• Economic growth picked up to 7.2% in 2012 (from 1.6% in 2011) and is projected to reach 7.4% in 2013 and 11.5% in 2014.

  • Improvement in the budgetary situation will depend not just on better world oil prices but on the government’s ability to curb its spending, increase the country’s non-oil resources and maintain external balances.

  • Chad needs to take full advantage of its demographic asset – a population of 12 million, growing by more than 400 000 a year – which will help turn it into an economically emerging country by 2025, in accordance with the government’s objective.

Overview

Gross domestic product (GDP) grew 7.2% in 2012 and is projected to increase 7.4% in 2013. This growth will be driven by the buoyancy of the agriculture and oil sectors, largely due to implementation of government industrial, energy and agro-livestock projects. Poor weather affected harvests in 2011 and 2012, pushing inflation up to 7% in 2012. It should drop to 3.1% in 2013.

The projected increase in cotton and especially oil production should boost export revenue over the next five years and could help finance the government’s public investment plan, as part of its strategy to make Chad an emerging economy. However, the funding needed for this investment programme could destabilise government spending and impair the medium- and long-term budgetary position.

The budget framework also needs to be greatly improved through a credible strategy of financial reform. This effort would be much helped by Chad reaching the completion point under the Heavily Indebted Poor Countries (HIPC) Initiative (it reached the decision point in 2001), signing a standard programme with the International Monetary Fund (IMF) and diversifying its sources of economic growth by creating value chains in three very promising sectors: livestock, cotton and gum arabic. Such diversification would generate additional revenue by broadening the tax base through increased added value and would create jobs in these sectors. It would also boost manufacturing, speed up the structural change of the economy and make growth more inclusive.

Figure 1: Real GDP growth 2013 (Central)

Table 1: Macroeconomic indicators

 2011201220132014
Real GDP growth1.67.27.411.5
Real GDP per capita growth-14.64.98.9
CPI inflation273.13.1
Budget balance % GDP2.40.803.8
Current account % GDP-2.3-6.1-8.9-2.1

Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

 20072012
Agriculture, forestry & fishing--
Agriculture, hunting, forestry, fishing2116.4
Construction11.613.7
Electricity, gas and water0.50.6
Electricity, water and sanitation--
Extractions--
Finance, insurance and social solidarity--
Finance, real estate and business services0.81.1
General government services--
Gross domestic product at basic prices / factor cost100100
Manufacturing5.16.1
Mining29.828
Other services00
Public Administration & Personal Services--
Public Administration, Education, Health & Social Work, Community, Social & Personal Services7.58.5
Public administration, education, health & social work, community, social & personal services--
Social services--
Transport, storage and communication19.118.6
Transportation, communication & information--
Wholesale and retail trade, hotels and restaurants4.87.1
Wholesale, retail trade and real estate ownership--

The economy recovered in 2012 from a sharp setback in 2011, growing 7.2% (up from 1.6% in 2011), and should improve further in 2013 (7.4% growth) and 2014 (11.5%).

The primary sector contributed 0.96 percentage points to GDP growth in 2012, mainly livestock, industrial farming and food-crop farming. Despite heavy flooding, cereals output more than doubled, from 1.66 million tonnes in 2011/12 to 3.7 million in 2012/13. Government measures to upgrade major farming areas, distribute better seeds and provide 1 000 tractors around the country helped to increase added value in agriculture.

The secondary sector accounted for 3.22 percentage points of GDP growth, thanks to robust manufacturing and construction, to expansion of new energy-sector industries such as construction and refining, and to cotton, with the revival of the state-owned firm Cotontchad. The oil sector contributed less to growth because of a drop in production due to geological problems in the Doba Basin field.

The services sector contributed 3.02 percentage points of GDP growth and remained a key source of jobs. The healthy performance of transport, telecommunications and commerce, as well as civil service hiring, boosted employment in Chad.

Gross fixed capital formation was the main factor underlying the increase in overall demand in 2012, accounting for 4.9 percentage points of GDP growth. It was driven by overall investment, which rose 7.9% on 2011 (up 19% in the oil sector). Final consumption contributed 4.6 percentage points to GDP growth, mainly as a result of increased private spending. Where foreign trade is concerned, net external demand detracted from GDP growth (-2.3 percentage points).

The growth recovery in 2012, after the very poor result of 2011, was expected to continue in 2013. The changes and improvements expected in the very short term in the power generation sector and the inauguration of industrial zones will underpin the forecasts for 2013 and 2014, but growth will also depend on the performance of the oil sector. The government body monitoring this sector (Collège de contrôle et de surveillance des ressources pétrolières) reported in 2012 that output was 41 880 000 barrels, with estimated reserves of approximately 900 million barrels. The main oilfields are in the southern region of Doba, and the oil is piped 1 070 km out of landlocked Chad to Cameroon.

