The worst economic crisis in 45 years has left Cape Verde increasingly exposed to organised crime and money laundering that are undermining the country’s political stability and eroding its judicial independence. Based on a new investigation and risk assessment by PANGEA-RISK, the archipelago’s favourable rankings on global indexes no longer match the situation on the ground.

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The Central Atlantic Ocean archipelago of Cape Verde has suffered one of the most acute impacts of the global pandemic that has begun to undermine the country’s political and judicial institutions as the state becomes increasingly desperate to secure new sources of funding. While Cape Verde’s political system has previously achieved Mo Ibrahim-price winning accolades, the country’s institutions are increasingly at risk of being hijacked by organised drug trafficking, money laundering, and other organised criminal activities.

Cape Verde suffered one of the deepest annual economic contractions in Africa last year and currently has the third largest gross public debt burden as a proportion of its economic output. With no prospect in sight for an economic recovery, local state institutions are going unfunded and are vulnerable to intimidation, extortion, and corruption from criminal elements that include the Russian mafia, Latin American drug cartels, and Angolan money launderers. The reality on the ground therefore does not match the country’s favourable rankings on global indexes.

PANGEA-RISK delves a little deeper into the drivers of political risk in Cape Verde and assesses that the country’s political stability and judicial legitimacy is under growing threat.

Economy at risk of collapse

The COVID-19 pandemic disrupted Cape Verde’s tourism industry and sent the island state into a deep economic recession last year, reversing several years of economic growth. According to the International Monetary Fund (IMF), the Cape Verdean economy contracted by a massive 14 percent in 2020. The recession is largely reflective of the sharp downturn in commercial activity across the tourism and transport sectors which resulted from the global slowdown in logistics and travel which has accompanied the pandemic. The current account deficit reached almost 14 percent in 2020 and is expected to remain sizable in coming years. Without the swift replacement of such revenue flows, the Cape Verdean economy is at risk of collapse.

The tourism sector in Cape Verde accounts for some 25 percent of GDP and 20 percent of employment, making it critical to the island state’s economic development. While 2019 saw a record year for tourist arrivals at 819,000 international visitors, in the year past tourism arrivals dropped by 70 percent. With much of the population employed in the tourism and services sectors, job losses were widely reported as hotels, restaurants and tourism agencies shut their doors or scaled down operations. By the end of last year, unemployment had risen from 12 percent recorded in 2019, to almost 20 percent. Poverty more than doubled from 20 percent to 45 percent from 2019 to 2020, with little prospect of an immediate improvement.

Faced with considerable pressure to get the tourism industry up and running again, the government has gradually attempted to open the country to international travel. Inter-island travel was allowed again in June 2020, and international passenger flights resumed in October 2020. However, while small groups of tourists have re-appeared steadily since then, visitor numbers have remained largely subdued due to resurgent waves of COVID-19 infections in major source markets in Europe, placing the tourism sector under sustained pressure. As at May this year, most hotels in Cape Verde remain closed, and those that are open reportedly do not have enough custom to cover their costs of operation.

The IMF projects that Cape Verde’s GDP growth will recover to 4.5 percent in 2021. However, this is contingent largely on the resumption of global travel and tourism, as well as progress in domestic reforms and the return of capital inflows. In order to capitalise on the steady resumption of international travel, the government is likely to increasingly push for investments into the tourism sector in the coming year. However, in order for the tourism industry to resume to pre-pandemic levels, Cape Verde will have to attain some degree of herd immunity via vaccination. Nonetheless, there is significant uncertainty regarding the trajectory of the pandemic, as many countries continue to face new waves of the virus amidst the emergence of new COVID-19 strains, and vaccination programmes have been delayed due to unforeseen side-effects.

However, for a full return to business as usual, tourism source markets will also have to have adequate vaccination rates. At present, Cape Verde’s top three source markets, Germany, the UK and Portugal, still face substantial challenges in managing their domestic COVID-19 situations. The necessary introduction of proof of vaccination and other testing regimes for international visitors is also likely to delay a significant resumption of tourism activity until at earliest late 2021, but more likely the following year.

POVERTY IN SAL, CAPE VERDE

In the meantime, the sustained deterioration of socio-economic conditions which has accompanied the COVID-19 pandemic will continue to feed into social dissatisfaction, elevating the threat of civil disturbances and labour strikes. For instance, in mid-January 2021, cultural workers – including artists, musicians, and related occupations – carried out a protest march in Santa Maria, Sal Island, against the perceived lack of government support to the sector. Local sources in Cape Verde law enforcement say there have been more such protests, which have gone underreported in international media.

