Water Sector Regulation in Small Island Developing States: an Application to Cape Verde

Small Island Developing states (SIDs) present challenges for analysts and policy-makers attempting to strengthen island-nation infrastructure. This study applies lessons to one SID to illustrate how benchmarking can improve the performance of water utilities. The archipelagonation of Cape Verde is characterized by severe water scarcity and relatively low per capita income (the GDP is the 93 th of the world and the 11th of Africa). These national characteristics have been considered the main constraints for the water supply development. Analysts find a close relationship between the socioeconomic conditions of a country and the precarious level of water and wastewater services, including their coverage. Nevertheless, after the creation, in 2003, of a multi-sector regulator, the Economic Regulation Agency (ARE), citizens had high the expectations for improved sector performance. To achieve significant network expansion and cost containment will require the regulator and operators to draw lessons from countries who have successfully addressed water issues despite comparable socioeconomic/hydrologic features. This study provides the rationale for a regulatory model for ARE that is based on benchmarking analysis (for quantifying performance) and yardstick competition (for incentivizing utility managers). The study recommends a design for a performance evaluation system and discusses the major issues associated implementing such a system.