ReportNo. 5446-CY Cape Verde EconomicSituation and Prospects (In Three Volumes) Volume 1:Main Volume Public Disclosure Authorized January30, 1985 Western Africa RegionalOffice FOR OFFICIAL USE ONLY Public Disclosure Authorized Public Disclosure Authorized Documentof the World Bank Public Disclosure Authorized This report has a restricteddistribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bankauthorization. CURRENCY EQUIVALENTS (as of August 1, 1984) Currency Unit = Cape Verdean Escudo (CV Esc.) US$1.00 = CV Esc. 80 CV Esc. 1,000 = US$ 12.5 WEIGHTSAND MEASURES 1 meter (m) = 3.28 feet (ft) 1 kilometer (km) 2 = 0.62 mile (mi) 1 square kilometer (km') = 0.386 square mile (sq. mi.) 1 metric ton (m ton) = 2,204 pounds (lb) I hectare (ha) 2.47 acres I cubic meter (m') = 1.308 cubic yards FISCAL YEAR January I - December 31 FOR OFFICIALUSE ONLY LIST OF ACRONYMS BADEA - Arab Bank for Economic Development in Africa BCV - Bank of Cape Verde CABNAVE - EstaleirosNavais de Cabo Verde (ShipyardCompany) CNA - National Handicraft Center DGIE - General Directorateof Industry and Energy DGP - General Directorateof Planning ECOWAS - Economic Community of West African States ELECTRA - Power Generationand Water DesalinationUtility EMEC - State ConstructionEnterprise EMPA - Empresa Puiblicade Abastecimaento(Commercial Network Company) ENACOL - National Enterprisefor Fuels and Lubricants ENAPOR - National Ports AdministrationAgency ENAVI - National AgriculturalCompany FAMA - Pasta Factory FAP - Fomento Agro-Pecuario (CommercialAgricultural Goods Company) GDP - Gross Domestic Product GNP - Gross National Product ICS - Cape Verdean Solidarity Institute IMF - International Monetary Fund INC - National CooperativesInstitute INIT - National TechnologicalResearch Institute INTERBASE - Cape Verdean Enterprisefor Fishing Infrastructure MAC - Public ConstructionMaterials Enterprise mHor - Ministry of Housing and Public Works MOAVE - Mill Company MORABEZA - Garment Factory NDF - National Development Kind OECD - Organizationfor Econom.c Cooperationand Development OPEC - Organizationof Petroleum Exporting Countries PAICV - African Party for the Independenceof Cape Verde PAIGC - African Party for the Independenceof Guinea-Bissau& Cape Verde SCAPA - Company for Marketing and Support for Artisanal Fishing SIDA - Swedish InternationalDevelopment Authority SOCAL - Shoe Factory TACV - Cape Verde Airline Company UNDr - United Nations DevelopmentProgramme USAID - United States Agency for InternationalDevelopment This document has a restricted distribution and maybe used by recipients only in the performance of 1 their official duties. Its contents may not otherwise be discksed without World Bank authorization. PREFACE This report is based on the findingsof an economicmission that visitedCape Verde in July 1983. The missionwas composedof the followingmembers: StahisPanagides, Consultant (Mission Chief, Agriculture) Mark Woodward,Consultant (Industry, Fisheries, Tourism, Historical Background) SergioDiaz-Briquets, Consultant (Demography, Social Sectors) Rui Coutinho,Consultant (Macroeconomic Analysis) Jose Marques,Economist (Energy, Transportation, External Sector) Follow-upwork to the main mission was requiredduring 1984 in order to revise projectionsand estimatesderived from a weak data base. This first compre- hensive study of the economy of Cape Verde also includes, in Volume II, an examinationof demographic,health and social issues, which the Governmeut specificallyasked us to address. This report is the final version of the draft which -wasrevised by Rui Coutinhoand supervisedby Richa-:dWestebbe and discussedwith the Governmentby a mission which visited Cape Verde in August 1984.* Milton de Assis updated the report followingthe mission. The report includesthree volumes: Volume I: Cape Verde: EconomicSituation and Prospects Volume II: The SocialSector Volume III: StatisticalAnnex * The mission consistedof Robert Skillings (Chief),Peter Gil (Loan Officer),Milton de Assis (CountryEconomist), Rui Coutinho (Economist) and SergioDiaz-Briquets (Consultant). COUNrRYDATA - CAPE VERDE AREA POPULATION DENSITY 4,000 sq km 296,093 (1980) 1/ 74.2 per sq km (1980) Rate of growth: .9% (1978-80) POPULATIONCHARACTERISTICS (1980) HEALTH(1980) Crude Birth Rate (per 1,000) 37.4 Population per physician 5805 Crude Death Rate (per 1,000) 7.5 Population per hospital bed 496 Infant Mortality (per 1,000) 78.1 Life Expectancy at Birth (years) 61.1 EDUCArION(1980/81) ACCESSTO SAFE IWATER(1980) Adult literacy rate: 2/ 37% % of population - urban: 32% Primary school enrollment: 83% - rural: 13.5% GNP PER CAPITA IN 1983 3/ US$317 GROSS DOMESTICPRODUCT IN 1983 4/ ANNUALRATE OF GR(W1H (Current Dollar Prices) USSMiln % 1979-b3 GDP at Market