Threat to national unification

AIRCRAFT OF NATIONAL AIRLINE, CAPE VERDE AIRLINES (CVA)

The prospect of economic collapse has been accentuated by the sustained shutdown of the national airline, Cape Verde Airlines (CVA). While Cape Verde’s airports have been open to international flights since October, CVA’s operations have been suspended since the start of the pandemic in March, and the company is reportedly not in a financial position to restart operations without assistance. CVA’s activities prior to the pandemic equated to about 8 percent of Cape Verde’s GDP.

In March 2021, the government announced that it had authorised the fifth guarantee for an emergency loan request by CVA for a USD 14.1 million loan. This latest authorisation brings the total loans garnered by CVA to 23.6 million since November. However, despite having secured funding, it is likely to be some time before CVA’s operations resume to pre-pandemic levels.

Another concern is that domestic flights between the islands are no longer functional. In 2020, domestic flights in Cabo Verde, operated only by Transportes Interilhas de Cabo Verde (TICV), the only company that ensures these connections, handled around 125,000 passengers, down 286,000 on the previous year, thus marking a 230 percent drop in passenger numbers. The government has since last year provided guarantees for such internal flights to ensure continued ticket booking. However, since May 2021, such guarantees have become shorter and the country now faces the prospect of the unavailability of domestic flight tickets, which would effectively end transportation between the different islands of Cape Verde and pose a threat to national unification.

Bulging debt burden

The increased needs and lowered revenues which accompanied the pandemic have placed state budgets under severe pressure. In October 2020, the government reported that it had spent over USD 181 million – equating to some 14 percent of the country’s GDP – on state interventions to mitigate the social, health and economic impact of the COVID-19 pandemic. At the same time, reduced commercial activity and lower employment levels have corresponded to dramatically reduced state revenues. For instance, in the first half of 2020, tax revenues were reported at 20 percent below projections.

Prior to the COVID-19 pandemic, Cape Verde’s public debt was on a downward trajectory. However, according to the IMF, the COVID-19 shock has “significantly eroded” efforts made in recent years by Cape Verde to reduce public debt. As the government sought additional financing to offset the costs of the pandemic, the country’s debt-to-GDP ratio rose to 146 percent in the first eight months of the year, according to Cape Verde’s central bank. The IMF estimates that the country’s gross public debt reached 139 percent of GDP last year, then increased to 146.6 percent of GDP by March this year and will remain stubbornly high in coming years. The country’s debt to GDP ratio is the third highest in Africa, after Sudan and Eritrea, and higher than Mozambique and Zambia, which are both in debt default.

Based on upcoming balloon payment requirements, it is now more probable that Cape Verde will fall into default on its sovereign debt payments. External debt accounts for almost 103 percent of GDP, while domestic debt stands at 43.5 percent. In late November 2020, parliament rejected a proposal by the governing Movimento para a Democracia (MpD) to raise the limit on domestic borrowing from 3 percent to 4.5 percent for 2021, ostensibly to make up for the loss of tax revenues. Nonetheless, in December, the government announced that it had finalised concessional loans with the African Development Bank and the World Bank, to the sum of USD 5.9 million and USD 3.5 million respectively. The Cape Verdean government now intends to request the IMF for a new technical support programme for external debt relief of EUR 1.68 billion, to free up financial resources.

With little likelihood of a full economic recovery on the horizon, budgetary pressures are not likely to recede in the coming year. The state budget for 2021, approved last November, amounts to USD 834.7 million, marking an increase of over USD 32 million from the 2020 budget, which had already been amended upward due to COVID-19. Some USD 207.8 million of this is earmarked for debt servicing payments – a historic high. This situation is likely to push the government to seek restructuring of its national debt, although it remains unclear whether Cape Verde will seek to make use of the G20 Common Framework to do so.

In the interim, Cape Verde will continue to benefit from the World Bank’s Debt Service Suspension Initiative (DSSI), which runs until the end of December 2021, covering some USD 4.7 million in debt service relief for this year. It is unlikely that the DSSI will be extended beyond the end of this year, after which Cape Verde’s suspended debt interest payments of 2020 and 2021 will be due. In December 2020, the government also announced the “possibility of a moratorium” on payments some USD 3.3 million of other debt. Nonetheless, the Cape Verdean government estimates that public debt is unlikely to recede significantly in 2021, projecting that it is unlikely to drop below 145.9 percent of GDP.

