Cabo Verde / Cape Verde - Economy

Cape Verde is an island where mostly men have migrated out. The majority of the population is women. With foreign tourism accounting for about a quarter of the economy and visitors unable to come owing to global pandemic restrictions, Cape Verde, with a population of 550,000, was plunged into a recession in 2020, when output shrank by 14.8 percent. Although it lies about 990km (615 miles) off the coast of Senegal, Cape Verde had witnessed a surge in coronavirus cases. With 189 cases per 100,000 inhabitants, the country had the highest rate in Africa according to the Africa Centres for Disease Control and Prevention for the period from April 5-11, 2021. Cape Verde has high levels of poverty and unemployment, partly attributable to a lack of obvious economic growth opportunities and a scarcity of resources, particularly water. Despite the poor natural resource base partly due to serious water shortages caused by cycles of long-term drought, Cape Verde has a per capita gross domestic product (GDP) close to $2,000, allowing for recent reclassification from least-developed to middle-income country status.

Cape Verde has few natural resources and suffers from poor rainfall and limited fresh water. Only 4 of the 10 main islands (Santiago, Santo Antao, Fogo, and Brava) normally support significant agricultural production, and over 90% of all food consumed in Cape Verde is imported. Mineral resources include salt, pozzolana (a volcanic rock used in cement production), and limestone.

Cabo Verde’s economy is vulnerable to external shocks and depends on development aid, foreign investment, remittances, and tourism. The economy is service-oriented with commerce, transport, tourism, and public services accounting for about three-fourths of GDP. Tourism is the mainstay of the economy and depends on conditions in the euro-zone countries. Cabo Verde annually runs a high trade deficit financed by foreign aid and remittances from its large pool of emigrants; remittances as a share of GDP are one of the highest in Sub-Saharan Africa.

Although about 40% of the population lives in rural areas, the share of food production in GDP is low. The island economy suffers from a poor natural resource base, including serious water shortages, exacerbated by cycles of long-term drought, and poor soil for growing food on several of the islands, requiring it to import most of what it consumes.

Only 10% of the land is considered arable, and 90 percent of what is consumed locally is imported.  There are two types of agriculture, rain-fed and dry-land.  Agriculture dependent on rainfall is practiced either in lowland or highland areas.  Crops include maize (local varieties), beans and groundnut.  Irrigated agriculture is practiced mainly in alluvial deposits at bottom of valleys and in the lower parts of slopes.  Sugarcane, fruits, vegetables, cassava and sweet potato are grown in fields with irrigation systems.  

The contribution of agriculture to GDP is less than 12 percent, but the sector is a key in today’s transformation in Cape Verde.  The Government’s strategy includes the construction of 17 dams and more than 10 embankments and a dozen wells to mobilize water, especially rainwater, which will directly benefit agribusinesses.   The construction of these dams will help expand the availability of arable land and overcome some constraints associated with water scarcity.

Agribusiness opportunities also exist in coffee, for which the island of Fogo is especially famous.  Mid-March 2013, company Coffee Spirit of Fogo in Mosteiros exported 180 kilograms to the Netherlands, which has already made another shipment request.  Demand surpasses supply.   Coffee Spirit do Fogo was created in late 2011, and invested 18 million escudos (US$225,000) in the acquisition of equipment and machinery, which were installed in May 2012.  In addition, Café Fama, a Cape Verdean coffee brand which is produced on the Island of São Vicente, is now sold in six Seabra’s supermarkets in Maine and Rhode Island and is exported under the African Growth Opportunity Act (AGOA).  

Besides coffee, the Island of Fogo also produces high quality wine, which is exported to Europe and the United States is known as Vinho de Chã.  The Fogo-based wine cooperatives Chã and Sôdade produce about 150,000 bottles of wine. Production is expected to increase as viticulture and winemaking conditions improve.  The wines are too expensive to qualify for export to the United States under AGOA.

The traditional Cape Verdean rum called Grogue is produced with sugar cane on most islands, but especially on the islands of Santo Antão, São Nicolau and Santiago.  This product is very much appreciated by the Diaspora, and it is exported under AGOA to the United States.

Fish and shellfish are plentiful, and small quantities are exported. Cape Verde has cold storage and freezing facilities and fish processing plants in Mindelo, Praia, and on Sal. The fishing potential, mostly lobster and tuna, is not fully exploited. Economic reforms are aimed at developing the private sector and attracting foreign investment to diversify the economy and mitigate high unemployment. The government’s elevated debt levels have limited its capacity to finance any shortfalls.

The economy of Cape Verde is service-oriented, with commerce, transport, and public services accounting for more than 70% of GDP. Although nearly 70% of the population lives in rural areas, agriculture and fishing contribute only about 9% of GDP. Light manufacturing accounts for most of the remainder. An amount estimated at about 20% of GDP is contributed to the domestic economy through remittances from expatriate Cape Verdeans.

Since 1991, the government has pursued market-oriented economic policies, including an open welcome to foreign investors and a far-reaching privatization program. It established as top development priorities the promotion of market economy and of the private sector; the development of tourism, light manufacturing industries, and fisheries; and the development of transport, communications, and energy facilities. From 1994 to 2000 there was a total of about $407 million in foreign investments made or planned, of which 58% were in tourism, 17% in industry, 4% in infrastructure, and 21% in fisheries and services.

Cape Verdes strategic location at the crossroads of mid-Atlantic air and sea lanes has been enhanced by significant improvements at Mindelos harbor (Porto Grande) and Praia’s harbor, and at Sals and Praias international airports. New international airports were opened in Boa Vista (December 2007) and Sao Vicente (December 2009). Mindelo has hosted ship repair facilities since 1983. The major ports are Mindelo and Praia, but all other islands have smaller port facilities. In addition to the international airport on Sal, airports have been built on all of the inhabited islands, although the airports on Brava and Santo Antao are now closed. All other airports enjoy scheduled air service. The archipelago has 3,050 kilometers (1,830 mi.) of roads, of which 1,010 kilometers (606 mi.) are paved, most using cobblestone.

The Government of Cape Verde has launched an ambitious plan to reduce the countrys dependence on imported fossil fuels through increased energy production from renewable resources. Through private-sector investment and government-supported projects, Cape Verde intends to generate at least 50% of electricity from renewable sources by the year 2020, up from the current level of 3.2%.

Future prospects depend heavily on the maintenance of aid flows, the encouragement of tourism, remittances, outsourcing labor to neighboring African countries, and the momentum of the governments development program.

On November 22, 2010, the International Monetary Fund (IMF) approved a 15-month Policy Support Instrument (PSI) to consolidate macroeconomic stability, maintain fiscal discipline, and achieve sustained growth for Cape Verde. The PSI is designed for countries that may not need IMF financial assistance, but still seek IMF advice, monitoring, and endorsement of their policy frameworks based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners.

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Page last modified: 26-04-2021 12:38:06 ZULU