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. - Source: Coface

Business Climate Rating

E
The highest possible risk in terms of business climate. Due to a lack of available financial information and an unpredictable legal system, doing business in this country is extremely difficult.

Strengths

  • New oil fields brought into production
  • Development potential of the agricultural sector

Weaknesses

 

  • Very high poverty rate (40% of the population in 2019 according to the World Bank)
  • Over-reliant on oil (27% of GDP and 75% of exports)
  • Business environment not conducive to thriving private sector development and high level of corruption
  • Geographically isolated
  • Worsening security conditions at the national level and in neighboring countries (Cameroon, Libya, Nigeria), with which Chad shares porous borders.
  • Low level of Lake Chad, with negative effects on cotton, fishing, and the environment.

Current Trends

An upturn following the COVID-19 crisis

In 2020, the crisis triggered a recession due to lockdown measures (curfews, closure of markets and non-essential shops, suspension of air links, border closures, and restrictions on internal travel), but also because of reduced international demand, especially for oil.

A recovery is expected in 2021 as restrictions are lifted and external demand is restored. Oil revenues, which account for 75% of exports and 27% of GDP, will benefit from the recovery, albeit moderate, in prices, as well as from the start-up of new fields and new extraction techniques that will allow production to return to pre-crisis levels. Gold sales (20% of exports) are also set to increase with the pick-up in demand, while prices remain high. Barring unfavorable weather conditions, the growth contribution of the agricultural sector (17% of GDP, in terms of supply, but 75% of the labor force), with cotton (3% of exports), livestock farming, and gum arabic, should increase through household consumption (76% of GDP, in terms of demand). However, inflationary pressures will be stoked by higher energy prices and the increase in food prices linked to persistent supply issues with Nigeria and Cameroon. Production of seed cotton has been increasing since 2018, the year in which OLAM, a Singaporean group, acquired a majority stake in the capital of Coton Tchad, a former state-owned company with a monopoly on purchasing. The state is promoting this sector, including through annual subsidies for fertilizer purchases. These measures are being taken within the framework of the Five Year Development Plan (2017-2021), which aims to create ten agri-food hubs with private sector involvement, in order to develop agriculture and livestock farming. In the service sector (42% of GDP), transport, commerce, and hotels should bounce back, while banking and telecommunications will continue to build momentum.

Multilateral organizations to the rescue

In 2020, the crisis generated additional financial requirements for the state equivalent to 7% of non-oil GDP. Public spending rose from 14% to 19% of GDP. A support plan equivalent to 6% of GDP provided for the creation of a solidarity fund, the suspension of utility bill payments, and food distribution. Settlement of arrears to suppliers, government employees, and state-owned banks was accelerated, and a recent wage agreement was implemented. International partners came to the rescue, including the IMF with USD 183 million under its Rapid Credit Facility and six-month debt service relief. With debt service representing 18% of government revenue, debt (70% external) is still a high risk, even if the rescheduling in 2018 of the portion due to Glencore (15% of the total) eased some of the pressure. Moreover, the banking sector will remain highly vulnerable due to the close ties between the state and state-owned banks. Finally, the country will have to renegotiate a new Extended Credit Facility with the IMF, after the previous one, which provided USD 310 million between 2017 and 2020, was canceled in April 2020 because of the crisis.

The current account deficit widened considerably in 2020 due to the deterioration in the terms of trade (oil and cotton prices) and the fall in global demand. By 2021, it is expected to reduce without coming close to its previous level. As the terms of trade improve and external demand rebounds, the trade surplus, which fell from 12% to 5% of GDP between 2019 and 2020, will improve. However, the improvement will be limited, as purchases of equipment needed for oil investment will increase rapidly. Moreover, this positive balance is largely offset by the deficit in the balance of services (especially oil-related), which is heading towards 20% of GDP. The improvement in the current account balance should be sustained by continued transfers (6% of GDP in 2020) from expatriates and from international organizations. As usual, the deficit is expected to be financed by renewed FDI (5% of GDP), plus compulsory international financing, as in 2020.

A well-established president in a turbulent geopolitical environment

President Idriss Deby, who has been in power for 30 years, has said that legislative elections should, in principle, take place in October 2021, after being postponed several times since 2015. Meanwhile, President Deby is likely to stand again as a candidate in the presidential election scheduled for April 2021. He could win because the opposition is both divided and weakened by the regime’s grip on institutions and the electoral process. While he can count on the support of the large parliamentary majority of his party, the Patriotic Movement for Salvation, popular support is fraying due to the difficult conditions in which many people live, with very high youth unemployment. Furthermore, the conflict between herders and farmers in several provinces is ongoing and is compounded by ethnic and religious hostilities. The country enjoys the military support of France, which values Chad’s involvement in peace missions, including the G5 Sahel force and the Multinational Joint Task Force in the Lake Chad region to fight against Boko Haram.

 

Source:

Coface (02/2021)
Chad