The World Bank in Cabo Verde

Located 500km off the west coast of Africa, Cabo Verde is a ten-island archipelago, nine of which are inhabited. With a population of about 491,233 (2021 Census), only 10% of its territory is classified as arable land and mineral resources are limited.

The fragmentation of its territory creates significant connectivity issues, as well as challenges for service delivery, including energy, water, education, and health. 

Cabo Verde has witnessed significant economic progress since 1990, driven in large part by the rapid development of tourism (25% of GDP), coupled with considerable social development due to strong social policies since the 1970s.

Until 2019, Cabo Verde was considered one of the champions among Sub-Saharan African countries in terms of poverty reduction but is currently challenged by the impacts of COVID-19 and the Ukraine crisis.  Poverty projections based on economic growth suggest that poverty rates, measured by the $5.5 a day (2011PPP) poverty line, declined by 6 percentage points between 2015 and 2019, from 41% to 35%.

Political Context

Cabo Verde is considered an example of democracy in Africa, largely due to its political stability. Electoral processes have been held regularly, with peaceful alternation of power between the two major parties. The African Party for the Independence of Cabo Verde (PAICV) responsible for colonial liberation, of leftist ideology, governed for two 15-year periods (1975-1991 and 2001-2016). The Movement for Democracy (MpD), a liberal and right-wing party was re-elected for a five-year term in the legislative elections of April 2021 with Ulisses Correia e Silva reappointed as Prime Minister. The Independent and Democratic Cabo Verdean Union (UCID) represents the third political force in the country.

The PAICV-supported candidate, José Maria Neves, was elected president on October 17, 2021, and took office on November 9, 2021.

Cabo Verde conducted three peaceful elections, with electronically transmitted results, between October 2020 and October 2021.

The next elections to be held in Cabo Verde will be municipal elections, which will take place in 2024. Of the 22 municipalities in Cabo Verde, MPD holds the majority (14), while PAICV holds eight. The next legislative and presidential elections will be held in 2026.

Economic Overview

Economic activity is estimated to have expanded by 15% in 2022, with per capita incomes surpassing pre-pandemic levels (2019). On the supply side, accommodation, transport and commerce explained 60% of growth. On the demand side, exports (mainly tourism) and private consumption accounted for 90% of growth. The rebound in economic activity in 2022 was accompanied by a reduction in poverty (0.8%age points to reach 19.3% in 2022), despite the spike in inflation. Headline inflation reached 7.9% (y/y) in December 2022 after inflationary pressures emerged in 2021, fueled by high international oil and food prices and global supply chain disruptions due to the war in Ukraine.  

The fiscal deficit narrowed to 3.8% of GDP in 2022, supported by the strong economic performance and increased fiscal revenues. Public debt declined from 142.7 to 126.2% of GDP, driven by GDP growth. Total revenue increased 39%, driven by personal income and VAT taxes, while total expenditure increased 20.6%, reflecting higher current expenditure, estimated at 4.2% of GDP, to protect the most vulnerable from rising food insecurity and to control fuel and energy prices. The social protection system, through cash transfers, supported the most vulnerable.

Real GDP growth is projected to reach 4.8% in 2023 (3.8% in per capita terms). Over the medium term, private consumption, investment in tourism and the blue economy should support growth. The outlook is subject to substantial downside risks stemming from uncertainties due to the war in Ukraine, mainly through inflation and its impact on private consumption, slow global growth, particularly in Europe, delayed structural reforms to manage fiscal risks, and climatic shocks. Inflation is expected to moderate in 2023, as global growth moderates, commodity prices stabilize, and supply bottlenecks ease.

The authorities are committed to gradual revenue-driven fiscal consolidation over the medium-term, which includes enhanced management of fiscal risks, revenue mobilization, and the waning of exceptional shock measures. Consequently, the fiscal deficit is projected to reach 2% of GDP by 2025 and the public debt-to-GDP ratio to improve from 126.2% in 2022 to 106% by 2025. Fiscal risks will remain high as the fiscal deficit is exposed to contingent liabilities in sectors particularly vulnerable to external shocks.

Last Updated: Mar 30, 2023

World Bank Group Engagement in Cabo Verde

The World Bank’s engagement in Cabo Verde is currently guided by its FY20-25 Country Partnership Framework (CPF). The CPF focuses on (i) accelerating human capital for inclusive, services-led growth, and (ii) strengthening the environment for a more diversified economy.

