Cape Verde this week became the second African country, after Madagascar, to sign a so-called "Compact with the Millennium Challenge Corporation" (MCC) with the US government. During the next five years, Cape Verde is to receive US aid worth US$ 110 million. Washington congratulated the archipelago for its "record of democratic governance, intolerance of corruption" and economic policies.

The US Presidency on Tuesday issued a statement, congratulating the government of Cape Verde "for its hard work with the Millennium Challenge Corporation to develop this $110 million program to improve transportation, agricultural productivity, and private sector development, and for its commitment to ruling justly, investing in its people, and promoting economic freedom."

The Millennium Challenge Corporation (MCC) is a new US agency, established in January 2003, following an initiative by President George Bush Jr to link "greater contributions from developed nations to greater responsibility from developing nations." In President Bush's words, only countries that are "ruling justly, investing in their people, and encouraging economic freedom" will be eligible for MCC assistance.

So far, only Madagascar and Honduras had signed compacts with the MCC. This week, however, the MCC board announced the signing of two new compacts, with Cape Verde and Nicaragua. The Cape Verde agreement is to provide aid worth US$ 110 million during the next five years to the West African archipelago of 450,000 inhabitants. Madagascar is to receive the same amount during the next four years.

According to the MCC, the deal with Cape Verde is to support the country's goal of poverty reduction and economic growth. The aid agreement "will help transform Cape Verde by making sizeable investments in water resources, agricultural productivity, major port and road improvements, and initiatives to promote the private sector, including investment climate and financial sector reforms," the US agency says.

Cape Verdeans themselves had "designed and developed this program after a broad consultation with all segments of their society," according to MCC CEO Paul Applegarth. Praia authorities had consulted with local government, the private sector, community-based associations and the general public to better understand the priorities needed to fight poverty, according to MCC.

The programme Cape Verde and MCC this agreed to is designed to increase agricultural productivity on the islands of Santo Antão, Fogo, and São Nicolau by improving water management and soil conservation, strengthening agribusiness development services and increasing access to credit and capacity of financial institutions. It was expected that this could more than double the income of some 70,000 farmers on the three islands.

Further MCC funds will go to the integration of internal markets and reduction of transportation costs by improving transportation networks through road and bridge infrastructure on the islands of Santiago and Santo Antão and upgrading the Port of Praia. MCC is to provide up to approximately US$ 78.7 million for road and small bridge investments to ensure improved transportation links in Cape Verde.

Finally, MCC is to assist developing the private sector by reducing obstacles to private sector investment and reforming the financial sector. This project also includes vocational training and education, human resource development, infrastructure development, access to financial services, entrepreneurship development and small and medium-sized business linkages.

While the proposed total funding by MCC would make the US agency one the largest donors in Cape Verde, these programmes were also to involve significant donor coordination, including with the World Bank. This, according to MCC, particularly was important in the infrastructure and private sector development projects.

The MCC had felt assured that Cape Verde was one of the best countries to direct its development aid. "This agreement is a testament to Cape Verde's strong commitment to transparency and good governance," commented Mr Applegarth. After the five-year programme, the MCC expects to have increased Cape Verde's annual income "by at least US$ 10 million."

- I want to recognise Prime Minister José Maria Neves for his leadership and his team for their hard work in developing a program that will improve the lives of Cape Verdeans by transforming its economy from aid-dependency to sustainable, private-sector led growth, Mr Applegarth said. "MCC looks forward to continuing our partnership as Cape Verdeans chart a path to their development," he added.