The archipelago of Cabo Verde is composed of 10 volcanic islands and eight islets and is located in the mid-Atlantic Ocean approximately 450 miles west of Senegal. It has a land area of 4,033 square kilometers and a 700,000 square kilometer maritime Economic Exclusive Zone (EEZ). Approximately 570,000 people inhabit nine islands of the islands. Cabo Verde’s low proportion of arable land, scant rainfall, lack of natural resources, territorial discontinuity, and small population make it a high-cost economy with few economies of scale. Cabo Verde is vulnerable to external shocks, and the country depends on imports, development aid, foreign investment, remittances, and tourism.
Cabo Verde graduated to developed country status in 2007 and met most of its Millennium Development Goals by 2015. It invested in political stability and has a history of parliamentary democracy and economic freedom that is unusual in the region. Elections are free, fair, and regular, and there have always been smooth transitions of power. Good governance, prudent macroeconomic management – including strong fiscal, monetary, and exchange-rate policies – trade openness and increasing integration into the global economy, and the adoption of effective social development policies have contributed to its success. Broad political stability is expected to prevail in Cabo Verde, underpinned by strong democratic institutions and decent protection of human rights and civic freedoms. The business and investment climate continues to improve, although there are bureaucratic and cultural challenges to overcome.
The government’s Strategic Plan for Sustainable Development (PEDS 2017-2021) included a commitment to privatizing various sectors of the economy and addressing macroeconomic challenges. It aimed to create 45,000 new jobs by the end of 2020 and to position Cabo Verde as a mid-Atlantic platform, taking advantage of its geostrategic location between the African, European, and American continents. The strategy sought to harness the domestic and international private sector as the key driver for continued economic development. The government targeted renewable energy, tourism, maritime and air transportation, information, and communications technology (ICT), blue economy industries, financial services, and agribusiness as the key sectors for private sector investors and public-private partnerships. In 2018 and 2019, the government organized a series of investment conferences, including one in Boston, to promote Cabo Verde as a stable, open, and attractive investment destination. The government plans to hold additional conferences after travel restrictions caused by the COVID-19 pandemic are lifted. Despite several years of impressive progress, economic contraction caused by COVID-19 will prevent the government from fully achieving its original goals under the PEDS 2017-2021. The government is working on a Recovery Plan for the Cabo Verdean economy for the post-COVID-19 period which is expected to update the strategy, goals, and objectives until 2030.
The government continues work on reforms aimed at developing the private sector and attracting foreign investment to diversify the economy and mitigate high unemployment, which reduced from 12.2 percent in 2018 to 10.7 percent in the first half of 2019. Signs of progress in creating jobs, however, are limited. There are few regulatory barriers to foreign investment in Cabo Verde, and foreign investors receive the same treatment as Cabo Verdean nationals regarding taxes, licenses and registration, and access to foreign exchange. In January, the Cabo Verdean National Assembly approved a law, including fiscal incentives, that establishes conditions for investment in the country by Cabo Verdean emigrants. Foreign investment in Cabo Verde is concentrated in tourism and light manufacturing. Aligned with PEDS 2017-2021, it is the government’s goal to position Cabo Verde as a regional and international hub for both passengers and cargo, and the government is developing policies to realize this plan.
The 2019 privatization of the national airline and the creation of new routes (including a direct flight to Washington Dulles International Airport in December) had started to show positive results with number of passengers increasing 136 percent between March 2019 and February 2020. However, in financial terms, it will take several years for Cabo Verde Airlines’ financial position to stabilize, even with significant government and shareholder engagement. The government’s high public debt (projected to reach 132 percent of GDP in 2020) limits its capacity to finance any shortfalls; the government’s people-focused response to COVID-19 will further strain the government’s finances. The economy is service-oriented, with tourism, transport, commerce, and public services accounting for more than 60 percent of GDP. Tourism alone accounts for approximately 25 percent of GDP directly, and more than 40 percent indirectly. Maritime connectivity has been improving since Portugal’s Transinsular launched a new consortium in August 2019 with Cabo Verdean operators, but services are not yet at the expected efficiency and reliability levels. The government, with support from China, has been developing a plan for a maritime special economic zone that would support a range of maritime economy needs, including expanded deep-water ports and other maritime services.
