Domestic Politics

On 19 February, the PAICV and the MpD signed a memorandum of understanding on the creation of an inter-party commission aimed at reaching consensus on legislation that needs the approval of a two-thirds majority in the 72-member National Assembly. The principal task of the 14-member commission, composed of seven MPs from each party, was the revision of the electoral code, which that was last changed in 1999.

On 12 June, following two months of negotiations between PAICV and MpD, the National Assembly approved the new electoral code. The principal amendments included more institutional autonomy for the national elections commission (‘Comissão Nacional de Eleições’, CNE); the establishment of one single constituency for each island in the archipelago, with the exception of Santiago, the most populous island, which has two; the election of the CNE president by a two-thirds majority in parliament to make the institution more independent; and provisions for a new electoral census at the end of the year to update the voters’ roll.

However, due to disagreements between the two parties on the composition of the new CNE, the body was only constituted on 29 November. This in turn delayed the start under the new electoral code of the electoral census, scheduled for 1 September to 31 December. Consequently, the government suggested extending the electoral census until mid-January 2008. However, on 11 December the leader of MpD, Jorge Santos, rejected the government proposal, arguing that the electoral code established a minimum interval between the census and the elections that could not be changed. The MpD leader declared that, as a result, the new date for the census necessitated postponement of the the municipal elections set for May 2008. Finally, however, the parties agreed to hold the census from 26 December to 2 March. The squabble over the census provoked the resignation of the minister of internal administration, Júlio Correia, who rejected the government's decision to negotiate an extension of the census with the MpD, since he believed that the process could be completed within the scheduled timetable.

On 20 July, government and trade unions approved a strategic accord (‘Acordo de Concertação Estratégica’) for the period up to the end of the legislative session in 2011. Through this deal, the parties committed themselves to resolving labour conflicts through dialogue and to cooperating in meeting the legislature's targets, particularly achieving sustainable economic growth of 10%, reducing unemployment to close to 10% and reducing poverty consistent with the MDGs.

On 6 September, the opposition MpD demanded the dismissal of the justice minister José Manuel Andrade, and his predecessor, Cristina Fontes, now the minister of state reform and defence, after an audit by the ‘Inspecção-Geral das Finanças’ into the use of the ‘Cofre Geral de Justiça’ (CGJ). This is an autonomous fund in the justice ministry, and the audit uncovered various irregularities for the period January 2001 to April 2007. The audit revealed total disorder in the expenditure records and more than CVEsc 1 bn (€ 9.1 m) in unlawful spending, including the purchase of furniture for the minister's official residence (which should have been financed through the national budget); illegal payment of salaries; unreimbursed funding for travel by civil servants from other departments in the ministry; the illegal purchase of gifts for foreign delegations; and numerous luncheons and dinner parties given by the minister's office without justification. However, on 18 September Prime Minister José Maria Neves refused to dismiss the two ministers on the grounds that the audit report was only provisional and explained that he had to await the definitive report.

On 21 September, the government approved the country's new labour code intended to improve working conditions and promote competitiveness in the private sector. Under the new legislation, temporary work contracts must become permanent contracts after five years of work for the same employer. In addition, workers can convert half their holidays into paid work and maternity leave in the private sector is set at 60 days, equivalent to the public sector. Finally, the new code for the first time regulated the work of disabled, domestic, part-time, as well as foreign wage earners.

Foreign Affairs

During a meeting in February, government representatives from Cape Verde and Portugal agreed to elaborate a plan of action with the European Commission (EC) whereby Cape Verde would achieve a special partnership with the EU . In May, the EC director of development, Stefano Manservisi, visited Cape Verde to discuss with government the areas of closer cooperation with the EU. Finally, on 19 November the EU's council for general and foreign affairs granted Cape Verde special partnership status. Prime Minister Neves declared the partnership would bring more European aid, finance and technology and turn the archipelago into a security shield against drug traffickers and migrants to Europe's southern borders. The special partnership, justified by reference to the archipelago's Creole culture and geographical proximity to the Canary Islands, Madeira and the Azores, reflected Cape Verde's shift in interest away from Africa towards Europe.

