The foundation of Sudanese-British cellphone billionaire Mo Ibrahim said it would give the Mo Ibrahim Prize for Achievement in African Leadership to Pires for his stewardship of the tiny Portuguese-speaking island nation and his peaceful exit from power.
The prize is awarded to African heads of state who deliver security, health, education and economic development to their constituents and then democratically transfer power to a successor.
It was not given the past two years because the prize committee said no leaders met the criteria -- a sign The Wall Street Journal said indicated disapproval with the many African leaders who have clung to power even after losing elections.
"It's not a pension," Ibrahim told the newspaper. "We have to have a worthy winner."
The last leader to receive it was former Botswana President Festus Mogae, who stepped down in 2008 after 10 years in office.
"The prize committee has been greatly impressed by President Pedro Pires' vision in transforming Cape Verde into a model of democracy, stability and increased prosperity," prize committee Chairman Salim Ahmed Salim said.
"Under 10 years as president, the nation became only the second African country to graduate from the United Nations' least-developed category and has won international recognition for its record on human rights and good governance," Britain's Guardian quoted him as saying.
Pires, 77, will receive the prize in a ceremony next month, the Mo Ibrahim Foundation said.
With a $5 million initial payment plus $200,000 a year for life, the prize is believed to be the world's largest, exceeding the $1.3 million Nobel Peace Prize, awarded Friday to three women from Africa and the Arab world in acknowledgment of their non-violent role in promoting peace, democracy and gender equality.
Those winners were Liberian President Ellen Johnson Sirleaf -- the first woman elected president in modern Africa -- her compatriot peace activist Leymah Gbowee and Yemeni pro-democracy campaigner Tawakkol Karman.
Ibrahim, who funds his prize with the fortune he made on the Celtel cellphone company he founded in 1998 and sold for $3.4 billion in 2005, said it was "wonderful to see an African leader who has served his country from the time of colonial rule through to multi-party democracy, all the time retaining the interests of his people as his guiding principle."
Pires was appointed Cape Verde's first prime minister in 1975 after the colonial slave-trading outpost won independence from Portugal. He was elected president in 2001 and again five years later.
"The fact that Cape Verde, with few natural resources, can become a middle-income country is an example not just to the continent but to the world," Ibrahim said.