The good performance of Cabo Verde as a Nation is widely recognized, with the African Development Bank having commissioned and published a study on Cabo Verde, outlining the lessons learned and experiences for other politicians, countries and regions. However, the country is facing emerging challenges.
Cabo Verde’s success, anemic world economic recovery and the ongoing crisis faced by the Eurozone created new and emerging challenges, which have resulted in significant constraints with regard to foreign aid, foreign direct investment, and the concerns related to the middle-income trap; that is, tied to the consequences of low investment levels, slow growth, limited diversification of the production base, and limited labor market conditions.
The economic growth rate in Cabo Verde is falling. Banco de Cabo Verde (BCV) estimated real GDP growth to be 5.1 percent in 2011 and 4.3 percent in 2012. BCV also estimates a reduction in domestic demand, private sector consumption and investment. Construction, agriculture, public consumption/expenditure and tax revenue levels are also expected to decrease in 2012, with signs of improvement in 2013. Regarding remittances, the data indicate a reduction to about 8 percent of GDP, as a result of a decline in remittances from the Eurozone, which represents the main portion of transfers to Cabo Verde.
In the medium term, Cabo Verde will not be eligible for concessional loans from major international institutions, such as the African Development Bank until 2014, and it is believed that, especially if the low global growth and the crisis in the Eurozone persist, aid in the form of grants from the country’s development partners will decline further, while the window to increase the debt level will gradually close. This at a time when there is a need for massive investment to further improve infrastructure; qualify human resources; and deepen and broaden reforms. These are prerequisites for Cabo Verde’s economy to be competitive.
There is, therefore, need for robust and innovative strategies. The vision for economic transformation is clear and continues to be a solution and the best way to avoid the middle-income trap. This vision is based on the expansion of the economic base and creation of high value-added services - agribusiness, tourism, finance, business/ICT, outsourcing, cultural/creative industry, and aero business.
Looking ahead, Cabo Verde has to find ways to compete in the international market based on quality, efficiency, high productivity and high innovative capacity. Constant innovation is particularly crucial to a service-based economy, with a view to building a competitive economy rooted in innovation and high productivity, requiring quality infrastructure, trained and highly skilled workers, and an institutional environment conducive to business according to the best practices. A lot has been done, but more is needed, so as to build a high-quality education system that encourages creativity and development of technical capabilities, and facilitates innovations.
Cabo Verde’s situation becomes more complex and challenging as a result of structural vulnerabilities. Insularity versus discontinuity and territorial smallness impose high costs for economic activities, particularly in terms of infrastructure development across the nine inhabited islands, to find solutions to the high costs of transportation, basic factors such as water and energy, social facilities, etc…
Hence, a decade after the first forum, it is time to do a constructive review of the progress and plan for the future.