Estudios económicos
Cape Verde

Cape Verde

Population 0.5 miilion
GDP 3,056 US$
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Synthesis

major macro economic indicators

  2014 2015  2016 (f) 2017 (f)
GDP growth (%) 0.6 1.1 4.0 4.0
Inflation (yearly average) (%) -0.2 0.1 0.1 1.3
Budget balance (% GDP) -7.3 -3.8 -3.3 -2.8
Current account balance (% GDP) -8.9 -13.8 -7.0 -6.5
Public debt (% GDP) 110.3 120.5 119.2 117.8

 

(e) Estimate (f) Forecast

STRENGTHS

  • Tourism potential
  • Fisheries resources
  • Efficient banking and telecommunications service sectors
  • Political stability
  • Quality of governance

WEAKNESSES

  • High level of public debt
  • Poor transport Infrastructure
  • Food and energy wholly imported
  • Dependence on international aid, the diaspora and tourism
  • High unemployment (12%, 28% among young people)

Risk assessment

 

Modest increase in growth expected in 2017

Cap Verdean activity is gradually building momentum, but structural constraints limit the outlook for an economy dominated by tourism. Despite efforts aimed at diversifying the tourist source countries, most tourists are from Europe. Sluggish growth in the EU and the uncertainties over the impact of BREXIT (the United Kingdom is the main source country for tourists to Cabo Verde) is expected to weigh on the development of the sector, which accounts for about one quarter of GDP. The confirmation, at the end of 2016, of the first cases of infection caused by the Zika virus could also adversely affect tourism.

A tighter fiscal policy, following the 2016 election year, is likely to result in reduced spending on public investment. In contrast, private investment is likely to be encouraged, given the government's plan to develop the private sector, not only as regards tourism but also agriculture, fishing and services to businesses.

Household consumption is set to increase, sustained by job growth, especially in the private sector.

Inflation, chiefly determined by imported food and energy products (oil represents about 20% of the country's imports), could be fuelled by the depreciation of the escudo, pegged to the euro, if the European currency's exchange rate weakens against the dollar. However, price rises are likely to remain moderate in 2017.

 

Fiscal and external vulnerability

The fiscal deficit is expected to reduce in 2017 following the spending increase prior to the elections at the end of 2016. The government is likely to cut its investment spending and take steps (fiscal in particular) to support the private sector. Better management of state-owned enterprises, in particular capping the remuneration of their executives, should bring down spending. However, the financial position of a number of public companies (notably the airline company,Transportes Aéreos de Cabo Verde- TACV) could continue to put pressure on the public finances.

Public debt is expected to stabilise at a very high level, provided there is no deterioration in the public balance. The risk of default remains contained as the debt is chiefly composed of concessional and long-term loans. The public debt dynamics are, however, a source of vulnerability in a context of weak growth.

The current account balance, structurally in deficit because of the country's dependence on food and energy imports, could benefit from a slowdown in infrastructure projects and so a drop in imports of capital goods. Exports, dominated by fish products (fish, seafood and processed products), as well as services (tourism and associated transport services) are unlikely to increase much due to weak growth in external demand. The current account deficit will continue to be financed mainly by concessional loans from international institutions and FDIs, which will remain fairly substantial.

The banking sector is dominated by European, particularly Portuguese, banks. The Central Bank has taken steps to enhance the soundness of the sector, but the ratio of non-performing loans remains high (17% in June 2016) and could continue to rise against a backdrop of weak economic growth, further weakening the sector.

 

Political stability and satisfactory governance

Cabo Verde is an established democracy.  The cohabitation between the two main parties, the African Party for the Independence of Cabo Verde (PAICV, the largest party in the Assembly since 2011) and the Movement for Democracy Party (MPD, party led by President Jorge Carlos Fonseca), ended in 2016. This is because the MDP won the parliamentary elections in March 2016 and its presidential candidate, the outgoing president, was re-elected to the head of the country for a second term during the first round of presidential elections of 2 October 2016, with a large majority of votes cast (73%), but with a very low participation rate (35.5% compared with 50% at the previous presidential poll). The end to cohabitation should ensure the adoption of structural reforms and the introduction of measures favourable to private investors.

Cabo Verde is among the top-ranked countries in sub-Saharan Africa according to World Bank indicators, in particular on combating corruption (45th out of 214 countries).

 

 

Last update: January 2017

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