Cape Verde is listed among the Emerging and Developing Countries. Interestingly, this category also includes many island nations around the world. I have long suggested that rather than attempt to compare itself to Portugal (arguably the world's original pre-modern superpower which now is considered one of the weakest members of the European Union) and other European countries which is completely unrealistic, or African countries which are the least developed and among the poorest nations on Earth, Cape Verde should instead compare its performance on the world stage to island nations around the world, and in particular, pattern itself after successful, independent Caribbean nations.
My reasoning is very simple and is summarized in the following points:
- The history of the Caribbean islands is almost identical to that of Cape Verde, discovered and colonized by Europeans, with ancestry rooted in Africa through slavery.
- Cape Verde shares a remarkably similar culture (food, music, art) with the islands of the Caribbean, no doubt based on the African roots.
- Island nations typically have limited or no natural resources because of the limited land mass and so their economies are challenged in similar ways...reliance on tourism and foreign investment as well as on the business savvy of the local residents.
- Islands usually have relatively small populations with a history of poverty, so the labor pools are limited and thus a robust educational system is often a high social priority since it provides a pathway out of poverty (and often a pathway off the impoverished island for perceived greener pastures in first-world countries).
- Many island nations have a modern history of immigration to foreign countries where the locals are educated and often return to contribute directly to their homeland, or otherwise provide support via remittances acquired through earnings in foreign lands.
- Most of the nations of the Caribbean have been independent for about the same length of historical time as Cape Verde (although it would be fair to say that Cape Verde is about one decade younger in its independence than the Caribbean).
To demonstrate this point about Caribbean nations being the most appropriate model for the purpose of the development of Cape Verde, I have extracted the results from the list of the richest countries in the world to show how Cape Verde ranks against the Caribbean nations. I have also included the Seychelles and Mauritius which are two independent island nations in Africa, and I have shown where Portugal falls in comparison (is not at the top of the list as many might imagine). The list is ranked in terms of PPP (purchasing power parity) for 2012, the measure of per-capita wealth preferred by economists.
Cape Verde is at the very bottom of the list, save for the impoverished and disaster-prone country of Haiti. And it is also clear that even island nations which are one-fifth the population and one-tenth the land area of Cape Verde are significantly wealthier than Cape Verde on a per-capita basis (in other words, Cape Verde has a significantly inferior standard of living). The obvious question is why is this so? Why is it that Cape Verde appears to be about three to four decades behind almost all of the Caribbean islands in its development even though all have effectively started around the same time from the same point of lesser development and poverty?
- Lack of effective development of basic infrastructure. In order for an economy to run like a well-oiled machine, there must be adequate supply of electric energy and water. There must be complete ease of movement of goods and labor around the country - and because Cape Verde is a group of islands separated by expanses of Ocean - this means a highly functional maritime and air transportation system in addition to effective road transportation within each island. Do not think for one minute that Cape Verde has bigger challenges in these areas. Many of the Caribbean islands have also had a history of inadequacy of infrastructure and several island nations have more islands than Cape Verde separated by greater ocean expanses! But these challenges have been conquered by the Caribbean islands. Instead, Cape Verde continues to suffer from frequent energy outages, water shortages, as well as ineffective road, maritime and air transportation services.
- Lack of ease of doing business. If it is difficult to invest in an economy and conduct business there, the money will flow to other deserving economies which more readily reward the hard work, time and valuable capital of the investors (local and foreign). Compared to the Caribbean region, Cape Verde is near the bottom of the list in terms of the ease of doing business! It is no wonder that Cape Verde's development is proceeding at the pace of a turtle when not enough is being done to change the situation. The diaspora of Cape Verde can be very instrumental in this regard...they can bring a lot of pressure to bear on government leaders because the country is highly dependent on their remittances.
- Inappropriate division of resources among the municipalities. All politics and economics is local, i.e., progress in any country starts at the local level before aggregating at the national level. Cape Verde is divided into municipalities in terms of local government, which is a common structure for economics and politics throughout the world. Yet gross inefficiencies exist in terms of how the country's financial resources are allocated between the municipalities and the national government. For example, the capital city of Praia and its surrounding areas fall within the Municipality of Praia. The capital hosts about one quarter of the entire population of the country and generates a significant portion of the GDP, as one would expect. However, the national government provides the city with a laughably small portion of the nation's receipts. The capital of a country is one its crown jewels. Yet, it is incomprehensible that there is no recognition at the national level that, as goes Praia so goes the country. With insufficient resources to conduct local affairs, municipalities eventually become mired in unsustainable debt.
- Price controls that strangle local and foreign businesses. Every economy in which widespread price controls are implemented has experienced massive economic imbalances including ineffective allocation of resources, scarcities, lack of investments in maintenance and innovation, and ultimate business failures...in other words, abject economic failure. It is not that selective price controls (usually associated with food products) are never seen in the Caribbean region, but when they are proposed there is usually a strong social debate about the merits because any economist worth their salt understands that price controls are usually a political quick-fix. Cape Verde must recognize that it is well past the point of development where such socialist tendencies are needed in its arsenal of economic tools. You can learn more about price controls in this economic lecture on YouTube. Even in the USA where the disastrous effects of price controls were experienced in the early 1970s, the US Government again imposed a price control on fuel in 2012 in a very localized area in the aftermath of Hurricane Sandy and the exact same consequences were again observed. And here is a recent example from Venezuela. So, while price controls are often done with the best of intentions, the negative consequences are bound to occur wherever they are practiced...it is one of the implied laws of economics. And these negative consequences are definitely acting in Cape Verde's economy regardless of whether or not the government chooses to acknowledge them.