Seeking new sources of funding

DRUG SEIZURES IN CAPE VERDE

Cape Verde lies on the West African transhipment route for illegal drugs trafficking and the country has increasingly become a transhipment hub for cocaine originating from Latin America and destined for European and North American markets. Other trafficked goods include cannabis, heroin from Asia and locally produced amphetamines, while Cape Verde is an increasingly important human and weapons trafficking hub with ties to international terrorism. According to a 2016 report by the United Nations Office on Drugs and Crime (UNODC), Cape Verde topped the list of countries in West Africa where the highest quantity of cocaine was seized between 2009 and 2014 – both at sea and on land. A 2016 seizure of some 280 kilograms of cocaine also shed light on the presence of the Russian mafia operating in Cape Verde. In 2018, a European Commission report found that cocaine was also increasingly being used in Cape Verde and that cocaine addiction is becoming a growing problem in the archipelago, while drugs are increasingly becoming associated with violence and criminality in Cape Verde. Unfortunately, there is currently no reliable data on the scale of drug addiction or its impact on the country. In February 2019, police seized a record 9.5 tonnes of cocaine in another drugs bust. Again, the 2019 cocaine seizure implicated Russian organised crime syndicates.

These high-profile drug busts in 2019 and 2016 do not indicate a strong capability and intent by local law enforcement to crack down on the drugs trade. Both the 2016 and 2019 seizures were due to errors by the traffickers during the transhipment process that resulted in accidental discoveries of the illegal cargo by local police. In fact, well-placed local sources state that Cape Verdean law enforcement and other state institutions such as the judiciary have been “captured” by criminal syndicates and that Cape Verde is now effectively another West African narco-state, just like lawless and unstable states such as Guinea-Bissau. There have been no notable drugs seizures since 2019, which suggests that UNODC and European Union-funded efforts to crack down on the drugs trade have been ineffective in Cape Verde. In 2018, the government launched a five-year Integrated National Programme for the Fight against Drugs and Related Crimes (PNILDC). However, the EUR 6.3 billion programme has not been fully implemented and the Cape Verdean government has not received the full allocation of pledged donor funds. Sources report that some of the UNODC and EU funding has been funnelled off to unrelated purposes.

In a recent interview by PANGEA-RISK, a mid-ranking police officer in the capital Praia stated that “the [Cape Verdean] courts are no longer acting independently, and judges are susceptible to accepting bribes. This trend has been created by the drug cartels from Russia and Latin America who have offered cash in foreign currency to our judges who are struggling to make ends meet in this difficult economic climate.” In a follow-up question, the source claimed that the country’s prosecutors, prison officers, senior judges, and ministry of justice staff are implicated in the drugs trade, including the judicial police (Policia Judiciaria) and public administration of justice (Cofre Geral de Justica). The source was unwilling to comment on whether recent or current justice ministers were also implicated. The current Minister of Justice of Cape Verde is Janice Lelis. However, other sources suggested that the emerging culture of bribe-taking and broader corruption in the judiciary has been sanctioned at the cabinet level. Funding has also been embezzled from the government’s flagship PNILDC that runs between 2018 and -2023, with particular instances of corruption in the Ministry of Health and Social Security. Due to serious funding shortages during the pandemic, it is highly unlikely that the PNILDC action plan will be fully implemented and stick to its timeline.

Related to the drugs transhipment in Cape Verde is the growing practice of money laundering related to the drugs trade. Cape Verde is particularly vulnerable to money laundering related to drug trafficking. However, a large variety of criminal groups are using Cape Verde for money laundering purposes, including the Russian mafia, Latin American drugs cartels, and Cape Verdean street gangs based in the northeast of the US, notably Boston. These criminal groups have purchased stakes in properties including hotels, real estate, and resorts to launder money. According to a 2016 evaluation co-ordinated by the country’s Financial Information Unit, criminals have infiltrated Cape Verde’s notaries, real estate agencies, and lawyers, as well as many local businesses and NGOs. Our sources also report that criminal groups often threaten public officials, particularly anti-drugs investigators. One UNODC source who recently spoke to PANGEA-RISK said that international criminal groups now own important stakes in most of the country’s hotels and high turnover businesses, and that money laundering practices have continued during the pandemic despite a near-complete shutdown of the tourism sector.