The oil companies operating in Chad are all foreign owned. They include Esso, Chevron, Petronas, Griffiths, the China National Petroleum Company (CNPC) and Taiwan’s Overseas Petroleum and Investment Corporation. Chad joined the Extractive Industries Transparency Initiative (EITI) in 2007 and became a candidate country in April 2010. Publication in 2012 of EITI reports for 2007, 2008 and 2009 confirmed that oil revenue was the government’s main source of income: 74% of fiscal revenue in 2007, 81% in 2008 and 49% in 2009. The figure was about 80% in 2012.

Spin-off from the oil sector is potentially a major factor in the country’s economic and industrial growth, but it will depend on the oil companies’ ability to maintain production levels in coming years. New extraction in the next two years by the Canadian firm Griffiths should boost output. Substantially increased production by the CNPC in the Bongor region should offset declining output from the country’s first oilfields and make it possible to export the surplus. Production at the Bongor site, originally set at 20 000 barrels a day, currently ranges from 10 000 to 15 000 barrels, all of it handled by the Djermaya refinery that opened in July 2011.

Macroeconomic Policy

Fiscal Policy

The primary non-oil budget deficit rose to 19.5% of GDP in 2012 (from 18.8% in 2011), and the overall balance, though positive, fell from 2.4% of GDP to an estimated 0.8%. Budget spending increased from XAF 1 341 billion (CFA francs BEAC) in 2011 to XAF 1 614 billion (XAF 801 billion for investment and XAF 813 billion in current spending) due a sharp 20.3% rise in overall government spending (22.3% of GDP, compared with 21.9% in 2011). New spending on public projects was funded by loans or domestic revenue. The increase in outlay was also caused by higher debt service and a 13% increase in civil service pay. Overall budget revenue rose slightly to about XAF 1 341 billion (from 1 338 billion in 2011), nearly 80% of which (16.1% of GDP) came from oil.

Little non-oil tax revenue was raised in 2012. The non-oil tax burden has been below 10% of GDP for years: in 2012 it was only 7.3%; in 2011, 7.4%. The government was obliged to issue a supplementary budget in September 2012, taking into account the low level of non-oil revenue and increased oil revenue during the year, the increasing cost of state subsidies and transfers (5.3% of GDP), and pre-budget spending, which amounted roughly to a quarter of government resources in 2012.

Table 3: Public Finances (percentage of GDP)

 200920102011201220132014
Total revenue and grants14.92024.323.121.323.1
Tax revenue5.55.95.15.15.14.8
Oil revenue6.512.717.416.114.516.6
Grants------
Total expenditure and net lending (a)22.524.22222.321.419.3
Current expenditure14.514.412.612.511.410.3
Excluding interest1413.81211.810.89.6
Wages and salaries4.644.34.24.23.9
Interest0.50.50.60.70.70.6
Primary balance-7.1-3.631.50.64.4
Overall balance-7.6-4.12.40.803.8

Monetary Policy

Adjustment of leading interest rates, required minimum reserves and caps on bank refinancing are the chief monetary tools used to control inflation and maintain parity between the euro and the CFA franc in the franc zone to which Chad belongs. The franc zone has convertibility between member countries and an unlimited guarantee by the French treasury to currencies issued by the various regional bodies. Free capital transfers, a fixed-rate but adjustable exchange system, centralisation and the pooling of foreign exchange reserves in a special “operations account” give the CFA franc international status.

By the end of September 2012, Chad’s net external assets in the operations account of the Bank of Central African States (BEAC) had increased by 15.5% year-on-year, from XAF 455 billion to more than XAF 499 billion, largely due to better prices for oil exports. Coverage of sight liabilities by net external assets increased from 66% to 68.8%. Improvements in these two important indicators in a very tough international economic and financial situation help to strengthen the link between the euro and the CFA franc and contribute to the monetary stability of the franc zone. Chad thus boosts respect for the monetary co-operation zone’s operating procedures and strengthens its economic and financial resilience.

Keeping the leading rates unchanged in 2012, especially the refinancing rate at 4%, reduced the possibilities for internal refinancing of the economy by the banks. Prices continued to rise overall due to the poor 2011/12 harvests. Inflation averaged 7% over the year, despite control of budget deficits through institutional mechanisms, overseen by the regional issuing bodies, and Chad’s compliance with a convergence agreement undertaken as part of multilateral monitoring in the Central African Economic and Monetary Community (CEMAC). Two of the franc zone’s four prudential criteria were not met in 2012: inflation below 3% and not accumulating external and internal arrears. In 2011, only the arrears criterion was not met.

