Cape Verde

Politics:

• Analysis

  Cape Verde politics: Quick View - Local election results are another blow f

  Event

  Cape Verde's parliamentary opposition party, the MPD, scored a strong victory against the ruling PAICV in local elections held on July 1st.

  Analysis

  The poll passed off without major incident, apart from some complaints of abuse filed by both the MPD and the PAICV, which will not affect the outcome. Following the vote, the MPD now holds 13 out of 22 municipalities, one more than four years ago, while the PAICV holds eight, from ten previously. The final municipality, of Sal island, went to Jorge Figueiredo, an independent candidate, who ran for the GIMCS, a small local party. The MPD did not present any candidate in Sal and backed Mr Figueiredo.

  The result is significant insofar as local politicians in Cape Verde have significantly more power than in other parts of Africa, being currently allotted 10% of the national budget, a figure expected to increase to 25% by 2016.

  It is also symbolic politically. The prime minister, Jose Maria Neves, was at the forefront of the PAICV's campaign, directly selecting some candidates and transforming the poll into a plebiscite on his policies. The PAICV's defeat, which comes on top of the election of an MPD president last year, is a personal defeat for the prime minister. After the demonstrations on June 1st, this popular disavowal will put even more pressure on him, from both within and outside his party.

  Looking forward, the extension of the MPD's local base will constitute a substantial asset when it comes to the next parliamentary poll (due in 2016). Meanwhile, as the PAICV is looking increasingly disadvantaged in Cape Verde's political cohabitation, tensions with the MPD will escalate, which could lead to blockages and slower implementation of reforms.

  July 05, 2012

• Background

  Cape Verde: Political forces

  Since 1991 Cape Verde has had a multiparty system, dominated by the PAICV and the MPD, with other parties having failed to make a substantial or lasting impact. Only one other opposition party, Uniao Caboverdiana Independente e Democratica (UCID), holds seats in the National Assembly.

  The return of the PAICV

  The PAICV is the historical party of independence, having fought Portuguese colonialism and then ruled Cape Verde as a one-party Marxist state from 1975 to 1991. After losing power, an ageing old-guard leadership was displaced by younger and more pragmatic members in July 2000 when their leader, Mr Neves, became the new party president, for the first time providing a credible alternative to the MPD. The party emerged from ten years in the political wilderness to win the elections in 2001-02, and has since then established a solid record of competent governance.

  The MPD

  The MPD was formed in opposition to the one-party state, and drew its leadership from among professionals and Cape Verdeans in exile in Portugal. During its ten years in power from 1991 the party promoted economic and constitutional reforms, which moved Cape Verde towards democratic pluralism and substantial economic and social gains. It remains the main opposition party. Its defeat in 2001 was the result of a divisive succession battle, an economic crisis brought on by fiscal mismanagement and the perception among ordinary Cape Verdeans that the party had become distant from their concerns. Under its new leader, Mr Lopes, the MPD won a symbolic victory in the March 2004 municipal elections, raising hopes that the party could return to power in the 2006 legislative and presidential elections. However, it was resoundingly defeated by the PAICV in both elections, leading to Mr Lopes's replacement by Mr Santos. The party is undergoing a painful period of self-examination in order to determine how it can win back the electorate's support.

  Other parties

  The only other party with seats in the National Assembly, the UCID, is led by Antonio Delgado Monteiro, who was previously elected to Mindelo's city council in the 2004 local elections. The UCID ran as part of the ADM in the 2001 elections, along with the PCD and the PTS. The alliance has since been disbanded, and neither the PCD nor the PTS ran in the 2006 election. The PRD, which received less than 1% of the vote in the 2006 legislative election, is led by Victor Fidalgo, who is also president of the Agencia Cabo-verdiana de Investimentos. The Partido Socialista Democratico, which received just 0.4% of the vote in the 2006 election, is led by Joao Alem.

  Legislative election results
  	1995		2001		2006
  	Seats	% of vote	Seats	% of vote	Seats	% of vote
  Partido Africano da Independencia de Cabo Verde	21	29.8	40	47.3	41	52.3
  Movimento para a Democracia	50	61.3	30	39.8	29	44.0
  Uniao Caboverdiana Independente e Democratica(a)	-	-	-	-	2	2.6
  Partido da Convergencia Democratica(a)	1	6.7	2	6.0	-	-
  Partido da Renovacao Democratica	-	-	0	3.2	0	0.6
  Partido Socialista Democratico	-	-	0	0.4	0	0.4
  Total(b)	72	100.0	72	100.0	72	100.0
  Turnout	-	76.2	-	55.0	-	54.0
  (a) Ran in 2001 as part of the Alianca para a Mudanca, which also included the Partido de Trabalho e da Solidariedade. (b) Includes blank and void votes.
  Source: Economist Intelligence Unit.