The World Bank's portfolio grew significantly from $82.5 million in 2015 to $230.49 million in 2023. The sector focus of the portfolio is dominated by the Finance, Competitiveness and Innovation sector with a net commitment amount of $55 million (24%) and Macroeconomics, Trade and Investment with a net commitment amount of $52.50 million (23%), followed by Governance with a net commitment of $30 million (13%) and Education with a net commitment of $26 million (11%).

The remaining $66.99 million (34%) of the portfolio is devoted to Digital Development, with a net commitment of $20 million (9%), Social Protection and Jobs, with a net commitment of $20 million (9%), Health, Nutrition and Population, with a net commitment of $19.99 million (8%), and Energy and Extractives, with a net commitment of $7 million (8%). The current portfolio is composed of 9 national projects for a total commitment of $230.49 million along with $22.5 million in regional projects.

New and pipeline projects in Cabo Verde reflect a shift towards larger, more multi-sectoral programs that focus on a green, resilient recovery where the private sector will play an important role. The program also supports transformational reforms to increase private investment that can mitigate the impact of both the pandemic and challenges related to climate change, while supporting economic diversification to increase the resilience of the economy to external shocks.

International Finance Corporation (IFC)

A strong and vibrant private sector is critical to ending extreme poverty and boosting shared prosperity. That is where IFC, the largest global development institution focused on the private sector in emerging countries, comes in. We have more than 60 years of experience in unlocking private investment and creating markets where they are needed most.  We create opportunities by investing in private sector companies and providing advisory services to our clients.

IFC made its first investment in Cabo Verde in 1992 to AEF Growela, a shoe manufacturing and leather treatment company located in Mindelo. IFC subsequently invested in Hotel Tropico in 1993 to finance a 51-room business hotel in Praia to meet the growing accommodation demand from foreign business travelers. IFC also invested in Teylium T Plus, a greenfield GSM operator which was issued a second GSM license in the country. IFC has invested in a stone mining and crushing plant (Britagem), and financial institutions including Banco Caboverdiano de Negocios (BCN). IFC’s most recent investment in Cabo Verde is a loan to BCN to finance its SME portfolio. The IFC investment is supported by an advisory services engagement to implement a SME strategy, develop a customer value proposition to scale-up lending to SMEs, as well as design and identify resources to deliver the strategy. The current IFC investment pipeline includes projects in the hospitality and transport sectors.

Last Updated: Mar 30, 2023

Under the CPF’s human capital Focus Area (“accelerating human capital for inclusive, services-led growth”), the portfolio has prioritized preparing the workforce for an economy based on the provision of high-quality services, while promoting social protection and productive inclusion.

• The recently closed Education and Skills Development Enhancement Project (P164294), which ran until January 2023, supported implementation of key reforms to improve the quality of basic education, enabled participation of nearly 2,000 youth in labor market-relevant training, and awarded scholarships to more than 1,190 individuals, predominately female, from the poorest households, to participate in labor-market relevant courses.
• The Social Inclusion Project (P165267), closing in April 2023, improved the coordination, coherence and coverage of the social protection sector through a systems approach. It supported i) the establishment of a social registry across all municipalities (currently covering over 65% of the population); ii) a social cash transfer program (RSI) that provided regular cash transfers for 4,500 households in the poorest quintile and emergency cash transfers in response to COVID-19 for an additional 23,863 households; and iii) a pilot of the productive inclusion intervention, supporting 1,756 households to start-up or improve their small businesses and providing professional training.
• The Human Capital Project (P175828) aims to specifically support youth and women, and particularly those from poor and vulnerable households, by improving access to basic services and labor market-relevant training through a cross-sectoral approach, including activities across the education, professional training, social protection and jobs, and urban development sectors.

Health

Going beyond the CPF, the World Bank was a key partner in the COVID-19 response. The response took an integrated approach, targeting large-scale vaccination, emergency support to the most vulnerable households, and facilitating reopening of international tourism, the country’s largest economic sector. Approximately $21 million was activated for the acquisition and deployment of COVID-19 vaccines, while additional financings allowed existing projects to be leveraged to support the crisis response.