DRUG SEIZURES IN CAPE VERDE

Based on these source reports, it becomes clear that the effective collapse of Cape Verde’s formal economy based on tourism has increased dependence on its informal economy, especially the trafficking of illegal substances and associated money laundering practices. Criminal groups have seized an opportunity in Cape Verde to “capture” law enforcement officials, judges, and prosecutors, as well as senior government officials in the justice ministry. A growing number of Cape Verdeans now also think that corruption is getting worse, as illustrated by a recent survey by Transparency International which said more people perceive corruption as a major problem than in Botswana and Mauritius, which are often rated in similar rankings as Cape Verde. Based on these findings and source commentary, Cape Verde’s desperate need for funding has allowed to country to devolve into another West African narco-state, while this trend has so far been barely noticed by international media.

Money laundering in the banking sector

CAIXA ECONÓMICA DE CABO VERDE OFFICE BUILDING

The continued money laundering prospects in Cape Verde have resulted in growing interest from regional financial institutions in the Cape Verdean banking sector. Last year, Banco Angolano de Investimentos (BAI), recently ranked as Angola’s largest commercial bank, strengthened its stake in BAI Cabo Verde to 84 percent. A subsidiary of Angola’s state oil company, Sonangol Cabo Verde, previously held a 16.3 percent in BAI Cabo Verde. However, Sonangol plans to sell its Cape Verdean subsidiary, and BAI is therefore buying a larger stake in the local bank to ensure continued Angolan dominance in the institution. BAI is partially owned by former Sonangol CEO and ex-vice president of Angola Manuel Vincente, through an offshore company called ABL, as cited in a United States Senate report published in 2010. Vicente has faced investigations into corruption and other charges in Portugal and other jurisdictions.

Local sources in the judicial service, the Cofre Geral de Justica, report that both BAI Cabo Verde and the country’s largest bank, Caixa Económica de Cabo Verde (CECV), are facilitating fraudulent transactions related to the money laundering operations by these criminal organisations. The government of Cabo Verde has taken a majority stake in CECV since 2019, which was partly motivated to avoid Portuguese and other foreign scrutiny over CECV’s accounts. Sources claim that Vicente himself keeps a large part of his estimated USD 60 billion fortune in Cape Verdean banks to avoid tax and seizures of his bank accounts.

FORMER ANGOLA VICE PRESIDENT MANUEL VICENTE

The Organized Crime and Corruption Reporting Project (OCCRP) reports that Angolan banks in Cape Verde did not implement standard anti-money laundering and terrorist financing controls and failed to carry out any due diligence on clients tagged as suspicious by international regulators. The banks had very few other customers, often making little money or even operating at a loss, suggesting that profitability was not their primary purpose. According to former Portuguese Member of the European Parliament Ana Maria Rosa Martins Gomes, Cape Verde is “absolutely crucial” for Angolan banks’ money laundering purposes, and she has specifically named the opaque banking institution of Banco Privado Internacional (BPI) in previous public remarks. Vicente holds a 35 percent stake in BPI, according to a Bank of Portugal audit, with other prominent Angolans such as BAI bank executive Pedro Palhares holding the balance of ownership.

The Portuguese audit reports show that money from Angola passed through Cape Verdean accounts to other banks that the group controlled in Portugal and elsewhere in Europe. According to the OCCRP, “the shareholders of the Cape Verdean [PBI] bank frequently exchanged shares with each other in an apparent attempt to avoid regulatory scrutiny. In one such example noted in the audit, the bank asked the country’s central bank for permission to transfer all of Vicente’s shares to Palhares, demonstrating a trusted business relationship between one of Angola’s most senior public officials and one of its leading bankers. In that case, the government declined their request.”

Erosion of political and judicial institutions

CAPE VERDE PRIME MINISTER JOSÉ ULISSES DE PINA CORREIA E SILVA

The ruling Movement for Democracy (MpD) party maintained its governing mandate in the April 2021 legislative elections, even though the government has come under heavy criticism for its handling of the pandemic and economic hardships. The handling of the pandemic is also likely to become a key focus in the upcoming presidential election, scheduled for 17 October. Under the MpD, Cape Verde was upgraded to a middle-income country status and through the structural reforms outlined in the Strategic Plan for Sustainable Development (2017-2021), the government has sought to foster more sustainable and inclusive growth. Key focus areas have included improving access to basic public services, reducing taxes for small and medium-sized businesses, cutting expenditure on costly infrastructure projects, and following through on the privatisation of 23 public and state-owned enterprises. A key point of concern has been the sustained shutdown of the national airline, Cape Verde Airlines (CVA).