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  February 26, 2007

• Structure

  Cape Verde: Political structure

  Official name

  República de Cabo Verde

  Form of state

  Unitary republic

  Legal system

  Based on the constitution adopted in September 1992; revised in July 1999 to give more powers to the president

  National legislature

  National Assembly; 66 deputies are elected in Cape Verde by universal suffrage under a system of proportional representation, and six are elected by Cape Verdeans living abroad (two each for Africa, the Americas and the rest of the world); all serve five-year terms

  National elections

  February 2011 (legislative), August 2011 (presidential); the next presidential and legislative elections are due in 2016

  Head of state

  President, elected for a five-year term by universal suffrage; currently Jorge Carlos Fonseca

  National government

  The prime minister and his appointed Council of Ministers; the government was reshuffled in March 2011

  Main political parties

  Two main political parties: the ruling party, Partido Africano da Independência de Cabo Verde (PAICV), and the main opposition, Movimento para a Democracia (MPD); other, smaller opposition parties include União Caboverdiana Independente e Democrática (UCID), Partido do Trabalho e da Solidariedade (PTS), Partido Democrático Cristão (PDC), Partido da Renovação Democrática (PRD), and Partido Social Democrático (PSD)

  Key ministers

  Prime minister & minister for state reform: José Maria Neves

  Communities: Maria Tavares Fernandes

  Culture: Mario de Sousa Mendes

  Education & sport: Fernanda Maria de Brito Marques

  Environment, housing & territorial management: Antero Veiga

  Finance and planning: Cristina Duarte

  Foreign affairs: Jorge da Silva Borges

  Health: Cristina Fontes Lima

  Higher education, science & innovation: Antonio Correia e Silva

  Industry, tourism & energy: Humberto Santos de Brito

  Infrastructure & maritime resources: Sara Maria Duarte Lopes

  Internal administration: Marisa Morais

  Justice: Jose Carlos Lopes Correia

  Labour, family & social solidarity: Madalena Brito Neves

  Rural development: Eva Verona Teixeira Ortet

  Youth, employment & human resources: Janira Isabel Fonseca Hopffer Almada

  Central bank governor

  Carlos Burgo

  January 07, 2013

Economy:

• Background

  Cape Verde: Population

  Population, 2006
  Population, mid-year ('000)	519
  Population growth rate (2005-10; annual av; %)	3.5
  Fertility rate (children per woman)	3.49
  Life expectancy (years)	71.0
  Projected population in 2050 ('000)	1,002
  Sources: UN Population Fund, State of World Population 2006.

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  Improving human development

  The 2006 Human Development Index compiled by the UN Development Programme (UNDP), which combines indicators of social wellbeing such as income, literacy and life expectancy, ranked Cape Verde 106th out of 177 countries, based on data for 2004. Of the 43 countries of Sub-Saharan Africa included, this is the third-highest ranking, behind Seychelles and Mauritius. In 2008 the General Assembly of the UN Conference on Trade and Development is expected to confirm that Cape Verde has been upgraded to medium-developed country (MDC) status from least-developed country (LDC) status. Although Cape Verde's ranking is better than other African countries with similar or higher income per capita, such as Gabon and Equatorial Guinea, it compares poorly with some countries from other regions with similar income per capita, highlighting the country's need to expand its education system.

  February 26, 2007

• Structure

  Cape Verde: Economic structure

  Economic structure: Annual indicators

  	2008a	2009a	2010a	2011b	2012b
  GDP at market prices (CVEsc bn)	125.0b	127.1b	138.4b	151.0	163.4
  GDP (US$ m)	1,660.5b	1,601.2b	1,662.3b	1,903.6	1,902.3
  Real GDP growth (%)	6.2b	3.7b	5.4b	5.2	4.6
  Consumer price inflation (av; %)	6.8	1.0	2.1	4.5	2.6
  Population ('000)	487	492	496	501	505
  Exports of goods fob (US$ m)	115.7	93.9	135.8	211.0	215.0
  Imports of goods fob (US$ m)	830.7	770.8	818.0	1,059.9	920.3
  Current-account balance (US$ m)	-205.5	-247.6	-212.9	-287.8	-171.4
  Foreign-exchange reserves excl gold (US$ m)	361.0	398.0	382.0	339.0a	397.1
  Exchange rate (av) CVEsc:US$	75.28	79.38	83.26	79.32	85.90
  a Actual. b Economist Intelligence Unit estimates.

