Chad: Risk Assessment
Country Risk Rating
|D||A high-risk political and economic situation and an often very difficult business environment can have a very significant impact on corporate payment behavior. Corporate default probability is very high.|
Business Climate Rating
|D||The business environment is very difficult. Corporate financial information is rarely available and when available usually unreliable. The legal system makes debt collection very unpredictable. The institutional framework has very serious weaknesses. Intercompany transactions can thus be very difficult to manage in the highly risky environments rated D.|
Weak oil prices and insecurity will hit activity
The slowdown in activity observed in 2015, mainly due to the slump in oil prices, is expected to continue in 2016. The oil sector remains the economy's dominant sector, representing a fifth of GDP. The exploitation of new oilfields in the south of the country, especially the one in Bongor, will, however, benefit the economy by 2017. Trade and transport (22% of GDP) will be hit by the worsening security conditions within the country and on its borders. By contrast, agriculture (12% of GDP) is likely to drive growth, given the government's desire to support cotton production in order to diversify the economy, despite weak global prices. Finally, construction will suffer from the government's exasperation at the accumulation of payment arrears in the sector. As a result, public investment projects will remain limited by weak State resources. Finally the past depreciation of the CFA franc, which is pegged to the euro, will sustain exports.
Inflation will decline in 2016 due to a smaller depreciation of the CFA franc against the dollar and an improvement in the current account deficit.
The public deficit to increase in 2016
The worsening security situation during the last months of 2015 and the presidential elections planned for 2016 are expected to lead to a sensibly increase in public spending in 2016. Nonetheless, the expected increase in revenues will help limit the deterioration in the public deficit: oil revenues, a quarter of what they were in 2012, will still be hit by weak oil prices. However, international aid has increased by a third since 2012 and now represents a quarter of the country's income, while non-oil income is also expected to grow. The exploitation of new oil deposits will also be a new source of revenues in the medium term.
The current account deficit is expected to narrow in 2016, but will remain high. On the one hand, the trade balance surplus will increase (export growth greater than import growth), given the currency's depreciation against the dollar (the US is the main trading partner), as will the balance of transfers (increase in private transfers). On the other hand, the balance of services deficit will reduce slightly, as will that of the income balance. The central bank's foreign exchange reserves will increase slightly to 1.8 months of imports. This level is however less than the 3-4 months of imports needed for a developing economy.
Parliamentary and presidential elections in 2016; persistent high levels of insecurity
The parliamentary elections, initially planned for June 2015, have finally been postponed to the second half of 2016, in order to enable the independent National Electoral Commission to introduce biometric electoral cards. The presidential elections will also be held in 2016 - in June. President since 1991, Idriss Débry intends to stand again. With this in mind, Débry reshuffled his government several times in 2015, in order to prevent serving ministers from creating their own electoral base.
The main risks are from the armed conflict with the terrorist Boko Haram group. Established mainly in northern Nigeria and the Lake Chad area, Boko Haram conducted a growing number of suicide attacks in this region during 2015. In order to eradicate its influence in the region, the military cooperation between the four countries bordering Lake Chad (Cameroon, Niger, Nigeria, Chad) and France has been reinforced in recent months. Chad is, in particular, very active in the fight against this terrorist group. Security problems also stem from rising poverty levels linked to the loss of 90% of Lake Chad's water area in a few decades, which has led some of the youth to join Boko Haram. Lake Chad is a key region for the agricultural sector, with fishing and the environment providing a livelihood for over 50 million people. To stop the lake drying up completely, an infrastructure plan is currently being discussed and some countries have increased their bilateral commitments, in particular France, which has committed to tripling its financial aid by 2020. Governance remains a concern, insofar as Chad is one of the countries with the most difficult business climate (186th out of 189 in the World Bank's latest Doing Business rankings). Corruption there is also endemic (154th out of 175 countries according to Transparency International).