Covid-19 and the resultant lockdown measures have put the brakes on Cape Verde’s recent economic comeback, highlighting the sectors the country must develop if it is to build resilience and lay the foundations for future growth.
“The crisis has exposed the sectors that need an investment push,” says Nadia Monteiro, who until March this year led national investment promotion agency Cabo Verde TradeInvest.
The western African island nation attracted CVEsc10.3bn ($105.8m) in FDI in 2019, slightly up from CVEsc10bn the previous year, according to figures from Banco de Capo Verde, the central bank.
Most of the country’s FDI traditionally goes into tourism and real estate. The sector accounted for 63.6% of total FDI in 2019, whereas sectors such as manufacturing and trade lagged far behind with 11.5% and 10.4% respectively, according to central bank figures.
Investment inflows also mirror the composition of the country’s economy, where the travel and tourism sector accounts for almost half of national gross domestic product (GDP), according to World Travel and Tourism Council (WTTC) data.
Covid-19 and the severe travel restrictions it triggered have now isolated Cape Verde, exposing the risks of excessive dependence on tourism, as noted by the African Development Bank (AFDB) on May 28.
“The pandemic has halted Cabo Verde’s recent strong economic performance. In 2019, its GDP grew by 5%. The country, which relies heavily on the blue economy and tourism, is expected to see its economic output contract by 4% in 2020,” the AFDB said.
While Cape Verde has had a low infection rate and relatively few casualties from the coronavirus, it has not been able to avoid the economic shock caused by the pandemic. This prompted the AFDB to approve a loan of €30m “to help the West African island nation fight the Covid-19 outbreak and mitigate its economic impacts”, it said.
Looking forward, Ms Monteiro believes the crisis should prompt also a rethinking of the country’s investment promotion strategy. “We have to steer away from tourism. Tourism investors will come on their own – Cape Verde is already on the map for them,” she said.
“We need to focus investment promotion and policy advocacy efforts on what we really need. I’m thinking of investment into the health system, information and communications technologies and digital and e-government services.”
She added: “There is definitely room to refine investment aftercare services. Aftercare is a culture, not just a concept. Instead of being out there looking for new investors, it’s easier to get foreign companies that are already active in Cape Verde to reinvest. Better regulation and a proper aftercare strategy would really help.”
To a certain degree, the country has been a victim of its own success in developing tourism, which in 1999 contributed less than 12.9% of GDP, and has grown at an average rate of annual 7.38%, according to the WTTC. With global tourism now facing an uncertain outlook, Cape Verde’s policymakers face a challenge and an opportunity to shift investment away from tourism and develop the country’s other sectors.