The archipelago of Cabo Verde is composed of 10 volcanic islands and eight islets and is located in the mid-Atlantic Ocean approximately 450 miles west of Senegal. It has a land area of 4,033 square kilometers and a 700,000 square kilometer maritime Economic Exclusive Zone (EEZ). Approximately 570,000 people inhabit nine islands of the islands. Cabo Verde’s low proportion of arable land, scant rainfall, lack of natural resources, territorial discontinuity, and small population make it a high-cost economy with few economies of scale. Cabo Verde is vulnerable to external shocks, and the country depends on imports, development aid, foreign investment, remittances, and tourism.
Cabo Verde graduated to developed country status in 2007 and met most of its Millennium Development Goals by 2015. It invested in political stability and has a history of parliamentary democracy and economic freedom that is unusual in the region. Elections are free, fair, and regular, and there have always been smooth transitions of power. Good governance, prudent macroeconomic management – including strong fiscal, monetary, and exchange-rate policies – trade openness and increasing integration into the global economy, and the adoption of effective social development policies have contributed to its success. Broad political stability is expected to prevail in Cabo Verde, underpinned by strong democratic institutions and decent protection of human rights and civic freedoms. The business and investment climate continues to improve, although there are bureaucratic and cultural challenges to overcome.
The government’s Strategic Plan for Sustainable Development (PEDS 2017-2021) included a commitment to privatizing various sectors of the economy and addressing macroeconomic challenges. It aimed to create 45,000 new jobs by the end of 2020 and to position Cabo Verde as a mid-Atlantic platform, taking advantage of its geostrategic location between the African, European, and American continents. The strategy sought to harness the domestic and international private sector as the key driver for continued economic development. The government targeted renewable energy, tourism, maritime and air transportation, information, and communications technology (ICT), blue economy industries, financial services, and agribusiness as the key sectors for private sector investors and public-private partnerships. In 2018 and 2019, the government organized a series of investment conferences, including one in Boston, to promote Cabo Verde as a stable, open, and attractive investment destination. The government plans to hold additional conferences after travel restrictions caused by the COVID-19 pandemic are lifted. Despite several years of impressive progress, economic contraction caused by COVID-19 will prevent the government from fully achieving its original goals under the PEDS 2017-2021. The government is working on a Recovery Plan for the Cabo Verdean economy for the post-COVID-19 period which is expected to update the strategy, goals, and objectives until 2030.
The government continues work on reforms aimed at developing the private sector and attracting foreign investment to diversify the economy and mitigate high unemployment, which reduced from 12.2 percent in 2018 to 10.7 percent in the first half of 2019. Signs of progress in creating jobs, however, are limited. There are few regulatory barriers to foreign investment in Cabo Verde, and foreign investors receive the same treatment as Cabo Verdean nationals regarding taxes, licenses and registration, and access to foreign exchange. In January, the Cabo Verdean National Assembly approved a law, including fiscal incentives, that establishes conditions for investment in the country by Cabo Verdean emigrants. Foreign investment in Cabo Verde is concentrated in tourism and light manufacturing. Aligned with PEDS 2017-2021, it is the government’s goal to position Cabo Verde as a regional and international hub for both passengers and cargo, and the government is developing policies to realize this plan.
The 2019 privatization of the national airline and the creation of new routes (including a direct flight to Washington Dulles International Airport in December) had started to show positive results with number of passengers increasing 136 percent between March 2019 and February 2020. However, in financial terms, it will take several years for Cabo Verde Airlines’ financial position to stabilize, even with significant government and shareholder engagement. The government’s high public debt (projected to reach 132 percent of GDP in 2020) limits its capacity to finance any shortfalls; the government’s people-focused response to COVID-19 will further strain the government’s finances. The economy is service-oriented, with tourism, transport, commerce, and public services accounting for more than 60 percent of GDP. Tourism alone accounts for approximately 25 percent of GDP directly, and more than 40 percent indirectly. Maritime connectivity has been improving since Portugal’s Transinsular launched a new consortium in August 2019 with Cabo Verdean operators, but services are not yet at the expected efficiency and reliability levels. The government, with support from China, has been developing a plan for a maritime special economic zone that would support a range of maritime economy needs, including expanded deep-water ports and other maritime services.
The energy sector in Cabo Verde is undergoing important regulatory changes and seeking investment, which may result in a clearer framework to promote investment opportunities in the sector. As a regional leader in renewable energy, Cabo Verde already has wind farms on four islands. Currently, about 27 percent of the energy consumed in Cabo Verde comes from renewable sources; the rest comes from imported diesel. The government’s goal is to increase renewable energy production to 50 percent by 2030, which presents additional investment opportunities for American companies in this sector.
Despite recent progress, the country’s extreme vulnerability to external shocks and high dependency on tourism and imports mean that it is reeling from the COVID-19 pandemic. Its GDP, which had been expected to achieve 5-6 percent growth in 2020, is now likely to contract by more than five percent. In addition, Cabo Verde’s public debt is anticipated to reach 132.5 percent of GDP this year, one of the highest levels in Africa. The unemployment rate is expected to double to 20-25 percent.
|TI Corruption Perceptions Index||2019||58 of 180||http://www.transparency.org/
|World Bank’s Doing Business Report||2019||137 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2019||N/A||https://www.globalinnovationindex.org/
|U.S. FDI in partner country ($M USD, historical stock positions)||2018||N/A||https://apps.bea.gov/
|World Bank GNI per capita||2018||USD 3 420||http://data.worldbank.org/