Cape Verde development trajectory; a lesson for Africa

Cape Verde is a real African success story. In the space of 30 years, from 1982 to 2012, per capita income in Cape Verde has increased by a factor of 3.5 in real terms. This gives an idea of the formidable achievements of this small nation, which have been eloquently mentioned by other authors. Instead of reiterating these considerations, allow me to broaden a bit the debate and draw from the Cape Verde experience some elements of reflection for other African countries.

There are, in my view, a number of important lessons that support the Cape Verdean development trajectory. Firstly, the importance of development enablers. A key element of Cape Verde success has been the ability to maintain fundamental pre-conditions for economic development, namely securing peace and stability, building sound institutions (and striving to continuously improve them), realizing good governance and maintaining macroeconomic stability. Economic literature has taught us that growth accelerations are a relatively frequent phenomenon, including in Africa; but the key difference between a boom-and-bust cycle and a sustainable development trajectory is preventing a subsequent growth collapse from offsetting the growth acceleration, and ensuring that the latter is long-lived. Now, developing countries – especially African ones – should keep in mind that paying attention to development enablers is precisely a way to avoid fatal mistakes, and make continuous efforts to realize the pre-conditions for growth to be sustainable.

A second lesson in my view is the fundamental importance of forging a clear and consistent development strategy, which is shared amongst the various stakeholders and coherently spelt out in the various policy documents (Poverty Reduction Strategy Papers, Diagnostic Trade Integrated Study, Vision 2030, and the like). As ECA has argued in the past, forging a similar vision and building consensus around it is one of the primary roles of a developmental state.

Also, one can underscore insightful elements of Cape Verde’s developmental vision:

– The attention to all the three dimension of sustainability, namely the economic one – as emphasized by the effort to maintain macroeconomic stability and spur new engines of growth – the social one (as evident by the emphasis on the inclusiveness of growth), and the environmental one, epitomized by the commendable objective of achieving a 100% renewable energy use.

-The fact that it pursues economic integration not as an end in itself, but as a deliberate strategy to harness its geographical advantage of potentially becoming a hub located within easy reach of some of the world biggest markets such as the EU, USA and South America as well as an expanding market in Africa in order to mitigate the risks stemming from its heightened vulnerability.

-The fact of taking into account a sound and forward-looking assessment of the country’s advantages and disadvantages, which permits it to anticipate risk factors such as the challenges arising from Least Developed Countries (LDCs)  graduation, and take appropriate mitigating measures to ensure a “smooth transition” while innovating. A good example is the role given to the creative economy.

-Sizeable long-term investments in economic infrastructures and continuous efforts to improve the business environment, as key measures through which economic integration can become operational and bring economic gains.

In this context, the Enhanced Integrated Framework (EIF) has been instrumental in providing a platform for development partners, recipient countries, and agencies to work together towards a more cohesive in-country trade integration strategy. Much like the ECA, the EIF has supported the mainstreaming of trade and regional integration strategies, in the conviction that Cape Verdean ownership of trade policy had to be a key principle.

A third important element of reflection I gather from Cape Verde’s development trajectory is the importance of engaging strategically a broad array of development partners and catalyzing their support. Over time Cape Verde has established close partnerships not only with traditional donors, but also with emerging actors including notably Brazil (whose development cooperation is particularly active in Lusophone countries). With respect to traditional donors, being in the context of the 4th Global review of Aid for Trade we cannot fail to mention the fact that Cape Verde is one of the world largest recipient of Aid for Trade, having received between 2009 and 2011 an average yearly disbursement of over USD 222 per capita. To have an idea of the massive investment in Cape Verde’s infrastructures suffices to mention that the sector has received as much as 83% of these funds; that is over USD 184 per capita, per year.

Moreover, the country has retained close ties with its Diaspora community, which continues playing a significant role for the country’s development through remittances, investment and knowledge networks.

It would also be important to mention some of the challenges the lie ahead for Cape Verde, and try once again to link the lessons to the broader African experience.

A first challenge consists in redressing some of the imbalances emerging in Cape Verde’s structure of production and in the composition of exports. If the boom of tourism and transport services are but a confirmation of the potential role high-value-added services can play as engines of growth, it is hard to imagine poverty eradication being achieved in a country of half a million inhabitants without boosting the productivity of the primary sector, notably agriculture and fisheries. Even in the context of a fairly small island economy, this issue echoes the challenges confronting a number of bigger African economies, where the agricultural sector still employs the majority of the labor force, and hence plays a fundamental role for poverty reduction and food security purposes.

A related point, which is to some extent addressed in Cape Verde’s Agenda for Transformation, attains to the need of fostering the emergence of industrial clusters. Given the small size of the domestic market, Cape Verde in this respect has no other alternative than to look at the world market. Therefore, spurring the emergence of firms capable of connecting to global value chains is all the more important to diversify the economy and generate more jobs. Similarly, it is  important to promote stronger linkages between tourism and other activities, transforming the former into a more transversal industry. Once again, despite different context-specific conditions, the challenge of promoting industrialization and connecting domestic firms to regional and global supply chains is common to all African countries, not just to Cape Verde.

A third challenge for Cape Verde’s economy is the structural deficit of the current account, which on average exceeded 12 % of GDP in the 2002-2011 period. Far from being a problem of Cape Verde alone,  this development challenge is fairly common across resource-poor African states, and even more so across Small Island Developing States (SIDS). Indeed one may argue that it represents one dimension of SIDS structural vulnerability. In so far as economic diversification is accompanied by the expansion of export revenues (or the relative decline in imports), it can contribute to mitigating external imbalances. Yet it seems unlikely that the structural external deficit will reverse completely, regardless of any smooth transition from the LDC status.

Cape Verde’s heightened vulnerability is also reminiscent of the so-called “island paradox”, meaning the structural feature of SIDS which make them extremely vulnerable to a wide range of economic shocks  such as instability of production, terms of trade fluctuations, adverse weather events despite their relatively high income per capita. In this respect, Cape Verde confirms SIDS’ specific needs for special support measures aiming at mitigating economic vulnerability.

Against all odds, Cape Verde has made it possible to confirm that hard work does pay off.

I share wth you a beautiful video on Cape Verde
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