Markets and investor protection allow Cape Verde to move closer to world’s freest economies

28 January 2008

Macau, China, 28 Jan – the opening of markets and protection of private property have allowed Cape Verde to move up in the Economic Freedom Index 2008, to a position closer to the freest economies in the world, which, of the Portuguese-speaking countries, includes only Portugal.

In the list from the US Heritage Foundation, the trend amongst the included Portuguese-speaking nations – all except the Sao Tome and Principe archipelago and East Timor – is of stability as compared with last year; the exception is Angola, which despite strong growth remains in the group of “non free” economies and Cape Verde.

The Cape Verdean economy achieved a result of 58.4 percent, which makes it the 88th freest economy amongst the 157 analyzed, having gained 1.3 percentage points against its result for 2007, thanks to “the better investment climate and reduced corruption,” the Heritage Foundation said.

”Cape Verde has good scores in monetary freedom, investment, and particularly in property rights, where it has a result of 24 points above average. Inflation is low, although the government subsidizes some foodstuffs. In comparison with neighboring countries, property rights are very well protected within the law,” said the report published last week.

Heritage warned however of the “serious challenges” the Cape Verde economy was facing, as it is dominated by services, in terms of revenues, although agriculture, fishing and industry employ most of the active population.

“The freedom of trade and the amount of taxes collected and the level of government expenditure are the main problems and the heavy legislation applied to economic activity is a barrier to investment and entrepreneurship. Trade is being made more difficult because of a high level of average tariffs and significant non-tariff related obstacles,” it added.

The annual report from Heritage assessed, from the point of view of the activities of economic agents, the labour market, corruption, property rights, the financial sector, investments, markets, government, taxation, trade and business.

Cape Verde is in ninth position amongst sub-Saharan African countries, and is even ahead of Brazil (55.9 percent), which lost some percentage points, falling to 101st place due to “corruption” and “labor freedoms.”

“Brazil is a regional economic power, but has no significant strength in any of the 10 economic freedoms. Individual and collective taxation levels are high. As compared with other developing countries, tax revenues are high as compared with gross domestic product (GDP),” the report noted.

South America’s largest economy, it said, “suffers from weak financial freedom and has an over-sized central government. The regulatory inflexibility makes setting up a business a much more drawn out process than in most other countries. There are significant restrictions on foreign capital in many areas and the government continues to be very involved in banking and finance. The judicial system and other areas of the public sector are inefficient and subject to corruption.”

Mozambique also managed to be placed ahead of Brazil, in 96th place, despite growth (0.7 points to 56.6 percent) having been modest due to a “lack of significant reforms.”

Mozambique’s string points are the appropriate size of the public sector, freedom of trade, investment, the financial sector and the openness of markets and “moderate” taxation levels, according to Heritage.

However, the report said, “economic development has been made more difficult due to weak labor freedoms, property rights, corruption and freedom to do business. The regulatory environment is a burden on business creation, most aspects of the labor market are inflexible and justice is subject to corruption and the political whims of the government.”

Whilst Mozambique, Brazil and Cape Verde were placed in the group of economies considered to be “restricted in the majority of areas,” Angola is included in the final category of “repressed” economies, but is the Portuguese-speaking country that rose most from 2007 to 2008 – 1.9 percentage points, to 47.1 percent (143rd place).

Despite the “moderate” level of economic freedom, heritage said that the worst aspect in Angola was high inflation, excessive regulation, obstacles to investment, corruption, political influence, as well as trade regulations.

“Angola reaches relatively high levels with low taxation and the reduced size of the government, but has very negative scores for most of its policies,” the report said.

Of the Portuguese-speaking countries, Portugal was given the best score (64.3 percent, 53rd place), just below last year’s.

In this year’s list the first three places are taken by the Chinese special administrative region of Hong Kong, by Singapore and Ireland, which beat countries traditionally thought to be more liberal, such as Australia, the United States and Canada. (macauhub)