FINANCIAL services: sustainable growth is possible with the right partnerships

Cape Verde's financial sector is in good shape, with eight main banks and two insurance companies currently in operation. The Central Bank of Cabo Verde (Banco de Cabo Verde) is responsible for the supervision of the sector, interest rates and price stability. Recent legislation has given the entity more independence, promoting its financial intermediary role, and the whole sector has been strengthened by improved regulations and monetary policy autonomy.

For Cristina Duarte, minister of Finance, there is still plenty of potential for internal growth. "We have a significant diaspora, so the sector has great potential to grow," she says. "We need to position Cape Verde as a platform for services, and make more bets on technology.

"When a country begins to build infrastructure at the pace we are, it needs to be certain of the quality of the spending. It is a simple equation; the expense must drive the growth and the growth will pay the debt. This equation cannot fail. We have developed a monitoring and evaluation strategy for public investment. From 2013 onwards, projects must pass an assessment based on the criteria of economic, financial and social profitability. This ensure the quality of our spending."

"We have strengthened our supervision arrangements and adopted international standards against money laundering. Cape Verde will only be able to become a financial services if it is fiscally competitive, and credible."

As Duarte notes, one of the major challenges the economy faces is the role of tourism as the principal driver of economic growth. "This is risky," she says. "Our external anchor is in Europe, most of the touristic flow comes from the UK, Germany, France, Spain and Portugal. Foreign direct investment continues to come from Europe, and has decreased because of the crisis. We have an umbilical cord attached to Europe, and obviously, when it is in crisis, we also suffer the consequences."

Despite this, things are much more positive, she says. "We've gone through the tsunami. In the first place, we built the fiscal space to digest the crisis. We also reached significant levels of social cohesion. That, in fact, is one of the greatest achievements of this government. Civil society created social spaces during the crisis which have subsequently been used to cushion the impact. We had to manage budgets very realistically and implement unpopular measures at the time that was necessary."

The government has also contained the growth of expenditure over the past five years. "All the spaces created in terms of deficit and debt were kept for public investment and not for the operation of the state machine."

"Nowadays, domestic debt is kept within sustainable limits consolidating our exchange rate regime. We are not distracted and we mobilized external funding for public sector programs that served to provide the country with infrastructure and as an anti-cyclical measure."

The country is not competing with African centers such as Lagos, Dakar, Abidjan or Accra, Duarte asserts. "We are not in a position to do so because we lack a real economy. But we have many other advantages: Cape Verde has a massively developed information and communications technology (ICT) infrastructure, institutional credibility, political stability and good governance ratings. Investment in human capital will allow us to position Cape Verde as a secure platform for back up systems, booking systems and call centers, not only for the financial institutions, but also for the oil companies that are emerging in the region. It is not a coincidence that we have begun building our first cyber zone in Praia with Chinese funding."

Chinese partnership is a major priority for the rapidly growing Caixa Económica de Cabo Verde (Caixa).

Emanuel Miranda, Caixa's chairman and CEO, reiterates Minister Duarte's assertion that Cape Verde's economy depends a lot on its huge diaspora, with its development largely funded from private international institutions.

The time has come, he says, for domestic banking institutions to gradually assume the role of mobilizing financial resources, and Caixa, the only Cape Verdean bank to have a direct relationship with a Chinese bank, is well placed to facilitate this.

"We have grown a lot," he says of Caixa. "It is the country's oldest institution, created in 1928. We have been through several phases. Since 1993, Caixa was transformed into a universal bank, and is now the second-largest bank in terms of assets and our market share of loans and deposits. Despite the increase of new entities in the country, we have continued to increase market share."

"When we defined our strategic plan in late 2008, there were five commercial banks. Today, there are eight. The natural evolution should have been to lose market share, but we gained market share! Not only did our activity represent impressive growth, but also, two years ago, we quadrupled the social capital - it was a risky bet but it has allowed us to implement this strategy."

On a mission

As part of its mission to become the country's leading bank, with a market share of 33 percent, Caixa has developed 14 projects, based on four strategic areas, namely quality, innovation, proximity and leadership. It hopes to have implemented close to 96 percent of these projects by the end of the year.

"We will have a new headquarters ready by the end of May," Miranda says. "We are also in the process of creating a new corporate image. Caixa, in recent years, has taken a huge step forward in terms of quality - we are in discussions with Bureau Veritas to obtain the ISO 9001 certificate of quality. We have also passed the first phase of ISO 27001, which relates to information systems security, and are due to be certified imminently."

Miranda is mindful that the country needs technical assistance in general. "We are less dependent than we were 10 or 12 years ago, but we need to make sure Cape Verde produces enough scientific knowledge to support the development programs."

International expansion is also on the cards, with the chairman keen for Caixa to have a presence in every country where Cape Verdeans are. The diaspora community currently totals between 350,000 and 400,000 in the US - almost the same number as in Cape Verde itself - with significant numbers in Portugal, France, the Netherlands and Luxembourg. The second track of internationalization will be joint ventures with other banks in the African region; this is already at an advanced stage, starting with Guinea Bissau and Angola.

"We also want to see internalization reached through the financial cluster," Miranda says. "The government's strategy is to transform Cape Verde into a hub of services, and that cannot be implemented if the country has no financial institutions with the competencies and skills to accompany and support the regional development strategy. Caixa is prepared to take on that challenge: we want to be ready when the time comes."

The bank is also keen to develop partnerships with Chinese financial institutions in order to channel investment to Africa through Cape Verde.

"Cape Verdean banks will never have the financial capacity to bear the government's strategy alone so the mechanism must be there to establish such partnerships," Miranda says. "I have already been to China to make the first contacts, but we will intensify this with a view to finding the partnerships we are searching for. Some of the banks have already sent representatives here to get to know the country and we have met with them."

"More Chinese investment will arrive, and when it does, and there must be a bank with the capacity to provide the financial services it needs. Caixa wants to be a strategic partner for national investment."

As Minister Duarte concludes, China is the "perfect partner" for Cape Verde. "The relationship started in 1975 with aid donations; now it our first partner in terms of high-level investment," she says.