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  • Star Report:  Cabo Verde Compact II
  • May 2019

Country Context

Cabo Verde is a long-standing maritime and security partner of the U.S. Government, and has engaged with MCC since the agency’s inception. MCC’s Board of Directors selected Cabo Verde to develop a first compact in 2004 due to its strong commitment to democratic principles, stable and accountable governance, and economic growth.In October 2010, Cabo Verde successfully completed a $110.1 million, five-year compact. That compact focused on decreasing poverty and increasing economic growth by:reducing transportation costs by rehabilitating roads, bridges, and infrastructure in the Port of Praia; increasing agricultural productivity through investments in water management and soil conservation, technology transfer, access to credit, and microfinance institutions; and promoting private investment and initiating financial sector reform by supporting the enactment of securities legislation to enable individuals to buy treasury bills and bonds, and installation of an informational technology (IT) platform to support the securities market.

At the conclusion of Cabo Verde’s first compact, four bridges and three roads were built to improve access to markets, employment, and social services, reducing the number of days per year in which bridges are impassable. The island’s critical Port of Praia was significantly expanded and modernized to increase productivity and operational efficiency, including through leveraging an additional government contribution of $98 million. The compact also funded the construction of 28 spring- and rain-fed reservoirs and 48 dikes; trained 553 subsistence farmers producing high-value horticultural and fruit crops in new drip irrigation technology and marketing techniques; and helped 225 farmers and small agribusinesses obtain credit. Finally, compact investments strengthened the capacity of microfinance institutions and laid the groundwork for the country’s first private credit bureau. More information on MCC’s 2004 Cabo Verde Compact, including evaluation results, can be found in its Closed Compact Report.

Based upon the GoCV’s track record of reform, as well as the achievements of its first compact, MCC selected Cabo Verde for a second compact in 2009. At that time, Cabo Verde became the first MCC-partner country that had graduated from Lower-Income Country (LIC) status to Lower-Middle-Income Country (LMIC) status and was then able to meet the more demanding performance indicator requirements of the LMIC group.Cabo Verde’s 2009 selection also represented the first time that MCC ever determined that previous MCC-partner country was eligible for a second compact.[[In addition to being measured against a more demanding, higher-income peer group, LMICs are evaluated on a scorecard which includes an indicator on girls’ secondary education enrollment rate (as opposed to girls’ primary enrollment rates for LICs) and an absolute threshold of 90 percent on the immunization rates indicator (as opposed to a median threshold for LICs).]]

In developing a second compact, analysis of Cabo Verde’s constraints to economic growth revealed two key issues: (1) poor access to improved water and sanitation and (2) the lack of a conclusive source of information about land rights. Alleviating both of these constraints was considered critical to growing Cabo Verde’s tourism sector, the major driver of economic growth in the country.

Cabo Verde is an archipelago of nine inhabited islands, with a small domestic market and relatively limited natural resources. The landscape varies significantly from island to island, but conditions are generally very arid. While agriculture and industrial activity represent relatively low percentages of gross domestic product (GDP), the service industry is very important, and tourism is one area of considerable economic growth. Much, but not all, of the recent development that has taken place in the sector has relied on foreign investment.

MCC’s constraints to economic growth analysis noted that uncertainty in land ownership and cumbersome administration of land transactions posed potential and significant obstacles to business development of all types. In particular, the Board of Investment of Cabo Verde found that the long process of securing land title deterred foreign and domestic investors alike, and particularly impeded growth of the tourism industry. Two different land registries existed (a judicial registry and a municipal registry), each containing only partial information about a fraction of the country’s land parcels. Other records systems contained outdated and conflicting information about state-owned land. There was also a lack of map-based information linking land rights to spatial data. Confusion over ownership of land led to unauthorized land sales, conflicts over land rights, and delays or cancellation of public works and private investment projects because of the difficulties in identifying the actual owner of land parcels.

Further hindering Cabo Verde's economic growth was a lack of clean water and sanitation. Cabo Verde is an extremely water-scarce country that relies heavily on desalinization of water, an expensive and energy-intensive process. At the time of Cabo Verde’s compact selection, the WASH sector was characterized by poor access to water and sanitation and poor levels of service that negatively impacted Cabo Verdeans’ quality of life and led to considerable public health and economic costs. The cost of water for customers connected to the system was among the highest in Africa. Furthermore, the WASH sector in Cabo Verde has been marked by dispersed responsibilities across a large number of stakeholders, skewed incentives, lack of institutional accountability, fragmented and overlapping authority, conflicting legislation, and a failed attempt to privatize the combined water and electric company, all leading to high-cost and low-quality services, frequent water cuts, and large inefficiencies in the management of the sector. The compact’s investments in the WASH sector aimed to benefit both households and businesses (such as resorts, bed and breakfasts, or smaller hotels) by improving the efficiency of the system as a whole, making any investments in WASH infrastructure by firms or households, including those made under the compact, more productive.

The GoCV conducted extensive public consultations throughout the compact development process, which helped to identify the root causes of the constraints to economic growth and to shape project design. The GoCV also demonstrated strong political will to partner on the compact in order to address these challenges, recognizing that policy reform and institutional strengthening in both sectors would be critical to achieving the country's economic transformation agenda. In addition, the GoCV committed significant country resources to the compact at the outset, including financing the program design and contributing $10 million towards the successful implementation of the compact. This commitment remained strong throughout the compact and was critical to the compact’s success, even after elections midway through implementation brought a new political party into office.

In February 2012, MCC and the GoCV signed a five-year compact for $66.2 million to help increase the country’s economic growth and reduce poverty by reforming the land and water and sanitation sectors. Both of the compact projects comprised important components of the Government’s economic transformation agenda that focused on shifting from a reliance on foreign aid and remittances to mobilization of private sector investment and improved domestic resource management. These projects were designed with an innovative structure to incentivize the performance of utilities at the national and municipal level. Gender and social inclusion were incorporated into all aspects of program design and were tightly linked to the achievement of sustainable results.The compact was an ambitious investment in the water and sanitation sector and the land management sector, both representing high priorities in Cabo Verde’s National Governance Program for 2011-2016.

At a Glance

  • Original Amount at Compact Signing: $66.2 million
  • Amount spent: $65.6 million
  • Signed: February 10, 2012
  • Entry Into Force: November 30, 2012
  • Closed: November 30, 2017

Estimated benefits at the time of investment correspond to $66.2 million of compact funds, where cost-benefit analysis was conducted.

  • 604,100Estimated beneficiaries at the time of signing over 20 years
  • $113 millionEstimated net benefits at the time of signing over 20 years
Land Management for Investment Project $17,534,064.36
Water, Sanitation and Hygiene Project 40,487,640.70
M&E 1,021,175.32
Program Admin 6,597,902.97
Total 65,640,783.35
  • $41,100,000Original Compact Project Amount
  • $40.5 millionTotal Disbursed
Estimated benefits correspond to $41,100,000 of project funds, where cost-benefit analysis was conducted:
Activity Time Estimated Economic Rate of Return over 20 years Estimated beneficiaries over 20 years Estimated net benefits over 20 years
National Institutional and Regulatory Reform Activity and Utility Reform Activity At the time of signing 14% 600,000 $23 million
At the time of compact closure TBD TBD TBD
Infrastructure Grant Facility At the time of signing 11% 48,000[[The estimated beneficiaries of the Infrastructure Grant Facility are a subset of the beneficiaries of the National Institutional Reform and Utility Reform Activities.]] 28 million
At compact closure TBD TBD TBD