Prices 81.1 100.0 9.2 Gross Doi;nestic Investment 64.9 80.0 12.9 Gross Domestic Expenditures 142.6 175.9 4.2 Exports of Goods, nfs 35.4 43.7 32.3 Imports of Goods, nfs 97.0 119.6 6.3 Current Account Balance -33.4 -41.2 23.5 OUTPUT EMPLOYMENTAND PRODUCTIVITY IN 1982: Value Added Labor Force Value Added per Worker USSMIn % *000 USS Primary Production 16.9 21.7 43 47.4 393.0 45.4 Secondary Production 21.8 28.0 9 10.5 2422.2 279.8 Services 39.2 50.3 38 42.1 1031.6 119.1 Total 5/ Average 77.9 100.0 90 100.0 865.6 100.0 GOVEtNMENTFINANCE CENTRALGOVERNMENT CV Escudos Million % of GDP 1983 1983 1979-82 Current Revenues 1623.7 27.9 31.5 Current Expenditures 1623.4 27.9 31.1 Current Surplus 0.3 - 0.4 Capital Expenditures 4295.0 73.9 61.9 OveraLl Deficit 4294.7 73.9 61.5 External Borrowing and Grants 4180.3 71.9 58.7 1/ Population Census 2/ Ages 14 and over 3/ At current exchange rate 4/ Conversions to dollars in the table are at the average exchange rate prevailing during the period covered. 5/ GDP at factor costs. COUNTRYDATA - CAPE VERDE (continued) HONEY. CREDIT ANDPPICES 1978 1979 1980 1981 1982 1983 (In iTllionsof Cape Verde Escudos outstandingend year) Money Supply (moneyand quasi-money) 1709 2014 2658 3180 3989 415. 1/ Claims on Central Government 11 77 34 452 347 486 1/ Claims on the Private Sector 1/ 531 712 684 937 1032 807 1/ (Percentageor index numbers) Money as % of GDP 61.9 65.1 61.2 65.7 66.9 59.8 1/ Consumer Price Index 146 168 192 232 280 340 Annual Growth Rates General Price Index 17.7 L5.1 14.3 20.8 20.7 21.4 1/ Net Claims on Government 109.7 600.0 -54.1 1229.4 -23.2 40.1 1/ Claims on the Privtte Sector 34.6 34.1 -3.9 37.0 10.1 -21.8 I/ BALANCE OF PAYMENTS (in USS millions) EXTERNAL DEBT. DECEMBER 1982 (USS million) 1980 1981 1982 1983 Export of goods, nfs 19 24 32 36 Public debt incl. guaranteed 60.5 Imports of goods, nfs 88 103 101 97 Non-guaranteed private debt --- Resource gap (deficit- -)-69 -79 -69 -61 Total oustanding and disbursed 60.5 Private Transfers 40 36 32 33 Net Factor Services 3 - -3 -5 NET DEBT SERVICE RATIO FOR 1982 2/ Balance current account -26 -43 -40 -33 Public debt incl. guaranteed 4.9 Non-guaranteed private debt --- Official Flows Total outstandingand disbursed 4.9 Transfers 29 21 27 19 Borrowing (net) 2 19 19 14 IBRD/IDALENDING (December31, 1983) (USS '000) iiRD IDA Other items, errors and omissions 1 4 6 4 Outstandingand disbursed -- 209 Increase in reserves t) 6 1 12 4 Undisbursed -- 6805 Outstandingincl. undisb. -- 7014 Net reserves (end year) 44 37 43 34 1/ Equivalentmonths imports 6.0 4.3 5.1 4.2 RATES OF EXCHANGE(year average) Year US51 - CV Esc 1975 25.6 1976 30.1 1977 34.1 1978 35.5 1979 37.4 1980 40.1 1981 48.7 1982 58.3 1983 71.7 1984 84.7 1V Does not include financialinstitutions other than the Bank of Cape Verde. 2/ Debt service as a percentage of exports of goods and non-factor services. .. Non-available VOLUME I CAPE VERDE:ECONOMIC SITUATION AND PROSPECTS Table of Contents Page No. SUMKARY AND CONCLUSIONS A. Background ......................................... I B. Economic Management . ................................ 2 C. Development Strategy .................. 4 D. Social Sectors ................................. 7 E. Outlook ......................................... 8 I. ECONOMIC AND POLITICAL SITUATION (not contained in Portuguese version).. 10 II. RECENT ECONOMIC PERFORMANCE. 14 A. Structure of the Economy . .14 B. Structure of National Expenditures . .16 C. Public Finance .. .................................,.20 1. Introduction .................................. 20 2. Trends ................................... 21 3. Government Revenues ..............................23 4. Covernment Expenditures .........................25 5. Issues and Recommendations . .....................26 D. Money and Credit .................................. 27 1. Introduction .................................. 27 2. Trends ....................... 28 3. Distribution of Credit By Sector .31 4. Interest Rates .32 5. Further Developments.32 6. Issues and Recommendations .--.-.----.--.-- 33 E. External Sector .. 35 1. Introduction.35 2. Exchange Rate .38 3. Issues and Recommendations. 39 F. Employment, Wages and Prices . .39 1. Introduction.39 2. Wages .40 3. Prices ...................... 41 4. Issues and Recommendations.43 III. THE FIRST NATIONAL DEVELOPMENT PLAN . .45 A. Introduction. ... .......... 45 B. Overview .... 45 C. Methodology .... 48 D. Financing.... 50 E. Implementation .....................................51 F. Summary and Conclusions .......... ..................52 IV. AGRICULTURE ........................................ 53 A. Background ........................................ 53 B. Land Use and Livestock ............................