Gazdasági elemzések
Cape Verde

Cape Verde

Population 0.6 miilion
GDP 3,579 US$
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 3.7 5.1 5.2 -4.0
Inflation (yearly average, %) 0.8 1.3 1.3 1.5
Budget balance * (% GDP) -3.0 -2.8 -2.2 -1.7
Current account balance ** (% GDP) -6.6 -4.5 -4.4 -4.2
Public debt (% GDP) 127.2 124.5 123.5 118.9

(e): Estimate. (f): Forecast. *Including grants. **Inclunding official transfers.

STRENGTHS

  • Growth in tourism activity
  • Fishery reserves
  • Efficient banking and telecommunications services
  • Stable political institutions
  • Exchange rate cooperation agreement with Portugal, guaranteeing convertibility and a fixed rate with the euro, and a credit facility

WEAKNESSES

  • Very high level of public debt
  • Poor infrastructure quality; lack of maintenance
  • Food and energy wholly imported
  • Vulnerable to external shocks and dependent on international aid, the diaspora and tourism
  • Exposed to climate change, volcanic and earthquake events, and cyclones

Risk assessment

Strong growth

Cabo Verde’s economy will continue to expand at a rapid pace in 2020, supported by a strong performance from tourism (around 25% of GDP). The sector is the main economic driver and is booming, as illustrated by the steady rise in tourist numbers and growing private investment, the latter fostered by an accommodative monetary policy. The construction of a cruise terminal on the island of São Vicente, which is set to start in 2020, is a good example. Overall, the construction sector will remain buoyant, thanks to new hotel projects and the authorities' desire to develop tourism outside the two most visited islands: Sal and Boa Vista. In addition, connections within the archipelago are going to improve following the government’s decision in 2019 to grant a concession to operate inter-island maritime transport to private firms. However, public investment will decline because of fiscal consolidation. Agriculture should continue to recover after a long period of drought. As the main source of exported goods, fishing will also contribute to growth. The strength of activity in recent years has brought down unemployment (11.5% in 2020), in turn boosting private consumption. Inflation will remain moderate, owing to the relatively low oil price and slow inflation in the Eurozone, which provides the majority of imports.

 

Continued fiscal consolidation

Controlling debt, and particularly its external portion (75%), remains the government's priority and justifies continuation of the restrictive fiscal policy. With this in mind, the government took steps to reform the three state-owned enterprises making the largest losses. In addition to overhauling the social housing programme of IFH (real estate) at end-2018, it privatised TACV (airline) in March 2019 and will follow suit with Electra (water and electricity) in 2020. Revenues will go up thanks to more efficient tax collection, particularly of VAT and income tax. Meanwhile, expenditure growth will be curbed as the wage bill is kept under control. This budgetary consolidation should enable the government to achieve a primary surplus (excluding interest on the debt, which stood at 2.8% of GDP in 2019) of 1.0%, strengthening the country’s downward public debt trajectory. Although the risk of default is real, it is limited, since the lion’s share of the debt is composed of concessional long-term loans, which are mostly denominated in euros.

Regarding the external accounts, the current account deficit is expected to narrow slightly in 2020. It reflects the huge trade deficit (36% of GDP) arising from the archipelago's dependence on food and manufactured products. This trade deficit could widen due to a rise in imports of consumer goods as well as capital goods needed for construction projects. However, growth in tourism revenues and expatriate remittances (10% of GDP) should offset this deterioration. Rising FDI (6% of GDP in 2019) and concessional multilateral loans will finance the current account deficit.

In the absence of pressure on prices and the exchange rate, the monetary authorities plan to maintain an accommodative policy. With comfortable foreign exchange reserves (five months of imports in 2019), they will be able to maintain the fixed rate between the euro and the Cape Verdean escudo.

 

An established democracy

Cabo Verde is one of the top-ranked countries in sub-Saharan Africa according to World Bank governance indicators, particularly in the fight against corruption. The country has one of the best business climates in the region, but still suffers from inadequate infrastructure, particularly electrical, and a lack of insolvency regulations. As a result, it is 137th out of 190 countries in the Doing Business ranking.

The Movimiento para la Democracia (MPD) won an absolute majority in the March 2016 parliamentary elections, and its candidate, Jorge Carlos Fonseca, was re-elected as leader of the country for a second term in the presidential elections on October 2, 2016. The government aims to keep supporting the archipelago’s development, while making the necessary savings to reduce public debt, which could affect its popularity. However, the fall in unemployment and increase in incomes driven by robust growth should limit the potential causes of popular opposition. The government will focus on meeting the objectives of the Strategic Plan for Sustainable Development (2017/2021), which include the development of air and maritime transport, economic diversification and improved access to basic public services (health, education, housing, water and electricity).

With regard to its foreign policy, the country remains closely linked to Western Europe, which is a major source of tourists and FDI. Cabo Verde will also continue to foster its ties to China, whose investment in the country is constantly increasing and is expected to be concentrated in the tourism sector, infrastructure and the construction of a special economic zone.

 

Last update: May 2020

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