Cape Verde News

Increase in trade deficit requires cutting

Cape Verde's dependency for survival and for development upon high levels of imported goods and services compared with its low level of exports of goods and services has persistently caused a large trade deficit. The deficit has worsened particularly over the last three years since imports of goods have risen from around $156 million in 1993 to $224m in 1994 and $210m in 1995. Exports typically covered only between 5% and 6% of imports before economic liberalisation policies were adopted by the MPD government (Movimento para a Democracia) elected to power in 1991, but the large increase in imports due to import liberalisation policies has seen the cover rate reduce to around 2.5% over the last three years. Although merchandise exports have almost doubled since their early 1990's level of around $5m, this amount has not led to a notable increase in the cover rate.

The substantial widening of the trade gap has worsened Cape Verde's already negative current-account balance on its balance of payments which has also been hit by a recent decrease in the levels of valuable foreign aid, particularly food, and of remittances received from Cape Verdeans living abroad. The persistent worsening deficit on Cape Verde's current-account of its balance of payments is bad news as the government has to borrow foreign currency to pay for crucial imports like food and fuel and thus accumulates a growing external debt with debt-servicing costs which are unhealthy for economic growth.

To help rectify this problem, to reduce the growth of external debt and debt-servicing costs, the government must reduce the extent of Cape Verde's trade deficit (as well as hope that the amount of remittances and transfers of foreign aid will increase). Exports of goods and services are, fortunately, on a notable increase. Traditional exports of goods such as bananas, canned tuna, frozen fish, lobster, salt and pozzolana have been augmented in the last three years with exports of textile and footwear merchandise by recently established light-industrial firms in Praia and Mindelo set up with foreign private investment. Exports of services are also set to increase considerably with the development of Cape Verde's tourism potential and the future creation of an off-shore banking and company tax-haven sector and registry of shipping by Cape Verde offering a flag of convenience. However, besides the optimistic outlook for a rise in Cape Verde's level of exports, the level of imports must be reduced considerably to narrow the trade gap. Part of the reason for a rise in imports has been caused due to the needs of foreign investors to import goods for the implementation of their projects, however, the economic liberalisation policies adopted since 1991 have also led to an increase in the level of secondary imported goods such as, canned food and drink, meat and motor vehicles including spare parts.

The government has announced that it will enforce a strict quota on the level of secondary imported goods and also raise import tariffs in order to reduce import levels. According to the state-owned newspaper, Novo Jornal, the total amount of goods permitted for importation by licenced import companies will be almost halved compared to last years quota level of $210m. Duties on imports will see, on average, a 10% increase on secondary imported goods with a 10% average rise in consumption tax on certain goods as well. Some primary goods will also experience a rise in consumption tax, notably: cooking oil (15%), rice, flour and sugar (averaging 10%). Devaluation of the Cape Verde Escudo (currently about 81 CVE equals $1) which would lower the level of imports by reducing the purchasing capacity of local importers yet increase the value of export earnings and remittances has been ruled out by the Minister for Economic Co-ordination, Gualberto do Rosario.

Deputies representing the socialist Opposition party, the Partido Africano da Independencia de Cabo Verde (PAICV) led by Aristides Lima, are against the government's policy to reduce import quotas and raise tariffs, arguing that this measure will harm those living in poverty (about 40%) due to a rise in domestic consumer prices which will lead to an increase in unemployment (currently about 26%). However, the government argues that by reducing the trade deficit and thus reducing the extent of accumulation of external debt incurring debt-servicing costs, the economy will be placed in a stronger position for sustainable economic growth, as any state funds that would otherwise be used up to pay off external debt would be employed to finance public investment into infrastructure development and should create some 20,000 jobs over the next five years. In turn, the government argues, the created infrastructures will improve Cape Verde's development potential and attract further foreign private investment.

The increase in import tariffs on secondary goods, particularly construction materials, should not affect the level of private foreign investment as under external investment legislation introduced in 1993 such investors are exempt from import duties on goods necessary for the implementation of their projects. Companies which import goods for re-export or for assembly/manufacture and subsequent export are exempt from import duties.

The government has also announced that it will be approving legislation to give more benefits and guarantees to incentivate domestic and foreign private investment and to improve the ability to secure business loans.

