Abstract
Two of the central challenges faced by Cape Verde at the present are the high level of unemployment and the increasing proportion of the population living in (relative) poverty. Microenterprise development can be an effective means of addressing both problems in a developing country like Cape Verde, where microenterprises account for about 50% of employment. In this paper we provide a detailed profile of Cape Verdean microenterprises and microentrepreneurs and investigate the relationship between their characteristics and the resort to outside seed capital. We find a cluster of factors—the microentrepreneur’s age, gender, level of education and reason for being self-employed—which influence significantly the probability of being in need for external start-up capital. The policy implications of these findings for the design of a specific microfinance program for Cape Verde are discussed.
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Notes
Relative poverty measures the extent to which a household’s financial resources falls below an average income threshold for the economy, which in the Cape Verde case corresponds presently to 60% of the median income; see International Monetary Fund (2005b).
In this paper we classify as microenterprises all firms with five or less employees, including the owner.
The FAIMOs (High Intensity Labour Fronts) were created by the government of Cape Verde almost 30 years ago with the aim of generating employment in the rural areas to ensure a minimum income to the rural families devastated by droughts. At their zenith in the 1980s, they employed about 20% of the active population in seasonal works generally related to soil and water conservation, reforestation and road construction. At the end of the 1990s, some 10% of the active population were still employed in them. See UNDP (2002) for details.
Note that about half of the population living in the rural areas of Santiago are poor, which represents 42.5% of the Cape Verdean total poor population (Instituto Nacional de Estatística 2003b).
According to International Monetary Fund (2005a), the economic acceleration occurred in the 1990s merely absorbed females entering the workforce without changing their rate of unemployment. In contrast, the unemployment rate among the male population was cut by more than half.
Currently, the primary education system of Cape Verde consists of six compulsory years.
From which 44.1% become self-employed due to their liking for their business idea, 16.2% to complement family income, 14.7% because the expected income from self-employment was greater than the income from a salaried position, 13.2% in order to gain more independence, and 11.8% to follow family tradition.
Since 1991, the Cape Verdean government has been steadily reducing its central role in the economy. The several economic reforms implemented gradually created a private-sector-led economy, where, according to the last Enterprise Survey (Instituto Nacional de Estatística 1999), in 1997 some 97% of the enterprises were privately owned by Cape Verdeans, 2% foreign-owned, and only 1% owned by the state.
Actually, despite obtaining the same signs for the variables AGE and AGE2 (both of which were significant at the 1% level), Heino and Pagán (2001) mistakenly concluded that, whatever the microentrepreneur’s age, it influences negatively the resort to outside start-up capital.
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Acknowledgements
We are grateful to the Editor and two anonymous referees for their constructive comments. The research of the first and second authors was supported by the Banco de Cabo Verde and Fundação para a Ciência e Tecnologia, program POCTI, respectively.
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Baptista, J.A.G., Ramalho, J.J.S. & Vidigal da Silva, J. Understanding the microenterprise sector to design a tailor-made microfinance policy for Cape Verde. Port. Econ. J. 5, 225–241 (2006). https://doi.org/10.1007/s10258-006-0004-7
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DOI: https://doi.org/10.1007/s10258-006-0004-7