The slowdown observed since the end of 2011 persisted in 2012, due to economic stagnation around the globe, and in the euro area in particular. Reduced foreign aid and sluggish foreign investment resulted in gross domestic gross domestic product (GDP) growth dropping from 5.0% in 2011 to a projected 4.0% in 2012.
Remittances inflows held up, however, and tourism did well. Tourism and ancillary activities remained the driving force of the economy in 2012, accounting for around 30% of GDP and 90% of total exports. Yet the deteriorating global economic outlook and the euro zone sovereign debt crisis is likely to continue to weigh on Cape Verde’s economic performance. However large new public investments are expected to provide support to domestic demand and raise the GDP growth to 4.8% in 2013. Over the medium term, the resumption of structural reforms will be critical if Cape Verde is to sustain the high growth rates of the past decade.
Macroeconomic and fiscal management remained sound in 2012. Tighter fiscal policy and prudent monetary policy resulted in low inflation (2.5% in 2012 against 4.5% in 2011), an improvement in the external position and a recovery of international reserves to 3.8 months of imports in September 2012. Credit growth slowed considerably, however, reflecting sluggish demand and increased credit risks. The budget deficit equalled -7.3% of GDP. The government has already adopted corrective measures to improve revenue collection and scale back public investment in 2013. Cape Verde is still on track to achieve all the Millennium Development Goals (MDGs) by 2015, and remains a regional model of good governance, political rights and civil liberties.
In spite of its past success, Cape Verde is facing challenges to keep growing at a sustainable and inclusive way. The country’s lack of non-renewable natural resources and poor conditions for agriculture keep it highly vulnerable to external shocks. Tourism, the main driver for economic growth, has successfully tapped into natural resources such as biodiversity, landscape and the environment. Hotels and restaurants, for instance, grew almost six times faster than the national economy between 2000 and 2010, accounting for almost 16% of GDP in 2010. Yet it supplied only 4.6% of all jobs in 2010, compared to 2.5% in 2000. The government of Cape Verde has therefore been seeking to promote a more balanced economic development. The Third Growth and Poverty Reduction Strategy Paper (GPRSP III), yet to be adopted, reflects the government’s attempt to address the country’s structural challenges and adapt the country’s development model to its new non-Least Developed Country (LDC) circumstances.
( Courtesy Government of Cape Verde & Africa Economic Outlook…..Source……Our Economic Freelance Contributor in Nairobi & New Africa Business News )