COVID-19 has led to a rude awakening, which Cabo Verde and most African countries need. Within a few weeks of COVID-19 arriving in Cabo Verde, its bread and butter, the tourism sector, had hit the rocks. Essentially, the number of tourists coming to Cabo Verde dropped to almost zero. The impact has been swift and the chances of full recovery any time soon are up in the air. Before COVID-19, the tourism sector’s dominance was a cause for concern. Tourism represented over 26% of GDP in 2019, the principal source of its foreign exchange earnings, and the top destination of the foreign direct investment coming into the country. On the one hand, tourism sector’s rapid growth has been a boom to the economy and the nation’s war against poverty. On the other hand, the lopsided growth of the sector vis-à-vis other economic sectors for some observers was an indication of Cabo Verde’s exposure and vulnerability to external shocks. Within a generation, Cabo Verde had become a tourism-based economy, specializing in a global industry that is particularly frail and highly sensitive to shocks.

Not only did Cabo Verde over specialize in tourism and become a one-commodity economy, it also accumulated some unique factors which make the nation’s situation even more troubling. First, the Cabo Verde’s tourism industry is over dependent on external sourcing for everything it consumes, resulting in limited backward linkage to the rest of the economy. Second, the tourism industry in Cabo Verde is controlled largely by foreign investors with most investment in the sector coming from external sources who were attracted largely by generous fiscal incentives and land concessions, which the country might not be able to sustain much longer. This has raised some critical sustainability questions.

What will happen if the incentives dry up? Also, how much of the wealth generated in the industry remains in Cabo Verde? Third, not only has the economy over specialized in tourism, the sector also depended on only 6 countries - the UK, Germany, the Netherlands, Portugal, France and Italy—for 76% of its tourists in 2019. In addition to depending on a few countries, the overwhelming majority of tourists are brought in by two tour operators; the visitors come essentially for the sun and beach, and the tourism is concentrated on two islands. Lastly, the sector lacks quality and is not price competitive. The tourism sector as it stands is not sustainable. There is a need to transform the product offerings in the sector to include more eco-tourism and cultural tourism, as well as to diversify into all the islands with increased local value-added. Moreover, there is a need for more engagement of Cabo Verdeans in management and ownership in the sector.

The question that the government and all Cabo Verdeans must be thinking about now, in light of the COVID-19 and the total collapse of the tourism sector, is ‘what future for the Cabo Verdean economy? Or, in light of the importance and dominance of the tourism sector, the question could also be rephrased as ‘what future for tourism in the Cabo Verdean economy? While tourism will continue to be a key element of the Cabo Verdean economy, dependency on the sector must be reduced by growing other sectors. It has become simply too risky and this risk is heightened by the nature and type of the tourism that has emerged in Cabo Verde, as well as by the high susceptibility of the sector to external shocks. This reality should make Cabo Verdean policy-makers rethink their strategy on diversification; it is time to move from ‘diversification via PowerPoints’ to real and practical actions that are targeted and not simply generalized. This should also include programs that work directly with the private sector and take into account the current realities of the Cabo Verdean economy, rather than simply copying perceived good policies from other countries.

Cabo Verde has a good history of survival under impossible circumstances. At independence, not many people expected Cabo Verde to make it. It has not only just survived; it has made it from poverty to middle income country. The new challenge today is how Cabo Verde can successfully make the transition to a thriving, resilient middle income country, sustain it and, over the medium to long term, successfully make the transition to high income country. While this is feasible, it requires diversifying the economy away from tourism.

The first step is for the nation to ensure emphasis is placed on building high quality educational systems, developing world class infrastructure, a strong work ethic that is second to none, a business friendly environment and high savings. As an example, one thing that Cabo Verde prides itself on is the human capital (including health, education and social security). The country has invested a sizeable portion of its GDP in human capital development since independence. The challenge however today is that the quality and relevance of high education in Cabo Verde is questionable. There are too many universities and with most not having the necessary prerequisites to train world class graduates. While the challenges of archipelago must be looked into in generalizing access to high education, Cabo Verde does not need 9 universities nor does it have the resources to sustain so many high academic institutions. Policy makers need to evaluate and must be courageous enough to merge all into one or two universities, at most.

In addition, it is time to begin winding down the incentives and subsidies for the tourism sector in order to shift these to building a robust innovation ecosystem, as well as identifying two or three priority sectors where Cabo Verde can build world class firms to compete in the global marketplace. Cabo Verde must also be proactive in order to successfully transform into an export-oriented global player in knowledge driven services.

Three examples could be instructive. Today, there is an embryonic digital economy sector that is emerging in Cabo Verde, with special focus on ICTs. Most of the companies in the sector have challenges leaving the startup stage; they have only 2 to 3 employees; and most are barely surviving. There are many reasons for this, including a weak innovation ecosystem, the lack of financing (especially venture/risk capital), lack of skills, and inadequate policies. Though the government and other stakeholders are implementing many policies and programs, most are focused on starting startups while there is huge gap in the provision of support for firms that need to grow, scale and enter new markets around the world. The results are firms that are permanently in the startup stage.

Second, the agriculture sector is ripe for transformation. Unfortunately, Cabo Verde is likely to continue to face recurrent droughts due to climate change. As such, it is time for refocusing and redirecting policies towards building an agricultural sector of the future, with emphasis on innovation and adapting technology. No matter how we spend on water mobilization as a nation, without much rain, it will not have much effect. What is needed now is to build new types of agriculture which requires little water and land. There is opportunity to link modern agriculture to the only abundant resource of Cabo Verde, the Sea. This is referred to now as the Blue Economy. One such economic activity could be high value added sea farming.

Third, rather than focus on building large platforms that require hundreds of millions of Euros, there is a need to focus on small but transformative steps. In the first instance, the nation does not have the savings to fund the necessary investments nor does it have the fiscal space to borrow money. As such, the government needs to develop targeted programs for each island. For instance, in São Vicente the government can work with local entrepreneurs, facilitate the emergence of groups as well as partnerships with external firms to build more ‘Frescomars’, as an example, within the next few years, while also building around these firms backward and forward linkages that will allow the nation to create jobs and generate wealth.

Diversification is achievable in Cabo Verde. However, it will not come through wishful thinking, copying others without situating within the context of Cabo Verde or simply developing high level policies without taking the necessary practical actions. There is no gainsaying that Tourism has been transformative for Cabo Verde. As a result, the stakeholders will fight to maintain their incentives and subsidies. But tourism is not the future of Cabo Verde if the goals are to end the structural unemployment problem, create high paying jobs, generate wealth and end poverty. As such, it is time to aggressively begin to work on diversification with a focus on building new services sectors that are knowledge intensive and can generate high value added for the economy. While tourism will continue to be part of the economy, it is time to identify and begin to shift support to these few sectors that will be the harbinger of the future that we all want for Cabo Verde.

In conclusion, success will require a focus on the long term and a broad based consensus among the political class, business, labor and civil society. Also, there is a need to mobilize the national competencies in the country and where necessary attract talents from outside including the Cabo Verdean diaspora. Politics as usual in which ‘party membership’ trumps skills is no longer acceptable. Cabo Verde needs to make a strategic decision on development and transformation that all those with the power to act are committed to over the long term. This national consensus is a necessity and it is crucial to ensuring success.

Olugbenga Adesida, PhD e Membro do Conselho Consultivo do IPP