PEST Analysis: Cabo Verde

C ountry Report | 19 Aug 2021

Cabo Verde has one of the most politically stable landscapes in Africa. Nonetheless, state
finances remain distressed and have worsened owing to the Coronavirus (COVID-19)
pandemic. High exposure to tourism caused a deep recession, but the economy is expected
to recover in the medium term, partly supported by investment and remittances. Emigration
continues and the populace is ageing quickly. Greater focus on ICT infrastructure deployment
is expected to serve the islands well going forward.
PEST ANALYSIS
PEST analysis (political, economic, social and technological) describes a framework of macro-
environmental factors assessed as a strategic tool for environment scanning, understanding
risks and opportunities, market growth or decline, business position, and potential and
direction for operations, helping companies to become more competitive.

Chart 1 Main PEST Points in Cabo Verde

Source: Eurom onitor International

POLITICAL ENVIRONMENT
Sum m ary 1 Political Env ironm ent Analy sis in Cabo Verde
Opportunities
‘Moderately free’ for Economic Freedom: In the
Index of Economic Freedom, Cabo Verde has
achieved the fifth best ranking in Sub-Saharan
Africa in 2021, placing it amongst the
‘moderately free’ group of countries. With its
system of parliamentary democracy, Cabo
Verde is one of the most politically stable
countries in the region. General elections were
held peacefully in 2016, reflecting the country’s
political stability, a rare phenomenon in Africa.
Indeed, this is also illustrated by its favourable
ranking in the World Bank’s Political Stability
and Absence of Violence Index, which improved
over 2014-2019. The judiciary is independent
and transparent, but has more cases than it
can handle and lacks human resources, which
negatively affects Cabo Verde’s ranking in the
World Bank’s Regulatory Quality Index.
Challenges
Deteriorating government finances: Owing
to fiscal measures taken to combat the
negative impact of the COVID-19
pandemic, the budget deficit widened
considerably to under 9.0% of GDP and
public debt rose to nearly 140% of GDP in
2020. Measures included loans to the
private sector and tax holidays. Other
measures that amounted to 1.2% of 2020
GDP included financial support for those
engaged in informal employment, benefits
to individuals without income, and loans to
vulnerable households. Extremely high
public debt is at risk of default and,
without assistance from donors such as
the World Bank and the International
Monetary Fund (IMF), is not sustainable,
although debt repayment interest rates are
low and manageable.

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 Opportunities Challenges
Corruption is not a major a problem: With a
ranking of 41st globally in the Corruption
Perceptions Index in 2020, Cabo Verde was
Sub-Saharan Africa’s third least corrupt
country. A country that is not marred by
corruption can facilitate the development of
the private sector, through lower business
costs and the smooth running of operations.
Cabo Verde’s low corruption rates is a key
attraction for investors.
Source: Euromonitor International

Chart 2 Political Environment Dynamics in Cabo Verde

Source: Eurom onitor International from the Heritage Foundation/International Monetary Fund
(IMF)/Governm ent Finance Statistics (GFS)/Institute for Econom ics and Peace/Transparency International/W orld
Bank /Eurostat/national statistics

ECONOMIC ENVIRONMENT
Sum m ary 2 Econom ic Env ironm ent Analy sis in Cabo Verde
Opportunities Challenges

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 Opportunities Challenges
Economy to rebound strongly:Following annual real GDP Relatively reliant on imports:
contraction of 14.0% in 2020, which was significantly Given that total goods imports
worse than the Middle East and Africa average that year, accounted for 41.3% of GDP in
owing to Cabo Verde’s large exposure to tourism, the 2020, Cabo Verde
economy is expected to bounce back very strongly in the demonstrates its relative
short term to post annual real GDP growth of 5.8% in reliance on imports. Indeed,
2021. In the medium term, economic performance is only a tenth of the land is
forecast to outpace the regional average, owing to a suitable for arable production
rebound in tourism, higher remittance inflows, and and the country is highly
investments in infrastructure projects, and the energy and exposed to droughts (with
information and communications technology (ICT) sectors. around 200,000 people dying
Nevertheless, economic progression is highly dependent on under drought conditions in the
the pace of recovery for the global economy. 20th century). The country’s
relatively large dependence on
imports exposes it to supply
disruptions arising within
trading partners, such as the
ones witnessed during the
COVID-19 pandemic, which
could lead to a shortage of
goods and food.
Currency peg helps to stave off inflation: Cabo Verde’s Significant exposure to tourism:
currency is pegged to the euro at a rate of CVE110 per Tourism accounts for a quarter
EUR. This plays a major role in controlling inflationary of GDP and its indirect
pressures, as it keeps the exchange rate stable against contribution to output through
major global currencies like the US dollar and lessens related sectors accounts for as
currency volatility that is experienced by some regional much as two fifths of economic
peers. Consequently, the inflation rate is expected to be performance. This makes Cabo
below the Middle East and African average over the Verde highly susceptible to
medium term. interruptions in tourist flows, as
seen during the COVID-19
pandemic, which can in turn
hurt consumption as the sector
employs a substantial share of
the workforce.
FDI an economic driver: Foreign direct investment (FDI)
inflows equated to 4.3% of GDP in 2020 and although they
have been falling over 2014-2020, having reached as high
as 9.9% of GDP in 2014, they constitute an important
driver of the economy. The state is committed to
privatisation of key sectors, which are likely to attract
foreign investment to the country and include tourism,
maritime and air transport, ICT, the blue economy
(fisheries), financial services, and agribusiness. Key
attractions for foreign investors are political stability, a
stable exchange rate, a geographical location that is close
to Europe, and its abundance of pristine beaches that
makes it an ideal touristic destination. As a result of
investment in a special economic zone on São Vicente
Island in 2019, which has created favourable tax and
regulatory conditions, the state has the strategy to
reinforce Cabo Verde’s position as a logistics centre in the
region. However, unstable electricity connections that
lead to frequent blackouts are a deterrent to investment.
Source: Euromonitor International

