Challenge statement
Challenge type: If you are working on multiple challenges, please indicate if this is your "big bet" or "exploratory" challenge.
Please note: we ask you to only submit a maximum of 3 challenges - 1x Big Bet, 2x Exploratory. Each challenge must be submitted individually.
EXPLORATORY
Challenge statement: What is your challenge? (Please answer in specific terms: "Our challenge is that...”.)
Our Challenge is how to increase the contribution of our local business community and the national private sector in general, characterized by a high incidence of micro, small and medium-sized companies, to sustainable development in this context of post-COVID-19 economic recovery.
Background: What is the history of your challenge? What is causing or driving it? Who is involved? How does the current situation look like? What undesired effects does it produce?
The COVID-19 pandemic has highlighted the weaknesses of the Cape Verdean economy based on the services sector at around 61.2% of GDP and with a strong dependence on tourism. With the reduction in tourist demand by 75%, the country faced in 2020 a recession of 14.8% of GDP, the second highest in sub-Saharan Africa, with significant losses in tax revenues, increased unemployment and increased poverty and inequalities.
Recognized as an engine of economic growth and a major investor and employer, the private sector is expected to be a leader in creating wealth for sustainable development, but many challenges affect its development capacity. Structural factors including market size, periphery, limited resource base, high context costs, exposure to climate risks and natural disasters impact socio-economic outcomes and their ability to achieve the SDGs.
The Government, after focusing its efforts on controlling the pandemic and mitigating its impacts with the adoption of an economic and social stabilization program, it recently approved an Economic Recovery Plan that defines exit strategies from the exceptional measures to enter a new recovery cycle and acceleration of the economy with a focus on the resilience and diversification of the economy, energy transition, acceleration of the digital economy and innovation and development of human capital, in parallel with the acceleration of reforms to improve competitiveness of the overall economy.
On the other hand, one of the most significant weaknesses that hinders the development of local businesses and their access to credit and investment in Cape Verde is the economic and financial information prepared and made available by companies, which makes decision-making difficult at various levels, not only for those responsible of these companies, but also to other stakeholders, including financing entities, investors and partners, who are often faced with insufficient information for project evaluation, investment decisions or credit granting, especially MSMEs.
The Government has the challenge of improving business environment to increase private sector investments, with a favorable regulatory framework and a stable macroeconomic context that facilitates the mobilization of other development actors. Companies have the challenge of creating a culture of good governance, accountability, and social and environmental responsibility towards sustainable development.
Quantitative evidence: What (official) data sources do you have on this challenge that better exemplifies the importance and urgency of this frontier challenge? You can add text, a link, or a picture.
The national private sector is characterized by a high incidence of micro, small and medium-sized companies. According to National Statistics Institute, in 2020, Cape Verde had 11,115 active and formal companies in the country, 0.5% less when compared to the previous year, which is explained by the effects of COVID 2019 and the consequent drop in GDP. Micro, small and medium-sized companies accounted for 97.6% of the national business ecosystem, that is, around 75% of companies are micro companies, 9.9% are small companies, 13.1% are medium-sized companies and only 2.4% are large companies. Companies with organized accounting accounted for 37.2% of active companies, employed 74% of the staff at the service in private sector, and these grew by 6.5%. On the other hand, about 4.3% of companies without organized accounting disappeared. The former also outperform in terms of turnover.
In 2020, around 175,8447 people were living in absolute poverty, equivalent to 31.7% of the population, equally distributed by both sexes. The incidence of absolute poverty dropped from 35.2% in 2015 to 26.0% in 2019, but the pandemic crisis changed this scenario, increasing poverty levels and further aggravating inequalities. The crisis has reversed progress in poverty reduction achieved since 2015, putting nearly 100,000 people in temporary poverty. The majority (56.4%) of the poor population lives in urban areas, but poverty has a higher incidence in rural areas where 44.9% of the population is poor (compared to about 25.8% of that in urban areas).
In the labor market, around 14.5% of the active population is unemployed, slightly higher among men (14.8%) than among women (14.2%). Unemployment affects around 32.5% of the active young population. Of the approximately 412,000 people aged 15 or over in Cape Verde (about 74% of the population), only about 218,000 (or 53%) constitute the active population. 186,600 are employed, and of these 52% are in informal employment. Inactivity, informality and underemployment predominate and, although the private sector is the main employer (with around 41.0% of employment), the activities that employ the most generate mainly informal employment, thus exposing workers and their respective families to poverty.
Qualitative evidence: What weak signals have you recently spotted that characterizes its urgency? Please provide qualitative information that better exemplifies the importance and urgency of this frontier challenge. You can add text, a link, or a picture.
The government's economic recovery plan directed to the national private sector with 4 basic guidelines: (1) Restoring the activity of companies affected by the pandemic and accelerating the transition from the informal to the formal economy; (2) Broadening the range of financial and non-financial instruments to promote private sector investment and employment; (3) Commitment to sustainable growth, reducing vulnerabilities to external shocks and strengthening economic resilience, by diversifying and transforming the economy through innovation and digital entrepreneurship; (4) Creation of an institutional framework for dialogue with several stakeholders in the private sector ecosystem, for articulation and monitoring of business promotion policies.
