Located far off the western coast of Africa, the tiny islands that make up Cape Verde are mostly barren volcanic rock.  But the lack of natural resources has actually benefited the country in one way: it has been able to attract donor money. By the end of this year, according to the U.N., Cape Verde is expected to officially join the ranks of medium-developed countries.  But as Phuong Tran reports for VOA from Praia, Cape Verde, the country now faces another problem.

Cape Verde's leaders are pleased with the rising level of income, but they are also worried that they may soon be losing donations from lenders who only give money to the world's poorest countries.
Cape Verde's Minister of Foreign Affairs, Victor Borges, says the country still faces high poverty even though overall economic indicators are better than they used to be.

Borges says many of the country's advances were possible only because of money from international donors and the generosity of Cape Verdeans living in other countries who send money back home.  The foreign minister says Cape Verde's economy is actually quite weak.

A major source of aid has been the International Finance Corporation (IFC) a lending organization for poor countries. Since 2001, the IFC has offered Cape Verde almost $100 million in low-interest loans to build roads and provide social services. 

But now that it is considered a middle-income country Cape Verde will no longer be eligible for these special loans.  Markus Scheuermaier, Cape Verde's IFC representative, says this poses a major challenge for what has been an aid-dependent country.

"Now that Cape Verde is actually achieving medium-income country status, it will actually have to work harder to keep some of the benefits from 30 years of independence," he explained.

Although the country has made advances, it has many problems. A U.N. poverty specialist based in Cape Verde, Gilena Andrade, says the government still needs to address high unemployment, drought, and poor transportation between the country's nine inhabited islands.

She says donors need to remember that Cape Verde is like nine countries, each with different needs. She says farmers on the smaller islands have trouble getting their produce to the bigger islands, which hurts their income.

Minister of Foreign Affairs Borges says if the country can no longer rely on outside investors, it has to find a way to make money on what resources it has, such as its many kilometers of pristine beaches, which are just a few hours from western Europe.

Borges says preventing corruption is also a priority as Cape Verde moves toward an economy based on investments, rather than donor funds.

The minister says any time an economy opens its doors to investors, there is the possibility of new forms of corruption.  He says the government is committed to fighting corruption.

Late last year, the minister of economy Joao Pereira Silva, resigned over corruption charges on a tourism contract with a Portuguese company on the island of Boa Vista.
The government cancelled the contract, but says it found no evidence of corruption.

To make itself more attractive to investors, Cape Verde recently changed its laws to speed up approval for new investments. All sectors of the country are now open to foreign investment.  The sectors with highest priority are light manufacturing, tourism and fishing.