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WT/TPR/S/322/Rev.1 â¢ Cabo Verde -81 ECONOMIC ENVIRONMENT 1.1 Main Features 1.1. Cabo Verde is a small country with tourism as the main pillar of the economy. Approximately half of the population of 500,000 live on the island of Santiago, where the capital of Praia is located. Business and tourism is concentrated on four of the nine inhabited islands (Santiago; SÃ£o Vicente with the second-largest city of Mindelo; Boa Vista; Sal).1 There is a large Cabo Verdean diaspora (mainly in the United States and Portugal) estimated at about 1 million people, whose remittances have been one of the main sources of finance for the economy. 2 1.2. Cabo Verde spans the latitudes of the Sahel with a similar arid climate. It is resource-poor, except for fish, and highly dependent on imports of fuel, and food. It has a history of food aid needs (section 4.1.1). The country is also prone to natural disasters, as witnessed by the volcanic eruption on the island of Fogo in late 2014. A relatively open economy 3, Cabo Verde is vulnerable to shocks from the global economy. Given its vulnerabilities and disadvantages, the economy has performed remarkably well since Cabo Verde embarked on a process of economic liberalization in the early 1990s. By 2007, Cabo Verde graduated from UN LDC status and is now classified as a lower-middle income economy with a per capita income level of around â¬2,800 (Table A1.1). Cabo Verde's economic development has been underpinned by sound macroeconomic management, and good governance.4 1.2 Recent Economic Developments 1.3. Long-term growth of real GDP has averaged 7.5% per year (1990-2013) with foreign direct investment and the tourism industry as the principal engine of growth.5 With the onset of the global financial crisis, the economic expansion stalled, as remittances, FDI, tourism, official aid, and imports declined. In 2009, Cabo Verde went through a milder recession than global trends (1.3% contraction). The economy returned to modest growth in 2010 (up 1.5%) and 4% growth in 2011 (Table A1.1), in part due to higher tourism receipts and enhanced public investments. Since 2012, economic growth has been weak (1% in 2013 and 1.8% in 2014). 1.4. A multi-annual Public Investment Programme, mostly externally financed, was launched in 2009 to weather the global financial crisis and support long-term growth through investments in infrastructure, human capital, and good governance. The counter-cyclical stimulus was relatively large, raising public capital expenditures from around 11.5% of GDP in 2008 (the year before the start) to 15.5% in 2012 (the peak year).6 The investment programme is based on a policy framework that aims to create a competitive, inclusive economy, and sustainable growth to reduce poverty. Some of the key economic policy papers or roadmaps are the Transformation Agenda of 2003 (Agenda de TransformaÃ§Ã£o), the Government Programme for the Eighth Legislature 2011-167, and the Third Growth and Poverty Reduction Strategy Paper 2012-16 (DECREP III in Portuguese). 1.5. Cabo Verde's growth and development model has relied much on capital accumulation (FDI, remittances) in the construction and tourism industry. The reform agenda of the Government is aimed at broadening the economic base, and focuses on productivity-enhancing measures that promise more sustainable growth. Structural measures thus financed through the Public Investment Programme include the reform of the State and public administration, and reform of 1 The ten islands, listed by size, are Santiago (992 km2), Santo AntÃ£o (754 km2), Boavista, Fogo, SÃ£o Nicolau, Maio, SÃ£o Vicente, Sal, Brava, and Santa Luzia. 2 BCV (2014a), p. 43. The five principal sources of finance are: remittances, FDI, foreign aid, foreign debt, and private bank credit. 3 The ratio of imports plus exports (goods and services) divided by GDP is about 100% (Table A1.1). 4 IMF (2014). 5 World Bank World Development Indicators. Viewed at: http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators. 6 BCV (2014a), p. 72. 7 Online information. Viewed at: http://www.reformadoestado.gov.cv/index.php?Itemid=613.