Formalizing Rabidantes To Broaden Cabo Verde’s Fiscal Base

Cabo Verde’s formal recognition of “Rabidantes Day” underscores the government’s intent to convert informal, women-led retail into a fiscal and financial asset. The traders who dominate street and inter-island commerce sustain liquidity across an economy of roughly USD 2.8 billion GDP, where tourism still contributes about a quarter of value added and formal retail capacity remains thin. This shift marks a transition from informality as a developmental liability to an inclusion mechanism within Cabo Verde’s broader macroeconomic framework.

Informal trade accounts for around 20–25% of GDP and supports close to one-third of non-agricultural employment, with female participation exceeding 60%. The segment’s financial architecture relies on self-financing through rotating savings groups and supplier credit, generating a cash-based ecosystem that cushions shocks when formal channels tighten.

During the pandemic and the 2023–2024 energy price volatility, these traders stabilized consumption and supply continuity while formal retailers struggled with import delays and higher freight costs. With inflation contained near 3–4% and the escudo’s peg to the euro (EURUSD=X) maintaining external price stability, the state now views this network as a complementary stabilizer to monetary policy, rather than a parallel economy.

The potential macro gain is material. Cabo Verde’s public debt, at roughly 112% of GDP, remains sustainable only because of concessional financing. Formalizing even half of the informal retail economy over the next five years could lift taxable GDP by 2–3 percentage points and fiscal revenue by 1–1.5% of GDP without altering statutory tax rates.

Implementing digital registration, simplified licensing, and interoperable payment systems would transform unrecorded transactions into traceable flows, improving both the revenue base and credit risk visibility. The design challenge lies in sequencing: fiscal integration must follow, not precede, access to digital finance and social protection coverage, or else liquidity would shrink and informality deepen.

Financial system deepening would be the most direct dividend. Banking assets stand near 110% of GDP, but private-sector credit lingers at 55–60%, well below regional comparators. Bringing traders into digital payments and microcredit circuits would expand deposits, lower funding costs, and compress lending spreads for SMEs.

A 15–20% increase in financial participation could raise credit-to-GDP ratios toward peer averages and fortify banks’ liability structures. For a euro-pegged, import-reliant economy, incremental deposit growth also strengthens foreign-asset backing for the peg, easing pressure on reserves and preserving low inflation without tightening policy rates.

Regional comparators confirm the model’s feasibility. Senegal’s “bana-bana” trader integration added more than two percentage points to tax revenue over five years, while Ghana’s market cooperatives increased women’s access to bank accounts by double digits. Cabo Verde’s administrative compactness—population about 600,000—gives it an advantage in implementing digital mapping and tiered registration at scale.

The government can test inclusion reforms through pilot programs on Santiago and São Vicente before nationwide rollout. Execution must balance formality with flexibility: overregulation could suppress turnover; underregulation would miss fiscal and credit benefits.

The external dimension is equally relevant. Informal regional supply chains between Cabo Verde and West Africa, especially Senegal and Guinea-Bissau, create parallel import corridors that reduce exposure to European logistics disruptions. Incorporating these flows into the balance of payments could narrow the current-account deficit, now about 9% of GDP, by one percentage point annually. As fuel prices (CL=F) remain volatile, diversified sourcing and faster domestic turnover limit imported inflation and sustain real purchasing power, reinforcing the peg’s credibility.

Markets read such structural reforms through the lens of frontier risk pricing. Cabo Verde lacks a sovereign bond benchmark but features indirectly in regional composites like the iShares Frontier and Select EM ETF (FM). Demonstrated improvement in financial inclusion, fiscal capture, and current-account stability would lower the implied risk premium embedded in frontier indices.

Over the next 12–24 months, four measurable indicators will confirm progress: a 15–20% rise in registered micro-enterprises, mobile-money penetration above 70% among informal traders, SME credit-to-GDP increasing by at least two points with stable non-performing loans, and non-tourism VAT collections outpacing nominal GDP growth by two points. Meeting these targets would formalize liquidity, strengthen fiscal stability, and anchor Cabo Verde’s transition from informal resilience to institutionalized growth.