The energy sector in Cabo Verde is undergoing important regulatory changes and seeking investment, which may result in a clearer framework to promote investment opportunities in the sector. As a regional leader in renewable energy, Cabo Verde already has wind farms on four islands. Currently, about 27 percent of the energy consumed in Cabo Verde comes from renewable sources; the rest comes from imported diesel. The government’s goal is to increase renewable energy production to 50 percent by 2030, which presents additional investment opportunities for American companies in this sector.
Despite recent progress, the country’s extreme vulnerability to external shocks and high dependency on tourism and imports mean that it is reeling from the COVID-19 pandemic. Its GDP, which had been expected to achieve 5-6 percent growth in 2020, is now likely to contract by more than five percent. In addition, Cabo Verde’s public debt is anticipated to reach 132.5 percent of GDP this year, one of the highest levels in Africa. The unemployment rate is expected to double to 20-25 percent.
|TI Corruption Perceptions Index||2019||58 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||137 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||N/A||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||N/A||https://apps.bea.gov/
|World Bank GNI per capita||2018||USD 3 420||http://data.worldbank.org/
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.
4. Industrial Policies
In 2019, the Corporate Income Tax (CIT) rate applicable to entities taxed under the organized accounting regime was reduced to 22 percent from 25 percent.
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.
Foreign Trade Zones/Free Ports/Trade Facilitation
The government created Special Economic Zones (SEZ) through legislative decree 1/201 (amended by decree-laws 38/2013 and 57/2017). To be eligible, a company must obtain authorization for and define its area of economic activity in industrial, commercial or financial services arenas. Commercial and industrial companies are geographically restricted while financial services are not.
The government is planning a maritime special economic zone and, although referring to special regulations (including fiscal, customs, and labor incentives), fiscal benefits and incentives will be issued on a case by case basis to also comply with guidance from the Budget Support Group and World Trade Organization. The entity responsible for assessing those investments and the incentives that apply is the International Business Center (CIN), located in Sao Vicente. The law determines that the zone will be market-oriented, with the government defining the policies, overall coordination, and organization.
Performance and Data Localization Requirements
Access to work and residence permits for foreign workers, managers, and investors is regulated by the Labor Code and Law 80/VIII/2014. Foreigners are required to apply for a work permit. The authorization process, however, is easy and affordable, and there is no “forced localization” in any sector in Cabo Verde. Investors are granted work and residence permits independently of the amount they invest.
The regime for foreign hires differs between skills categories. The Labor Code regulates residence permits for foreign workers, managers, and investors. There are four categories of permits for foreigners, including investors, employees, independent professionals, and highly qualified employees.
Data protection still lacks sufficient legislative support.
7. State-Owned Enterprises
Starting in the mid-1990s, Cabo Verde implemented a series of reforms that have transformed a centrally-planned economy into a market-oriented economy. The number of major SOEs to be privatized and where the state owns the majority of the capital has decreased from 40 in the 1990s to five today (ENAPOR, ASA, EMPROFAC, ELECTRA, and CABENAVE).
Government interference in SOEs in Cabo Verde is relatively minor. With the exception of certain industries which remain protected (e.g., freight handling at the airport, port authority, importation of pharmaceutical products, and distribution of electricity), private and SOEs compete freely and without major government interference. In these liberalized markets, both private and SOEs have the same access to credit, markets, and business opportunities. SOEs in Cabo Verde are most active in the transportation sector. They are generally managed by a board of directors which is nominated by the minister in charge of the respective sector. These boards of directors have between three and five members. SOEs are generally evaluated based on their economic or financial performance. All SOEs are required to produce annual reports and must submit their books to independent auditors. Allegations about the qualifications of the CEOs of SOEs abound; many purport to believe that the importance of political connections outweighs the importance of technical qualifications in leadership of these behemoths. Even though not all directors are politically appointed, they must maintain the confidence and support of the government.
