Cabo Verde How the Economy Affects Daily Life

How Cape Verde's Economy Shapes Daily Life

When we hear economists talk about "GDP," "fiscal deficits," or "balance of payments," it often sounds like abstract noise. But in Cape Verde, perhaps more than in larger countries, these economic terms are not just numbers on a spreadsheet—they determine the price of your bread (pão), the likelihood of your cousin finding a job, and whether the ferry to the next island is running.

Here is a breakdown of what "the economy" actually means in the archipelago and why it dictates the rhythm of daily life.

In Cabo Verde what "The Economy" Means in Simple Terms

In Cape Verde, "the economy" is best understood as a system of flows. Because the country has limited natural resources and produces only about 20% of the food it consumes, it relies heavily on the outside world to survive.

Think of the economy as having two main engines:

• The Service Engine (Tourism): This is the massive driver. Tourism isn't just hotels; it accounts for 25% of the country's GDP directly and drives about 40% of all economic activity. When tourists arrive, they buy food, use taxis, and consume water and energy, creating a chain reaction of spending.
• The Diaspora Engine (Money Sent from Abroad): This is the safety net. Money sent by emigrants makes up roughly 10.5% to 12% of GDP. For many families, these transfers are not just "extra money"—they are the primary source of income for daily consumption and housing improvements.

The Bottom Line: Cape Verde is a "service-based" economy. If planes land and the diaspora sends money, the economy flows. If these stop (as seen during the pandemic), the flow dries up immediately.

 Why the Economy Matters for the Job Market

The economic setup of Cape Verde creates a specific type of job market, characterized by high dependence on tourism and significant informality.

• Where the jobs are: The economy creates the most opportunities in Sal and Boa Vista (the tourist hubs) and Santiago (administration and commerce). This creates an internal migration flow; people must move to where the economy is working. As a result, islands like Sal have much higher employment rates (65.1%) compared to rural areas in Santiago.
• The "Informal" Trap: Despite growth, about 47.5% to 48.7% of jobs in Cape Verde are informal. This affects daily life profoundly: nearly half the workforce has no social security, no paid vacation, and no sick leave. When the economy slows down, these workers have no safety net.
• The Youth Challenge: A growing economy hasn't solved the "skills mismatch." While literacy is high, companies struggle to find workers with specialized technical skills. This leads to a frustrating paradox where youth unemployment remains high (around 22% for those aged 15-24 in mid-2024), yet businesses complain they can't find qualified staff.

Why the world economy matters for prices in Cabo Verde

Have you noticed that when fuel prices rise globally, the cost of almost everything in the local store goes up? This is because of Cape Verde's structural vulnerability.

• Import Dependence: Because the country imports 80% of its consumption goods (including food and fuel), it imports inflation. If the price of grain rises in Europe or oil prices spike globally, a family in Santo Antão pays more for dinner. For the poorest households, who spend 25% of their income on food, these global shifts can lead to immediate food insecurity.
• The Euro Peg Stability: There is a silver lining. The Cape Verdean Escudo (CVE) is pegged to the Euro. This is an economic policy that stabilizes daily life. Unlike other African nations where currency devaluation destroys savings overnight, the peg keeps the currency stable. However, it also means the Central Bank must sometimes keep interest rates high to defend this peg, making loans for buying a house or starting a business more expensive.

Where are the Future Opportunities?

Economic trends signal where life might get better in the next few years. The government and international partners are trying to fix the "single engine" reliance on tourism.

• Beyond "Sun and Sand": There is a push to diversify tourism into nature and trekking (Santo Antão, Fogo) to spread the dollars beyond the all-inclusive resorts.
• The Blue & Digital Economies: New opportunities are emerging in the "Blue Economy" (fisheries, aquaculture, ship repair) and the "Digital Economy" (technology parks). The goal is to turn the ocean and internet connectivity into new sources of income so that if tourism dips, the country has other options.
• Renewable Energy: With some of the highest electricity costs in Africa, the economic push toward 50% renewable energy aims to lower the cost of living and doing business for everyone.

Key Macroeconomic Data for Cabo Verde (2024–2025)

1. Economic Growth (GDP)

   • 2024 (estimate): GDP growth of 7.2–7.3%, driven mainly by tourism, private consumption, and agriculture.

   • 2025 (projection): Growth expected to slow to around 5.9% (range: 4.8–5.4%) as post-pandemic recovery stabilizes.

   • Services accounted for over 70% of growth in 2024.

2. Inflation

   • 2024: Average inflation of 1.0%, reflecting lower global energy and food prices.

   • 2025: Inflation projected at 1.7–1.8%, in line with the Eurozone.

   • Lower inflation supports purchasing power and poverty reduction.

3. Public Debt

   • 2024: Public debt at around 108–110% of GDP, down sharply from pandemic highs.

   • 2025: Debt projected to fall further to 104–105% of GDP.

   • External debt represents the largest share.

4. Fiscal Deficit

   • 2024: Fiscal deficit estimated at 1.1% of GDP.

   • 2025: Deficit projected at 1.5–1.9% of GDP.

   • 2024 primary balance: surplus of 1.3% of GDP.

5. External Sector

   • 2024: Current account surplus of 3.7–3.8% of GDP, driven by tourism.

   • 2025: Expected return to a 2.9% GDP deficit due to higher imports.

   • Foreign reserves cover 6.5 months of imports in 2024 and 6.3 months in 2025.

6. Poverty and Employment

   • Poverty rate: 14.4% in 2024, projected 13.3% in 2025.

   • Unemployment: Fell to 8.0% in 2024 (from 10.3% in 2023).