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Tuesday, May 17, 2011

Cape Verde's biggest economic problem and thus its biggest investment opportunity

One of the challenges in Cape Verde is the isolation of some of its nine islands. An excellent example is Santo Antão. It is one of the largest and most spectacular islands in the archipelago. Yet it suffers from a lack of economic opportunity. Alcoholism and teenage pregnancy are growing social symptoms of a much larger economic problem - the lack of physical linkages between the economy of each island with the larger economy of Cape Verde.

This is the biggest economic obstacle for Cape Verde's government. And it is not clear that they truly understand how big of an obstacle it really is. Think about it! If you are governing a country that occupies a geographic region where the large population centers are far apart, perhaps one of the first things you would do in terms of infrastructure is to connect the population centers via roads and rail. It would be one of your highest infrastructure priorities right after providing public utilities of electricity and water. Look at the examples of early America and early Europe and Asia.

Why is the efficient interconnection of population centers critical to the economy of the population centers as well as the larger overall economy? The reason is quite simple - the efficient movement of labor, goods and services between population centers is the life-blood of any economy.

The inter-connectivity is also of paramount importance for Cape Verde's connections to the larger global economy and its international trade balances! Unless the labor, goods and services can be efficiently brought from every corner of the country where resources exist to the physical locations where foreign demand for goods and services are satisfied (e.g., ports, hotels, etc) to earn the foreign currency inflows, the larger economy will be operating at a much lower capacity than what is possible in the realm of international trade.

Cape Verde is a fascinating study in this regard. There are pockets of high economic activity on some islands and yet, there are huge numbers of unemployed on other islands. Some islands are rich in certain resources (especially agricultural), yet those goods do not reach all of its potential internal consumers on other islands. There are large pockets of foreign investments (primarily on the few islands that experience large inflows of tourists), yet those investments barely reach some of the islands where huge potential development opportunities would otherwise exist.

A couple islands attract the bulk of tourists (more than 80%), yet those tourists remain sequestered on these two islands because of the extreme difficulty in efficiently moving in large numbers to explore the other islands. In fact, Cape Verde imports most of the goods that tourists buy while in the country, even in cases where the same goods are readily produced in the country but simply cannot be delivered to the potential consumers in a timely fashion. And finally, the number of Cape Verdeans who have visited islands beyond the one that is immediately closest to their current home island is amazingly low - in other words, Cape Verdeans on one island can be the best consumers of Cape Verdean-produced goods and services on other islands, yet the inter-island trade is also remarkably low (except between geographically close islands).

These apparent economic contradictions are quite shocking, but really unsurprising given the lack of investment in the infrastructure necessary to connect the islands together.

In summary, besides the social-ill effects of a weak economy, the obvious symptoms of the lack of economic interconnection between the islands include:
  • Pockets of stubbornly high unemployment on some islands;
  • Lack of access to Cape Verdean goods and services among locals and tourists;
  • Lack of access to investment capital in some islands;
  • Outward migration of skilled laborers who leave permanently from some islands;
  • Serious under-development in the isolated islands affecting quality of life.
It is a vicious circle that feeds on itself. No matter how much the government spends on the symptoms, the spending will have little impact other than the initial short term effect of pouring the money in. This is not a sustainable strategy.

So how do you fix it? The solution to inter-island connectivity is simple but requires a large investment of capital. Cape Verde needs a modern fleet of ferries that connect all the islands together. This way, for example, people in Santo Antão can go to where jobs exist but come home every weekend rather than leave permanently. Businesses in Santo Antão will see a bigger market for their products and a faster more efficient way to get the products to the market. Investment capital will move into Santo Antão for projects if investors are more confident that customers can readily reach their products and services or that the entire country can more rapidly consume the products created in Santo Antão.

I use the example of Santo Antao because it puts a real face on the current challenges as well as on the effects of the potential solutions. But there is truth in this example across all of Cape Verde's islands and especially in the isolated islands of Santo Antão, São Nicolau, Brava and Maio which are interestingly enough, arguably the most beautiful islands of the archipelago.

Cape Verde needs to play a game where every island wins! A modern fleet of ferries that rapidly connect all of the islands of the archipelago should be considered one of the highest priority infrastructure developments. The efficient movement of people (residents and tourists), goods and services will cause a massive economic boom especially on the islands where jobs are scarce.

There are ferry services that have existed for decades in the islands but they are characterized by antique vessels, unreliable or non-existent schedules, slow speeds, lack of maintenance and laissez faire management; that is, completely uninspiring.