Total government expenditure of 21,015,988,000 Cape Verde Escudos (roughly $260 million) for 1996 was presented to parliament (the Assembleia Nacional) by the Minister for Economic Co-ordination, Gualberto do Rosario, on May 20. This is equivalent to 57.5% of Cape Verde's estimated Gross Domestic Product (GDP) for 1996 at market prices, totalling at over 36.5 billion CVE (about $450 million).

Nearly half of this expenditure (9.55 billion CVE) is to be spent on public investment in infrastructure development representing 26% of estimated GDP. International assistance will provided 63% of the funding for public investment expenditure (37% grants and 26% loans) with the remaining 37% financed by domestic resources. The ministries which will receive the most public capital investment are the ministries for: Infrastructure & Transport (41%); Agriculture, Food & the Environment (16%); Economic Co-ordination (15%) and Education, Culture & Science (11%).

The remainder of government expenditure is prevised for spending on 'functioning' (despesas de funcionamento) such as, running government ministries, public services eg. education and health, payments to municipal councils and debt-servicing and is equivalent to 30.6% of GDP in 1996, and sees an increase of 26.1% on 1995. The main cause of this increase is due to a rise in debt-service costs by 10.7% on 1995 now reaching over 3 billion CVE ($37m) of which two-thirds is internal debt (68% principal and 32% interest) and one-third is external debt (59% principal and 41% interest). A provision has been set whereby the maximum limit for the budget deficit to be financed by internal credit is equivalent to 4.4% of GDP at market prices, estimated to reach therefore 1.6 billion CVE (around $19.3m) in 1996. Other causes for the increase in 'functioning' expenditure are: an increase in transferences by the central government to municipal councils; and an increase in provisional expenditure set-aside to fund: rises in the total spending on civil servants' salaries due to recruitment or promotion; training, equiping and funding new services to be created this year; and unforeseen extra parliamentary sessions amongst others.

From January 1998, Cape Verde will become one of sixteen African nations to operate a Stock Exchange. Following the government's economic liberalisation policies which have seen a programme of privatisation and restructuring of public sector enterprise, a feasibility study estimates that around $250m worth of shares spread amongst 18 recently privatised companies will become available for speculation once the Praia Stock Exchange opens. The exchange will also provide an opportunity for local private enterprises to raise funds for expansion and development through floating their business on the Praia Stock Exchange. Government bonds will also be trade through the Stock Exchange on behalf of the central bank, Banco de Cabo Verde.

The project is supported by GARSEE (Gabinete de Apoio e Re-estruturacao do Sector Empresarial do Estado), set up and funded by the World Bank since 1992 and who's job it is to support the government's privatisation and re-structuring programme and which will dramatically reduce the State's burden of running local enterprise. The Swedish Development Agency (Asdi) is financing the $500,000 project and technical and legal guidance will be given to the gvernment and GARSEE by the Lisbon and Portuguese Stock Exchange authorities and by a Swedish consultancy group. Representatives working on this project are optimistic that the Stock Exchange could begin operating a few months earlier than January 1998.

Other African nations with a Stock Exchange are: Botswana, Cote D'Ivoire, Ghana, Kenya, Malawi, Mauritius, Namibia, Nigeria, Seychelles, South Africa, Sudan, Swaziland, Uganda, Zamia, Zimbabwe.

Three key figures within the government have decided to retire for personal and family commitment reasons after their party's second landslide victory at the legislative elections of December 17 last year. Jose Tomas Veiga, the Minister of Foreign Affairs and brother of the Prime Minister, Carlos Veiga, has been replaced by Amilcar Spencer Lopes who had been the president of the Assembleia Nacional. Amilcar Lopes will be assisted in his responsibilities by Jose Luis Jesus as Secretary of State for Foreign Affairs and Cooperation who has retired as Cape Verde's Ambassador to the United Nations. Teofilio Figuereido, the Minister of Infrastructure and Transport is now replaced by Armindo Ferreira. Mario Silva, the President of the Council Ministers is replaced by Ulpio Napoleao Fernandes who will run this ministerial post as well as that of Defence.

