Cape Verde's Economy Hindered by Poor Inter-Island Connectivity, World Bank Reports

Cape Verde's economic growth is significantly hampered by inefficiencies in inter-island transport, according to a World Bank report. The current system relies on air and sea travel, but neither mode operates effectively, and coordination between them is limited. Domestic air services are scarce, volatile, and expensive, often featuring repeated operator changes and small fleets. Sea transport, crucial for goods and passengers, suffers from inconsistent service quality, aging fleets, and opaque compensation mechanisms. These connectivity issues concentrate tourism on Sal and Boa Vista islands, limiting multi-destination travel and expansion to other islands. High fares and infrequent services impose a "mobility tax" on citizens and businesses, fragmenting markets and reducing productivity.

Tourism, a vital sector contributing 25% to GDP and significant employment, has seen growth driven by European demand and hotel investments. However, 95% of tourism investment is concentrated on Sal and Boa Vista, with all-inclusive models dominating. This is partly due to poor inter-island connectivity, as tour packages rarely include multiple islands because of unreliable internal transport. Consequently, the economic spillover effects are modest; resorts import most food and production factors due to unreliable local supply. Only a small percentage of tourist spending is retained locally, compared to nearly 30% in more diversified island destinations like the Canary Islands or the Azores. The tourism sector accounts for 17-20% of national meat, fish, and fresh produce consumption, yet hotels and resorts import about 80% of their food and beverages, citing logistical unreliability and limited cold chain capacity as critical factors.

The World Bank also points to the state's pervasive role in the connectivity sector, acting as policymaker, regulator, owner, and financier, which obscures incentives and concentrates fiscal risk. Aviation is a major source of contingent liabilities through guarantees and recapitalizations of public airlines. While maritime transport has lower guarantee stocks, it incurs recurring fiscal obligations through concession payments and subsidies. Reforms are urgently needed, including adopting regulations to allow private aviation companies, transitioning Public Service Obligation (PSO) regimes to competitive contracts, strengthening economic regulation and data transparency, and modernizing maritime concession designs and subsidy mechanisms.