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  Origins of gross domestic product 2006	% of total	Components of gross domestic product 2005	% of total
  Agriculture & fishing	9.6	Total consumption	96.1
  Industry	16.6	Gross domestic investment	37.9
  Services	73.8	Exports of goods & services	16.9
  		Imports of goods & services	50.9
  Principal exports 2006	US$ m	Principal imports 2006	US$ m
  Fuel	68.7	Consumer goods	165.0
  Fish & crustaceans	7.2	Intermediary goods	105.8
  Clothing	6.7	Capital goods	58.8
  Shoes & shoe parts	2.5	Petroleum	32.6
  Main destinations of exports 2011a	% of total	Main origins of imports 2011a	% of total
  Spain	65.9	Portugal	37.0
  Portugal	18.9	Netherlands	25.4
  Bermuda	2.2	Spain	7.0
  US	2.2	Italy	5.2
  a Derived from partners' trade returns.

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  January 07, 2013

• Outlook

  Cape Verde: Country outlook

  Cape Verde: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  OVERVIEW: Cape Verde is set to remain among the most stable countries in Africa in the 2013-14 forecast period. A small risk of social unrest exists owing to high unemployment, rising living costs and contagion from Europe's economic woes. The Partido Africano da Independência de Cabo Verde (PAICV), which has a majority in parliament, and the Movimento para a Democracia (MPD), which holds the presidency and most municipalities, will continue to share power. The fiscal deficit will average 8.4% of GDP in 2013-14 (8.1% of GDP in 2012) as tax reforms will not boost revenue sufficiently to offset a projected decline in foreign aid, and increases in current and capital spending. After slowing to an estimated 4.6% in 2012, Cape Verde's economic growth rate is likely to drop further to 4.3% in 2013, before edging back up to 4.7% in 2014, broadly in line with economic performance in Europe. Average inflation will moderate from 2.6% in 2012 to 2.3% in 2013, before increasing to 2.5% in 2014 in line with trends in Cape Verde's import prices. The current-account deficit will widen from 9% of GDP in 2012 to 9.9% of GDP in 2014 as transfers inflows drop, owing to ongoing economic woes in Europe. It will remain far below the 2007-11 average of 14% of GDP.

  DOMESTIC POLITICS: The Economist Intelligence Unit expects Cape Verde to remain among the most stable countries in Africa during 2013-14. The country boasts strong democratic credentials, as illustrated by the smooth functioning of its government of political cohabitation since the handover of the presidency to Jorge Carlos Fonseca of the main opposition party, MPD, in August 2011. Ethnic strife, which is a major cause of instability elsewhere on the continent, is unlikely given the country's relative homogeneity. However, there are small but significant risks to this outlook. The risk of policy paralysis has risen following the presidential election in August 2011, as the opposition president may not always support the agenda of the PAICV in those areas where he has influence. This risk is reinforced by the MPD's control of 13 out of 22 municipalities following local elections in July 2012. Another risk is that price rises-combined with a public-sector pay freeze, a drop in remittances, high unemployment and water shortages-could provoke outbursts of civil unrest, such as the protests witnessed in the capital, Praia, in mid-2011. The most important risks to political and social stability stem from the increasingly fragile economic environment. Cape Verde's economy is highly dependent on external inflows, including tourism, investment, aid and remittances, all of which are closely tied to global (particularly European) economic performance. We expect the economies of Portugal and Spain-Cape Verde's biggest trading partners and investment sources-to contract in 2013, meaning weaker investment inflows. If tourism inflows also disappoint, damaging Cape Verde's driving economic sector, discontent and unrest could arise, especially given the high rate of unemployment among urban youth (estimated at 27%). If Cape Verdeans judge the PAICV's response to economic difficulties to have been inappropriate, the party could come under increasing pressure, and outbreaks of social unrest cannot be ruled out. Following the presidential election in August 2011, the next national elections are not due until 2016. Municipal elections held in July 2012 resulted in the opposition MPD controlling 13 municipal councils (up from 11 in 2008), the ruling PAICV holding eight (down from ten in 2008) and the council of Sal remaining under the control of a local independent party. The MPD's overall victory will put checks on the PAICV's national dominance and bolster the opposition's confidence in the run-up to the next national election, providing it with a strong local base.

