Cabo Verde's Domestic Economy

Cabo Verde's Domestic Economy: A Market Too Small to Scale

Cabo Verde's private sector is dominated by nearly 11,000 active companies, of which 98 per cent are micro, small and medium enterprises. These firms account for 55 per cent of formal employment, yet operate in a market so small and fragmented that scale remains elusive.

The archipelago's geography is the first constraint. Three islands—Santiago, São Vicente and Sal—host 75 per cent of all companies and generate 95 per cent of national output. But unreliable inter-island transport prevents these hubs from functioning as a single market. Local producers, particularly in horticulture and fisheries, cannot compete with imports because they cannot move goods efficiently between islands.

A Service Economy Built on Fragile Foundations

Services represent 75 per cent of GDP. Retail trade and tourist accommodation alone provide 44 per cent of all private-sector jobs. Yet this concentration masks underlying weakness. Agriculture and fisheries contribute just 7 per cent of GDP and 11 per cent of jobs. The country imports over 80 per cent of its food.

Domestic fisheries illustrate the problem. Artisanal fishing is reserved for local vessels within territorial waters—a 12-nautical-mile zone. The 2021 census recorded 4,062 artisanal fishers operating 1,463 vessels. These operations serve local consumption but lack the infrastructure or capital to scale.

Agriculture fares no better. Some 44,506 farms were recorded in 2004, of which 99.87 per cent were family-owned subsistence operations. Domestic production supplies only 20 per cent of food consumed nationally.

The Cost of Being Small

Access to finance is the single largest barrier to growth. Around 44 per cent of firms cite it as their main constraint, more than double the 19 per cent average across sub-Saharan Africa. Banks perceive domestic businesses as high-risk, and collateral requirements often exceed what micro-enterprises can provide.

Operational costs compound the challenge. Cabo Verde has some of Africa's highest electricity and internet prices. One pharmaceutical exporter reported that water and electricity consumed 10 per cent of sales revenue. For businesses serving only the domestic market—without export earnings to offset costs—these inputs are prohibitive.

Informality pervades the economy. Some 53 per cent of the working-age population engaged in informal activities in 2022. Only 35 per cent of micro, small and medium enterprises maintain systematic accounting. Just 25 per cent of companies appear in national statistical surveys.

The government introduced the Special Unified Tax Regime (REMPE) in 2014 to encourage formalisation. Micro-enterprises—defined as having up to five workers and turnover below 5m Cape Verdean escudos—pay a flat 4 per cent tax on gross sales, replacing value-added tax, stamp duty and fire tax. Small enterprises, with six to 10 workers and turnover between 5m and 10m escudos, qualify for the same treatment.

Yet REMPE has not resolved deeper structural issues. State-owned enterprises compete directly with private firms in sectors such as manufacturing, construction and real estate. These public entities represent 15 per cent of revenues and 13 per cent of employment among state enterprises, creating unequal competition in markets already too small to support multiple players.

Wages Reflect the Constraints

Average monthly wages in 2021 were 9,091 escudos (US$97) at local private companies, compared with 9,583 escudos (US$103) at foreign firms. The differential is modest but telling. Foreign companies, typically export-oriented or serving tourism, operate with different cost structures and market access. Domestic firms, tethered to local demand, cannot offer more.

No Easy Path to Scale

Regulatory simplification efforts, such as the "Empresa no Dia" programme, have reduced friction at the point of business registration. But they do not address the fundamental problem: the market is too small to support economies of scale, and the archipelago's geography prevents consolidation.

Domestic producers face a stark choice. They can target the tourist market, which offers higher margins but limited volume. Or they can attempt to export, which requires capital, logistics and quality standards few micro-enterprises can meet.

For now, most remain focused on survival within the local market. The result is an economy where thousands of small firms coexist, none large enough to drive meaningful productivity gains, all constrained by the same structural limits.