Within the last two years a modern fast-ferry service was conceived by a group of private investors. It is called the Cabo Verde Fast Ferry. It is a joint partnership between private investors and the local government of the islands of Brava and Fogo. It launched its first vessel, the 164-passenger mv/Kriola in early 2011 and plans to take delivery of another ferry at a later date. Ultimate plans call for a total of perhaps 5 vessels over the years. These ferries have the capacity to transport both freight and people.

This is a great start to solving the problem of economic linkages between the islands. However, there is ample capacity to add other well conceived ferry services across the islands. Several preconditions exists for success:
  • The country's government must get involved rather than leaving it up to the local island governments; this is a national imperative and will impact the national economy in a major way;
  • The government need not invest directly; the establishment of a national ferry service should be supported by the government in other ways, e.g. issuing letters of credit to back the loans that private investors will need to seek from capital markets;
  • The government must relieve the price control regulations which cap prices for passenger tickets and are perhaps the most counter-productive factor in attracting private capital into the transportation sector;
  • The private companies that provide fast ferry services will need to pay close attention to the logistics of the maritime distances and locations of the islands in terms of structuring service schedules, maintenance schedules, and type and size of ferries to be put into service.
  • Freight services need not completely coincide with passenger services - the two services and their intersections should be thoroughly studied in order to capitalize on the services.
  • Special attention should be placed on the services from the islands of Sal and Boa Vista where 80% of the foreign tourists are sequestered; getting these tourists out of the cocoons of the all inclusive resorts and spending a day trip (or longer) on other islands will require different kind of marketing efforts and collaboration with the hotels, travel agencies and foreign tour operators.
There is a monumental profit opportunity in well-conceived and well-structured passenger/freight ferry services appropriately supported by the government of Cape Verde. The economic payoff would be unrivaled.

15 comments:

Charlene said...

Your AWESOME I AGREE WHOLEHEARTEDLY.... Whats your name I putting your on the presidential ballot.

Anonymous said...

Very interesting this post. Keep writing and share your ideas.

God bless you.

Spigon.

Jorge said...

Excelente análise. Será que os nossos governantes tem conhecimento desse diagnóstico????

Angelo said...

Jorge, obrigado pelo seu comentário. Os líderes de Cabo Verde pode ter uma idéia desta questão, mas esta é uma baixa prioridade ou não vê-lo como um problema de infra-estrutura com ampla implicações econômicas. Eu não acho que os líderes estão conscientes desta análise. Talvez você possa pedir-lhes para ler o blog. Asemana ou pedir para fazer uma entrevista comigo. Além disso, por favor partilhe-o com seus amigos.

Cumprimentos!

Anonymous said...

Mas de que estamos conversando, sr. Angelo? o sr. verdadeiramente conhece o paìs real que temos ou vai na sina das "conversas de bar" que os analistas nacionais nos acostumaram na tv e radio nacionais?
Porque se quer fazer uma analise cartesiana, fria, baseado em dados e factos, da economia de cabo verde, chegara a conclusao que o que tem cabo verde vivo sao as ajudas internacionais e os nossos emigrantes.
Esses sim, desde sempre tem ajudado cabo verde a crescer!
Quanto às ajudas publicas ao desenvolvimento sao usadas como todos nos sabemos: grande parte é "comida" pelo aparato publico criado ad hoc, pelo que no fim da istoria aqueles que deviam ser os verdadeiros beneficiados, ficam pior.
Queremos falar do modelo de desenvovimento geral e daquele turistico em particular? Simplesmente nao existem! Quando è que CV teve um modelo de desenvolvimento turistico? O que temos sao especuladores de terrenos que sao os mesmos decisores politicos e alguns "espertos" das europas que aproveitam do estatuto de investidor estrangeiro para enrriquecerem ainda mais e quando podem desaparecem sem respeitar nem sequer os direitos minimos garantidos aos trabalhadores.
O modelo all inclusive deixa no paìs niet!!! E è esse o modelo que queremos como alavanca de desenvolvimento? Estamos a brincar a investidor estrangeiro ou queremos ser serios?
Temos de mudar de paradigma, antes de tudo o tipo de analise que somos habituados a fazer!
Primeiramente pensar o modelo de desenvolvimento. Porque ainda nao o temos. Seguido de uma mudança radical na etica publica dos actores politicos. E tambem nos actores privados!
Cabo verde obteve a democracia hà 20 anos, depois de 15 de ditadura, mas hoje temos uma sociedade partidarizada ao extremo, o que constitui um enorme handicap. A instituiçao estado em cabo verde, desapareceu para dar lugar ao estado partido. Este è o grande obstaculo a programaçao de um modelo de desenvolvimento do pais. Temos de ter mais homens do ESTADO, do que homens de partido na gestao da coisa publica.
Aos nossos emigrantes que querem investir se devem dar as mesmas condiçoes dos investidores estrangeiros, sob todos os pontos de vista.
Em suma sr. Angelo, o seu paper é um dedo na grande ferida de cabo verde. A incapacidade da sua classe dirigente de programar o seu desenvolvimento. Navegamos à vista sr Angelo, depois de 36 anos independentes e 21 de democratura!

