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Cape Verde is a sound investment – but don’t take our word for it

30th July 2007 Print
Cape Verde is a sound investment – but don’t take our word for it Individuals investing in residential property within an emerging market tend to follow a much broader movement of foreign investment from multinational businesses into transport, infrastructure, financial services and so on. So who advises these big guns where they should assign their millions? The answer is a number of risk and strategic analysis companies who make it their business to study global markets in detail and their research is unparalleled. Here’s what they think about Cape Verde.

Fitch Ratings is an international credit rating agency founded in 1913 and dual headquartered in both New York and London. They released an International Credit Analysis report on Cape Verde in December 2006 and whilst not targeted at small-scale residential property investors, many of their findings are relevant, and better, reassuring. Fitch begins by saying that “The economy of Cape Verde continued to enjoy robust growth in 2005 and 2006. Receipts from its flourishing tourism industry increased sharply and investments in infrastructure also grew rapidly.” They cited the country’s political stability with no ethnic or religious tensions and absence of exchange risk as the escudo is pegged to the euro, as the main reasons for confidence and attracting foreign capital whilst they said that the warm sub-tropical climate attracts the tourists.

Foreign Direct Investment posted a 31.4% increase in 2005 and should grow by more than 20% in 2006 with no sign of slowing in the near future. Real GDP growth in Cape Verde rose from 4.4% in 2004 to 5.8% in 2005 and Fitch has expectations for 5.8%, 6.3% and 6.3% in 2006, 2007 and 2008 respectively. They predict “the Cape Verdean economy to maintain its robust growth, fuelled by tourism receipts (18% of GDP in 2005) and investments in infrastructure.” In 2006 the World Bank awarded Cape Verde the highest score of any African country on the governance index (based on factors such as integrity and anti-corruption), and ranked it fifth among emerging countries worldwide. In fact the World Bank will promote Cape Verde in 2008 from LDC category (least-developed countries) to MIC (middle-income country) status. No mean feat.

Fitch also pointed out that Cape Verde has good relations with the US, gets preferential trade benefits and has qualified for 110 million USD in aid under the Millennium Challenge Account to be disbursed over a five year period from 2005 – 2010. The fact that Cape Verde now has two international airports (on Sal and Santiago) with sufficient capacity to operate regular traffic between Europe and the US will only strengthen these relations. Cape Verde is one of just three sub-Saharan countries with category one status under the US Open-Sky policy which authorizes aircraft leaving the Islands to land in the US.

International Strategic Analysis (ISA), a leading provider of country intelligence, economic forecasting and political risk analysis, has their material used by more than 25% of the world’s 500 largest companies to help them in their international planning. ISA concur with Fitch in their Country Report on Cape Verde published in May 2007. Stability is obviously a key factor for foreign investment and ISA speaks of Cape Verde, “Its distance from West Africa has allowed Cape Verde to avoid much of the unrest that has impacted that region in recent decades. Cape Verde enjoys some of the lowest political risk levels in Africa.”

ISA also paints a rosy outlook for the tourist sector, and therefore the residential property investor. “The Government and foreign investment are pouring money into the country’s tourism sector… the number of tourists traveling to Cape Verde, while relatively small, has been growing at a rate of nearly 25% per year.” The growing tourism industry has triggered growth in the property development industry and as the closest tropical islands to Europe, Cape Verde is blossoming. Prices, ISA say, have risen by more than 10% over the past three years and as the infrastructure expands and additional flight connections are established with Europe, thing can surely only get better.

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Cape Verde is a sound investment – but don’t take our word for it