Cape Verde: Tax reforms signal Cape Verde's commitment to attracting investment
20 May 2014
Posted by: Author: ENSafrica
Tax reforms signal Cape Verde's commitment to attracting investment, but political wrangling likely to delay labour market reforms
In recent years, Cape Verde has been largely dependent on tourism and remittances from Europe, which have resulted in steady GDP growth and improving living conditions, but also made the country vulnerable to global economic downturns, such as the Eurozone crisis.
The government is intent on diversifying the national economy, and aims to position the country as a haven for financial and IT services, as well as a logistics trade hub, thanks to its privileged geographical position between, and political association with, the European Union and the Economic Community of West African States (ECOWAS).
Cape Verde is also committed to regional integration and peace-building, and in 2013 signed a framework agreement with the other ECOWAS member states to introduce a common external tariff by 1 January 2015 with a view to a customs union.
However, the Cape Verdean authorities have signalled that they would not join a planned agreement on the free movement of people to avoid jeopardising their special association with the EU. As the EU sees the island nation increasingly becoming a gateway for illegal immigration and the transshipment of drugs into Europe, a closer association with ECOWAS might see EU visa privileges rescinded.
The government of the majority African Party for the Independence of Cape Verde (Partido Africano de Independência de Cabo Verde: PAICV) and Prime Minister José Maria Neves has largely followed International Monetary Fund (IMF) recommendations, and reined in public spending, privatised state enterprises, and generally improved the ease of doing business over the past decade.
This has included lowering corporate taxes from 30% in 2010 to 25% in 2011; investment in green energy, and port and airport infrastructures; the creation of a stable and transparent legislative framework; and the establishment of a one-stop-shop for foreign investors, the Cape Verdean Agency for the Promotion of Investment (Cabo Verde Investimentos: CI).
In 2014, the government will focus on enforcing the collection of customs duties, harmonising the value-added tax (VAT) regime, and revision of the income tax code. On 3 March 2014, the Central Bank also announced the lowering of the leading lending rate by 150 basis points to 4.25% in order to stimulate lending.
Two main union confederations – the National Union of Cape Verdean Workers (Central Syndicate (União Nacional dos Trabalhadores Cabo-verdianos/Central Sindical: UNTC-CS)), and the Cape Verdean Confederation of Free Unions (Confederação Cabo-verdiana dos Sindicatos Livres: CCSL) – together group about 25 unions across sectors, and have voiced their opposition to labour code reforms and planned privatisations.
In a public statement on 27 April, Prime Minister Neves dismissed the union's claims, which, especially in light of public debt levels, makes a salary increase in the one-year outlook unlikely and raises the risk of sector-wide strikes.
More importantly, the increasingly oppositional political climate and the use of corruption allegations for political gains are likely to lead to institutional blockades.
Because of the likely union resistance to the reforms, as well as the unwillingness by both parties to take risks and displease the electorate, the labour code revision is likely to be postponed until after the 2016 election.
This article first appeared on ensafrica.com.