Chart 3 Economic Environment Dynamics in Cabo Verde

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Source: Eurom onitor International from Eurostat/O ECD/United Nations (UN)/International Monetary Fund
(IMF)/W orld Econom ic O utlook (W EO )/International Financial Statistics (IFS)/International Labour O rganisation
(ILO )/UNCTAD/International Merchandise Trade Statistics/national statistics

SOCIAL ENVIRONMENT
Sum m ary 3 Social Env ironm ent Analy sis in Cabo Verde
Opportunities
Population growing steadily: Although the fertility
rate is forecast to drop below the replacement
rate of 2.1 from 2025 onwards, natural change is
expected to lead to the total population of Cabo
Verde expanding by 16.1% over 2021-2040, but
the rate of expansion will be considerably below
that of the Middle East and Africa average in that
timeframe. Nevertheless, there will be increasing
opportunities for consumer-facing businesses in
Cabo Verde, particularly against the backdrop of
solid economic performance, although purchasing
power will continue to remain relatively weak.
However, consumer expenditure is expected to
rise by 39.1% between 2020 and 2025, but its
share of GDP is likely to drop over that timeframe,
as the economy increasingly diversifies. By 2040,
Cabo Verde’s total population is expected to stand
at just shy of 653,000.
Challenges
Poverty remains an issue: Although the
country has made great strides in the
reduction of poverty, with the
population living below the national
poverty line falling from 59.8% in 2000
to 32.0% in 2020, given the relatively
high rate of deprivation, Cabo Verde
remains a poor country. This is likely to
continue to impact consumption, with
spending concentrated on essential
categories like food and non-alcoholic
beverages to the detriment of
discretionary categories.

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 Opportunities
Rising life expectancy: Life expectancy in Cabo
Verde is on the rise and is forecast to stand at
76.4 years in 2040, higher than 69.5 years for the
Middle East and Africa average. This is due to the
country’s economic development that is resulting
in poverty reduction. Moreover, modern and
unhealthy lifestyles have not beset the islands
yet, which could keep the prevalence of diseases
such as diabetes low in the medium term, given
that much of the population is limited to
subsistence living.
Source: Euromonitor International
Chart 4 Social Environment Dynamics in Cabo Verde
Challenges
Emigration to continue: Although the
negative net migration rate is expected
to moderate over 2021-2025, indicating
that more people are vacating the
islands than immigrating to them, it will
remain higher than the Middle East and
Africa average. This is due to limited
opportunities available to Cabo Verde’s
population, causing them to emigrate in
search of better economic prospects,
which translate into high remittance
inflows for the country. There is a
greater number of people originating
from Cabo Verde living outside of the
country than within its borders.
Continued emigration from the country
is likely to lead to a tight labour market
and lower tax receipts for the state.
Rapidly-ageing population: Those aged
65 are forecast to increase by 141%
compared to a decline of 15.1% in
those aged 0-14 over 2021-2040. This
illustrates that Cabo Verde’s population
is ageing quickly. Indeed, the old-age
dependency ratio is anticipated to
stand at 14.7% in 2040, compared to
8.8% for the Middle East and Africa
average. This could create challenges
for the state in the long run in the
shape of greater government spending
on pensions and healthcare for the
elderly, which will be problematic given
the distressed state of government
finances.
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Source: Eurom onitor International from United Nations (UN)/Eurostat/O ECD/W orld Bank /International Diabetes
Federation/national statistics
Note: Social classes present data referring to the num ber of individuals with a gross incom e A - over 200%, B -
between 150% and 200%, C - between 100% and 150%, D - between 50.0% and 100%, E - less than 50.0% of
an average gross incom e of all individuals aged 15 .

TECHNOLOGICAL ENVIRONMENT
Sum m ary 4 Technological Env ironm ent Analy sis in Cabo Verde
Opportunities Challenges
Solid forecast rise in internet use: The percentage of the Falling fixed lines in use: Over
population using the internet is expected to increase from 2012-2020, the number of
68.0% in 2020 to 81.0% in 2025. This will enable fixed telephone lines in use
technology players to make further inroads into Cabo declined in Cabo Verde. This is
Verde, particularly social media platforms that could also due to the increasing adoption
create e-commerce opportunities. Higher internet use could of mobile technology, whilst
also support further progress in e-governance. the absolute number of fixed
lines in use remained
depressed over this period,
owing to the isolated nature of
the islands making it difficult to
deploy landline infrastructure.
Hence, a greater number of
people are relying on mobile
technology for their
communications needs, which
could lead to the fixed line
network eventually becoming
obsolete.

