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 who attempt to strengthen nationwide infrastructure. This study examines the case of one SID to illustrate how benchmarking can improve the performance of water utilities. The archipelago-nation of Cape Verde is characterized by severe water scarcity and relatively low income. These national characteristics have been considered the main constraints for the development of water supply services and for avoiding the achievement of the Millennium Development Goals (MDGs). Analysts find a close relationship between the socioeconomic conditions of a country and the precarious quality of water services, including their level of coverage. Nevertheless, one of the goals for the creation in 2003 of a multi-sector regulator (ARE) was to improve sector performance in meeting citizens' expectations. 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 based on performance indicators (to quantify and evaluate operator performance) and benchmarking/yardstick competition (to incentivize utility managers). It recommends a design for a performance evaluation system and discusses the major issues associated with its implementation.