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Saturday, June 18, 2011

Mosteiros: a microcosm of the economic challenges facing Cape Verde

In Mosteiros, on the island of Fogo, the local businesses are experiencing a drop in business activity including fewer hotel stays, fewer restaurant visits, less shopping, and so on. Business owners are reporting that "they have never seen such slow sales". It is quite ironic that while Mosteiros is experiencing a drop, the economic activity continues to accelerate on the islands of Sal and Boa Vista. After all, Mosteiros is a quaint and beautiful town and is second only to São Filipe in terms of the population on Fogo. The restaurant at Chão de Café is one of my absolute favorites, with the freshest of organically grown vegetables and a fresh catch of fish – it is hard to beat for a delicious, mouth-watering meal.

As local newspaper, Asemana, reported:
Leonor Rodrigues, the owner of the Christine & Irmãos bed and breakfast, reveals that only two guests have stayed at their establishment in the past two months. Rodrigues calls the situation “worrisome.” “We’ve been open more than 20 years and we’ve never been through a drop in demand like this,” she claims.
So what might explain this mysterious state of affairs where a town that obviously has much to offer short term visitors is suddenly seeing a dramatic reduction in economic activity while the overall economy grows?

It’s a great opportunity for a lesson in economics. I believe it is due to the increasingly distorted economic imbalances between the “haves” and “have-nots” in Cape Verde. I’m not referring to private individuals in this case, but to the actual key population centers on the various islands. As Sal and Boa Vista drive the national economy ever higher through tourism growth, it has a perverse destabilizing effect: the population centers that benefit most from the economic growth become relatively more attractive than those that do not. The irony is that while the overall national economy grows, the “have-nots”, like Mosteiros, get left further and further behind. The root cause is the lack of economic linkages and Mosteiros is a classic example.

Think about it this way - if you happen to be visiting São Filipe, Fogo and it happens to be easier to reach the island of Brava than it is to reach the town of Mosteiros for an extra day trip, and let’s for the sake of argument say that Brava has decent restaurants and decent hotels; where would you be more likely to go from São Filipe if given the choice between Brava and Mosteiros for a day or two? Most likely you would visit Brava.

Enter the Cape Verde Fast Ferry (CVFF) which is connecting Brava to Fogo and more specifically São Filipe, Fogo. This creates an improved economic linkage between the communities of São Filipe and Brava. Mosteiros is effectively left a little more economically isolated from São Filipe than it was before. The communities with better linkages thus see more economic activity and those with fewer linkages see less economic activity. It can become a vicious cycle because people, the human capital, then begin to leave Mosteiros for better opportunities elsewhere.

I would contend that the drop in economic activity coincided with the introduction of fast ferry service between São Filipe and Brava. It may be just a mere coincidence. The point here is not that CVFF is the problem; quite the opposite. It will cause an increase in economic activity in both São Filipe and Brava, which was previously more isolated than Mosteiros. Yet it is not a zero-sum game. The overall economy can still grow because more economic activity tends to fuel greater entrepreneurship, more production, increased exports and more inflow of FDI. Thus, until there are greater and more efficient economic linkages between the key population centers, the economic benefits of the centers where activity is occurring, will like a magnet, pull more of the economic activity away from those population centers that are not effectively linked. The end result is that the economy grows but in a lopsided fashion with the more economically isolated communities experiencing declines while the economic centers experience growth.

The idea of the local business people in Mosteiros that they should develop their sea port is actually a brilliant economic answer. Their gut feel is absolutely correct. Why? Because a port will increase the economic linkages between Mosteiros and the other connecting ports providing the ports are served. What is happening in Mosteiros is a microcosm of the larger economic challenge in Cape Verde.

The experience in Mosteiros is already manifested in other areas. According to Arnout Nuijt, publisher of Atlantico Weekly, an online newsite that follows developments in Cape Verde and Angola:
"You see similar developments on Santo Antão, where the relatively new town of Porto Novo is spurting ahead because of the actual port expansion, the new airport and the future resort zoning being planned. While historic towns such as Ribeira Grande and Paul have been the economic and political centres of the island for centuries, the government decisions to build a port and airport in Porto Novo will surely shift the economic centre of gravity to that town."
This issue highlights the need for national policy to include maritime connections across Cape Verde as a matter of national economic priority. It is actually a basic infrastructure issue, but apparently has not been recognized as such. And as much as CVFF has entered the maritime transport picture, it simply does not have the capacity to make all of the connections that are needed. In addition, the nature of ferry service connecting Mosteiros to anywhere else would be a function of the feasibility of such connections.