Mario Silva's responsibility of looking after the area of Public Administration has now been passed over to Jose Antonio dos Reis who has been appointed to the newly created post of Assistant Minister to the Prime Minister and he will also be responsible for Labour, Employment & Training, Social Communication, Youth & Sports. Simao Monteiro, the newly appointed Minister of Justice also has responsibility for Internal Administration. Jose Luis Livramento is the newly appointed Minister of Education, Science & Culture.

President Jorge Sampaio, elected Head of State of Portugal in January this year, chose Cape Verde for his first official overseas visit. He will visit Angola in October. His three-day visit, which began on May 12, exemplifies the strong cultural and diplomatic relations between Cape Verde and its ex-coloniser. A delegation of potential Portuguese traders and investors were included in the President's entourage, much the same as when the then Portuguese Prime Minister, Anibal Cavaco Silva, made a week-long courtesy visit to Cape Verde in November 1994, also accompanied by Portuguese entrepreneurs, in order to promote trade and investment.

New external investment legislation directed at foreign investors world-wide was passed by the MPD government in late 1993 offering tax-holiday, import duty exemption and investment guarantees. Besides the incentives provided within the new foreign investment legislation, Portuguese investors have been particularly attracted to Cape Verde for its lower wage costs and adaptability of the work force to learn new skills relatively easily, especially as they can share a common language. The Portuguese government is assisting Portuguese companies which wish to internationalise their trade through lower interest rates on loan packages under the Programa de Apoio a Internacionalizacao das Empresas Portuguesas. Of some $93m of foreign investment entering Cape Verde since the beginning of 1994, around two-thirds has originated from Portugal, producing nearly 2,000 jobs, mainly in the areas of tourism and light-manufacturing. Since 1989 imports of goods and services from Portugal have increased from $34m up to $90m in 1994, representing an increase in the share of imports from 30.4% to 37.3%, although a recent estimate by a Portuguese chamber of commerce believes this has risen to nearly 50% during 1995, partly due to a rise in imports of construction goods from Portugal for the implementation of private investment projects.

Cape Verde also receives its highest level of bilateral development aid from Portugal, which typically amounted to between $16m and $17m annually between 1990 and 1994 and rose to $32m last year. President Sampaio promulgated legislation shortly before his departure for Cape Verde which will give residency permits to an estimated 40,000 illegal immigrants, mainly from lusophone Africa, who entered Portugal before January 1 1996 and thus bringing relief to many thousands of Cape Verdeans living clandestinely in that country. There are 38,000 registered Cape Verdean immigrants currently living in Portugal.

The President toured Santiago Island during his visit accompanied by Cape Verde's President, Antonio Mascarenhas. Sampaio offered a celebratory dinner party for President Mascarenhas and members of the Government at the newly opened Hotel Tropico in Praia established by Portuguese investors. He also made a courtesy visit to the old prison camp at Tarrafal where political prisoners and freedom fighters were imprisoned by Portugal's fascist Salazar regime before Independence in 1975. A tour of Mindelo was included on the final day of his official visit.

The World Bank has also been assisting the government since 1992 to implement a programme designed to reform the civil service and improve public resource management to co-ordinate aid flows more effectively and to improve policy making. Besides this, a support committee for the re-structuring of the State enterprise sector (GARSEE) was set up by the World Bank in the same year which provides funding and technical assistance to support the government's programme committed to economic liberalisation, privatisation and attracting foreign capital investment.

The other section of Austria's 3 year programme will provide vocational training to micro, small and medium businesses and to local municipal councils to improve their technical capacities in an effort to support decentralisation policies. This section of Austria's programme will also coincide with the above mentioned IDA funded educational programme.

South African Airways increases flights through Sa

Second national meeting of local municipal councils

Fishing zone surveillance agreement is signed

Tourism promoted

Toast to Cape Verdean democracy

Paper shortage causes suspension of newspaper publishing

Submerged treasures are discovered

Arqueonautas payed the government $250,000 for a three-year permit to explore Cape Verde's waters. A commission has been formed by the government to work with the explorers and which will have to decide on which artefacts should be restored and placed in a national museum in Praia and which should be sold in order to pay the cost of the exploration.