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 Opportunities Challenges
Mobile subscriptions exceeding population: By 2025, there Very low innovation capacity:
will be 628,000 mobile telephone subscribers in Cabo Verde, As seen by its unfavourable
up from 600,000 in 2020. This will translate into multiple ranking in the Innovation
mobile subscriptions per capita, given that the total Capability pillar of the Global
population will be just over 400,000 in 2025. Falling Competitiveness Index (GCI)
handset prices are expected to drive this trend, as will 2019, Cabo Verde highlights its
cheaper mobile network tariffs. Multiple subscriptions per lack of commitment to
capita also point to a greater number of people using innovation. This is primarily due
mobile technology for work purposes. to the low number of scientific
publications and limited
spending on research and
development (R&D), which
equated to less than 0.1% of
GDP in 2020 and could
negatively impact upon
competitiveness in the short
term.
Aiming to become ‘Cyber Island’: In December 2020, the
country’s prime minister outlined objectives that aim to
make Cabo Verde an ICT hub within the region in the
medium term. Through the Cabo Verde Digital Strategy, the
country would become ‘Cyber Island’ by extending high-
speed internet use to most of its population. The creation
of a digital economy is expected to enhance economic
development, as well as improving innovation potential, by
placing tourism at the core of economic progress, whilst
also addressing the challenges and opportunities presented
by the blue (fisheries activities) and green (renewable
energy) economies. The prime minister also highlighted the
construction of two technology parks in the country and
the passage of the Ellalink submarine cable through Cabo
Verde that will link Europe and Latin America. Education
and vocational training are expected to be at the centre of
the strategy to bridge the digital divide within the
populace.
Source: Euromonitor International

Chart 5 Technological Environment Dynamics in Cabo Verde

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Source: Eurom onitor International from International Telecom m unications Union
(ITU)/Eurostat/O ECD/UNESCO /W orld Econom ic Forum (W EF)/national statistics

Statistical Summary
2015 2016 2017 2018 2019 2020
Inflation (% change) 0,1 -1,4 0,8 1,3 1,1 0,6
Exchange rate (per 99,45 99,70 97,83 93,43 98,52 96,78
US$)
Lending rate 10,4 9,6 9,5 9,0 8,4 8,2
GDP (% real growth) 1,0 4,7 3,7 4,5 5,7 -14,8
GDP (national currency 158 699,0 165 782,2 173 097,4 183 697,9 195 202,3 164 911,0
millions)
GDP (US$ millions) 1 595,8 1 662,8 1 769,3 1 966,1 1 981,3 1 704,0
Birth rate (per '000) 20,8 20,3 19,9 19,5 19,1 18,6
Death rate (per '000) 5,8 5,7 5,7 5,6 5,6 5,5
No. of households 133,0 136,4 139,8 143,3 146,9 150,5
('000)
Total exports (US$ 67,1 61,4 52,1 75,8 62,0 53,1
millions)
Total imports (US$ 883,6 1 084,9 1 270,8 1 652,2 1 282,7 722,6
millions)
Urban population 337,4 344,1 350,8 357,4 364,0 370,6
('000)
Urban population (%) 64,3 64,8 65,3 65,7 66,2 66,7
Population aged 0-14 29,9 29,6 29,2 28,8 28,4 28,1
(%)
Population aged 15-64 65,5 66,0 66,3 66,6 66,9 67,1
(%)
Population aged 65 4,5 4,5 4,5 4,6 4,7 4,8
(%)
Male population (%) 50,1 50,1 50,2 50,2 50,2 50,2

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 2015 2016 2017 2018 2019 2020
Female population (%) 49,9 49,9 49,8 49,8 49,8 49,8
Life expectancy male 68,6 68,8 69,1 69,3 69,5 69,7
(years)
Life expectancy female 75,4 75,6 75,8 76,0 76,2 76,4
(years)
Infant mortality 21,2 20,7 20,1 19,6 19,1 18,6
(deaths per '000 live
births)
Adult literacy (%) 86,8 87,1 87,3 87,5 87,7 87,8

Imports and Exports

2021 Share 2021 Share
Major export destinations (%) Major import sources (%)
Exports (fob) to Europe 89,4 Imports (cif) from Europe 68,7
Exports (fob) to North America 6,3 Imports (cif) from Latin America 14,1
Exports (fob) to Other 3,1 Imports (cif) from Asia Pacific 8,9
Countries
Exports (fob) to Africa and the 1,7 Imports (cif) from North America 3,8
Middle East
Exports (fob) to Latin America 0,2 Imports (cif) from Africa and the 2,5
Middle East
Exports (fob) to Asia Pacific 0,0 Imports (cif) from Other 1,7
Countries

© Euromonitor International 2022

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