Cape Verde economy shows some signs of cooling down

14 May 2007

Praia, Cape Verde, 14 May – Private consumption and investment, particularly in the tourism sector, continues this year to show a healthy growth in Cape Verde’s economy, which, nevertheless, shows some signs of “cooling”, according to a report from the islands’ central bank.

These economic scenarios are contained in the latest report on the islands’ economy to the Praia government, published this month, from Cape Verde’s central bank at a time when Foreign Minister Victor Borges prepares to travel on an official visit to China that could open a new era in bilateral relations.

In its previous report to the government, Cape Verde’s central bank forecast GDP growth of between 6 and 7 percent for 2007, following the 6.1 percent of last year, noting these figures “suggest a reduction in economic activity.”

The main causes for concern are internal demand, usually the most important component of GDP growth, which will still be higher this year than in 2006.

Cape Verde’s state bank says this indicator is registering an overall slowing down, both in consumption and in gross creation of fixed capital (investment) represented by imports of equipment, construction and transport goods.

Despite “some cooling in family consumption”, a component that still sustained GDP growth this year, there is a continuing trend for price increases, particularly in food and drink, housing and other items.

Cape Verde’s central bank estimates there will be a variation of between 2.5 percent and 3.5 percent in the Consumer Price Index this year.

Other signs of economic cooling are in the construction sector, with “stagnation” and negative effects transmitted by firms in the transport, market trading and manufacturing industry.

These negative signs are a counterweight to “favorable expectations” in tourism and commerce, meaning that Cape Verde’s economic climate this year will be “practically unaltered”, says the bank’s report.

Economic growth in 2007 “rests basically on more favorable behavior in family consumption (compared to 2006 and despite recent signs of cooling) and private investment through its contribution to net exports, which will remain lower than predictions for 2006.”

According to figures from Cape Verde’s central bank, internal demand will account for nearly 16 percent of GDP growth, imports for almost 12 percent and exports only about 2 percent.

“Basically translating into a forecast decrease of prices, the expansion of economic activity should largely by supported by family consumption, the main component of GDP”, adds the report.

Public consumption will be around 8.9 percent, just 0.1 percent lower than the estimate for 2006.

Investment growth “foresees the carrying out and/or completion of some projects forecast for 2007, especially those relating to foreign direct investment in tourism, and an increase in private sector credit compared to the financial conditions that have been seen in the market.”

Cape Verde’s level of foreign investment is one of the strong points of the economy, together with two other factors; the effect of hikes in international interest rates and internal prices.

While the first “”influence the development of expatriates’ bank balances,” the second “greatly depend on evolution of international process and national determinants,” particularly energy and non-manufacturing items.

The International Monetary Fund gave an optimistic account last week of the prospects for Cape Verde’s economy, but alerted to the need for reform in the country’s financial sector to combat money laundering and other illicit activities by “offshore” companies registered in the islands.

Cape Verde was also high on the weekend agenda of the AGM of the African Development Bank in Shanghai, where Praia’s finance minister held talks with officials from China’s Eximbank aimed at “mobilizing financial resources.”

Foreign Minister Victor Borges will use his upcoming China visit to boost bilateral relations to a strategic level, according to Cape Verde media reports. (macauhub)