  INTERNATIONAL RELATIONS: Improving and deepening relations with the EU will remain central to Cape Verde's foreign policy. The government will give priority to obtaining visa waivers for Cape Verdean citizens visiting EU countries and implementing the measures contained in the bilateral "special partnership" agreement, including increased co-operation in trade and investment and the fight against illegal immigration, drug-trafficking and organised crime. Portugal will remain the preferred partner in most matters and an ally in Cape Verde's relations with the EU. However, Cape Verde will look to reduce its economic dependency on Portugal as the latter faces ongoing economic troubles. Increased investments and more tourist arrivals from other European countries, including the UK, will help in this diversification. The implementation of Cape Verde's second Millennium Challenge Corporation compact, a US aid programme and co-operation on regional security and the fight against drug trafficking will ensure stronger ties with the US. Cape Verde will also seek to strengthen "South-South" co-operation, especially with Brazil and China, to take advantage of its privileged strategic position for trans-Atlantic trade. It will additionally foster closer ties with Angola, to support growing business links. Although Cape Verde is unlikely to pursue greater regional integration with its West African neighbours, it will seek to maintain existing links with them in order to develop stronger commercial relations.

  POLICY TRENDS: The most recent 15-month unfunded Policy Support Instrument with the IMF expired in early 2012, and there is no indication of a renewal. As a result, policy orientation in 2013-14 will essentially be guided by the 2011-16 government plan, which seeks to boost private-sector growth and attract foreign investors. Public investment, in infrastructure and human capital, will be stepped up in order to achieve this, but progress will be stymied by financing constraints and the poor quality of public investment. In 2012 the government also introduced a Mudar para competir ("change to compete") strategy, moving the emphasis towards competitiveness, economic diversification, state efficiency and reduced external dependence. This means that the government will work to reduce the level of red tape and rationalise state structures. It will also continue efforts to improve the business environment and invest in electricity, transport and communications infrastructure, and is likely to cultivate trade and investment links with emerging markets to lessen the country's overwhelming dependence on the currently shaky euro zone. Although some success can be expected in these areas, lengthy decision-making under the political cohabitation system and limited fiscal space will slow progress. The privatisation of poorly performing state-owned enterprises will prove particularly challenging. The troubled national airline, Transportes Aéreos de Cabo Verde, which has already slimmed down its operations and improved service provision, must undergo further reforms ahead of its sale to private investors. Given the lack of investor interest so far, the sale may take place beyond the forecast horizon. Similarly, the delayed privatisation of the poorly functioning power and water utility, Electra, is unlikely to be completed by the end of the forecast period. The company is in poor financial condition, as highlighted by its struggle to meet debt obligations in July 2012, reducing the likelihood of private-sector interest. We estimate Cape Verde's fiscal deficit in 2012 at 8.1% of GDP. Revenue growth was subdued because of slower growth, poor efficiency in tax collection and a fall in donor support. However, the increase in expenditure was contained as well, because of a sharp drop in investment. The government has set high targets for revenue growth in 2013 and 2014 (nominal increases of 23.4% and 12.8% respectively) as it plans to raise tax rates and widen the tax base. However, given the weakening economic environment and the low likelihood that all tax reforms will become effective during 2013-14, we believe that these targets will be missed. In addition, any gain in fiscal revenue risks being offset by dwindling foreign aid. On the expenditure side, the government is set to increase capital spending in order to help to sustain economic growth amid an expected slowdown in inward direct investment and export demand from Europe. Energy, water, roads, housing and health are all set to benefit from increased government investment. The government is also planning strong increases in current spending, including salaries and debt servicing. In this context, we expect the fiscal deficit to widen to 8.4% of GDP in 2013 before nudging down to 8.3% of GDP in 2014 as economic growth rebounds and tax collection improves. This forecast remains highly contingent on the government's capacity to implement its planned tax reforms effectively and to execute its ambitious public investment programme. Donors, with whom the government enjoys good relations, are set to finance the bulk of fiscal deficits with soft loans. With Cape Verde's public debt expected to rise to more than 90% of GDP in 2014, a squeeze in funding could push the government to launch fiscal consolidation efforts.