Cabo Verde is not a party to the Government Procurement Agreement (GPA) within the framework of the World Trade Organization (WTO). It tries to adhere to the OECD’s guidelines on Corporate Governance. In general, there is fair competition between SOEs and private sector enterprises, except in the transportation and utilities sectors.
Privatization comes either through private sector sales or through liquidation. Cabo Verde Airlines, two main utility companies, Electra (electricity and water), Cabo Verde Telecom, three banks, and the main state-owned entities in the tourism sector have all been sold off. All privatization or liquidation processes ran smoothly with the exception of Electra, which reverted to government ownership. The decision to repossess Electra resulted from a breach of contract with the Portuguese investor. Consensual agreement was reached during the negotiations.
The government sold its shares of fuel company Empresa Nacional de Combustiveis (ENACOL) and local bank Banco Comercial do Atlantico (BCA) via the stock exchange. The long-struggling national airline, Cabo Verde Airlines, has been privatized after years of bloated payrolls, non-performance, and growing costs to the government.
On March 1, 2019, Cabo Verde and Icelandair signed a deal transferring 51 percent ownership of Cabo Verde Airlines (CVA, formerly known as TACV) to Loftleidir Cabo Verde (LCV). The state progressively divested itself of its holdings in the company: 10 percent of its equity was made available to former CVA employees and the diaspora community (with a 15 percent discount rate), and the remaining 39 percent of the shares are expected to be made available to national and international investors in 2020. Per the terms of the contract, LCV will not be able to sell its shares for a five-year period without prior government consent. After five years, the government will retain pre-emption rights.
On hold due to the COVID-19 crisis are the privatizations or concessions for the management of the national Port and Airport authorities (ENAPOR and ASA, respectively), and the pharmaceutical company EMPROFAC. The government had hoped to conclude the ASA and ENAPOR privatization processes in 2020.
This privatization agenda is aligned with the PEDS 2017 – 2021, looking at privatizations and concessions as tools to bring new dynamics to the economy, through new business and investment opportunities to national and international private sector. The government hopes to align its progress with the UN’s Sustainable Development Goals to private sector-driven investment rather than international aid or cooperation. It has selected seven big sectors – transportation, tourism, the blue economy, ICT, agriculture, logistics, and energy – as the major drivers. As the bid for private sector investment advances, the government hopes these key sectors will see reduced fiscal and budgetary risks and improved performance; it should also diminish the role of certain SOEs and the presence of the government in the economy.
Both foreign and national investors can participate in the public bidding process, which is transparent and non-discriminatory but fraught with complications as the people in charge become familiar with the process.
8. Responsible Business Conduct
The private sector, government, and regulators are increasingly aware of the importance of environmental and corporate social responsibility (CSR) in Cabo Verde. The government encourages companies to engage in responsible business conduct. Many companies conduct campaigns to promote social awareness in areas such as health, environmental protection, and cultural preservation. However, companies’ specific CSR efforts in Cabo Verde tend to be more reactive than proactive. For example, during the recent outbreaks of dengue fever and malaria in the country, companies launched and supported public awareness campaigns.
During previous administrations, women achieved near-equal representation in ministerial level positions. In the current Cabinet, however, there has been a decline in the number of women in government (three out of 15 ministers). While there is still room for improvement, Cabo Verdean women are well represented among businesses in the country, especially when compared to other countries in the region. Women represent 24 percent of elected parliamentarians and 35 percent of leadership positions in businesses. Sexual and gender-based violence plagues the country and was one of two subjects in an April 2018 Council of the Republic called by the president.
In 2019, the National Assembly began the process of approving approved a Parity Law to ensure gender parity in political positions, and that women are represented at the parliament, government, municipalities, and other spheres of power. The bill is stalled over the issue of political parties’ duties to provide gender-balanced lists for elections, among other issues.
Cabo Verde does not adhere to the OECD guidelines for multinational enterprises.
