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Monday, May 30, 2011

Comparing Cape Verde to the Caribbean - what can we learn?

Cape Verde is geographically located off the coast of West Africa and is traditionally compared to sub-Saharan Africa in terms of economy and governance. Having been a former colony of Portugal, the official language spoken is Portuguese, so Cape Verde is also traditionally associated with the other lusophonic countries such as Brazil, Angola, Mozambique, and so on by way of comparison.

One of the organizations that ranks economic freedom among the world's nations is the Heritage Foundation in their Index of Economic Freedom. Cape Verde ranks among the top three African nations by this measure. How can Cape Verde relate to mainland Africa where there exists massively greater natural resources, labor forces and associated challenges? What is Cape Verde and its observers to learn by comparing itself to mainland Africa?

Cape Verde is an island nation and in my opinion, more closely resembles the Caribbean islands not only in terms of its history and culture, but also in terms of some of the governance and economic challenges it faces. You can read about Cape Verde's history and culture in my other blog, "The Great Cape Verde Adventure." One can easily imagine Cape Verde as an island nation in the Caribbean. The language is not an issue - many of the Caribbean islands are not English speaking. Yet, the Caribbean islands and similar nations have come together in an economic zone called CARICOM (or Caribbean Community).

I thought it would be intriguing to compare Cape Verde to members of the CARICOM states, most of which are island nations with very similar profiles to Cape Verde. I think there may be a lot more to be learned here and is a more honest comparison that shows not only how far Cape Verde has come, but also how far it has to go. This may demonstrate not only some models of success from which Cape Verde can learn, but also underscores the amazing opportunities at hand for those investors who can step in to help Cape Verde reach its full potential.

The table below shows a comparison of Cape Verde with the independent members of CARICOM. The ranking is based on the Heritage Foundation's 2011 Index of Economic Freedom (note that some islands in the Caribbean are not ranked by the Foundation). The economic data is from 2010 and was taken from the CIA's World Fact Book 2010.



There are several immediate observations:

  • Cape Verde ranks in the middle of the pack at #7;
  • It is very similar in terms of the contribution of Services (mainly tourism) to the economy in the range of 70-80% GDP;
  • The government's public debt ratio while high is actually lower than many of the Caribbean countries which are clearly able to manage through high debt levels (many of these debt levels were driven up by repairing hurricane damages and by counter-cyclical spending during the global recession of 2008 and are now coming down);
  • Cape Verde's government spending is on the very higher end found among the governments of the Caribbean islands, which is clearly one element that leads to higher deficits and public debt;
  • Cape Verde's trade deficit is among the highest because it imports much more than it exports - so what are these other countries, some much smaller than Cape Verde and with fewer resources, doing to be less reliant on imports and able to export more?
  • Although the poverty levels are not shown in the chart, Cape Verde's poverty level is about the same as for many of the Caribbean nations (around 30%) and unemployment is comparable, yet except for Haiti which is notoriously poor, Cape Verde has by far the lowest per capita income among all CARICOM nations!
  • There are several islands in  the Caribbean which have substantially higher levels of FDI - how are they able to attract such a level of FDI?
I don't personally have all the answers, but I believe there is much to learn here. I highlighted two Caribbean islands which seem most comparable to Cape Verde in terms of total GDP, dependency on tourism, trade deficits and reliance on FDI.

GRENADA
Let's look at the tiny island of Grenada. It has about one-fifth of the population of Cape Verde yet generates a GDP of about 60% of that of Cape Verde. What's it doing differently? Well for one, they do a great job of marketing the island. Here's a YouTube video produced by the Grenada government. Their government also has a YouTube channel which you can find here. It's hard to find something similar from Cape Verde's government. This isn't so different in terms of tourism, but take a look at the other capabilities that are advertised on there, like a medical school, business conference facilities, international sporting events!

You can also listen to the Minister of Tourism in Grenada describe the disciplined strategy for tourism in this video starting at the 1:50 minute mark. Notice the strong bias to sales and marketing, and the development of source markets like Canada which like the US may be a major potential source for Cape Verde also. The travel time from Canada to Cape Verde is actually shorter than from Canada to Grenada.

ST. LUCIA
How does Cape Verde compare to the top-ranked (by 2011 Economic Index) St. Lucia? Interestingly, St. Lucia attracts the same number of tourists as Cape Verde, about half million, so the size of the tourism industry is about the same. There is even a volcano on St. Lucia like the one on Fogo in Cape Verde. St. Lucia has about a third of the population yet generates the same GDP as Cape Verde, and thus has a per capita that is three-fold that of Cape Verde. It also exports almost three times the volume of Cape Verde. What's to be learned here?

St. Lucia is also devoid of natural resources besides agriculture and is highly dependent on tourism. Yet, outside of tourism, an extremely strong area, it has done an excellent job of diversifying its economy. There is a strong element of international banking based in St. Lucia. In addition, they have developed the capacity to assemble electronic goods from electronic components - we also saw that there were light manufacturing capabilities in Grenada as well. There is also a developed capability in food processing. Certainly, with the educational skills inherent in the Cape Verde population, these light manufacturing and assembly facilities are industries that can be developed and grown within Cape Verde.

Cape Verde is also aiming at fish processing based on its potential for a strong fisheries industry. Perhaps that thinking could be expanded to food processing which would encompass fish processing as well.

In terms of agriculture, about half of the product (mostly bananas) are bought by Spain, the UK and South Korea! These markets are quite distant for fruit which tend to spoil quickly. Yet, Cape Verde has a difficult time getting its agricultural product to its own consumers and tourists that enter its borders! This is a problem that is ripe (no pun intended) for a private investor solution. Cape Verde already has the necessary trade agreements in place. By way of full disclosure, you should be aware that the banana industry in St. Lucia is in decline due to competition from South American sources. However, there are some learnings that are resident within St. Lucia about developing agriculture as an industry for export or even internal growth within Cape Verde.

I have barely scratched the surface. The point of this post is that even a cursory review of the economic profiles of Caribbean countries suggests some areas where much can be learned. Perhaps the Government of Cape Verde can develop ties with CARICOM countries to gain first-hand insights on similar challenges that several of the Caribbean islands have tackled successfully. These connections could even develop into future trade and other partnering opportunities.

3 comments:

Paulino Dias said...

Hello,

I would like to contact the author of this article. Appreciate if you can send me his/her e-mail, to paulino.dias@pdconsult.cv

Thanks in advance,
Paulino

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