The Republic of CABO VERDE : Economic Perspectives
Isolated and with very little fresh water available, the Cabo Verdean archipelago is very dependent on the outside world. Cabo Verde’s economy is mainly dominated by tourism and import trade. The country was recently promoted to middle income country status.
The country’s Primary sector has always remained far from meeting domestic needs : only 10% of arable land is exploited, thus it imports 85% of its food needs.
• The Primary Sector contributes to nearly 5% of GDP and it only employs 11% of the working population.
• The Secondary Sector contributes to 19% of GDP and only employs 22% of the working population. The keys activities, aeronautics and pharmaceutical, are mainly subcontracted by external suppliers.
• The Tertiary Sector contributes to 62% of GDP and employs nearly 67% of the working population. It is driven by tourism (30% of GDP and nearly € 200 Million per year) and financial activities.
Besides, Cabo Verde has established itself as one of the most dynamic countries in the region. Member of the Economic Community of West African States (ECOWAS), the country is an important component of the region, being the only island country, it affirms its vocation to be a bridge between Africa, Europe and the Americas.
However, the country has been experiencing economic crisis of its main European partners (in particular Portugal and Spain). Since 2009, huge public spending has been engaged to support economic activity (in particular falling tourism) and revenues, leading to a large budget deficit. Public debt reached 123.9% at the end of 2018. The IMF classifies Cabo Verdean debt as “high risk” even if it is considered sustainable for now (it is concessional and covers long maturities : about 18 years).
Very dependent to tourism, one of the archipelago’s main sources of income (800,000 tourists in 2019), the country has been significantly impacted by the Covid-19 pandemic. With more than 568 thousand inhabitants, the 3rd least populous country in Africa, Cabo Verde, is the continent’s 48th richest country with an estimated GDP of USD 1.87 Billion in 2020. In the Covid-19 pandemic context, the Cabo Verdean government has strengthened its social measures to help the most disadvantaged populations. Donors remain confident in the country’s economic recovery and recent IMF projections are the strongest for the
Portuguese-speaking region in Africa. The country is still ranked high in Transparency International and Doing Business rankings. The government is invested itself in reducing poverty in the archipelago : data show a reduction from 58% in 2001 to 35% in 2015 and a declining income inequality from a Gini coefficient of 0.53 to 0.42 over the same period. Unfortunately, the country is still struggling with high unemployment rates, in particular among youth and women (34.4%).
| Population (2020 UN) | 32.51 million inhabitants |
|---|---|
| GDP / Capita USD (2021, IMF) | USD 10.0 |
| HDI (2020, UNDP) | 79th over 190 |
| Doing Business (2020 World Bank rank) | 75th over 190 |
| Corruption Perceptions Index 2021 | 36h over 180 |
| Unemployment rate (FMI 2021) | 9.7% |
On a Demographic point on view, the Portuguese-speaking country is composed of 3 main ethnics : Creoles (71%), African (28%) and European (1%). 99% of the population is Christian (92% Catholic) and only 1% is Muslim. Population density is 135 inhabitants per km. and life expectancy at birth barely over 73 years (13 points over the sub-Saharan average which is 60.5 years).
On a Political point on view, since its independence in 1975, Cabo Verde has experienced stability : fifteen years of Marxist obedience led to a single party in 1980, the African Party for the Independence of Cabo Verde (APICV), born from the break-up of the African Party for the Independence of Guinea-Bissau and of the Cabo Verde Islands. In 2001, the candidate of APICV, Pedro Pires is elected President. He’s reelected in 2006 and lost the 2011 elections against Jorge Carlos Fonseca who was reelected in 2016 for a second and final term with 74% of the votes. Legislative elections are scheduled for April 2021 while the Presidential will be organized in October 2021 with a focus on youth, housing, violence, women’ emancipation and energy.
On an Economical point of view, in 2020, Cabo Verde saw its GDP decline by 8 points, its debt is close to 150% of GDP and unemployment is approaching 20%. Public investment’s impact on growth didn’t perform as expected : inefficiencies in parastatal sector resulted in high public debt. The economic growth in the country is estimated to 5.7% in 2019 and -6.8% in 2020. The sharp drop of GDP reflects the considerable impact of the pandemic on the country’s main indicators :
• exports (-76%),
• Private consumption (-14%)
• Investment (-27%)
Related sectors such as Transport and Tourism are the most affected by the crisis with respective drop in their gross added value of -71% and -96% while Manufacturing, Construction and Trade fell by more than 30%. In order to counter debt increase, the government implemented a new fiscal consolidation that payed off with a contraction of fiscal deficit below 3% of GDP. The government is working on the privatization of non-performing public companies and the creation of public-private partnerships for large investment projects.
The current deficit has narrowed , with higher exports revenues and declining import demand mainly financed through official and private inflows. In Cabo Verde, public services represent around . of GDP. It reveals the high risk the country’s economy bears with such increasing public debt.
| Economic Indicators | 2019 | 2020 | 2021e | 2022e | 2023e |
|---|---|---|---|---|---|
| GDP ($ Billion current price) | 230.87 | 205.46 | 225.86 | 231.69 | 246.72 |
| GDP growth (%) | 2.2 | -11.0 | 10.0 | 4.6 | 4.5 |
| Inflation rate (%) | 2.1 | 1.8 | 3.1 | 2.5 | 2.3 |
| Public debt (% GDP) | 27.1 | 35.1 | 35.0 | 36.9 | 38.5 |
| Current balance (% GDP) | -0.9 | 0.8 | 0.4 | 0.1 | -0.4 |
Central Bank of Cabo Verde
Monetary policy has been implemented to maintain the exchange rate peg to the euro and keep inflation below 2% with the appreciation of the real exchange rate.
Exports and Imports
In 2018, Cabo Verde was the 180th economy in the world in terms of GDP (current USD) (187th in the total exports and 174th in total imports). The country exported USD 115 Million and imported USD 893 Million, resulting in a negative trade balance of USD -778 Million.
The top exports of Cabo Verde are Processed Fish ($49.6M), Non-fillet Frozen Fish ($33.4M), Footwear Parts ($4.18M), Non-Knit Men’s Suits ($4.09M) and Molluscs ($3.53M). Cabo Verde exports mostly to Spain ($70.9M), Portugal ($16.6M), Italy ($10.6M), United States ($4.13M), and India ($2.83M).
The top imports are Refined Petroleum ($75.8M), Cars ($24.9M), Delivery Trucks ($22.5M), Non-fillet Frozen Fish ($18.3M) and Cement ($17.4M). It imports mostly from Portugal ($346M), Spain ($146M), China ($71.6M), Netherlands ($58.5M) and Belgium-Luxembourg ($44.8M).
Summary :
Cabo Verde has an economy mainly dependent from tourism (21% of GDP) which has suffered a lot from the Covid-19 pandemic. Tourism would benefit from the development of infrastructure investments, especially the construction of the Maio island port and the multimodal Praia-Dakar-Abidjan transport corridor. Despite multiple challenges, Cabo Verdean macroeconomic outlook is considered good for 2021 with sustainable low inflation rate (under 2%) and a GDP growth rate expected to come back to more than 4% in 2021, subject to the post-pandemic global economic recovery.
However, the country still has to address key development points :
• High and increasing public debt (more than 135% of GDP since 2020)
• Uncontrollable unemployment rate for youth
• Diversify its economy heavily dependent on tourism and public services.
