Cabo Verde

Economic Overview

The Republic of Cabo Verde is a standout success story in Africa, having transitioned from a low-income country to a stable, middle-income, service-oriented economy. As a small island developing state (SIDS) with few natural resources, its development has been driven by prudent macroeconomic management, political stability, and a strategic focus on developing its tourism sector and integrating into the global economy. The 2025-2026 outlook is positive, driven by a full recovery in tourism and a steady flow of foreign investment and remittances.

GDP Size & Growth Trajectory

Cabo Verde's economy is small but has demonstrated resilience. After a severe contraction during the pandemic due to the collapse of tourism, the economy has staged a remarkable recovery. Real GDP growth was estimated at a strong 5.1% in 2023. The IMF forecasts growth to remain robust, at 4.5% in 2025. This growth is almost entirely dependent on the performance of the tourism sector.

Sector Composition

• Services: This is the overwhelmingly dominant sector, contributing over 75% of GDP. It is led by tourism, which directly and indirectly accounts for a massive share of economic activity and employment. Wholesale and retail trade, transport, and public services are the other key components.
• Industry: The industrial sector is small, contributing about 17% of GDP. It is focused on light manufacturing, fish processing, and construction, which is largely driven by hotel and resort development.
• Agriculture: The agricultural sector is very small, contributing less than 8% to GDP and severely constrained by the country's arid climate and water scarcity. The country is heavily dependent on food imports.

Inflation Trends

Inflation has been a challenge, driven by the country's high dependence on imported food and fuel. However, with the stabilization of global commodity prices and the Central Bank of Cabo Verde (BCV)'s prudent monetary policy, inflation is expected to moderate and fall back towards the central bank's target.

Fiscal & Monetary Policy Stance

• Monetary Policy: The BCV manages monetary policy with a primary focus on maintaining the currency peg. The Cabo Verdean Escudo (CVE) is pegged to the Euro, which provides a strong anchor for macroeconomic stability.
• Fiscal Policy: The government is focused on fiscal consolidation to reduce public debt, which increased significantly to manage the pandemic's impact. Key priorities include improving domestic revenue collection and enhancing the efficiency of public spending.

Debt Sustainability Indicators

Public debt is high, a legacy of borrowing to finance public infrastructure and support the economy. While the debt-to-GDP ratio is elevated (over 120%), the risk is considered manageable due to the concessional nature of much of the debt and the country's strong growth prospects.

Table 1: Key Macroeconomic Indicators (2023-2026F)

Market Size & Demand Potential

As a small archipelago, the domestic market is limited. The economy is structured to serve the international tourism market.

Population Size and Demographics

With a population of just under 600,000, the domestic consumer market is very small. A significant feature of its demography is its large and active diaspora, which is larger than the resident population and provides a vital source of remittances.

Urbanization and Consumer Hubs

The capital city, Praia (on Santiago island), and Mindelo (on São Vicente island) are the main urban centers. The islands of Sal and Boa Vista are the primary hubs for the tourism industry.

Business Environment

Cabo Verde is recognized for its stable governance and efforts to create a business-friendly environment.

Ease of Doing Business & Regulatory Reforms

The country has made progress in simplifying business regulations. The government is actively working to attract foreign investment, particularly in tourism and the "blue economy."

Tax Regime

• Corporate Income Tax (CIT): The standard rate is 22%.
• Value Added Tax (VAT): The standard VAT rate is 15%.

The government offers significant incentives for investments in the tourism sector and through its international business center regime.

Political Stability & Governance

Cabo Verde's greatest asset is its reputation as a model of democratic governance and political stability in Africa.

Political Environment

The country is a stable, multi-party parliamentary democracy with a strong record of free and fair elections and peaceful transfers of power. This political predictability is a cornerstone of investor confidence.

Rule of Law & Investor Protection

The legal system is based on Portuguese civil law. The country has a functioning and independent judiciary, and the rule of law is respected. Property rights are protected, and there are mechanisms for contract enforcement.

Infrastructure Readiness

Infrastructure has been a key focus of public investment, particularly to support the tourism sector.

Transport and Logistics

• Airports: Cabo Verde has four international airports, with the airport on Sal island (SID) being the primary gateway for international tourists.
• Ports: The Port of Mindelo on São Vicente is a key hub for maritime services and fishing.

Energy Sector

The country is highly dependent on imported fossil fuels for electricity generation, which results in high energy costs. This is a major structural vulnerability. To address this, the government has set an ambitious target to achieve over 50% of its electricity from renewable sources. This creates major opportunities for investment in wind and solar power.

Sector-Specific Opportunities

1. Tourism

This remains the primary driver of the economy. Opportunities continue to exist in the development of new hotels, resorts, and tourism-related services, with a growing focus on eco-tourism and cultural tourism beyond the traditional "sun and sea" offering.

2. Renewable Energy

The government's ambitious renewable energy targets create significant opportunities for investment in wind and solar power projects. With its abundant wind and sun resources, Cabo Verde is well-positioned to reduce its import dependency and become a leader in clean energy.

3. The Blue Economy

The government is actively promoting the "blue economy" as a new pillar of growth. This includes sustainable fisheries and aquaculture, maritime services and ship repair at the Port of Mindelo, and marine-based tourism and research.

4. ICT and Digital Services

With its political stability and strategic location between Africa, Europe, and the Americas, there is potential for Cabo Verde to develop a niche in digital services, leveraging its investment in submarine fiber-optic cables.