Population 0.527 miilion
GDP 1.868 US$ billion
@rating
country
Business climate
assessment
| 2010 | 2011 | 2012(e) | 2013(f) | |
|---|---|---|---|---|
|
GDP growth (%)
|
5.3 |
5.1 |
4.8 |
4.9 |
|
Inflation (yearly average) (%)
|
2.1 |
4.5 |
2.3 |
2.2 |
|
Budget balance (% GDP)
|
-10.7 |
-10.1 |
-10 |
-9.5 |
|
Current account balance (% GDP)
|
-12.5 |
-15.1 |
-13 |
-11.9 |
|
Public debt (% GDP)
|
73.1 |
76.1 |
84.5 |
88.5 |
| (e) Estimate (f) Forecast | ||||
STRENGTHS
- Favourable geographic position (proximity of Africa and Europe)
- Tourism potential
- Fishing reserves
- Efficient banking and telecommunications sectors
- Currency pegged to the euro
- Political stability and good governance
WEAKNESSES
- Geographic isolation, aridity and fragmentation, weakness of the internal market
- Weakness of agriculture and manufacturing industry
- Inadequate transport infrastructures
- Food and energy products all imported
- Vulnerability to the European economy (85% of trade)
- Dependence on international aid, the diaspora and tourism
- High unemployment (12%, 27% among the young)
Risk assessment
Continued sustained growth driven by tourism
Despite its marked dependence on the European economy (for trade and also for transfers from the diaspora), the economy grew at a similar rate to that of recent years and this is expected to continue in 2013. The services sector accounts for about three quarters of GDP. Tourism, in particular, remains the main driver of the economy (30% of GDP) and its revenues have grown well despite the European crisis (even though 80% of tourists are European). It will continue to expand in 2013, despite some uncertainties: persistence of difficulties in Europe and insufficient infrastructure modernisation. The manufacturing sector, admittedly still quite small is developing rapidly as a result of government investment programmes. Indeed the state has had to make up for the stagnation of European investments, the country’s main source of finance. Other sectors such as fishing, financial and IT services will continue to contribute to growth.
In 2012 inflation returned to a more moderate level and will remain under control in 2013, as it is strongly dependent on food and energy prices (all imported), which are expected to stabilise. Monetary policy will remain aligned to that of the European Central Bank with the single objective of maintaining the peg to the euro.
Government debt continues to grow
The stimulus policy initiated by the government in response to the global crisis was interrupted in 2012 because of the worsening of the budget deficit. Investment spending therefore stagnated in 2012 and other spending hardly increased. The deficit is expected to be kept at a similar level in 2013 through stabilisation of spending and the introduction of reforms (such as simplification of the tax and customs code), which will slightly increase revenues. The government will continue to apply certain directives of the 5-year plan launched in 2011 (development of the private sector, infrastructure - notably road - modernisation) The plan was supplemented in 2012 with a programme aimed at increasing the economy’s competitiveness and diversification and improving government effectiveness and at reducing dependence on foreign aid. Government investment in certain sectors (electricity, transport and communications) will be prioritised. There will be gradual rapprochement with emerging countries (as is already the case with China), in view of the difficulties with current sovereign backers. Moreover, public debt levels will continue their marked rise, without, however, really increasing the risk of default, taking into account the nature of the loans (low rates, long-term maturities).
Current account deficit still substantial, financed by international loans
The current account balance is expected to show a slight improvement in 2013 thanks to rising tourism revenues. This is explained by massive investment in the sector and the political difficulties of the other tourist destinations of North and West Africa. However, the trade deficit will continue to be very large (over 40% of GDP) because of the continuing high level of imports (raw materials, capital goods necessary for the development of tourism and government infrastructure projects). Transfers from expatriate workers have also risen despite economic difficulties in the countries of expatriation. The current account deficit will continue to be funded mainly by soft loans from international institutions, by still considerable foreign direct investment but less and less by aid from partners (like Spain and Portugal).
Continued political stability
Cape Verde will continue to be one of the continent’s most efficient and stable democracies. A cohabitation between the two main parties has been in place since the end of 2011, members of the government being members of Pan African Party for the Independence of Cape Verde, while the Movement for Democracy controls most of the municipalities (which have wide powers given the fragmentation of the territory). Nevertheless certain tensions could recur in 2013 for two reasons. First, unemployment is rising (12% and 27% among those under 15), partly because of the return of expatriates from their host countries. Second, the potential consequences of a persistence of the European crisis (reduction of foreign aid and investments, growing inflation etc.) could give rise to popular demonstrations.