Cabo Verde was the first country to receive direct World Bank support to vaccine rollout and now has the fourth highest vaccination rate in Sub-Saharan Africa. By August 28, 2022, 325,863 individuals, or 98.5% of the eligible adult population, had received a first dose; 280,228 (86%) had received a second dose and 118,964 (36.5%) had received a booster. The vaccination of adolescents between 11-17 years of age began in December 2021 and vaccination of children between 5-11 years of age is planned.  In parallel, the WB supported the development of Nhacard, the digital vaccination certificate that is fully accepted for travel in Europe. Together, these initiatives facilitated the full reopening of the country to international tourism in December 2020, significantly earlier than many regional neighbors, and enabling an early start to economic recovery.

At the same time, the Social Inclusion Project was restructured and supplemented with an Additional Financing of $10 million to redirect resources to the COVID-19 response. The project-supported social registry and cash transfer program were used to target emergency cash transfers to the most vulnerable households. By December 2021, 21,048 households, or around 48% of the poorest households, were being supported through emergency cash transfers, 80% of which are headed by women.

Under the CPF’s macroeconomic and private sector development Focus Area (“strengthening the environment for a more diversified economy”), the WB portfolio has supported improvements to fiscal and macroeconomic resilience, promoted enabling conditions for private sector-led growth, and worked to improve the competitiveness of tourism, the main economic sector.

• The recently closed Competitiveness for Tourism Development Project (P146666) supported creating the conditions necessary to increase investment in the tourism sector. The project had several interventions to support investments the tourism sector, such as (i) supporting the start-up of operations of the Tourism Institute of Cabo Verde (ITCV) created in 2019 to strengthen the institutional framework for tourism governance under the Ministry of Tourism and Transport (MTT); (ii) development of a National Tourism Strategy; (iii) development of a tourism code to be enacted by the government, and post-restructuring; (iv) development and adoption of tourism master plans (TMPs); and (v) development and adoption of Tourism Zoning Plans. The overall investment catalyzed thanks to these interventions was estimated at US$134 million. In addition, the project piloted a small accommodation quality seal program, targeted certification programs with the chambers of commerce and included COVID-19 response and support measures to the benefit of the tourism sector and local entrepreneurs. Based on the success achieved under this project, the World Bank and the Government of Cabo Verde have embarked on a follow-up tourism project, Resilient Tourism and Blue Economy Development in Cabo Verde Project, focusing on targeted investments in resilient infrastructure as well as complementary interventions aimed at strengthening SMEs to catalyze increased economic spillovers from tourism across islands and market segments.
• The Disaster Risk Management Development Policy Financing (DPF) with CAT-DDO (P160628) has contributed to macroeconomic resilience through a disaster risk management reform program and mainstreamed disaster risk and climate change considerations across sectors. The now-closed DPF has also increased the country’s financial capacity to manage impacts associated with disaster and climate-related shocks, through the creation of a National Emergency Fund. The Fund provided immediate liquidity in the face of the COVID-19 pandemic, with all of its resources being channeled to finance the government’s response efforts.
• The now-closed $46 million Transport Sector Reform Project (P126516) supported the Government of Cabo Verde’s efforts to improve the efficiency and management of its road assets and to lay the groundwork for SOE reform of the transport sector. As an important result of the project, 90% of the national network is in good or reasonable condition, with interventions on many islands (Santiago, Santo Antao, Sao Nicolau, Maio, Fogo, and Brava) that have allowed for increased resilience of the infrastructure assets and of the local communities. Road works such as that of Ribeira dos Picos or Cruz de Picos – Boa Entradinha – Chao de Formoso – Gil Bispo, both on Santiago Island, have critically contributed to unlocking and providing better access of local populations to markets, basic services such as education and healthcare, and economic opportunities. Building on the results and lessons learned from the project, the Government of Cabo Verde and the World Bank are preparing a new project to improve connectivity and urban infrastructure in the country.

Last Updated: Mar 30, 2023

Most bilateral and multilateral development agencies have a presence in Cabo Verde. Its major multilateral partners are the European Union, the African Development Bank, the United Nations, the World Bank, and the International Monetary Fund. Progress has been made to streamline development assistance and coordination through the Budget Support Donor Group (GAO) mechanism, which includes active participation of Luxembourg, Portugal, Spain, the European Union, the African Development Bank, and the World Bank.

Last Updated: Mar 30, 2023