Cape Verde Is Emerging as a Global Pivot Point
Tangled in a geopolitical, economic, and global health storm, these African islands have charted a course to break free.
Cape Verde doesn’t often make the news in the West, but since its initial settlement in the late 15th century, the small developing island state has seen it all: colonialization, slavery, piracy, revolution. And now it finds itself in the middle of a global pandemic and a fierce geopolitical rivalry.
Against that background, Cape Verde is now redefining its long-term strategy known as Ambition 2030. The strategy hopes to jump-start a decade of action that leads to a new era of prosperity. The world’s great powers have long noted Cape Verde’s strategic position, about 350 miles off the coast of West Africa. Now investors should too.
Uninhabited prior to Portuguese settlement, the Cape Verde islands became an international point of interest in the 1494 Treaty of Tordesillas, which divided the world into Portuguese and Spanish spheres 370 leagues west of Cape Verde’s shores. Thereafter, the archipelagic landmass served as a mid-Atlantic outpost for Vasco da Gama, Christopher Columbus, and other explorers. Over ensuing centuries, the island’s colonial elite profited from the spoils of the trans-Atlantic slave trade; Cape Verde’s location at the foot of the trade winds made it a jumping-off point for rapid transport throughout the Americas.
Meanwhile, local inhabitants suffered from poverty and disease. Recurring droughts and desertification devastated agricultural production, and populations dwindled due to frequent epidemics. The riches of trade also attracted competitors and pirates. With Portugal’s relative decline, the erstwhile capital, Cidade Velha (Old City), witnessed British and French attempts, some led by the infamous privateers Sir Francis Drake and Jacques Cassard, to wrest control. Despite repelling external attacks, the Portuguese eventually succumbed to revolt from within.
Shortly following independence in 1975 at the hands of Amilcar Cabral’s anti-imperialist, pan-African movement, Cape Verde leaned toward the communist bloc. To this day, the country’s Chinese-built National Assembly building faces massive oceanfront Russian and Chinese embassies, built as Cold War status symbols. While the country remained in the socialist orbit, stagnation and poverty contributed to large-scale emigration as remittances from abroad offered families a lifeline.
Since the end of the Cold War, Cape Verde’s trajectory tacked decisively toward multiparty electoral democracy and a nascent market economy. Opening up its magnificent beaches to overwhelmingly European tourists, the rapid growth of the tourism industry accounted for over a third of GDP by the end of the first decade of the new century. This income was supplemented with substantial European aid, mostly from Portugal, Luxembourg, and the European Union. Largely because of the country’s good governance, the EU rewarded Cape Verde with a “special partnership” in 2007 and contributes directly to the state budget.
In many ways, however, Cape Verde became a victim of its own success. Elevated to middle-income country status in 2007, the country witnessed sharp declines in international aid, including the retreat of France and Spain as major donors. This coincided with the macroeconomic shocks of the Great Recession and the European sovereign debt crisis, to which Cape Verde was now vulnerable due to market exposure and its monetary peg to the euro. The confluence of diminished aid and economic crises resulted in sudden shortfalls in state coffers, leading to exorbitant debt levels. The search for new partners and financing was clearly on.
This opened the door to China. Beijing has come to see the islands as a pit stop along its Belt and Road Initiative—a strategic stopover for vessels destined for European ports. In one of Cape Verde’s islands, St. Vincent, Chinese vessels make use of a maritime repair station inside the island’s special economic zone, which was created with Chinese support. China also ramped up development assistance with lavish spending on prominent projects, including a refurbished presidential palace and new university campus. Huawei IT systems, moreover, have permeated public buildings and provide a “smart city” grid in the capital.
The United States, meanwhile, has been less conspicuous. In 2015, the State Department listed the country among its African “anchor states,” before negotiating a status of forces agreement in 2017. The United States still supports Cape Verde through military and law enforcement cooperation, jointly confronting traders in illicit commodities—mostly drugs emanating from Brazil—who make frequent use of its strategic location for transshipment to Africa and Europe. However, most of its development-oriented funding to the country has lapsed since 2017.