Since the variables involved are many, this problem can only be addressed at the national level. The reason it should be a national priority it that there is a critical need to balance out the economic benefits across key population centers. When a better balance of growth is obtained across key communities the effect can be quite powerful because economic growth begets more economic growth. So if the growth can be spread to more communities, the effect is not additive but multiplicative for Cape Verde's economy. The efficient flow of human capital, labor, goods and services between populations centers is the lifeblood of any economy.

There is recognition that the maritime transport is a significant issue, as seen by government support of the public-private partnership with CVFF. Clearly, private enterprise is needed and can benefit from government partnership. But the national government has to take a more active role in creating a ferry system, otherwise, the development will be haphazard and slow, and key population centers, like Mosteiros, with poor economic linkages will ultimately suffer a disastrous fate even in the face of overall national growth.

The government has effectively left this national issue in the hands of the municipalities or local governments. For example, CVFF 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 for maritime transport.

There is certainly a role for the local governments when it comes to the issue of a national ferry system. Currently, a ferry service would have to rely on the existing large commercial ports. This creates obstacles to private enterprise including: coordination of movements and schedules with larger international shipping vessels for port space, and becoming intertwined in port procedures intended for international shipping; the procedures used by port managers to process international commercial traffic will only slow down and complicate a local ferry service with unnecessary bureaucracy, fees, and paperwork. The CVFF 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 ferries in small vehicles like DYNA trucks and Hiace panel vans). All that would be needed is a ramp for the vehicles to enter and exit the small, fast ferries.

There are many examples of effective local ferry services all across the world. The Cape Verde government should study these examples 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. There is a colorful yet prophetic symbol in Mosteiros: a sign which says "continuamos juntos" or "continue together." The policy makers should pay close attention.

If I were the government of Cape Verde, I would immediately privatize TACV, the national airline, take all of the savings from such a transaction and invest in a national ferry service (which could also ultimately be privatized). It is now more important for the national economy that the government connect all the Cape Verde islands together via maritime routes than it is to connect Cape Verde to the outside world by air routes – a privatized TACV and the international airlines will surely continue to serve the international connections. Continue together indeed.

5 comments:

Bob Barboza said...

The students at Kids Talk Radio will be reading this article in the hopes of trying to understand these problems and coming up with possible solutions. If Cabo Verde received gift of $35 million dollars could this problem be solved? If Cabo Verde had the perfect internal sea and air transportation system between islands, would that fix these problem? A privatized sea and air transportation system would be fantastic, if it were owned and operated by a companies that got the Cabo Verde citizens involved in the investment and profit sharing. We have to think different. We have to do things as a team of investors. It is all about economic balance and great economic balance takes great leaders. However, this is a great conversation. These are the kinds of conversations that we need to be having with our youth

Angelo said...

Bob, thank you for commenting. It's great to hear you encourage your students to read about these issues and think about solutions.

Regarding a gift of $35 million. If I were the government, I would never turn down free money. But you never know how it might actually be used. Instead, if it were earmarked to support private investors to bring solutions, that would help. But the government needs to first construct a maritime transport master plan so it is coherent.

The overall ultimate investment required would be quite a bit higher that $35 million. My guess is that it would be closer to $100-150 million (the cost of a new 150 pax. fast ferry is about $8-10 million and to cover all nine islands might require about 15-20 ferries of differing sizes). They would need to set up some small ports in strategic locations (but these may be nothing more complex than a simple dock). Plus there would be the ongoing costs of operating the ferries, especially fuel.

I don't want to give away too much to spoil the students' lesson opportunity, but there is a simple example in Mexico. The connection between Cancun and Isla Mujeres. Have them study how that works. Cancun is equivalent to say, Sal, and Isla Mujers is equivalent to Sao Nicolau in the context of the problem.

Ask them to think about aspects like: how to make it feasible when the total population of CV is only half-million; where the small ports should be located; how tourism might work into the picture; the impact of domestic tourism; impact on jobs and entrepreneurship; would CV emigrants be more likely to return for a visit or increase their visits; and so on. It's a wonderful case study for a lesson.

Joe Paul said...

Great article about the impact of the CVFF on the island of Fogo. Perhaps the long term answer is to get large cruise ships to visit all of the islands, bring in money from tourists across the continent.

Angelo said...

Thanks for the comment Joe. The cruise ship angle is a good idea.

There are 9 islands. I think the way to do it is to have an inter-island cruise alternative that is offered to tourists in Sal and Boa Vista (the hotel-cruise option with short cruise) or the fly-cruise option for tourists who fly from the target markets and go straight to say a 10-day cruise which stops at all the islands.

It would not be feasible to use large cruise ships as there are only 3 deep-water ports across CV. Instead, you could use the smaller 100-pax cruisers. This business model of mini-cruises through island chains is already in use in other parts of the world, like the Polynesian islands off Australia.

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