019 Freedom House gave Cabo Verde a score of 92 of a possible 100 points. Its greatest strengths are its political and social stability, both of which are reinforced by its economic stability. Cabo Verde has a tradition of peaceful political transition in its 44 years of independence, and it promotes and defends these values in many international fora. There have never been political, social, or religious conflicts resulting in violence.