Cabo Verde - Economic Growth

Economic Growth in Cape Verde

Is the economy growing? The short answer is yes. After a historic crash during the pandemic, Cape Verde has staged a robust recovery. However, understanding this growth requires looking beyond the headline numbers to see how tourism, geography, and productivity shape the daily reality of the islands.

What Economic Growth Means in Cape Verde

In the context of this small island nation, economic growth is not driven by large factories or vast natural resource extraction. Instead, it is a service-oriented economy powered by the movement of people and capital.

• The Service Engine: Growth in Cape Verde is synonymous with the expansion of the service sector—specifically tourism, transport, and commerce—which dominates the economy. When the economy grows, it means more planes landing, higher hotel occupancy, and increased activity in restaurants and retail.
• External Reliance: Because the country imports a vast majority of what it consumes (including food and energy), economic growth relies heavily on flows from the outside world: foreign direct investment to build infrastructure, and money sent home by Cape Verdeans living abroad.

Essentially, economic growth in Cape Verde measures the country's ability to attract visitors and capital, and how efficiently it can transform those inflows into local income.

Recent Growth Trends: A Rollercoaster Ride

To understand where the economy is today, it helps to look at the three distinct phases it has passed through recently.

1. The "Golden Era" and Subsequent Fatigue (1990s–2008): Following political and economic liberalization in the 1990s, Cape Verde experienced a period of high growth, averaging substantial expansion annually. This transformed the country from a Least Developed Country to a Lower Middle-Income nation. However, following the 2008 global financial crisis, this model began to show signs of fatigue, with growth slowing down significantly and becoming more volatile.
2. The Pandemic Shock (2020): Because the economy is so dependent on the movement of people, the COVID-19 pandemic caused the largest economic contraction on record. The sudden stop in tourism exposed the country's vulnerability, erasing years of progress in a single year.
3. The Rebound and Stabilization (2021–2024): Since 2021, the economy has been in a strong recovery phase. As travel restrictions lifted and tourists returned, GDP surged, surpassing pre-pandemic levels. Recent estimates for 2024 indicate robust growth driven by the service sector and a recovery in private consumption. The economy is now moving from a "rebound" phase to a stabilization phase, with growth rates expected to moderate but remain positive.

Why Growth Matters for Jobs and Incomes

Economic statistics translate directly into the livelihoods of Cape Verdean families in three critical ways:

1. Job Creation vs. Unemployment 

There is a direct link between the performance of the tourism sector and the job market. The recent economic recovery has generated new jobs, leading to a decrease in the unemployment rate. However, a challenge remains: while growth creates jobs, they are often concentrated in lower-productivity sectors like basic services. The country struggles to create enough high-skilled jobs for its young, educated population, leading to a mismatch where youth unemployment remains significantly higher than the national average.

2. Poverty Reduction 

Economic growth has been the primary driver of poverty reduction in the archipelago. The expansion of the economy in 2022 and 2023 helped lower poverty rates that had spiked during the pandemic. When the economy grows, household incomes generally rise, and families are better able to afford essentials. However, inflation (rising prices for imported food and energy) often works against this, eating into the purchasing power gained from growth.

3. Regional Disparities 

A growing national economy does not mean every island grows at the same speed. Growth is highly concentrated in the islands that host the main tourism infrastructures (Sal and Boa Vista) and the capital (Santiago). 

This creates a "two-speed" economy where residents of tourism-centric islands see more opportunities and higher GDP per capita, while rural areas on other islands may face stagnation.

summary

Cape Verde's economy is growing, driven by a resilient tourism sector and increased consumption. While this growth is bringing unemployment down and reducing poverty, the challenge ahead lies in diversification. To ensure that growth translates into higher incomes for everyone—not just more low-wage jobs—the country is focused on improving productivity and expanding into sectors like the blue economy and digital services.