The country’s economic and geopolitical realities have been made clear this year, with the COVID-19 pandemic and related economic fallout. For Cape Verde, which still derived over a third of its GDP from tourism and ancillary services such as transport before COVID-19, the pandemic has served as a stark reminder of the country’s dependence on its links to the outer world. With the U.S. and EU economies shrinking by double digits last quarter, the country is again bracing for significant reductions in aid flows, foreign investment, and domestic revenues.
Ambition 2030, the country’s strategic vision for sustainable development—developed with support from the United Nations and completely revamped after the start of the COVID-19 pandemic—now seeks to carve out Cape Verde’s place in a new global economy underpinned by an increasingly multipolar geopolitical system challenging the long-established international development and financing architecture. Specifically, it outlines a strategic path for sustainable and inclusive growth through diversification within the tourism sector and across sectors, including development of maritime trade and ocean-based commerce (that is, the blue economy), digital innovation, and the green and circular economy. These economic objectives are further complemented by socially and environmentally aware policies. To finance Ambition 2030, Cape Verde will not rely solely on public expenditure but will especially focus on private sector impact investment, capital guarantees, and other forms of sustainable finance.
To achieve all this, Cape Verde will have to pick its partners well, and that will not occur in a vacuum.
To the contrary, the new diplomacy must make use of the country’s geopolitical situation. Its operational context goes well beyond the current trade rivalry between the United States and China. Cape Verde should also look to cultivate ties with the BRICS (Brazil, Russia, India, China, and South Africa), Commonwealth of Independent States, Gulf Cooperation Council, and high net worth individuals. Indeed, philanthropic initiatives, such as the Gates Foundation (among the top donors of the World Health Organization) or the Ted Turner-inspired United Nations Foundation, increasingly rival traditional donors and are a testament to the impact of private leadership and authority on the world stage.
Rather than leaning East or West, therefore, strategically positioning Cape Verde as a pivot between regions will be essential in maintaining competitiveness. Through turbulent times, the diplomatic service must continue to consolidate its long-standing partnerships with Portugal, Luxembourg, and the EU while making more of its advantageous trade terms with the United States.
However, arguably the greatest long-term perspectives for autonomy and economic resilience lie in better integration with the rest of Africa. Given its institutional capacities, Cape Verde can leverage its membership in several regional free trade areas by offering headquarter locations and digital services that bridge continents. It can also better exploit its position off the West African coast by lowering trade barriers and offering manufacturing value-added along global supply chains. Just as Britain established itself as an entrepôt between Europe and North America, Cape Verde can position itself as a gateway to and from Africa.
This approach will require institutionalization of common markets and customs unions within the Economic Community of West African States and the African Continental Free Trade Area. Building on existing links with the Portuguese-speaking countries in Africa, Cape Verde could use the advantage of common language and institutional origins to establish itself as a finance hub for blue, green, and other impact investments in these emerging markets.
Meanwhile, given its sizable diaspora, which outnumbers the internal population by a factor of approximately 2 to 1, public diplomacy may be Cape Verde’s most potent, yet underutilized, asset. Diaspora communities have built deeper networks and bonds within their host societies than a diplomat can ever hope to in a single tour of duty. Diaspora enclaves in the metropolitan areas of Boston, Paris, Amsterdam, Luxembourg, Lisbon, and northern Brazil can help bring counterparts to the table and turn ideas into handshakes.
Finally, Cape Verde should also position itself as a leader among the small island developing states, especially when it comes to sustainable finance. Such initiatives will help vulnerable communities tackle the triple threat of climate change, debt, and exogenous economic shocks, whether caused by pandemics, financial crises, or other challenges yet unforeseen.
Together, Ambition 2030, sustainable finance, and diplomacy will allow Cape Verde to navigate the treacherous waters of COVID-19, economic vacillation, and geopolitical tension. Achieving the promises of 2030 will require a concerted effort of strategic investment, institutional development, and global partnerships—a great but certainly not insurmountable challenge for this small yet tenacious island state.