Economic Cooperation, Regional Integration & Trade

In 2012, the country recorded a trade surplus equivalent to 8.1% of GDP, mainly due to buoyant exports (up 4%) and imports that rose only 1.1%. Deficits in the services and factor income balances prevented a significant improvement in the current account, which showed a deficit of 6.1% of GDP. Export composition was the same as in 2011, mainly oil (83%), along with livestock, cotton and gum arabic. Imports were largely manufactured goods (due to the industrial activity of oil companies) and items related to the public investment programme in the productive traded sector.

Healthier external accounts in the future will depend on world oil prices and local oil output levels, as well as the cotton industry’s recovery and the ability of new industries to produce goods to replace imports. Informal trade, whose shape and extent are not easy to determine, is hampering the growth of formal trade with neighbouring Cameroon, Nigeria, Sudan, Central African Republic and, to a lesser extent, Libya. In order to boost goods traffic between Chad and Cameroon’s port of Douala, which handles 90% of Chad’s imports, the mixed permanent transport commission cut the number of customs points to three on the route to Douala in November 2012. The government is also trying to boost trade by improving foreign trade data put out by national, sub-regional and cross-border bodies, and Chad is part of a sub-regional project to link customs administrations.

The committee of the country’s technical and financial partners conducted a review of foreign development aid and foreign-funded projects and programmes. Its report, which the government used as the basis for its own assessment of aid, shows that Chad received XAF 2 003 billion from donors between 2008 and 2011.

Table 4: Current Account (percentage of GDP)

 2004200920102011201220132014
Trade balance27.90.83.610.68.14.29.9
Exports of goods (f.o.b.)49.331.134.436.633.930.434.6
Imports of goods (f.o.b.)21.430.330.82625.826.224.7
Services-36.5-10-13.8-12.4-11.9-11-9.7
Factor income-13.3-7.4-3.3-3.3-4.9-4.2-4.2
Current transfers4.97.92.92.82.72.11.8
Current account balance-17-8.7-10.6-2.3-6.1-8.9-2.1

Debt Policy

Chad’s debt is managed by the national treasury, with support from the research and forecasting department, the national statistics institute (INSEED) and the BEAC. These bodies have served over the past three years as the technical team for debt viability assessment, with responsibility for monitoring and updating all information on debt. Each year, along with other government departments involved in public finance management, it drafts a national public debt strategy that is attached to all budget bills presented to parliament.

Chad’s public debt at the end of 2012 was estimated at XAF 1 655 billion, XAF 1 197 billion (72%) of it external and XAF 458 billion (28%) domestic. Servicing this debt cost 11% of total budget revenue. While no arrears have been incurred on the external debt, the government has not used the increased oil revenue over the past three years to increase the pace of domestic debt repayment. The current rate of spending and the sensitivity of the debt to variation in oil prices are matters of concern for the donor community and affect the debt in the medium and long terms.

Figure 2: Stock of total external debt and debt service 2013

Economic & Political Governance

Private Sector

The business climate is still an obstacle to private sector growth. Chad ranks 184th out of 185 countries in the World Bank report Doing Business 2012/13 for ease of doing business. Four weaknesses highlighted in the report are starting a business, paying taxes, trading across borders and resolving insolvency (closing a business). The government is trying to improve conditions by setting up one-stop shops in N’Djamena and other cities, reducing the time needed to start a business from 75 days to 3, with a target of 2. Some 3 800 businesses were set up in 2011, 95% of them very small or sole proprietorships. A total of 1 949 were created between January and September 2012. Few local private firms pay taxes, and hence the burden falls on 7 000 companies liable for the flat-rate tax (impôt général libératoire – IGL), 810 for the simplified version and only 472 for the full rate. A mere 250 of these contribute 75% of all revenue from this tax.

The government definitely favours reform, but its strategy is unclear and needs to be reviewed in a number of areas: several ministries are involved in boosting the private sector, so structural duplication is a problem; employer organisations compete rather than work together; and dialogue between economic players is very limited. The World Economic Forum’s 2012/13 report Global Competitiveness ranks Chad 95th out of 144 countries for labour market flexibility because of serious administrative and legal rigidities.

Financial Sector

Only 12% of the population used banks in 2012 due to poor national coverage by the country’s nine banks. The Global Competitiveness report identified access to credit as the main concern for the business community. The banking system remains highly dependent on the public sector, with about 90% of its net banking income coming from government contracts.

