Introduction Despite Cape Verde's very limited natural resource, it iseconomically stable and has progressed from “leastdeveloped” to “lower middle income” country status. Thisresults from its economic growth since the late 1980s,implementation of a poverty alleviation programme andstructural reforms. Cape Verde enjoys a good relationshipwith the World Bank and IMF, and receives bilateral aidfrom a number of countries. There have been concernsthat the improved status will adversely affect aid inflows.

Key Economic Indicators GDP grew at a real average rate of 8.3% from 1997 to2001. Growth continued in subsequent years, as can beseen in the key economic indicators for 2001 to 2005 thatare summarised in the table below.

Economic Sectors Cape Verde's economy is dominated by the service sector,including tourism. Tourism's contribution to GDP hasincreased from 9% in 2000 to 11% in 2005. The followingtable shows the breakdown of GDP by broad economicsector in 2000 and 2004. Agriculture's importance wasmarkedly lower in 2004 compared with 2000.

Foreign Trade Cape Verde is very heavily dependent on imports of goodsand services, which were equivalent to 64% of GDP in2004. Exports of goods and services were quantified as31% of GDP. Exports, which are limited, include clothing,footwear, minerals, fish and services. The major tradingpartner is Portugal, which accounted for 60% of importsand 41% of exports in 2004. As stated (Section 2.1.3)Cape Verde is working to strengthen its relations withthe European Union. It is also trying to develop closereconomic ties with Brasil. Cape Verde has tradeagreements with the EU, USA, Canada, ECOWAS statesand Portuguese speaking countries (Portugal,Angola, Brasiland Mozambique). The major trading partners in 2004 aresummarised in the following table.

Trade Balance The trade deficit averaged 35.2% of GDP from 1997to 2001. In subsequent years the deficit peaked at 38.0%of GDP in 2002, and was approaching 36% of GDP in eachof the three subsequent years. The negative trade balanceis compensated by workers remittances from overseas,estimated to be equivalent to over 20% of GDP, andbilateral and multi-lateral aid.

Privatisation A privatisation programme has been formulated. Itincludes privatisation of TACV, the national airline,although the timing of implementation is uncertain. Thepartial privatisation of the national water and electricitycompany has not been successful and resulted in waterand electricity shortages, particularly on the mostpopulated island, Santiago.

Foreign Investment Cumulative inward foreign direct investment increased fromUS$4 million in 1990 to US$173 million in 2000and US$228 million in 2004. The growth in annual andcumulative inward foreign direct investment from 2001 to2004 is summarised in the following table. Tourism hasattracted a significant proportion of foreign directinvestment. Overall investment averaged 34.3% of GDPfrom 1997 to 2001, and then in subsequent yearsfluctuated between 31.0% of GDP in 2003 and 38.4%of GDP in 2005. Investment incentives (Section 2.5) havefacilitated attraction of investments.

Exchange Rate The Cape Verde Escudos (CVE) is pegged to the Euro at therate: €1 = 110.3 CVE.Economic OutlookCape Verde has experienced significant economic growth inrecent years and this is expected to continue. IMF forecastsGDP to increase by at least 7% in 2006, with investmentincreasing to the equivalent of 42% of GDP. However,the trade deficit is forecast to increase to the equivalentof almost 38% of GDP. IMF and the Governmenthave identified tourism and fisheries as the two majoropportunity sectors of the economy.