Cabo Verde

Normalising growth in the same vein as tourism

In 2025, as in the case of 2024, economic growth should stabilise at a moderate level, due to the normalisation of tourism growth (55% of exports for 25% of GDP in 2023), thereby signalling the end of the post-pandemic rebound, while the pace of growth in the number of visitors is already stagnating. Nevertheless, economic activity in Cabo Verde will remain robust thanks in part to the construction sector, supported by the proliferation of infrastructure projects in real estate (luxury hotels), transport (modernisation of port and airport facilities) and renewable energies (extension of the wind farm). These projects are mobilising a large proportion of public (1.7% of GDP in 2023) and private (21.3% of GDP in 2023) investment spending, with the participation of multilateral agencies such as the European Investment Bank (EIB) and the African Development Bank (AfDB). The gradual conversion of Cabo Verde's debt to Portugal into an environmental fund (EUR 12 million converted out of EUR 140 million in 2024) will also help to mobilise funding to combat climate change, which is having a severe impact on the archipelago. The archipelago, renowned for its relatively stable and predictable business climate and governance in Africa, is continuing to implement its strategic plan for sustainable development which aims to strengthen its economic diversification, which is still largely dependent on (beach) tourism on just a few islands despite a much wider potential, accelerate the ecological transition and encourage the development of the digital sector. This involves, for example, setting up a EUR 1 million seed fund to invest in around twenty innovative start-ups, in addition to a EUR 14 million loan from the AfDB in 2023 to support Cabo Verde's technology park. The development of small-scale fishing is also on the agenda. Inflation should return to its 2% target thanks to the easing of global commodity prices and the moderation of price rises in the eurozone to which the national currency, the escudo, remains pegged. As a result, household consumption (65.6% of GDP in 2023), buoyed by income from tourism and also by the robustness of remittances from the diaspora (which accounted for 10.5% of GDP in 2023), will remain an essential component of growth in the years ahead.

Contrasting results for twin deficits

Despite a superficial setback in 2024, after the budget outperformed in 2023 thanks to the collection of a large one-off airport concession fee (1.4% of GDP), Cabo Verde is continuing its public finance consolidation drive with the support of the IMF. In exchange for this commitment, the country benefits from two programmes: the FEC (since June 2022) and the FRD (since December 2023), respectively for EUR 63 million over 36 months (48 million disbursed in July 2024) and EUR 31 million euros over 18 months (7 million disbursed). In particular, the authorities plan to withdraw from nine state-owned companies that are crucial to the Cabo Verdean economy (management of airports, ports, airlines, shipyards, water, electricity, telecommunications, etc.), through partial privatisation or public-private partnerships, which are valuable sources of savings. Revenues should continue to rise, buoyed by growth in tourism, while the government is planning to increase taxes on telecommunications and transport, as well as broaden the tax base. Expenditure is also expected to rise due to an increase in social and investment spending. As a result, the public deficit as a percentage of GDP is set to fall in 2025. Despite higher financing requirements, mainly foreign-based and almost exclusively covered by concessional loans, the burden of public debt - 68.9% of which was foreign debt in 2023 - should fall in relation to GDP to a level that is still high but deemed sustainable by the IMF.

Already on the rise in 2024 as a result of dynamic economic growth and the many investment projects that are boosting imports of consumer and construction goods, the current account deficit should deteriorate further in 2025 for the same reasons. The growth in tourism receipts and workers' remittances, which constitute two structurally surplus items (services and secondary income, respectively), will not be able to offset such a widening of the trade balance. FDI (4.6% of GDP in 2023), recorded in the financial account and growing steadily, will largely contribute to financing the current account imbalance over the period. All this should enable Cabo Verde to maintain comfortable foreign exchange reserves equivalent to almost 6 months of imports at the end of 2023.

Stable political situation despite cohabitation

Cabo Verde is one of the few stable democracies in Africa. In the most recent legislative elections, held in April 2021, the Movement for Democracy (MPD, centre-right) retained its absolute majority (38 seats out of 72) and saw the reappointment of Ulisses Correia e Silva who had been Prime Minister since 2016. However, the Presidential election held in October of the same year resulted in the first-round victory of José Maria Neves, a member of the African Party for the Independence of Cabo Verde (PAICV, left), the main opposition party. In this semi-parliamentary system, his victory ushered in a period of de jure cohabitation, although in practice the President plays mainly a ceremonial role in the Cabo Verdean parliamentary system and therefore has little influence on policymaking. Despite this situation, the government has been able to push through its reforms in the Assembly, as the presidential minority does not carry enough weight to block the legislative process. The next elections are scheduled for 2026 and will surely hinge on the government's ability to sustain inclusive economic growth as it aims to eradicate extreme poverty by 2026. In 2023, 4.6% of the population was still living on less than 2.15 US dollars a day.

Internationally, Cabo Verde has adopted a largely pro-Western stance. The US will remain a major political partner, as demonstrated by the visit of US Secretary of State Anthony Blinken in January 2024 to strengthen cooperation between the two countries with a view to ensuring regional security and combating piracy in West Africa. Like Europe in economic terms, a major source of tourists, particularly from the United Kingdom which accounts for over a quarter of visitors, and FDI, mainly in the tourism sector. Cabo Verde and the EU have also agreed to extend until 2029 the fishing agreement that authorises access to the archipelago's territorial waters in exchange for remuneration (EUR 3.9 million over the period). Cabo Verde also enjoys good relations with Portugal, a former colonial power and a promising source of funding for the archipelago thanks to the conversion of its debt into an environmental fund at a time when rising sea levels are threatening its economy and whose Treasury also guarantees a fixed parity between the euro and the escudo. China will also remain a strategic partner, with continued investment in the health and tourism sectors, as well as in the development of a special economic zone focused on the blue economy.

Last updated : August 2024