Angelo said...

The anonymous writer of the last comment is indicating that perhaps there is no master-plan for Cape Verde's economic development and that growth is occurring in a haphazard way to the detriment of the local population and only to the benefit of foreign investors. My response below is in English but could be translated to Portuguese using the Translate button above:

Thank you for your thoughtful comments. I think that the government will acknowledge that tourism growth, which exploded initially on the island of Sal, took place without the benefit of a coherent plan. To the government's credit, there is now a well considered plan in place for tourism development of Boa Vista and Maio. Perhaps the problem is that the government needs to do a much better job of encouraging public dialogue on the issues and on making the resulting plans broadly accessible.

In addition, the current incentives given to foreign investors create an unequal playing field for local investors and that some of the incentives may encourage excessive imports in the tourism sector which does little to create economic links to the broader economy of Cape Verde. For example, there was a Tourism Development analysis that was performed in 2008 by an expert that pointed out many of the missing opportunities. I think the government has indeed listened to the advise and is trying to fine tune the approach without discouraging FDI. However the corrective actions take time to work through the legislative process. But from what I understand, changes are coming which will effectively address these inconsistencies.

Finally, there are still one obstacle to maximized economic growth that appears not to have been recognized. And it leads to unequal and imbalanced economic development across the nine populated islands - it is this issue of maritime connections. It hasn't been considered a high priority, in my opinion, and may not be recognized as the basic and critical infrastructure issue which it is.

If the population centers were separated by land instead of ocean, I am quite sure that it would have immediately occurred to any observer that roads or rail lines would have to be built as a basic and necessary requirement to extract maximum economic benefits for the nation. Without such connections, Cape Verde effectively becomes nine separate small countries each of which are more difficult to grow that the nation taken as a whole if effective maritime connections were in place.

Anonymous said...

Sr Angelo, obrigado pelo feed back. O motivo que me leva a responde-lo em portugues é que a minha lingua de conhecimento nao è o ingles, lingua que falo e escrevo, pelo que sinto-me mais a vontade com o portugues.
O sr. a um certo ponto diz: "I think that the government will acknowledge that tourism growth, which exploded initially on the island of Sal, took place without the benefit of a coherent plan. To the government's credit, there is now a well considered plan in place for tourism development of Boa Vista and Maio. Perhaps the problem is that the government needs to do a much better job of encouraging public dialogue on the issues and on making the resulting plans broadly accessible".

Nao creio que seja bem assim sr. Angelo, infelizmente.

Mesmo que o governo tenha elaborado este plano, ainda nao se ve no terreno.

Continuam-se a inaugurar estabelecimentos turisticos em cabo verde, alguns de certa relevancia, na maior parte estrangeiros, com o mesmo modelo de gestao que referia no post anterior. Omodelo do all inclusive continua a dominar o mercado do sal boavista sal e via dezendo. Salvo raras excepçoes. Portanto essa mudança de paradigma se existe, ainda nao se ve.

Que seja claro, nao estou contra estrangeiros!!! Seria o que faltava! Digo que temos de repensar o nosso modelo, continuando a dar aos estrangeiros com disponibilidade financeira a investir no sector os incentivos devidos.

Mas essas mesmas oportunidades se devem dar aos investidores nacionais!!!

Porque à um investidor estrangeiro se dao varios incentivos que um empresario nacional, que enfrenta do ponto de vista financeiro maiores dificuldades, nao tem?
Nao percebem que assim fazendo nunca os nossos emprendedores nunca se afirmerao no mercado nacional.
Volto a repetir, que sou de acordo consigo relativamente ao problema que a descontinuidade territorial é o grande problema por resolver na criaçao de um mercado nacional unitario. Infelizmente nao vejo nenhum plano serio do governo para resolver em curto espaço este problema. E como sabe o tempo è dinheiro e oportunidade! E se, se continuam a perder oportunidades dessa maneira continuaremos a navegar a vista ainda por muitos longos anos.
Best regards.

Angelo said...