While elections in Cape Verde are typically free and fair, the growing influence of drug trafficking and criminal organisations, as well as associated corruption, is beginning to erode the country’s public institutions. According to several sources consulted in the government, Cape Verde’s political leaders are exposed to extortion and intimidation from drug trafficking cartels, as well as interests in money laundering. One well-placed source in the financial industry in Praia commented that “politicians here [in Cape Verde] are turning a blind eye to the fraud and manipulation in the banks… The corruption and drugs problem are too big for them to tackle, and the government fears retribution if they make any meaningful move against the cartels.” Moreover, the inflow of revenue from illicit activities is making up for a shortfall in income for many Cape Verdeans during the pandemic.

This trend has also led to an erosion of judicial institutions in the country. Our sources have commented that the courts of first instance (district courts) and the Supreme Court of Justice are vulnerable to intimidation and political interventions. Assassination attempts on local politicians and judges are indicative of this threat to political stability and judicial independence. In December 2020, the mayor of Santa Catarina de Santiago was shot by attackers, and in October that year the outgoing mayor of the capital Praia was also injured in a shooting attack. Local sources have claimed such attacks on criminal gangs operating in Cape Verde and being co-opted by politicians to help them fight out political disputes. Other sources report that these two reported assassination attempts were motivated by criminal gangs to prevent investigations into illicit activities. Investigations by the local judiciary police have not been conclusive in finding the perpetrators of these shooting attacks.

The judiciary system has also come under pressure from criticism over its handling of the extradition case of Venezuelan diplomat Alex Saab, who has been in detention in Cape Verde since 12 June 2020. The arrest was requested by the US and initiated by Interpol, relating to a money laundering allegation by courts in Florida, US. These allegations relate to an investigation by the Geneva Public Prosecutor which was terminated in March this year. Local sources in Cape Verdean law enforcement have commented that the government has exerted arbitrary pressure on the local judiciary to push ahead with the extradition to the US after facing a diplomatic campaign from the previous US administration. Several sources believe that Cape Verde is seeking a substantial financial pay-out from the US in exchange for its extradition to buffer the government’s strained finances. This political intervention in the local judiciary has raised concerns over Cape Verde’s respect of human rights and its compliance to international law.

In March 2021, the Court of Justice of the Economic Community of West African States (ECOWAS) ruled that the arrest of Saab had been illegal, having been carried out without an appropriate Interpol Red Notice or arrest warrant. The regional court has ordered Cape Verde to release Saab, terminate extradition processes, and pay USD 200,000 in compensation. Nevertheless, the Cape Verde Supreme Court has since approved Saab’s extradition to the US, pending appeal. As part of the regional ECOWAS body, as well as a member of the African Union, Cape Verde is legally bound to accept the rulings of the ECOWAS court. Cape Verde may now face economic and political sanctions for defying an order from the ECOWAS Court. The African Bar Association (AfBA) has also criticised Cape Verde’s non-compliance of the regional court order and warned of consistent violations of international law. The Saab case is indicative of a broadening erosion of Cape Verdean political and judicial institutions.

INSIGHT

Cape Verde is undergoing its worst economic crisis in 45 years, which has had dire consequences on socio-economic and political stability. A sustained economic recovery is contingent largely on the resumption of global travel and tourism, as well as progress in domestic reforms and the return of capital inflows. To capitalise on the steady resumption of international travel, the government is likely to increasingly push for investments into the tourism sector in the coming year. However, in order for the tourism industry to resume to pre-pandemic levels, Cape Verde will have to attain some degree of herd immunity via vaccination. An economic recovery depends on the restoration of tourism numbers, diaspora remittances, manufacturing industry stimulus, and increased public infrastructure spending. Longer-term growth constraints centre on labour-market concerns and stabilising the public-sector investment drive, owing to rising public-sector debt obligations.

Drug trafficking has become a major concern, since Cape Verde is situated along a line of latitude nicknamed “Highway 10” which provides the shortest trafficking route between Latin America and Africa. For cartels using “Highway 10”, Cape Verde is an ideal stop for refuelling their ships, warehousing their products, and shipping them for their final destination, Europe. Criminal networks are known to threaten officials, for example, whilst gangs that operate across the archipelago have been involved in violent crime. Beyond being involved in violent crime, such gangs are known to launder money through numerous entities, from NGOs to real estate businesses, raising the risk of doing business in the country as well. Such a culture of fear threatens to dampen Cape Verde’s image as an ideal tourist destination after COVID-19 and has eroded its political and judicial institutions.

SEE COUNTRY OUTLOOK: CAPE VERDE