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.