Por favor, sinta-se livre para contribuir para este blog em qualquer idioma. Com ferramentas como o Google Translate, é fácil ter um diálogo.

I agree with your point. Although there is a more coherent development plan in place, all of the new projects for development seem to be all-inclusive resorts. All-inclusive resorts do not provide sufficient economic linkages between tourism activities and the broader Cape Verdean economy. So while there are definite economic benefits, there is also a missed opportunity to leverage the tourism growth into broader impacts on the national economy.

This was in fact pointed out in the 2008 report. But the writer is correct that the government should be more aggressive in changing the tourism development model so that there is less domination of the all-inclusives. In addition, the leveling of the playing field so that local entrepreneurs have equal access to the tax and other incentives provided to foreign investors will certainly help to bring projects that use alternative tourism models.

Again, the government itself acknowledges these issues and is moving to address them. But as the writer says, time is money and the slow speed of change means that opportunities may be lost.

In conclusion, I would say that I am in agreement with the point made by Anonymous: the government can talk all it wants, but good intentions are not enough - action is the only thing that matters. In this case, time will tell.

Anonymous said...

Tank's mr. Angelo. Efectivamente nao podemos continuar somente com as boas intençoes e com o efeito anuncio. Ha que dar corpo as intencoes e nisso nao "somos" bons.

Uma ideia de como um governo, num espaço de tempo relativamente curto, poderia resolver o problema da descontinuidade do mercado, com a criaçao de uma pequena frota de navios velozes de passeiros, mas tambem de carga, seria destinar, atravez de um plano adeguado, durante o tempo necessario, as receitas provindas da actividade turistica. Sabemos que centenas de milhares de turistas entram anualmente em cabo verde e o numero anda a crescer. Portanto qualquer governo que quisesse resolver este problema ha à disposicao determinado instrumentos para o efeito. Somente falta a vontade de programar e definir prioridades.
As bases para que a nossa economia se possa desenvolver devem ser prioridade e devem ter atençao especial de qualquer governo.
Cabo verde tem de resolver tres problemas primarios em tal ambito: eletricidade, agua, transportes seja para o consumo, seja para permitir a expansao da actividade industrial. Se concentrassemos na resoluçao de cada um desses problemas por volta, com esse sistema seriam criadas as condicoes para o desenvolvimento efectivo.

Angelo said...

Thank you for your comments. You said that in order to ensure the conditions for effective economic and industrial development, the government needs to focus on three primary problems: the production of water and electricity, and transportation.

I completely agree. These are basic infrastructure issues. Interestingly, the government clearly agrees with the need to improve public utilities (water and electricity) and is taking steps to improve. For example, there is movement in the area of renewable energy. A 10MW wind farm is planned for live production in Santiago starting in August 2011, with further facilities on other islands shortly after. There are also plans underway for additional desalination plants but in this case powered by wind energy. Yet there is a critical problem that remains and it relates to the excessive price controls which are still in place (as described in another post).

There is recognition that the maritime transport is a significant issue, as seen by government support of the public-private partnership with Cape Verde Fast Ferry. However, this issue has not been made a national priority. Clearly, private enterprise is needed. But the national government has to take a more active role in creating a ferry system otherwise, the development will be haphazard and slow. The government has effectively left this national issue in the hands of the municipalities or local governments. For example, the Fast Ferry service was publicly supported primarily by the municipality of Brava, the SMALLEST of all the islands! This clearly does not lend itself to a coherent NATIONAL vision or solution. I think you will agree that we need more national leadership on this issue. The prime-minister must surely be acutely aware of the problem as he himself became stranded during a recent trip between Sao Vicente and Santo Antao on one of the antiquated, ill-maintained ferries that broke down mid-journey!

There is certainly a role for the local governments when it comes to the issue of a national ferry system. Currently, a ferry service has to rely on the existing COMMERCIAL ports. This creates obstacles to private enterprise including: coordination movements and schedules with larger international shipping vessels for port space, and becoming inter twined in port processing intended for international shipping (the steps used by port managers to process international commercial traffic will only slow down and complicate a local ferry service with unnecessary bureaucracy, fees, paperwork). The Fast Ferry service is already having to deal with these nuisance issues.

Where local governments can have a major role is in building small passenger-only port terminals that are separate from the large commercial ports. These do not have to be deep-water facilities and may require no heavy equipment for off-loading freight (which is typically driven on and off in small trucks like DYNA and Hiace). All that would be needed is a ramp for the vehicles to enter and exit the small, fast ferries. There are so many examples of effective local ferry services all across the world. The government needs to study these example and create a coherent national plan for inter-island maritime transport. Cape Verde's ability to maximize and balance the economic growth across all the islands is heavily dependent on this single issue.