Cape Verde also sought to strengthen its cooperation with China. During a visit to Cape Verde in March, a Chinese military delegation signed a new technical cooperation agreement worth Renminbi (Rmb) 5 m ($ 700,000). This was for training the local armed forces and included a free supply of military equipment. On 17 May, Foreign Minister Víctor Borges visited China to promote Cape Verde as a suitable site for one of five special economic areas for the storage and redistribution of Chinese commodities to Africa. The special economic areas had been announced during the Sino-African summit in November 2006. The foreign minister also discussed Cape Verde's interest in concessional loans from China's Exim Bank to counterbalance the expected loss of concessional loans after Cape Verde's promotion to MDC in 2008. Beijing promised to finance the construction of a national stadium, an outpatient centre in Praia and another dam in the archipelago. Additionally, the Chinese government announced the cancellation of Rmb 30 m ($ 3.9 m) in bilateral debts stemming from the construction of public buildings in the 1980s and 1990s. In September, Transport Minister Manuel Inocêncio Sousa announced that a Chinese fishing company was seeking a majority stake in the local shipyard, ‘Estaleiros Navais de Cabo Verde’, which the government had earmarked for privatisation.

On 18 December, the WTO approved several agreements on the terms of Cape Verde's accession to the organisation. Before becoming the 152nd member state, Cape Verde would have to ratify the agreement before 30 June 2008. While WTO membership should encourage more foreign direct investment, it would also reduce government's tax revenues, due to the lower customs duties under the WTO trade regime.

Socioeconomic Developments

On 24 January and 21 December respectively, the IMF completed the first and second review under the three-year Policy Support Instrument (PSI) approved in July 2006. The objective of the PSI was to assist Cape Verde in the transition from least-developed country (LDC) to MDC projected for January 2008, a transition that would make highly concessionary borrowing more difficult. The IMF praised the country for its ongoing economic growth supported by investments in the tourism sector, its low inflation and its prudent monetary and fiscal policies. In June, the UN confirmed Cape Verde's promotion to MDC in 2008 on the grounds that it had met the three key criteria: a stable resident income, improved training of the local workforce and effective poverty reduction. Cape Verde was only the second African country to make this graduation, Botswana having done so in 1994. In the same month, Foreign Minister Borges expressed concern about his country's consequent loss of borrowing on concessional terms, which could result in a reversion to LDC status. The minister asked Cape Verde's creditors to cancel its external debts of $ 300 m, arguing that his country had been punished for its sound fiscal and economic policies while countries that pursued policies resulting in unsustainable debt burdens had been awarded debt-relief under the HIPC initiative.

On 2 February, the ‘Transportes Aéreos de Cabo Verde’ (TACV) national airline, placed for one year under private management by the US company Sterling Merchant Finance in December 2006 to ready it for privatisation, announced cost-cutting measures, including the dismissal of 20% of the 800 workers. The management agreed to negotiations with the ‘Sindicato de Transportes, Telecomunicações, Hotelaria e Turismo’ union for a smooth reduction of the company's workforce. However, more than 100 dismissals over the year led to deterioration in relations between management and airline personnel. In July, government postponed the privatisation, originally programmed for late 2007, until 2008 to allow management more time to consolidate the airline's operations.

On 20 March, the government put up for sale its 27.4% interest in the national fuel company ‘Empresa Nacional de Combustíveis’ (Enacol), which controls about half of the national fuel market on the local stock exchange, ‘Bolsa de Valores de Cabo Verde’ (BVC). The government sold its 285,088 shares for CVEsc 4,400 (€ 40) each and raised a total of CVEsc 1.25 bn (€ 11.4 m). The state kept a 2.1% interest in Enacol to allow it to participate in the company's future decisions deemed to be of national strategic importance. In addition, government sold its 51.5% interest in the ‘Sociedade Cabo-verdiana de Tobacos’ (SCT), the tobacco processor.