11. Labor Policies and Practices
In the first semester of 2019, the official unemployment rate dropped from 12.2 percent to 10.7 percent despite consecutive years of severe drought. Creating jobs continues to be a major concern for the Cabo Verdean government. In 2019, unemployment among youth under age 25 was estimated around 25.7 percent while the unemployment rate among those aged 25-34 was 11.2 percent. The government is striving to stimulate national production and attract foreign investment to create jobs and support entrepreneurial initiatives. The government expects that the impacts of the COVID-19 pandemic will increase unemployment rate to at least 20 percent.
Labor is low-cost, productive, and widely available in Cabo Verde. Unskilled labor represents some 30 percent to 40 percent of the total labor force and is readily available. However, technical, managerial, and professional talent is more difficult to find.
In 2013, Cabo Verde’s Commission for Social Dialogue approved the archipelago’s first minimum wage and set it at 11,000 CVE ($115) per month, which went into force in January 2014. In January 2018, the Cabo Verdean government approved an increase in the minimum wage for employees to 13,000 CVE ($141) per month. The minimum wage is barely sufficient for the cost of living in Cabo Verde.
The law to introduce unemployment benefits in Cabo Verde came into effect in April 2016. The fund is managed by the National Social Security Institute (INPS).
The legal workweek is limited to 44 hours for adults, with 12 consecutive hours per week for rest and premium rates of pay for overtime. Larger employers generally respect this restriction, but agricultural and domestic laborers work longer hours. The law sets the minimum work age at 16, but child labor in some sectors is a problem. Minors under the minimum age (18) cannot work at night, over seven hours per day, or in places that produce toxic products. Cabo Verde produced a list of dangerous and prohibited work for minors in 2014, but minors continue to perform some of these tasks. Enforcement of the labor laws by the government in the formal sector is inconsistent, and it is nearly impossible in the informal sector.
In recent years there have been some labor strikes, but they were all peaceful. All workers except those in restricted sectors are free to form and join unions of their choice without interference from the government. The government respects workers’ right to strike, but the law also provides for government interference in emergency situations or when essential services might be affected. Labor laws are respected and there have been no instances in which labor laws were waived in order to attract or retain investment.
Cabo Verde has ratified all of the International Labor Organization (ILO)’s eight fundamental conventions. The law protects the rights of workers to form or join unions of their choice without previous authorization or excessive requirements, to engage in collective bargaining, and to conduct legal strikes. The law allows unions to carry out their activities without interference. The labor code provides for protection against antiunion discrimination and for the reinstatement of workers. However, other provisions limit these rights. The “Civil Need” law states the government can force the end of a strike when there is an emergency or if there is a need to ensure a smooth operation of businesses, and/or essential services of public interest. Services provided by telecommunications, justice, meteorology, health, firefighting, postal service, funeral services, water and sanitation services, transportation, ports and airports, private security, and the banking and credit sectors are considered “essential,” which are beyond the intended scope suggested by the ILO’s respective convention. The Directorate General for Labor (DGT) has a conciliation mechanism to promote dialogue.
Worker organizations are independent of the government and political parties. There were no reports of violence, threats, or other abuses during the year by the government against union members or leaders. There was no reported evidence of antiunion discrimination. Public projects were contracted to private companies who hired workers directly. Workers that do not have a labor contract with public or private companies have no legal protection. Few companies adopted collective bargaining, but the ILO worked with local unions and government bodies to provide guidance on conducting a dialogue between parties. Labor unions complained the government sporadically restricted the right to strike for certain critical job categories. Case resolution time can be severely protracted, and the justice system can be very slow. The labor law is seen as antiquated by some employers, granting individual employees too much protection from normal consequences for failure to perform or even failure to adhere to minimum standards of comportment.
The World Bank, International Monetary Fund (IMF), and African Development Bank (AfDB), as well as local and foreign small investors consider the rigidity of the labor laws and severance pays to be an obstacle to industrial investment and development.
Cabo Verde does not impose local employment quotas. Work permits and visas are regulated by law and easily obtained as long as the defined prerequisites are met. The costs are minimal. The process is transparent and clearly legislated. Both foreigners and nationals have equal rights under those laws.
During the COVID-19 pandemic, the government implemented a furlough mechanism, providing for 70 percent of the salary (35 percent covered by the employer and 35 percent covered by the social security).