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Chad - Economy

Chad is among Sub-Saharan Africa’s most significant crude oil producers. The predominance of the oil sector means that the Chadian economy remains vulnerable to drops in oil production and drops in crude oil market prices. Production from the main oil fields in Miandoum, Bolobo and Komé is expected to drop by roughly 4% per year, but new oilfields are being explored and developed. From 2013 to 2015, Chad experienced an 80 percent reduction in fiscal oil revenue. This is mainly the result of the drop in oil prices, but also the repayment of the 2016 installments on the oil sales’ advances which funded the government’s acquisition in 2013 of a large oil asset

More than 80% of the work force is involved in agriculture--small-scale subsistence farming, herding, and fishing. Like other developing countries, Chad has a small formal sector and a large, thriving informal sector. In 2010, Chad's GDP was estimated at approximately $8.6 billion, distributed among agriculture, industry, and services. Chad is highly dependent on foreign assistance. Its principal donors include the European Union, France, and the multilateral lending agencies. Petroleum, cotton, cattle, and gum arabic are Chad's major exports.

The onset of oil production in 2003 helped increase spending in various socio-economic areas and accelerated economic growth. Real GDP per capita increased by around 20 percent between 2007 and 2014. But because of rapid population growth and domestic armed conflicts that plagued Chad up to 2009, the absolute number of the poor still increased and per capita consumption for the poorest rural households declined. The arrival in 2010 of internal political stability paved the way for improved economic management.

Macroeconomic outcomes underperformed potential, due to the major impact of two exogenous shocks: the lower oil prices and the elevated regional insecurity. Oil revenues have collapsed to a fraction of their previous level and are expected to only partially and gradually recover. The threat to security in the region remains serious, causing economic disruption, reprioritization of spending to defense, hosting of refugees and internally displaced persons, and exacerbating the difficult economic situation.

Economic activity slowed sharply in 2015, with GDP growth estimated to have decelerated to 1.8 percent from 6.9 percent in 2014. Disruptions to cross–border trade flows with Cameroon and Nigeria have led to increased volatility of domestic prices, reaching 3.7 percent on average in 2015, slightly above the CEMAC target of 3 percent. Despite a large fiscal adjustment, the overall fiscal deficit remained high (6.6 percent of non-oil GDP) in 2015 and domestic arrears were accumulated to reach 3.9 percent of non-oil GDP (CFAF 200 billion) at the end of the year. Money supply contracted and credit to the private sector slowed significantly in 2015. The external current account deficit widened from 9 percent of GDP in 2014 to an estimated 12.4 percent of GDP in 2015 on account of the further decline in oil prices and a corresponding fall in exports.

Chad is one of the most exciting new areas for oil exploration and production in Africa. The country covers almost 1,284,000 km2 and is situated in what has become a golden triangle of African oil production. Chad is bordered in the North by Libya which has the largest crude oil reserves in Africa and is Africa’s second largest producer. Nigeria, to the West of Chad, is Africa’s largest crude oil producer and has Africa’s largest reserves of natural gas. Chad is bordered in the East by Sudan which is Sub-Saharan Africa’s third largest producer of crude oil. Cameroon which borders Chad to the South West is also a net exporter of crude oil.

Oil exploration in southern Chad dates from the early 1970s. In the early 1990s it became clear that there were substantial oil deposits in the Doba region. The country has proven oil reserves of 1.5 billion barrels with studies establishing the prospect of more discoveries. Production came on stream in 2003 when a consortium of Chevron, Esso E&P (Exxon) and Petronas brought the Miandoum field into production. Production followed from the Kome and Bolobo fields in 2004 while the Nya, Moundouli and Maikeri fields went into production between 2005 and 2007. In 2007, the Chinese National Petroleum Company (“CNPC”) began producing from the Mimosa and Ronier fields in the Bongor basin in South Western Chad.

