WTO concludes the second Trade Policy Review of Cabo Verde

The WTO Secretariat recently completed its second review of Cabo Verde's trade policies and practices since the nation joined the organization. These Trade Policy Reviews are a regular process through which WTO member countries' trade and related policies are scrutinized to ensure adherence to WTO regulations. The review of Cabo Verde highlights characteristics common among small island states: this archipelago of 10 islands (9 of which are inhabited) with a population of more that 500,000, has a limited agricultural sector due to scarce arable land with a modest industrial base, and a notably open economy, primarily driven by its services sector, particularly tourism. This openness is reflected in its trade-to-GDP ratio, which hovers around 100%, peaking at 105% in 2019.

Leveraging its strategic geographical position, Cabo Verde also specializes in transport services, notably the re-export of goods like oil and vehicles. Recent trends indicate a slight diversification in Cabo Verde's exports with a revealed comparative advantage, most notably in fish and seafood, which in 2023 constituted 84.8% of the country's merchandise exports, excluding re-exports. This is followed by food preparations and alcoholic beverages, and to a lesser extent, clothing and footwear. Nevertheless, Cabo Verde's economy remains relatively undiversified, as evidenced by its Theil index (a common indicator for export concentration), which is over four times the global average and twice the average for Africa.

To further attract investors, Cabo Verde has established different Special Economic Zones. These zones offer an attractive package of incentives, including significant tax advantages, non-tax benefits, and a reduced Corporate Income Tax (CIT) rate. Specifically, the Government established the Special Economic Zone for Technologies (Zona Económica Especial para Tecnologias (ZEET)) in May 2022 with headquarters in Praia and an extension in Mindelo, São Vicente, to attract foreign investment in the digital economy. Cabo Verde has the vision to become a "cyber island" and enhance digital connectivity. In this regard, the ZEET supports tech-focused businesses with tax and customs incentives to drive innovation, digital services, and youth employment.

Despite the European Union remaining Cabo Verde's primary trading partner, statistics reveal a growing trade engagement with Africa, particularly with members of the Economic Community of West African States (ECOWAS). Trade with ECOWAS members has significantly increased from 0.2% of merchandise exports in 2016 to 5.5% in 2023. This growth, despite modest, suggests that the economic integration initiatives of this Regional Economic Community are yielding positive outcomes. Importantly, Cabo Verde is the only African country that benefits from unilateral treatment under the European Union's Generalized Scheme of Preferences Plus (GSP+), though export volumes under this scheme remain modest. The GSP of the European Union is a unilateral tariff concession scheme which comprises three different preferential arrangements: 1) the standard GSP, 2) the GSP+, and 3) the Everything But Arms (EBA) Initiative, each providing for distinct benefits and conditions depending on the country's level of development. The most favorable of the EU’s GSP arrangements is the EBA, which is reserved to those countries with an LDC status, while the GSP and the GSP+ are open to medium-low revenue economies. The main condition for being admitted to the GSP+ is that beneficiary countries must ratify 27 international (UN) conventions related to human rights, labor rights and environmental protection, as well as to climate change and good governance. These Conventions are listed in Annex VIII of the Regulation (EU) 978/2012, that currently governs the EU GSP.

Cabo Verte ratified the African Continental Free Trade Area (AfCFTA) in 2022 and deposited its instruments of ratification on 6 February 2022, becoming the 41st State Party to the AfCFTA. Under Phase 1 of AfCFTA negotiations, Cabo Verde adopted the AfCFTA Protocols on Trade in Goods, Trade in Services, and the Protocol on Rules, and Procedures for Dispute Settlement. Phase 2 includes the Protocols on Competition Policy, Investment, and Intellectual Property Rights, on Protocols on Women and Youth in Trade, and Digital Trade, which will enter into force once at least 22 member States have deposited their instruments of ratification at the AU, as provided for by Article 23(2) and 23(4) of the Agreement Establishing the AfCFTA.