The Marketing of Cape Verde to Investors

For me, one of the most curious issues regarding investing in Cape Verde is the lack of information that is available about specific investment opportunities in the country or about how and why foreign investors should go about the process of investing in Cape Verde.

There is a specific government agency responsible for promoting Cape Verde to foreign investors. It is called Cabo Verde Investimentos (CVI). The folks at CVI do an excellent job in welcoming investors and providing information if you were to visit their offices in Achada Santo Antonio on the island of Praia. There are also two satellite offices, one in São Vicente and the other in Sal.

For many years, there was little if any online information available regarding investing in Cape Verde. In fact, CVI itself never had its own website until very recently. You can find it here: http://www.cvtradeinvest.cv/. CVI is even on Facebook now, under the name Cape Verde Investments. CVI is certainly to be commended for keeping up with the times.

The real question is how well is CVI marketing to foreign investors via their online presence? In this article, I provide a review of what is working and what is not.

Mission of CVI

This is the mission of CVI as taken directly from its website:

CI – Cape Verde Investments is the government investment promotion agency and export, and whose purpose is the promotion of conditions conducive to the realization of projects of national and foreign investment, the promotion of the Cape Verde Islands as a tourist destination and the promotion of exports of goods and services of Cape Verdean origin.

First of all, that's quite a mouthful and barely understandable. There is perhaps a bit of a language issue here as it is written in English, but not well. Granted that Portuguese is the official language of Cape Verde, and it is excellent that CVI has made an attempt to present the case for investing in Cape Verde in English. After all, English is more widely spoken than Portuguese across the globe and certainly among big potential investors. But if you are going to present the information in English, make sure it is proper English and that it is understandable. Hire a translator. Or don't include such a statement since the purpose of the site it is quite obvious to anyone visiting the site. It sounds more like an exercise in self-importance.

The Richest Countries in the World

According to the publication, Global Finance Magazine, the richest country in the world in 2012 is Qatar with a per-capita income of US$106,283 as measured on the basis of purchasing power parity (PPP), using data from the World Bank.

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.

The Fatal Flaw in Cape Verde's 2013 Budget

Cape Verde's incumbent government is about to make a fatal mistake in its budget for 2013. At a time when the second round of the global economic crisis is having a serious impact on the local economy, the government has proposed a sharp rise in the VAT (value added tax) on certain basic consumer staples and on certain business sectors. While the VAT on fuel prices will decrease, causing a welcome 20% drop in the price of fuel, taxes on other important drivers of economic growth could result in a major economic calamity in 2013.

Here is the backdrop of the current economic situation:

• Driven by strong growth in the tourism sector, Cape Verde's economy had been growing at a fairly robust pace of over 7% per year until the global economic recession of late 2008 / early 2009. The pace of growth then slowed to around 5% per year. (UPDATE: Six months after I wrote this article, Fitch rating agency published revised guidance on Cape Verde and said that "Revised GDP data show Cape's Verde's real GDP growth is significantly weaker than previously thought. Under the revised methodology, Fitch's estimate of five-year average real GDP growth up to 2012 is now 2.6%, compared with Fitch's previous calculation of 5.1%.").
• Cape Verde's finance minister, Cristina Duarte, famously claimed at the time that Cape Verde's economy was somehow immune to the global crisis even though there is a very strong and well known economic correlation between what happens in Europe and what happens in Cape Verde - economically speaking. It was not clear if these statements were politically motivated as the 2010 general election was just around the corner at the time the statements were made. It is difficult to imagine that the minister herself actually believes this.
• Meanwhile, the 5% growth rate in the overall economy in the face of an even higher pace of growth in the relatively significant tourism sector (which was largely confined to two of Cape Verde's nine islands) suggests that the rest of the economy is experiencing a slowdown (negative growth).
• In the 2012 State of the Union address, Cape Verde's prime minister, Jose Maria Neves, said that "Cape Verde is on the right track" even as the economic situation in Europe continued to dramatically deteriorate with riots in the streets of Greece and Portugal.
• In an interview published on 17 October 2012 in the journal A Nação, 267th edition, the prime minister appeared at a complete loss to explain how it was possible that an economy that he claimed to be growing robustly was shedding massive numbers of jobs left and right (the "official" unemployment rate is 12%, but the real rate is substantially higher, and in some islands - like São Vicente - is reputed to exceed 50%).
• The increase in traffic through Cape Verde's airports - most of which consists of tourists entering and leaving the country - slowed from a double-digit annual pace to a pedestrian 4% in the third quarter of 2012. This big drop is the result of a decline of 6% in domestic traffic along with a reduced pace of growth in international traffic. The decline in domestic traffic is a clear indication that business travel is declining which in turn obviously means that companies and entrepreneurs are doing less domestic business. It is also an obvious indicator that private households with the means to travel inter-island now have less disposable income to continue such travel. These trends clearly indicate an economic decline in the sectors outside of tourism and portend an eventual downturn in the tourism sector if global economic pressures continue unabated, especially in Europe.

It is quite clear from all indicators that Cape Verde's economy is quite fragile at this moment. Yet, the government budget which seeks to raise revenue primarily by increasing taxes, represents a fundamental misunderstanding of economics. The dramatic increase in taxes at a time when the economy is being buffeted by external global economic forces that are not likely to assist with domestic growth will only have one undeniable effect and that is to deliver a death-blow to the economy.

In other words, this economic action will have exactly the opposite effect to that which is desired by the government. It will lead to a reduction in revenues and a major increase in the country's deficit.