The sector is not very effective in transforming resources into long-term uses, as 80% of deposits are very short term. Any government liquidity crisis is a serious liquidity risk for local banks, exposing them to grave economic consequences. Government efforts in 2012 to reduce its debts have freed the banks to channel part of their resources to the private sector. Bank loans increased in 2012 due to the boom in household demand for housing construction and work on many public construction projects.

Public Sector Management, Institutions & Reform

The calmer political scene, gradual expansion of the government’s writ across the country, decentralisation preparations and a better security situation have all helped the government to protect citizens and private property against crime and violence.

The 2012 Mo Ibrahim Index of African Governance gives Chad a score of 64.7 (out of 100) for national security in 2011, up from 61.1 in 2010 and 51 in 2009. Major government reforms to improve the business climate include setting up a one-stop shop to handle all formalities for starting a business (involving the tax authority, customs, justice and trade ministries, and the social security fund).

Natural Resource Management & Environment

Chad faces many ecological threats that could endanger its agricultural potential, increase emigration from the countryside, aggravate conflicts between crop and livestock farmers, and heighten the risk of food shortages and poverty. The government has set up a national committee for the environment (HCNE), adopted a national environmental action plan (PNAE) and implemented a national programme to fight desertification (PAN-LCD) and a national strategy and action plan on biodiversity (SNPA/DB). All land development activities in oilfield areas have been made subject to environmental impact surveys. The country has ratified the UN Framework Convention on Climate Change and the Vienna Convention for the Protection of the Ozone Layer and its protocol, as well as conventions on hazardous waste.

There are many grassroots-level initiatives, including very strict rules about felling trees, a national ban on plastic bags and an environmental tax on vehicles according to engine size. Substantial actions have been taken to preserve Lake Chad, a major national priority, and others are planned with the support of the African Development Bank. The Bank will be the lead institution at a donor round-table in 2013 on how to preserve the lake. Money raised at the meeting will fund a five-year investment plan for the area.

Political Context

The year 2012 saw local elections, a civil service strike, government efforts to improve governance and settling of armed conflicts in the sub-region.

Following the 2011 presidential and parliamentary elections, the ruling Mouvement patriotique du salut (MPS) won the local elections held on 21 and 22 January 2012.

The national trade union federation (Union des syndicats du Tchad – UST) called a strike on 17 July 2012 to demand strict application of the November 2011 draft agreement with the government for a general pay increase. All attempts at mediation failed, and the government ended negotiations in November 2012 and cancelled the draft agreement.

The government launched Operation Cobra to fight against poor governance and embezzlement of public funds. The operation has so far yielded some XAF 10 billion for the state.

Chad has been very actively helping to resolve regional conflicts and contributed troops to international peacekeeping forces in the Central African Republic in 2012.

Social Context & Human Development

Building Human Resources

The 2013-15 national development plan (PND) is to take over from the national poverty reduction strategies (SNRP 1 and 2), which have managed to improve education. The PND aims to build on their achievements with a human resources development programme. The president has called for 15% of the national budget to go to health and 18% to education. However, despite these significant advances and the money raised, these two sectors still face many problems.

Strong regional disparity in access to education is still a major snag. The gross enrolment ratio in 2011 was 95% in southern Chad but only 20% in the north. Completion rates in primary education – 37% at national level (28% for girls) – also differed very widely across the country. Gender-related illiteracy was highly skewed as well, standing at 86% among women and 69% among men in 2011. Illiteracy also varied strongly according to region: 45% in N’Djamena, 57% in Mayo-Kebbi Ouest, 97% in Barh El Gazel and 96% around Lake Chad.

These human resource imbalances help explain the country’s middling progress towards meeting the UN Millennium Development Goals (MDGs). Significant advances have been made towards three targets that may be reached by the 2015 deadline: halving the number of people living on less than a dollar a day, fighting major diseases and halving the number of people without access to safe water. The other goals and targets will not be reached in time and will need more funding and appropriate sector planning if they are eventually to be achieved.

Poverty Reduction, Social Protection & Labour

The latest survey on consumption and the country’s informal sector (ECOSIT 3) showed a poverty rate of 46.7% (down from 55% in 2003), with small farmers and women the main victims. Higher budget revenue and improved security enabled substantial anti-poverty spending under the SNRP 2 plan. Spending on priority sectors in 2011 was 62.4% of the overall budget (excluding expenditure for security and debt servicing), which was slightly above the plan’s 62.2% target.

