IMPACT OF THE GLOBAL ECONOMIC CRISIS ON THE POOREST AND MOST VULNERABLE IN CAPEVERDE
Introduction
This report is based on the document “Cabo Verde e a crise mundial” produced by the “Office for Studies and Strategies” in the Ministry of Finance of Cape Verde in May 2009.
Within the African context, Cape Verde is a development success story on track to meet the MDGs. Substantial achievements were obtained by Cape Verde, in terms of economic and human development. Prudent macro-economic management coupled with social investment, in particular in education and health, has led to a fast improvement of indicators in those sectors. These efforts were recognized in 2008 by the UN and the international community when Cape Verde graduated from the group of Least Developed Countries.
But these achievements are fragile and might be seriously jeopardized by the current global crisis. This vulnerable island nation, while struggling with the burden of its insularity, might find it specially challenging to sustain its economic and social progress if the current global economic crisis persists.
Highly dependent on tourism and foreign investments, the global crisis has left many low-income workers unemployed in tourism and construction sectors. Immigrants and non-specialized labor force– are the first ones to suffer the consequences.
Decrease in Direct Foreign Investment (DFI) strikes hard on immigrants in the construction sector.
In 2006 and 2007, the DFI was growing at a very positive rate, 58.8% and 33.3% respectively, having in 2007 surpassed for the first time remittances of emigrants as a contribution to the GDP; For the first quarter of 2009, preliminary estimates indicate an abrupt reduction of 64.7%.
Figure 1. Direct Foreign Investment 2005-2009 (trimester evol. in millions of ECV)
Most of the direct foreign investment (DFI) is channeled in Cape Verde to the sector of construction, including tourism related real estate. Tourism and construction, both main engines for employment in the last years are now drastically reducing their labor demand.
Due to its comparatively advantaged situation in economic terms and its geographical proximity to West African countries, plus the protocol of free movement of persons within the ECOWAS, Cape Verde has attracted important flows of immigrants from West Africa, who often resort to work informally, mainly in the construction sector.
An immediate consequence of the reduction of formal and informal employment is the fact that immigrants and other vulnerable groups have been forced to move to shanty towns without water and electricity services, with the consequent human pressure on environment and the existing social services. Islands mainly focused on tourism, like Boa Vista and Sal, are the ones with growing slum areas. In Sal, 4.5 % of the population is estimated to live in slums.
Decrease in number of tourists has a dramatic impact on low-income and casual workers in tourism-related services.
In spite of an observed increase in the earnings from tourism during the first three quarters of 2008 as compared to 2007, of about 14.7%, a reduction in the number of tourists was observed in 2008. For the fourth quarter of 2008, preliminary data suggest a reduction of 7.7%. The same trend was observed in the first quarter of 2009, indicating a drop around 22.7%. This an indication of the inter-linkage between the economic down-turn in the developed countries which provide the tourists and the tourism revenues in Cape Verde.
Figure 2. Tourist earnings 2005-2009 (trimester evol. in millions of ECV)
Taxi drivers, waiters and waitresses, cooks, cleaning staff, small-scale suppliers of input are all affected by the close down of hotels and resorts, restaurants and other tourism-related enterprises and employment opportunities have been drastically reduced. The self-employed and small.scale entrepreneurs are among those who have lost their earning opportunities.
Remittances still remain stable
Few, if any, countries have experienced emigration as extensively as Cape Verde. The diaspora outnumbers the resident population, and virtually every family has emigrant members in Europe (basically Portugal) or the US.
The remittances of Cape Verdean emigrants have proven to be an important safety net for most families. In the first two quarters of 2008, remittances temporarily decreased essentially due to the depreciation of the dollar with reductions of 7.4% and 0.9% respectively, only to show an increase of 9.7% in the first trimester of 2009. Remittances have shown an initial good level of elasticity in spite of the shrinking economies of EU and USA; but if the global economic crisis persists and remittances fall, there will be a generalized impact at all levels of society, especially on the most vulnerable groups.
Reduced access to credit and decrease of demands are affecting many self-employed people.
As banks are limiting access to credit, many institutions and enterprises outside of the financial sector are experiencing problems in obtaining working capital and in the mobilization of long term credit, which places negative pressure on private investment.
6.924 self-employed businessmen owning micro-enterprises lost their employment opportunities between 2006 and 2008. Carpenters and electricians, owners of small holdings or small restaurants have even less access to credits thus hampering the creation of new employment and reducing existing employment opportunities.
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