Cape Verde Economy Facts

by ebizdir · Published January 30, 2023 · Updated February 22, 2023

Economical overview

Cape Verde has had a good economic development since independence in 1975. The majority of residents have a higher standard of living than most on the African mainland. In 2008, the UN ceased to count Cape Verde as one of the least developed countries in the world. In 2012, however, growth began slowly. The cause was mainly economic problems in the EU, an important trading partner for the island nation. In 2014, Cape Verde’s tourism industry also suffered from problems in the wake of the Ebola epidemic in West Africa. The following year, the economy turned up again.

Although Cape Verde is now considered a lower middle-income country, a little over a quarter of the population still lives below the national poverty line. The lean soil, periodic drought and the lack of natural resources set sharp limits for development. The country can produce less than one-sixth of the food needed, and exports, which mainly consist of shoes, clothes, fish and seafood, are modest.

Countryaah.com: Major imports by Cape Verde, covering a full list of top products imported by the country and trade value for each product category.

The lack of good conditions for agriculture and industry causes the service sector to dominate – mainly tourism, transport, trade and the public sector. The future is especially focused on the tourism sector, whose share of gross domestic product (GDP) has risen significantly since the late 1990s. It is largely the merit of tourism that Cape Verde’s economy grew by an average of 4 percent annually during the period 2004–2013.

An important addition also provides the money that Cape Verde abroad sends home to their families. In 2012, this money corresponded to about 10 percent of GDP. In addition, through favorable tax conditions, the government is trying to attract the emigrants to invest in their home country.

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Sales of fuel and other services to the international airlines that stop on the islands also provide important revenue.

The dependence on aid is great

However, Cape Verde’s largest revenue comes from foreign aid. Most of the food needs as well as investments are financed through aid. For a long time, aid accounted for up to 90 percent of the state budget, but governments have tried to increase the country’s own income. In 2013, official aid was estimated at $ 480 per inhabitant, an increase from $ 400 in 2009. Important borrowers and aid donors are Portugal, the United States, the World Bank, the International Monetary Fund (IMF), the EU and Spain. In recent years, China and Japan have also provided financial support.

Foreign debt mainly consists of loans on relatively favorable terms. However, it increased from $ 202 million in 1996 to $ 504 million ten years later. In 2013, foreign debt had risen further, to $ 1.5 billion.

Since the beginning of the 1990s, Cape Verde has received praise from its loan and aid providers for a well-managed economy and for taking action against poverty. During the MPD’s rule from 1991 to 2001, several new fees were introduced and foreign investments were encouraged, while tax collection became more efficient. At least a dozen state-owned companies were privatized in whole or in part. Most of them got Portuguese owners. The MPD government also managed to reduce the deficits in the state budget, even though they rose again in 2000, as the government eased on the wallet ahead of the election the following year.

The PAICV government (2001–2016) continued, to a great extent, the austerity policy initiated by the MPD and supported by the International Monetary Fund (IMF). Prior to the 2001 election, PAICV had opposed the sale of additional state-owned companies. Once in power, the party leadership announced plans for new privatizations. A number of sales have since been carried out, but the IMF has expressed dissatisfaction with the slow pace of privatization.

The EU crisis is spreading to the islands

The Cape Verde Escudo has been linked to the euro since 2002, and Cape Verde is now trying to adapt to the economic criteria that apply to EU countries. For example, the government deficit must not exceed 3 per cent of GDP, and inflation may not exceed 1.5 percent above the average for the three EU countries with the lowest inflation. Inflation in Cape Verde was relatively low during the first year of the 2000s, but rose to an average of 3 percent in 2007-2013, mainly due to higher food and fuel prices. Thanks to better tax collection, the budget deficit has been kept at a moderate level.

High unemployment and widespread underemployment are among Cape Verde’s greatest financial challenges (see Labor Market). Another concern is the economic crisis in a number of EU countries, such as Spain and Portugal, which are important trading partners for Cape Verde. The problems escalated when several countries in West Africa in 2014 were affected by an epidemic of the virus disease ebola, which led to some tourists avoiding Cape Verde. Most analysts, however, felt that the tourism industry, as well as the country’s economy as a whole, had good conditions to recover quickly. The IMF urged Cape Verde to increase tax collection, cut government spending and reduce its external debt. In 2015, the country again had good growth.