Sunday, December 16, 2007

Reward Poor Governance or Save the Middle Class: The Development Dilemma

It was lunchtime and I was sitting in Minga’s unfinished cement house. She pulled a bottle of imitation orange juice out of her refrigerator and set it down next to the generous helping of fish, beans and rice on my plate. She had cooked it over a wood fire and reheated it on a gas stove. Photos of her daughter in Portugal stood on the tv, while her other daughter pounded corn outside.

“I hope you like the food,” she said. “You know we are very poor here, not like in America. “ I glanced at the gas stove, gulped as I always do, and said the food was very good.

“The economic progress Cape Verde has made…ironically may affect the country's eligibility for…development assistance. For example, Cape Verde is not eligible for the recent programs for debt relief decided by the G8 because we have always honored and serviced our national debts.”, said Jose Maria Neves, Cape Verde’s Prime Minister, in a guest column last year. “Because we honor our commitments, Cape Verde is now compelled to spend more on servicing past debts than it does on education or health.”

Neves brings up an interesting point, one that might be even more relevant now as the UN strips it of its status as a low income country this January. Although the specific reductions aren’t yet clear, WFP has said it will end support for its school lunch program , and in 2005, a UN rep promised to cut aid by 30% upon Cape Verde’s 2008 transition.

But if Minga’s country is less poor thanks to its own good governance, should it lose its aid money? If Cape Verde is still not wealthy, and if aid money is guaranteed to be well spent here, why should this arid island nation lose its aid?

Regardless, it must be acknowledged that Cape Verde is graduating to “medium income country” for a reason: it’s doing pretty well. According to the Millenium Challenge Index, per capita income is at $2,130, primary education is nearly universal, even among girls, and corruption is exceptionally low. While Cape Verde has achieved the UN’s standards for human development and income, the country remains economically vulnerable, relying heavily on remittances and international aid. But economic growth for 2007 is expected to have increased by 7% , mostly in the tourism sector. For a country with no natural resources, that is required to import around 85% of its food, this is all very impressive.

Moreover, Cape Verde is still slated to receive plenty of aid. Patricia de Mowbray, the UN representative here, recently promised that “in the next few weeks and months we will mobilize between US$2 and 4 million for the country’s development.” Meanwhile, the Millenium Challenge Corporation’s five year $110 million compact with Cape Verde does not expire until 2010. Portugal has promises 140 million in infrastructure development. This kind of money goes along way for a resident population of 506,807 .

Perhaps most importantly, though, prospects for private sector growth—the ideal basis for economic health—are excellent. On December 18th, Cape Verde became the 152nd member of the WTO . A new partnership with the EU, whose terms are still unspecified, will broaden and deepen economic ties. Trade with China is currently estimated at $10 million. Meanwhile, international property investment experts, such as Tom Foster of Conti Financial Services, foresee a boom in the Cape Verdean property market over the next year. The country’s “holistic” approach to growth, combined with the growing popularity of island destinations, has made Cape Verde “the name on everyone’s lips,” Foster says. Visitor numbers have already increased from 67,000 to 280,000 between 2000 and 2006, and are expected to reach 320,000 this year . Infrastructure improvements—such as a road, a port and airport projects to be financed through Portuguese loans—will further facilitate growth in tourism and property sales .

Such admirable success begs the opposite question: why give money to a country that doesn’t need it? With so many seriously impoverished countries 500 kilometers away in West Africa, where malnutrition is rampant, people perish from curable diseases, and capital cities lack running water and electricity, why are scarce resources being sent here?

Precisely because of Neves’ point: good behavior must be rewarded in order to encourage its replication. Merit-based incentives ensure that it is still in a country’s best interest to fix its problems, regardless of the legitimacy of their existence. Ultimately, of course, good behavior should reward itself, by spurring the kind of private sector growth Cape Verde is now seeing. But if we can sweeten the deal--without neglecting the critical pursuit of healthcare, education, and food security for the really poor --then maybe we are having our refrigerated beans and rice and eating it too.

I don’t blame Minga for thinking she is poor. Lord knows most Americans would balk at the idea of pounding corn with a mortar and pestle everyday. But on the strength private sector growth bolstered by rewards for good governance, maybe she will get that cuisinart after all.


Cape Verde: Is Good Governance Rewarded? Neves, 4-10-06

Cape Verde: UN guarantees that support for country will continue after graduation in January 4-12-07 Cape Verde Portal

Cape Verde First Year Accomplishments 4-10-06 Millenium Challenge Corp.

Cabo Verde beneficia de 140 milhões euros para infraestruturas 25-11-07 Panapress

MCC 2008 Country Score Card Millenium Challenge Corp

Cape Verde signs up to become 152nd WTO member 19-12-07 Business in Africa

Cape Verde: Where Investors Dare 29-11-07 Assetz Property News Service
Cape Verde’s Tourist Market Set to Grow 10-12-07 Property Showrooms

ONU garante continuação de apoio a Cabo Verde 12-4-07 Panapress

IMF Country Profiles


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