The government hired 1 960 people in 2011 to boost its efforts to support priority sectors. Products such as cement, electricity and water were subsidised to help the neediest social categories. The cost of these subsidies and other transfers granted by the government was estimated at 5.3% of GDP in 2012. However, many distortions in the distribution and marketing chains for such items may have blunted the real economic and social impact of the measures for the poorest.

Gender Equality

Real progress has been made towards expanding opportunities for women, and these efforts should be continued. Women held 18% of seats in parliament in 2011 (up from 7% in the previous assembly). Chad has signed conventions such as the African Charter on the Rights and Welfare of the Child, the Convention Eliminating All Forms of Discrimination Against Women and the International Labour Organisation’s Convention 182 on the Worst Forms of Child Labour.

The rate of female illiteracy nonetheless remains high (86% in 2011, compared with 69% among men). Women are under-represented in the civil service, and their advancement is even harder in the formal private sector. They mostly work in agriculture, livestock and fishing (half of all female jobs). This contributes to the persistence of gender disparity with regard to pay, property and land ownership, setting up businesses and inheritance. The law decrees gender equality in property rights and inheritance but traditional practices favour men.

Thematic analysis: Structural transformation and natural resources

The discovery of oil and its extraction beginning in 2003 have changed the economic direction of Chad, and extractive activity is increasing. The considerable taxes paid by the oil sector have speeded up the country’s growth. GDP at current prices doubled between 2003 and 2005, and the country’s annual growth rate averaged nearly 8% between 2000 and 2011.

The money collected from the oil industry, along with foreign loans, has been used for priority funding of large-scale investment in the key sectors of infrastructure, hydrocarbons and transport, to build a solid national economic base, in order make up for 40 years of political instability and wars and to make the economy more attractive. Another aim of the investment programme is to develop the country’s natural resources through major industrial investment in the traded productive sector. The decision to produce goods in heavy local and regional demand testifies to the government’s keenness to replace imports with factories processing local raw materials.

In the oil sector, the main project along these lines was the construction of an oil refinery at Djermaya, in partnership with China. The refinery, which began operating in July 2011, has a capacity of 1 million tonnes, about twice what is needed to meet local demand. The government owns 40% of the plant and the CNPC 60%.

The development of the cotton sector, which predates that of oil, was accomplished through a sectoral structure dominated by the firm Cotontchad, which played a leading role in ginning, technical help and marketing. The cotton sector was the mainstay of the economy before oil, earning some 65% of export revenue and employing directly or indirectly about a quarter of the population. Its collapse, due to longstanding low world cotton prices and to the technical, financial and production problems of Cotontchad, prevented consolidation of efforts to develop it and preserve the economic gains. The government decided in 2012 to invest XAF 5 billion to revive Cotontchad.

Structural transformation through the primary sector, through industrialisation or progress towards a services economy has been hampered partly by the predominance of agriculture (52% of GDP), which continues to employ more than half the working-age population. It has low productivity, in contrast to the farm sectors of other sub-Saharan economies that have changed more substantially. An IMF survey shows that between 1995 and 2010 Chad’s overall agricultural productivity grew only 0.8% , compared with 4.5% in Angola, 2.7% in Gabon, 5.3% in Niger and 2.3% in Nigeria.

The development of the oil sector, and to a lesser extent the cotton sector, is obstructed as in many developing countries by small domestic markets and by regional competition, chiefly in refining. Most CEMAC countries now have their own refineries, but Chad’s economy has not seen all the spillover effects usually expected from oil prospecting and production. This is particularly true of local outsourcing, because Chad lacks the highly skilled labour needed in a sector dependent on sophisticated technology. The slow development of the oil and cotton sectors is also due to the way they operate, with the strong government presence in productive traded goods industries inevitably causing conflict between market forces and profit-seeking on one hand and social goals on the other. This situation can make it difficult to make certain hard choices in management and strategic decision-making and can ultimately hamper the running of a company.

One example is the Djarmaya refinery, which opened on 29 June 2011 but temporarily closed on 19 January 2012 after a disagreement between the government and its Chinese partner over what price the oil should be sold for. The dispute was soon solved, and the refinery reopened on 6 February. Such industrial facilities in which the state has a majority stake will require substantial short-term (and even medium- and long-term) resources if social rather than market considerations prevail in their long-term operation and maintenance.

Chad’s economy has undergone little structural change, to judge by the development of its two main natural resources (oil and cotton). Yet this process of value creation is a key instrument for promoting strong and diversified economic growth in Chad. It could be speeded up through greater attention to market forces, which would require a shift in public policies. Private sector support and a good business climate are also vital in order to take greater advantage of oil and cotton resources.

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