From 15 April to 12 June, in another initiative on the BVC, ‘Banco Comercial Atlântico’ (BCA), Cape Verde's largest commercial bank, sold debentures in the national energy utility ‘Empresa Pública de Electricidade e Água de Cabo Verde’ (Electra), in order to raise capital for Electra's investment plan of CVEsc 1.5 bn (€ 13.6 m). BCA had acquired the bonds from a Portuguese consortium comprising ‘Electricidade de Portugal’ and ‘Águas de Portugal’ when it sold its majority stake in Electra back to the government in 2006. Demand by local investors exceeded the bond offering fourfold, reflecting strong domestic interest in BVC-listed companies.

Tourism continued to attract the bulk of foreign investment in Cape Verde. In January, the minister of the economy, José Brito, revealed that a group from the United Arab Emirates intended to invest € 160 m in a new tourist resort in São Vicente. In March, the ‘Vilas Oceânicas’ company, comprising two Portuguese real estate companies, Design Resorts and Sacramento Campos Group, announced its intention to invest € 200 m in a 65 hec-tare golf resort at Ponta Bicuda, on Santiago near Praia international airport. The project included six five-star hotels and three residential areas with 1,300 housing units, leisure zones, services and shopping markets. On 1 July, Prime Minister Neves laid the foundation stone for the ‘Pedra de Luma – Marina e Golf Resort’ on Sal island, a € 290 m investment by Turinvest Holding SA, owned by the Italian Stefanina group. The investment is in two parts: a community project including the construction of 70 apartments, a school and the provision of health and social facilities, and a luxury resort with a five-star hotel, residential areas for 3,000 people, a golf course and a yacht harbour. On 19 September, the Canary-based consortium BUCAN and the ‘Sociedade de Desenvolvimento Turístico das Ilhas de Boa Vista e do Maio’ (SDTIBM) signed a protocol on investments worth € 220 m in tourism infrastructure on Boa Vista, including construction of two luxury hotels with a combined total of 2,500 rooms and worth € 150 m. The project would also include road construction, and investment in water supply, electricity supply and wastewater treatment for 30,000 hotel rooms and 5,000 local inhabitants.

Cape Verde's third international airport, located on Boa Vista and constructed at a cost of € 21 m, was inaugurated on 31 October. The airport, financed by the Portuguese ‘Banco Espírito Santo’ and aimed at charter flights, can process 250 passengers per hour. On 21 December, SDTIBM and the BUCAN consortium (made up of Cabocan and Riu Hotels and Resorts) signed the agreement to construct a 26 kilometre road between Boa Vista international airport and Santa Mónica e Lacação at a cost of € 7 m.

Tourism accounted for more than 90% of total foreign direct investment (FDI) and was concentrated on Sal, Santiago, São Vicente and Boa Vista. Vítor Fidalgo, head of the ‘Cabo Verde Investimentos’ (CI) investment promotion agency, expected approved total investments of € 600 m in 2007, which would in turn create more than 15,000 new jobs in the local economy. The main source of intended FDI was the UK, followed by France, Portugal, Italy and the United Arab Emirates.

In late May, the government revealed plans for the construction in 2008 of three wind energy plants on Santiago, São Vicente and Sal, with a total capacity of 20 MW. The project, involving an estimated investment of some $ 25 m, was also aimed at reducing the archipelago's dependence on oil imports for thermal energy production.

In August, the first phase of the expansion of the port of Praia began. It will include the reconstruction of the main breakwater, one of the quays and container processing plants. The principal work was expected to begin in March 2008. The project is financed by the US Millenium Challenge Corporation, total financing amounting to $ 53 m.

On 27 November, the National Assembly approved the 2008 national budget. It totalled CVEsc 44.6 bn (€ 404 m), of which CVEsc 27.1 bn (€ 246 m) was for recurrent expenditures and CVEsc 17.5 bn (€ 159 m) for capital investment. The largest share of public spending went to education (23%), followed by health (8%). External sources were expected to finance 70% of the projected budget deficit of CVEsc 3.4 bn (€ 31 m), equivalent to 2.8% of GDP.