Program to improve national business environment to increase private sector investment with a favorable regulatory framework and a stable macroeconomic context that facilitates the mobilization of development actors and the coordination of initiatives to support entrepreneurship, that eliminates barriers to investment and that accelerates job creation, particularly for young people and women.
In Cape Verde, the approach to ESG (Environmental, Social and Corporate Governance) is almost non-existent. That is public, only part of commercial banks shares corporate governance reports, which is an obligation imposed by the new law for Commercial Companies (2019). National companies do not usually publish their annual reports and accounts. Only energy distribution companies present some type of information regarding their governance model, with a similar situation in the State Companies sector. Recently, the European Union published a new directive, designated as CSRD – Corporate Sustainability Reporting Directive, in which one of the main objectives of reporting obligations is to place ESG information on a strict equal level with financial information (including in terms of certification/ audit).
https://expressodasilhas.cv/economia/2022/05/29/sector-informal-responsavel-por-mais-de-metade-dos-empregos/80255
https://expressodasilhas.cv/pais/2021/10/31/os-avancos-da-proteccao-social-em-cabo-verde-sao-muito-favoraveis/77265
Value proposition: What added value or unique value proposition is your Accelerator Lab bringing to solving this challenge? Why is it your Lab that needs to work on this challenge and not other actors within UNDP, other stakeholders in the country respectively? Why is it worth investing resources to this challenge?
Encouraging companies to create a culture of good governance and accountability, of social and environmental responsibility, by improving their internal information, the quality of their financial reporting and increasing the financial and accounting literacy of their managers and employees, in order to induce greater economic competitiveness and promote innovation, entrepreneurship and investment in sustainable development.
Short “tweet” summary: We would like to tweet what you are working on, can you summarize your challenge in a maximum of 280 characters?
Cabo Verde Accelerator Lab is working an emblematic initiative at national level to encourage companies to create a culture of good governance, of social and environmental responsibility to induce economic growth, promote innovation and investment in sustainable development.
Partners
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Financial Ecosystem Entities PROEMPRESA, PROCAPITAL, PROGARANTE
What sector does our partner belong to?
Government (&related)
Please provide a brief description of the collaboration.
Provide knowledge, training, and additional services to the initiative. Communication and Outreach support.
Is this a new and unusual partner for UNDP?
No
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Commercial banks operating in Cape Verde
What sector does our partner belong to?
Private Sector
Please provide a brief description of the collaboration.
Communication and Outreach support. Financial benefits to successful applicants. Financial Knowledge.
Is this a new and unusual partner for UNDP?
Yes
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Chambers of Commerce
What sector does our partner belong to?
Private Sector
Please provide a brief description of the collaboration.
Outreach support near their members and associates.
Is this a new and unusual partner for UNDP?
Yes
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
Business Associations: AMES, AJEC, AECV
What sector does our partner belong to?
Civil Society
Please provide a brief description of the collaboration.
Outreach support near their members and associates.
Is this a new and unusual partner for UNDP?
No
Who are your top 5 partners for this challenge? Please submit from MOST to LEAST important and state Name, Sector and a brief description of the (intended) collaboration.
Please state the name of the Parter:
BTOC – Accounting Firm
What sector does our partner belong to?
Private Sector
Please provide a brief description of the collaboration.
Co-Project Manager. Provide technical-financial know-how for the initiative. Provide a technical-administrative assistant for the project.
Is this a new and unusual partner for UNDP?
Yes
Learning questions
Learning question: What is your learning question for this challenge? What do you need to know or understand to work on your challenge statement?
We want to know if increased awareness of good governance and accountability, of social and environmental responsibility in companies can help induce increased investment in sustainable development that promotes economic growth and progress towards SDGs.
To what stage(s) in the learning cycle does your learning question relate?
Sense, Explore, Test
Usage of methods: Relating to your choice above, how will you use your methods & tools for this learning question? What value do these add in answering your learning question?
To conduct a wide collective intelligence process using system thinking approach to involve a large number of stakeholders from the private sector, the financial ecosystem and other institutions to help crowdsource information and reports from companies and business into a platform that can help assess business performance and contribution to sustainable development.
Existing data gaps: Relating to your choice above, what existing gaps in data or information do these new sources of data addressing? What value do these add in answering your learning question?
In Cape Verde, the approach to ESG (Environmental, Social and Corporate Governance) is almost non-existent. That is public, only part of commercial banks shares corporate governance reports, which is an obligation imposed by the new law for Commercial Companies (2019). National companies do not usually publish their annual reports and accounts, specially MSMEs. Only energy distribution companies present some type of information regarding their governance model, with a similar situation in the State Companies sector.
Closing
Early leads to grow: Think about the possible grow phase for this challenge - who might benefit from your work on this challenge or who might be the champions in your country that you should inform or collaborate with early on to help you grow this challenge?
The concept can evolve over time to cover all companies and sectors, and this objective can be achieved in 3 to 5 years. Over time, depending on the evolution of the participating companies, categories may be created, which will also highlight sectors of activity. In the future, companies from the State Business Sector may also be covered. A database with sectorial information can be built, for example, by creating a Sectorial Average Balance Sheet. From here, benchmarks, diagnostics and SWOT analysis can be created.
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8Decent work and economic growth
9Industry, innovation and infrastructure
12Responsible consumption and production
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