Cape Verde has extensive public debt, and tourism represents a way to help ease the financial burden on its government and bring jobs to its residents.
Cape Verde will exempt European Union citizens from needing visas to visit the West African archipelago as it strives to boost tourism, which is vital to its economy, according to the prime minister.
Visa-free access for EU passport holders should begin in 2018, Prime Minister Ulisses Correia e Silva said by phone from Praia, the capital. The exemption is part of a raft of proposals that includes privatizing the ailing state-owned airline, improving management of its airports and growing crops for export so that gross domestic product can expand at a faster rate than the forecast of 5 percent for this year, he said.
“The dominant sector is tourism and we’re making strong investments to improve the islands as a destination,” Correia e Silva said. “We also want to diversify the economy so that we don’t put all the eggs in the tourism basket.”
The Atlantic Ocean country of 10 main islands, some surrounded by beaches, has about 550,000 people and attracted as many tourists last year. The total contribution of tourism was estimated to account for 44 percent of GDP in 2016, according to the World Travel & Tourism Council.
The government of Correia e Silva, elected last year, aims to boost growth to about 7 percent by 2021, a rate last seen before the 2008 global financial crisis, which curbed the arrival of visitors. Economic growth slowed to an average of 1.3 percent annually in the six years through 2015, International Monetary Fund data show.
Last week, the council of ministers approved financial incentives for foreigners to invest in Cape Verde, which will include residency, he said.
“It’s not just for tourism, but it’s to facilitate the mobility of investors, academics, culture, science and technology,” Correia e Silva said.
The “biggest problem” is the country’s external debt stock, which is “relatively high” and mainly consists of concessional loans with the African Development Bank, World Bank and Portugal, he said. Cape Verde achieved independence from Portugal in 1975.
“The rates on the debts are low but they’re still a constraint — our strategy is to reduce the stock to levels that are more sustainable,” he said. External debt was about 63 percent of GDP last year, above the IMF’s risk threshold of 50 percent, and the organization estimates it will fall to 59 percent by 2020.
State-owned TACV Cabo Verde Airlines is “practically insolvent” and will be privatized, Correia e Silva said. The carrier owns one plane that isn’t operational. The government in August named Icelandair Group HF as the airline’s management partner.
“When this government came in, it was very clear that the airline had to be restructured,” Correia e Silva said. “We want to develop this relationship so that there will be participation in TACV’s capital,” he said, adding that the government wants to get concession partners to manage airports as part of its plans to position the archipelago as an aviation hub.
The government is also hoping to move tourism from a resort-concentrated model to an industry that will see each of the islands provide different offerings. The islands of Sal and Boavista have beaches, while other islands could offer adventure experiences, he said.
Tourism has enabled development in agriculture from a subsistence-based system to one that caters for visitors and requires better distribution, inter-island transport and logistics, he said.
Cape Verde is also looking for export opportunities to the EU for niche agricultural products like papaya fruit, which grows easily on the islands, Correia e Silva said.
©2017 Bloomberg L.P.
Photo credit: Tourists in Cape Verde. The country is looking for tourists to boost its economy. Rum Bucolic Ape / Flickr