Daily Management Review

Investments continue to flow into Cape Verde and exceed expectations of Minister of Finance Olavo Correia


08/26/2019


Cape Verde has struck it big: after years of continuous growth, the latest economic revitalization reform is proving even more beneficial than the government had hoped. After the privatization of the national airline, the opening of the airports to foreign investors has been met with enthusiasm, meaning the country is about to kill off one of its historic hampers to development, by modernizing its infrastructure.



The economic reform
 
Prime minister Ulisses Correia e Silva, and deputy prime minister Olavo Correia (also finance minister) form the economic leadership of the archipelagic nation of Cape Verde. Together, they have established that the internal resources of the country (population of roughly half a million, with few natural resources), was not enough to ensure the country’s future: it needed to cooperate with private investors and develop links with international commerce. And that’s exactly what the duo has been doing, with the recent sale of TACV airline to Icelandic Loftleidir, and the upcoming concession of airport facilities. As reported by the Macau Hub, “The 2019 Cabo Verde Investment Forum was a “success” and it raised 1.5 billion euros for investments in the country, the deputy prime minister and finance minister said on Thursday in Santa Maria, Sal island. Olavo Correia, taking stock of the three days of the forum, said that the amount raised for investments in the health, tourism, maritime and air transport, telecommunications and vocational training sectors, “is a significant value.” Now that the airline sale is completed, Correia can move on to the next step: harnessing private investment funds for airport development.
 
The triple-win move
 
The current streak of large asset sales can look, to the inexperienced eye, like the desperate last-ditch efforts of a country trying to finance itself by selling its last jewels. In fact, it’s a brilliant move. As in many other countries, the main businesses were a service provided by the State, at great expense. Jorge Duarte, chairman of Cape Verde’s airports, explains:One of the objectives of this administration is to make the airports in Cape Verde a profitable business.” Increasing profits would have required a large modernization effort, with funds which could be utilized otherwise to the country's benefit. Olavo Correia’s move to transfer the airline and airport operation and development to the private sector therefore yields three types of benefit to Cape Verde: the transaction to start the concession will replenish the State’s coffers, modernization of the airport will be carried out faster, and at the investors’ expense. Finally, the concession contract would state that beyond a certain level of profit, the operator will pay additional revenue - Cape Verde is therefore assured that it will make either a good deal, or a very good one.
 
Investors respond from Iceland and elsewhere
 
It was hardly a surprise that the first to answer the nation’s call to investors was Iceland. The TACV airline was sold to national flagship Loftleidir, which has been operating out of Reykjavik for many years. The investors have therefore a lot of experience on how to run airlines out of islands, and plan to expand their operation in Cape Verde, with early signs of success already. The BSD reports that: “Recently, since the airport at Praia, the capital, on Santiago Island was rebuilt, it has started to catch up on Sal, as Praia attracts increasing numbers of government, business, and even conference visitors. But it still only hosted 640,000 passengers in 2018, and that was a decline of 3.8% on 2017. Sal continues to grow and handled 1.2 million passengers in 2018, but its growth rate more than halved from 19.5% to 8.4% and is down -6.7% for the first two months of 2019.” Once the concession is started, development and replacement of infrastructures will enable Cape Verde to channel virtually all intercontinental flights, just as Iceland is doing now.
 
Soon-to be African hub?
 
As stated above, the concession of the airports is already good news for Cape Verde, and the stepping stone of a much larger economic boosting program. Among the mid-term goals of this effort: the creation of a hub, and not just the current small-scale Praia airport currently operating on the island of Santiago, or Cesario on the island of Sao Vicente. Airline traffic has been continuously growing for decades, and the need of entrepreneurial initiatives are constant. In the boom, Olavo Correia sees an opportunity : with intercontinental traffic growing, and no airport on the Western coast is sufficiently developed to support this growing demand. By uniting forces with the private sector, Correia plans not only to increase flights to Cape Verde (with the expected economic downfalls for the tourism and logistics industry), but support all flights transiting to or from the West : North, Central and South America. In other words, there is no hub in the Western African coast for now, but Olavo Correia has already decided that there will be one, and it will be in Cape Verde. As reported by the Blue Swan Daily: “Icelandair Group believes “there are opportunities to build the company up as a strong hub and spoke airline with Cape Verde as a connecting hub between continents” and that Icelandair “has a similar business model”.
 
Among the investors found by Olavo Correia and Ulisses Correia e Silva, even the IMF feels confident enough to loan to Cape Verde. However, the Atlantic nation is making sure that no one investor has too much weight, compared to others. A rich mix of investors is exactly what Cape Verde needs to fuel its development; whereas imbalance between investors would cause smaller investors to flee, and would induce a risk of vassalage for the nation. And the goal behind the reform is to increase freedom and prosperity, not decrease it.







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