Cabo Verde Africa’s best-kept Secret

The growth of Cabo Verde’s (Cape Verde’s) economy is expected to accelerate in 2015, according to Ulrich Jacoby of the International Monetary Fund (IMF). He was speaking in Praia as the head of the first IMF annual mission to the archipelago.

Jacoby, who had spent a fortnight in Cabo Verde to assess the macroeconomic performance, said the Cabo Verdean economy had experienced challenges in 2014, due to a lack of economic recovery in the European Union, on which Cabo Verde is very dependent. He cautioned against the country reacting by sustaining high levels of public debt and a budget deficit.

Cabo Verde also was impacted last year by the Ebola outbreak that led to a fall in tourist numbers throughout West Africa.

But Jacoby welcomed the increase in Cabo Verde’s exports, particularly of fish, and the recovery in foreign direct investment, more flexible economic policies and the measures recently taken by the central bank, Bank of Cabo Verde, to stimulate lending to the economy particularly for SMEs.

For 2015, the head of the IMF mission expects accelerated economic growth, reflecting the recovery in Europe, the recovery of tourism, increased foreign direct investment and declines in oil prices, but said that debt, expected to reach 112.7% of GDP, and the budget deficit, were worries.

The IMF also welcomed “encouraging progress” in operational terms and performance of companies that are strategic for the Cabo Verdean state, including the flagship airline TACV (see box above) and the Electra power company. Another IMF mission is scheduled to visit Cabo Verde in the last quarter of the 2015.

The reality is that Cabo Verde lacks significant natural resources and also suffers from poor rainfall and limited fresh water. But on the issue of water, a $1.44m desalination plant came on line in March.

The desalination plant, built on the island of San Nicolau (the fifth largest of the archipelago and one that depends almost exclusively on agriculture and fishing), has the capacity to provide 1,200 cubic metres of drinking water a day, “an expeditious way to provide water of enough quality and quantity to the population, given the decrease in local springs and boreholes,” according to local mayor Américo Nascimento.

Only four of the 10 main islands (Santiago, Santo Antão, Fogo, and Brava) can count on any agricultural production; while mineral resources are restricted to salt, pozzolana (used in cement production), and limestone.

Consequently, the economy of Cabo Verde is service-
oriented, with commerce, transport, and public services accounting for more than 70% of GDP, and this is where economic growth can be anticipated.

Fishing currently contributes about 10% of GDP. Fish and shellfish are plentiful but only small quantities are exported. Cabo Verde has cold storage and freezing facilities and fish processing plants in Mindelo, Praia, and Sal – and exports are expected to grow.

Light manufacturing accounts for most of the remainder of the local economy, although an estimated 20% of GDP is contributed to the domestic economy through remittances from expatriate Cabo Verdeans, a larger population than those who actually live on the islands.

The government has pursued market-oriented economic policies, including an open welcome to foreign investors and a far-reaching privatisation programme. A top development priority is the promotion of the private sector and public-private initiatives.

Also considered crucial is the further development of tourism, light manufacturing industries, fisheries, transport, communications, and energy generation.

From 1994 to 2000, foreign direct investment amounted to just $407m, of which 58% went for tourism projects, 17% for industry, 4% for infrastructure, and 21% for fisheries and services.

Between 2000 and 2007, the World Bank reports, Cabo Verde’s strong growth, averaging an annual 6% driven by a steadily growing tourism sector and accelerated capital accumulation, translated into considerable poverty reduction and boosted shared prosperity.

There are ship repair facilities at Mindelo, and the harbours at Mindelo and Praia, Cabo Verde’s major ports, were recently renovated. In addition, a new $1.9m oil-bunkering terminal has been developed at Porto Grande by the Cabo Verde company Enacol S.A.

Cabo Verde’s Prime Minister José Maria Neves has commented that he expects the new terminal to boost the country’s maritime economy and fishing. Other islands have smaller port facilities.

In addition to the international airport on Sal, airports have been built on all inhabited islands, seven of which are served on a regular basis by the national airline TACV. The archipelago has 3,050km of roads, and 1,010km are paved. Cabo Verde’s strategic mid-Atlantic location has been enhanced by significant improvements at Mindelo’s harbour (Porto Grande) and at Sal’s international airport.

Globally, Cabo Verde stands at 78 in the Ease of Doing Business ranking of 189 countries, compiled by the World Bank Group. According to the African Development Bank: “The key lessons from Cape Verde’s experience are two-fold – sound policies being the first, and secondly, strong institutions and good governance being the equally important elements.

“Cape Verde’s success can be attributed to the ‘necessary’ elements of good policy and economic fundamentals including macroeconomic stability, which many countries have experienced. Cape Verde also met the ‘sufficient condition’, namely functioning institutions and governance, including transparency, inclusive development, equitable sharing of the rewards of growth, and delivering results to the people to sustain their confidence and gain their support for new initiatives.

“In other words, policy matters, but good governance and institutions matter even more. Although good economic policy is important, good political policies are also essential as that is the means to delivering the results in a sustained fashion over several years, and it requires leadership at many levels, not merely at the top. It is in the latter area that there is much to learn from this experience.”

Many have credited former President Pedro de Verona Rodrigues Pires as the author of Cabo Verde’s good governance achievements. He was appointed Prime Minister by the Parliament of the newly formed Republic of Cabo Verde in 1975, and subsequently served as Head of State of Cabo Verde from 2001 to 2011. Pires was awarded the Ibrahim Prize for Achievement in African Leadership in 2011.

In 2013, Cabo Verde ranked 41st on Transparency International’s Corruption perception index, and the second-least corrupt African nation, after Botswana. In addition, the Millennium Challenge Corporation’s control of corruption score cards ranked the country at  96% with a score of 1.38. According to the 2013 Heritage Foundation’s Index of Economic Freedom, Cabo Verde’s economic freedom was ranked 60th in the world with a score of 66.1.

The basic Cabo Verdean legislation affecting foreign investment establishes the principle of equal treatment for foreign and indigenous investment, and confirms the government’s commitment to the creation of a dynamic business environment.