  ECONOMIC GROWTH: Tourism is set to remain the key driver of Cape Verde's economy in 2013-14. The sector, which accounts for around one-quarter of the archipelago's GDP, has shown resilience since the beginning of the euro zone crisis and throughout the first three quarters of 2012; we expect it to keep growing in 2013-14, supporting a solid growth rate in the services sector. The modest industrial sector is forecast to be the fastest growing part of the economy, averaging annual growth of 5% in 2013-14 on the back of the government's capital spending programme. Indeed, public-sector capital investment will be an important driver of growth in 2013-14, as inward direct investment is set to stagnate as a result of poor economic conditions in European economies-the main source of foreign investment into Cape Verde. Growth in agriculture is expected to average an anaemic 2.1% a year, in the absence of any major planned investments in the sector and assuming that weather patterns conform with historical averages. We have lowered our overall economic growth rates because of the ongoing troubles in the euro zone, which will undermine domestic demand in Cape Verde through lower aid, investment and remittance inflows. We now expect the economic growth rate to drop from an estimated rate of 4.6% in 2012 (previously 4.8%) to 4.3% in 2013 (previously 4.9%) before rebounding to 4.7% in 2014 (previously 5%). A major downside risk to this forecast is that of a prolonged recession in Europe having a stronger impact on tourism, thereby further undermining economic performance in Cape Verde.

  EXTERNAL ACCOUNT: Following a data release by Banco de Cabo Verde, the central bank, we have lowered our current-account deficit estimate for 2012 to 9% of GDP, from 13.9% of GDP in our previous forecast. Services exports performed better than expected, whereas imports of goods and services fell sharply, in line with a drop in consumption and investment. Goods exports are forecast to undergo a moderate decline in 2013 before edging back up in 2014 in line with global oil prices, as re-exports of fuel are the main source of goods exports. Overall, we expect goods exports to reach US$213m in 2013 and US$228m in 2014. The likely increase in capital goods imports for the government's infrastructure projects will translate into a higher import bill. Total goods imports are forecast to grow from US$920m in 2012 to US$961m in 2013 and just over US$1bn in 2014. This will result in an average trade deficit of 36.2% of GDP in 2013-14. Our core forecast envisages a growing services surplus on the back of a solid tourism sector, although there are steep downside risks to this forecast. We expect a services surplus of 15.6% of GDP in 2013 and 15.1% of GDP in 2014. The income deficit will also stay largely unchanged in 2013-14, averaging 3.2% of GDP, as profit repatriation by foreign companies should be fairly steady. Economic difficulties in donor countries (not least in Cape Verde's historic partner, Portugal) will lead to a contraction in aid inflows and remittances from expatriates-which count for a significant chunk of Cape Verde's transfers account-in 2013-14. We forecast that the transfers surplus will fall from 14.8% of GDP in 2012 to 14.2% of GDP in 2014. Overall, this will translate into a moderate increase in the current-account deficit, from 9% of GDP in 2012 to 9.9% of GDP in 2014. Given the uncertain global economic environment and the potential volatility of tourism and transfers inflows, this forecast remains subject to revision. The current-account deficits should be offset on the overall balance of payments by long-term debt disbursements from official creditors and-to a lesser extent-by foreign direct investment inflows, particularly to the tourism sector.

  January 08, 2013

View detailed map

Country Briefing

Land area

4,033 sq km

Population

503,713 (2012, World Gazetteer estimate)

Main towns

Population (2012, World Gazetteer estimates):

Praia (capital): 134,900

Mindelo (São Vicente island): 71,952

Santa Maria (Sal island): 26,550

Pedra Badejo (Santiago island): 9,530

Climate

Dry and tropical; rainfall is erratic and there are long periods without rain; average temperature 20-27°C

Languages

Portuguese, Crioulo

Measures

Metric system

Currency

Cape Verde escudo (CVEsc) = 100 centavos; in July 1998 the Cape Verde escudo was pegged to the Portuguese escudo at a rate of CVEsc0.55:Esc1; the peg was transferred to the euro in January 2002 at a rate of CVEsc110.265:EUR1

Time

1 hour behind GMT

Public holidays

January 1st, 20th; May 1st; July 5th (Independence Day); August 15th; November 1st; September 12th; December 25th

January 07, 2013