Since 2000, a consortium of three oil companies--U.S.-based Exxon Mobil and Chevron, joined by the Malaysian Petronas company--has been extracting oil from wells in the south of Chad and sending it to market via a pipeline from Chad through Cameroon to the Gulf of Guinea. The consortium has invested more than $7 billion in the Chad-Cameroon petroleum pipeline project, which originally had support from the World Bank in the form of Bank loans to Chad and Cameroon to enable them to participate in the project. In return, the Chad Government agreed to a set of unique mechanisms for World Bank, private sector, government, and civil society collaboration to guarantee that future oil revenues would benefit local populations and result in poverty alleviation.

Chad began to export oil in 2004. The export route is through the Chad-Cameroon pipeline completed in 2003 at a cost of over $3.7 billion. The pipeline runs 1,000 km from Chad’s prolific Doba basin through Cameroon’s Logone Birni basin to the port of Kribi in the Gulf of Guinea. A new, 300 km pipeline has been constructed to transport crude oil from the Koudalwa field in the South Western Chari-Buguirmi region to the Djarmaya refinery. The Djarmaya refinery, situated about 40 km North of N’Djamena, Chad’s capital, was built as a joint venture between CNPC and the Chadian state oil company, SHT. The refinery became operational in July 2011 and has an initial capacity of 20,000 barrels of oil per day which will rise later to 60,000 barrels of oil per day.

Economically, the project was extremely successful, rewarding both the consortium and the Chad Government with profits well beyond those initially expected by either one. Chad’s oil exports to the U.S. make it the sixth-leading African exporting country to the US. However, the poverty alleviation goals of the agreement were not met, due in part to Chad’s emphasis on defense expenditures rather than on socio-economic development per the agreement. The agreement was renegotiated in 2006, but the Bank did not judge that Chad’s performance under the second agreement was acceptable. Consequently, the Bank decided in 2008 to withdraw from the Chad petroleum sector and asked the Chad Government for early repayment of its loans. The Chad Government complied in 2009. The Bank and Chad continued to cooperate in sectors other than petroleum through 2010, when the World Bank sent a resident representative to Chad to broaden cooperation.

A significant obstacle to the development of the Chadian oil industry is the lack of direct access to a port. On 9 September 2008 the World Bank announced that it was unable to continue backing a project to build an oil pipeline between Doba in Chad and Kribi in Cameroon due to the Government of Chad’s failure to allocate oil revenues for projects in education, health, infrastructure, rural development and improving governance. The World Bank partially reopened its office in N’Djamena in January 2009. Improvements to infrastructure, business environment and strengthening of national institutions are needed to promote development of the non-oil sector and achieve goals for growth and for poverty eradication.

Primary markets for Chadian non-petroleum exports include neighboring Cameroon and Nigeria and France, Germany, and Portugal. Cotton remains an important export. The national cotton company--CotonTchad--is planned for privatization. The parastatal has been poorly managed and cotton yields have been steadily declining over the past several years.

The other major export is livestock--cattle, sheep, goats, and, camels--driven to market or skins shipped to market in neighboring countries, particularly Nigeria. Chad also sells smoked and dried fish to its neighbors and exports several million dollars worth of gum arabic to Europe and the United States each year. Other food crops include millet, sorghum, peanuts, rice, sweet potatoes, manioc, cassava, and yams. Chad's economic performance outside the oil sector continues to depend on fluctuations in rainfall and in prices of its principal export commodities, especially cotton.

Public revenue management and corruption continue to plague Chad. The country reached a decision point in 2001 for Heavily Indebted Poor Countries (HIPC) debt relief and was receiving assistance from the International Monetary Fund (IMF) and World Bank. By 2002, however, the country needed an extension on the IMF Poverty Reduction and Growth Facility (PRGF) program's performance indicators. It continued to receive assistance from the international financial institutions but struggled to meet the program's financial targets, and the Fund ceased the program for non-performance. The IMF renewed Fund-managed programs with Chad in 2008 and 2009, but the country was unable to meet the targets and is not currently eligible to received IMF or HIPC assistance.





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Page last modified: 31-10-2016 18:56:51 ZULU