- Cape Verde has failed to effectively market itself! The Caribbean and its people are well known all over the world via its musical ambassadors (e.g., Rihanna, Niki Minaj, Harry Belafonte), its sports figures (who in the world does not know Usain Bolt and the Caribbean athletes who put the region in the spotlight on the world Olympic stage with record breaking performances), its authors (V.S. Naipaul and Derek Walcott, Nobel Award winning author and poet respectively). Cape Verde too has its own ambassadors such as musicians Cesária Evora and Mayra Andrade and footballer Nani. These individuals have popularized their islands through their own individual talents and efforts on the world stage. But what I am talking about here is tourism...attracting legions of foreigners to the island where they will pump serious foreign currency into the local economy. Most of the governments of the Caribbean (ministries of tourism) have created major marketing programs. There are also well done efforts by private sponsors. Here are links to some amazing examples of marketing: The Bahamas, Trinidad & Tobago, Trinidad & Tobago 2012, Tobago, Grenada, Jamaica, Saint Vincent & the Grenadines, St Lucia, Antigua and Barbuda. If you look at any of these videos, they could as well be of Cape Verde...yet no such effective marketing is done for Cape Verde. Is it any wonder that an island as tiny as St. Lucia with one-third the population boasts as many annual tourists as Cape Verde and a standard of living that is three times as high? Instead, the only marketing offer that promotes the entire country is this video sponsored by Cape Verde Investments. You can see for yourself the difference. This video does nothing to sell Cape Verde to tourists and instead makes the incredible and unconvincing claim that Cape Verde is the "heart of the world". The video is a confusing mix of pitching investment opportunities and tourism...it succeeds at neither. This is not good marketing.
- No emphasis on Customer Service Excellence. I will not go into elaborate detail here, but the concept of customer service is virtually non-existent in Cape Verde. There is a concept called morabeza or the natural friendliness of the people, however, the talk does not sufficiently translate into a culture of service in the business setting. For an island nation whose economy is heavily dependent on services, it is imperative that this attitude be ingrained into workers throughout the country. The places where you will find good service are typically foreign-owned businesses (such as foreign hotel chains) where good service is not just cultivated, it is demanded by competitive international standards. Businesses owned by locals have apparently never been introduced to the concept of customer service, even though it seems that good service is a natural and logical competitive differentiator and catalyst for business growth.
- What does independence really mean? Cape Verde has been an independent, sovereign republic since 1975 after centuries of colonization by Portugal. Yet even 37 years after independence, Cape Verde is heavily reliant on Portugal in almost every aspect of life, and unfortunately, business. There is a stiff-upper-lip formality to the conducting of business affairs that belies the otherwise easy-going nature of an island setting. The atmosphere is nothing like the Caribbean where independence meant that the mental ties to specific colonial masters were quickly severed. It is not that there are no formal relations with former colonial powers, but in the Caribbean, the former colonizers are granted no special status. They are treated like every other foreign country. But in Cape Verde, the Portuguese continue to dominate virtually every aspect of how the country works because Portugal is looked at as the perfect model. It is as if the independence from Portugal was in name only. The implications for business here is that the Portuguese way of conducting business is ingrained. Unfortunately, Portugal is not the world icon of excellence in business and innovation. In future, Cape Verde must look to best in class practices rather than simply rely on Portugal's practices.
- Wastage of valuable resources on the wrong priorities. It has yet to be explained why a country of the size and limited wealth as Cape Verde requires an international airline and four international airports. Massive amounts of money are lost annually by the country's national airline, TACV, and by its airport authority, ASA. Yet, paradoxically, Cape Verdeans have a very hard time travelling or moving goods between the local islands. There are few national airlines among the Caribbean nations except among the wealthiest of the island nations that can afford it. In addition, Cape Verde squanders millions on national companies such as Electra, the water and energy utility. There has been much talk of privatization which would bring welcome investment, management talent and much needed technology and innovation into these economic sectors...but talking does not make things happen.
- The profit squeeze. Every successful business must make profit and a lot of it, otherwise it will never be sustainable. In order to make a profit, sufficient revenues must be earned to cover expenses. Since Cape Verde has few resources, most things must be imported, including the raw materials and goods that are eventually sold. However, the government appears to view this as a cash-cow and places substantial duties and fees on everything. And there is the value added tax (VAT) or IVA, as it is referred to in Portuguese, of 15%. In addition, the fees for services on the ports are tacked on on top of all this (most imports come into the ports). The end result is that businesses get trapped between the price regulation on one hand and the high costs of doing business on the other. Combined with the restrictive labor laws, the result is that it is very difficult to build a sustainable business and this restrains the economy from achieving the highest sustainable growth it possibly can.
- Lack of investment in education. The island nations of the Caribbean place a heavy emphasis on education and they invest resources heavily in the sector. In the Caribbean, education is free up to the secondary level and there are no "propinas" or monthly fees. Ironically, Cape Verde, which has a history of socialism, never saw fit to provide what might be the ultimate social benefit...a free education. In fact, a free education is the biggest investment a country can make in a capitalist economy. It is an investment that will pay for itself many times over because the human resources of an island which lacks physical resources become its biggest asset...a highly educated workforce provides a competitive edge in the world, because it attracts capital and creates wealth. However, the youth of Cape Verde are saddled with monthly fees for secondary education. The result is that those who can least afford it remain uneducated beyond the basic primary level. Or worse...people realize the importance of education for their future personal success, and they will do things that they may not otherwise do to secure the funds needed to pay school fees. In any event, the difference in approaches appear in the dramatically different literacy levels between residents of the Caribbean and residents of Cape Verde.