Cape Verde to Grow 4.7% Amid European Slowdown Risks

Cape Verde’s economy will grow by 4.7% in 2024 and 4.8% in 2025, says the African Development Bank (AfDB). This optimistic forecast, however, comes with warnings.

The AfDB notes risks from a European economic slowdown, critical for Cape Verde’s tourism.

The AfDB report, presented in Nairobi, identifies key threats. These include oil supply disruptions, slow public enterprise reforms, and climate change impacts.

To remain commercially viable and competitive, Cape Verde needs infrastructure financing, particularly for inter-island transport.

Cape Verde’s growth depends on a stable global environment and vibrant tourism.

Inflation will reach 2.2% in 2024 and decrease to 2.0% in 2025. This decline results from weaker demand and lower food and energy prices.

In 2023, Cape Verde’s GDP grew by 4.6%, according to AfDB estimates. However, tourism dependence makes GDP growth volatile. Climate-related shocks add to this vulnerability.

The AfDB forecasts a budget deficit reduction to 3.0% of GDP in 2024 and 2.1% in 2025. Fiscal consolidation, increased tax revenues, and public enterprise privatization will drive this improvement.

Additionally, the current account deficit will drop to 5.2% of GDP in 2024 and 4.4% in 2025. Tourism revenues and remittances will support this decline.

Challenges Amid Strong Social Indicators

Despite strong social indicators, poverty and unemployment are significant challenges. Poverty rose from 26% in 2019 to 31.1% in 2022, worsened by the COVID-19 pandemic.

The AfDB report indicates Cape Verde‘s external debt risk is “moderate.”

The debt-to-GDP ratio fell from 127.1% in 2022 to 119.9% in 2023. This improvement is due to higher nominal GDP growth and fiscal performance.

Reducing fiscal risks from state-owned enterprises and addressing infrastructure gaps are crucial for sustainable growth.

Cape Verde’s economic transformation has been slow, with limited diversification.

Agriculture’s GDP share fell from 9.7% in 2000 to 7.8% in 2021. Meanwhile, industry’s share rose from 19.7% to 21.8%, and services grew from 57% to 65%.

Investments in skills, technology, and port and airport modernization are essential. These efforts can expand the economy and leverage the African Continental Free Trade Area.

Cape Verde can learn from the Seychelles’ “blue economy” initiatives and the Maldives’ economic diversification beyond tourism to enhance fisheries value chains.