By David Lewis

PRAIA, Aug 11 (Reuters) - For a small string of barren
volcanic islands that have no natural resources, suffer from
chronic droughts and are perched far off Africa's west coast,
Cape Verde is punching well above its weight.

Unscathed by conflict or political instability, the country
has quietly become a middle-income nation and looks set to be
one of few in Africa to meet any of the Millennium Development
Goals set for measuring progress in improving livelihoods.

Yet it has loftier ambitions.

In return for special deals on economic and political
cooperation with Europe, it increasingly plays a trouble-fixing
role on the more unruly mainland some 400 kms (250 miles) away.

It hopes to turn its location to its advantage by becoming a
springboard for business in West Africa. And it thinks tourist
numbers could soon match the country's population.

"The fact that we don't have resources has made us be
creative," Fatima Fialho, Cape Verde's minister for tourism,
industry and energy, told Reuters.

"We are an economy in transformation -- moving from one of
(aid) to one of production," she added, detailing plans for a
service-based economy focusing on shipping and fisheries,
providing a hub for technology and finance, and tourism.

Economic growth for 2010 will be 5-6 percent, she said.

The country is not without its challenges. The lack of rain
still means over three quarters of its food is imported.

Cape Verde's response to the financial crisis has been to
accelerate its public investment programme, known locally as the
nation's "air bag". This has delivered an impressive upgrade of
infrastructure, but also rising debt levels.

Fitch ratings said in May a fiscal deficit of 12 percent of
GDP in 2010 and 2011, and central government debt at 78 percent
of GDP by the end of next year, should ensure long-term growth
but will increase pressure for sound management.

POOR, BUT SUCCESSFUL

After other African nations with similarly small populations
but far higher revenues, mainly from oil, failed to use vast
sums of money to benefit the country outside a tight-knit elite,
the nation is being heralded as a non-resource success story.

In April, the African Development Bank (AfDB) called Cape
Verde the first African case of "policy induced graduation".

"Here is evidence that no matter how bad the initial
conditions, with good governance, solid institutions, and a
peaceful political and social climate, take-off is possible,"
Donald Kaberuka, AfDB group president, said during a visit.

Ahead of elections next year, Jorge Santos, deputy head of
the MpD opposition party, is quick to express confidence in the
political system, saying there is no comparison in the region.

Donor aid has played a key role in its success.

But so too have payments from its diaspora -- believed to be
double the 500,000 Cape Verdeans living at home. Many left the
country due to hardship there and, spread out across the globe,
send millions to families back home every month.

Even after taking a hit from the global crisis, remittances
amounted to 132 million euros ($172 million) in 2009, having
averaged 12.3 percent of GDP between 1999-2008, according to the
AfDB.

But Fialho said that tourism has just overtaken remittances
as the biggest contributor to the economy at around 20 percent
of GDP: "This is an important shift."

Ever since Italian dictator Benito Mussolini built the first
airport on the island of Sal, Italians have dominated tourism
there. Charter flights from around Europe jet in to a number of
gleaming new airports, ferrying most of the 330,000 tourists in
2009 to all-inclusive hotels on sun-blessed beaches.

Some in the industry grumble that vast hotels, like a
4,500-bed all inclusive resort being built for Spanish firm Riu
on Boa Vista, are wrecking the charm of the islands.

"This is not very good for local communities -- they only
stay in the hotels. They don't learn about our cultures ... we
must not move too fast," said Lindorfo Olivio Marques Ortet, who
owns a hotel for walkers in mist-shrouded hills above Praia.

But Fialho argues that mass tourism was essential to get the
country on the map, and the focus is now on improving services
to meet a target of 500,000 visitors a year by 2012.

LINK TO THE REGION

Uninhabited until it was discovered by Portuguese mariners
in the 1450s, the country's population is a mix of settlers and
former slaves, a combination that means tribalism is not an
issue.

Yet many speak of Africa as a separate continent and have
far more links with Europe or the Americas. The national
airline, for example, flies directly to Brazil, the United
States and a number of airports across Europe, but just one in
Africa.

The islands, however, are becoming an increasingly important
strategic partner for the African mainland but also for
outsiders looking to strengthen their African links.

"What Cape Verde can bring to the region is a bridge,"
Foreign Minister Jose Brito told Reuters.

A visit by Brazil's President Luiz Inacio Lula da Silva in
July highlighted the role Cape Verde could play as a springboard
into West Africa. But Europeans and the United States also see
the country as barrier against the flow of drugs and people.

Cape Verde was the first West African nation used to transit
cocaine headed to Europe, and has since been widely praised for
cracking down on corruption and improving law enforcement.

In July, it helped the United States by receiving a Syrian
prisoner from Guantanamo Bay. The country is also increasingly
active in seeking to resolve African conflicts, such as in
Guinea-Bissau.

In return, Praia has secured a special partnership with
Europe and is the first country to be made eligible for a second
round of funding from the U.S. Millennium Challenge Corporation.

Brito said it was in Europe's interests to have a special
relationship with Cape Verde, especially in having a real
partner in fighting crime, and the country would seek to meet EU
standards, but was not looking to join the institution.

"We are an African country ... Cape Verde cannot be alone,
separate from what is happening in (the region)."
(Editing by Myra MacDonald)