Chad: Risk Assessment
Country Rating1
Rating: D
Business Climate Rating1
Rating: D
Risk Assessment2
GDP growth dependent on the oil sector
The rebound in the oil sector (34% of GDP) and the moderate recovery in the cotton industry and services drove the economy in 2010. The manufacturing sector, mainly focused on cotton, sugar and tobacco processing, has initiated a diversification process and has benefited from Indian investment in the textile and automotive-assembly sectors. Industrial development remains hobbled, however, by a cost of electricity among the highest in the world and breakdowns in the supply system. Persistent financial and managerial difficulties have, moreover, undermined cotton production. In 2011, continued growth will depend on the overall agro-industrial recovery and Chinese investment in the framework of a second oil field. Greater support for non-oil economic development, meanwhile, will ultimately depend on improvement in the security situation and the fiscal resources freed up as a result.
Worsening debt ratios
With oil generating between half and two-thirds of fiscal revenues, depending on the year, public sector finances suffered greatly from the collapse of oil prices in 2009, forcing authorities to completely draw down reserves built up by setting aside oil income. Thanks to the rebound in crude prices, the public sector deficit narrowed in 2010. It was covered by new funds advanced by the Bank of Central African States and two large non-concessional loans, notably of Chinese origin. This borrowing has resulted in a rapid build-up of debt and a significant increase in debt service in the medium term. Meanwhile, Chad is faced with a downward trend in oil income and in funding opportunities. And since the discussions with the IMF in view of a new agreement have not been concluded as yet, no date has been set for the completion point under the HIPC initiative thus delaying relief that would significantly bolster the sustainability of the debt.
Unstable security situation
The second National Poverty Reduction Strategy adopted for the 2008-2010 period stresses the importance of establishing a business climate conducive to private-sector growth and setting up rural development programs and investment projects in education. Implementation of the reforms has been impeded, however, by the climate of insecurity, a lack of political commitment and deficient governance. The security situation in Chad continues to suffer from the instability prevailing in Central African Republic and in the Darfur region, in north-western Sudan, which has triggered large inflows of immigration. The mediation under Qatar auspices only resulted in modest progress on settlement of the Darfur question (May 2009 Doha Agreement). Although the recent rapprochement between Chad and Sudan, supposed to support the Chadian rebels, has improved the security situation, the accord remains shaky. Despite these challenges, Chad is part of an overarching strategy for China, on oil, and for the United States, combating terrorism. Legislative elections, postponed several times due to delays on voter registration, are now scheduled in February 2011. The presidential election, postponed until May 2011, is expected to result in the re-election of Idris Déby, in power since 1996.
Strengths
- Oil exploitation since 2003 provides the opportunity to develop the non-oil sector
- Financial backers have exerted pressure to ensure that the oil wealth contributes to achieving poverty reduction objectives
- Development potential in agriculture
Weaknesses
- Depletion of oil reserves expected by 2030
- Deficiency of transport, electric power, and communications infrastructure
- Risk of food shortages, poverty rate exceeding 55%
- Unstable political and security situation