Anonymous said...

A verdade sr Angelo è que essas realizaçoes de que fala nao fazem parte de uma verdadeira politica energetica ou dos transportes.
Sao realizaçoes contingentes e nao seguem realmente uma politica na perspectiva de criaçao de uma oferta energetica civil e industrial concorrenciais.
Qualquer estado serio, nesses sectores sensiveis para o desenvovimento, elabora politicas de longo periodo no sentido de dar resposta a esses problemas. Pelo que sei nao existe nenhuma politica energetica e tao pouco de transportes em cabo verde. Basta observar a situaçao da electra, dos tacv, dos transportes maritimos, que de certo os 2 noveis ferry nao vao resolver.
Quando falo da funçao do estado nestas areas è no sentido de adoptar cabo verde, de uma certa competitividade territorial!
Vivemos num mundo competitivo e a nossa capacidade de oferecer aos investidores que querem estabecer em cabo verde as condiçoes minimas de estabelicimento sao importantes. As infraestruturas operacionais e logisticas sao importantes tanto quanto os incentivos fiscais. A competitividade territorial é hoje o principal factor de atraçao de investimentos. E nòs somos fracos relativamente à muitos dos nossos concorrentes.
Claro que nesta perspectiva o estado nao deve ser o unico actor.
Digamos que o estado deve ser o actor principal na realizaçao das estrategias e politicas para esses sectores. Mas os privados, seja eles nacionais que estrangeiros podem ter um papel decisivo.

Angelo said...

Anonymous,

Again thanks for your comments. It is an excellent debate.

You indicated in your comments that you are not aware of any national energy policy. But I am aware of its existence, although I have not seen it with my own eyes. But it has been referred to by various consultants whose work I've seen and government officials have directly referred to it. It also is referred to in the IMF report as the National Energy Plan 2003-2012. So I am led to believe it exists.

But you highlight a most important point and that is ease of access to such information and the poor job the national government has done in promulgating these plans to allow for a national dialogue.

You also point out that Cape Verde must realize that it is in a very competitive world and that it is not a strong competitor. I would agree with your premise, but I would also suggest that this is recognized and there are not just words but definite actions that are being taken to address this. Hence the incentives that are provided for the business and private sectors to invest in the opportunities that would make Cape Verde more competitive and provide financial rewards for these investors.

For example, with regard to the energy policy, the public-private partnership between the Cape Verde government, the European Development Bank, the African Development Bank and Cabeolica will deliver a 10MW wind farm that will go online in August 2011 on the island of Santiago. This will be followed by several smaller wind farms on Sal, Sao Vicente and Santo Antao in 2012. The government will then have met its 2012 goal of 25% renewable energy. This isn't just talk. It's happening.

Finally, the reason that the government cannot simply talk is that it the country has been upgraded from a lesser developed country (LDC) to a middle income country (MIC). This means that it no longer receives external financial aid. It now receives loans that must be repaid! And there are many observers who are looking over their shoulder including the IMF, the World Bank and Standard and Poors. The government thus has every incentive to deliver. We may disagree with the priorities and the timing (you can see that I have strong disagreement with certain priorities), but investors (local and foreign) should be assured that the opportunities are not only real, but the government is creating an environment that is stable as well as a fundamentally sound platform for economic growth. They are being directed to do so by the markets and the stakeholders. They hardly have a choice in the matter.

Anonymous said...

Serà como diz o sr Angelo, mas eu tenho là as minhas duvidas sobre a existencia dessa politica energetica.
Atè porque, visto que o sr mencionou um plano 2003-2012 e nòs hoje em 2011, estamos na situaçao em que estamos, quer dizer que foi um autentico fallhanço.
Quando falo de politica energetica falo de soluçoes estruturais para resolver o problema da energia para consumo domestico e a possibilidade de haver energia a bom preço para a industria.
O que vejo sao soluçoes tampao, que de certo nao irao resolver o problema que estamos debatendo.
Claro que as centrais que usam fontes renovaveis sao uma boa alternativa. Mas estao longe de dar a soluçao definitiva.
Para nao falar nas escolhas tecnicas que atè aqui fizemos relativamente aos renovaveis.
O que sei é que nao foram as melhores do ponto de vista tecnologia/custo/beneficio e para alem disso houve muita negociata para o beneficio de alguns, em vez do interesse geral da colectividade que irà suportar os custos.
Mas como sabe, "NOS CABO VERDE DE ESPERANCA"...
Comprimentos.

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