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Chad - Economy (Notes)

ECONOMY In 2006, Chad's GDP was estimated at approximately $5.255 billion. Oil, cotton, cattle, and gum arabic are Chad?s major exports. The effects on foreign investment of years of civil war are still felt today, as investors who left Chad between 1979-82 have only recently begun to regain confidence in the country's future. The most important economic venture to date is the Doba Basin oil extraction project in southern Chad. The project included 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. Oil exploitation in the southern Doba region began in June 2000, with U.S.-based Exxon Mobil leading a consortium in a $3.7 billion project to export oil via a 1,000-km. buried pipeline through Cameroon to the Gulf of Guinea. Beginning in late 2000, development of Chad?s petroleum sector stimulated economic growth by attracting major investment and increased levels of U.S. trade. Oil revenue began trickling into the country in July 2004. It was hoped that this project would serve as a catalyst for the entire economy by helping to reduce energy costs and attracting additional trade and investment in other sectors. However, the question remains whether Chad will continue to consolidate its economic reforms and invest its oil revenues wisely in order to encourage a wider range of economic initiatives. Political controversy surrounding elections and a rebellion in northern Chad also dampen Chad's economic prospects somewhat by exposing the weaknesses in Chad's political institutions. The U.S. Government expressed both concern and disappointment after the Government of Chad on August 26, 2006 ordered Chevron Oil Corporation and Petronas, members of the Exxon Mobil-led and operated oil consortium, to cease operations and leave Chad within 24 hours for alleged non-payment of income taxes. Chevron and Petronas entered into a tax agreement in 2000 with the government, represented by Petroleum Minister Mahamat Hassan Nasser, when they replaced Elf and Shell as minority members of the consortium. The companies assert that the agreement authorizes them to use a special depreciation schedule allowing greater tax deductions than those afforded consortium partner Exxon Mobil. The Government of Chad, however, claimed that the 2000 tax agreement was illegal, because it was negotiated by officials without proper authority and was not vetted by the National Assembly. The Government of Chad also announced plans to press charges against negotiating officials, and on August 28, 2006 replaced Nasser, as well as Economic Minister Mahamat Ali Hassan and Farming Minister Moucktar Moussa. Chevron and Petronas consider the Government of Chad to have violated its contractual obligations and planned to seek recourse through all diplomatic and legal means. While the U.S. takes no position on the merits of the dispute, it has urged all parties involved to respect any binding contractual commitments. Despite recent development of the petroleum sector, more than 80% of the work force is involved in agriculture (subsistence farming, herding, and fishing). Like many other developing countries, Chad has a small formal sector and a large, thriving informal sector. Statistics indicate the following distribution as percentage of GDP: Agriculture--32.5% (farming, livestock, fishing); industry--26.6%; and services--40.8%. Chad is highly dependent on foreign assistance. Its principal donors include the European Union, France, and the multilateral lending agencies. Primary markets for Chadian exports include neighboring Cameroon and Nigeria and France, Germany, and Portugal. Aside from oil, cotton remains a primary export, although exact figures are not available. Rehabilitation of CotonTchad, the major cotton company that suffered from a decline in world cotton prices, has been financed by France, the Netherlands, the European Economic Community (EC), and the International Bank for Reconstruction and Development (IBRD). The parastatal is now being privatized. The other major export is livestock, herded to neighboring countries. Herdsmen in the Sudanic and Sahelian zones raise cattle, sheep, goats, and, among the non-Muslims, a few pigs. In the Saharan region, only camels and a few hardy goats can survive. 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. After averaging 0.8% in 1999-2000, Chad?s real GDP growth was estimated at 8.9% in 2001, and 10% in 2002 and 2003 as the Doba oil project accelerated. Inflation rose from 3.7% in 2000 to 12.4% in 2001, dropped to 5.2% in 2002, and was estimated to level out at 3% in 2004. These fluctuations were due in large part to increasing demand from the Doba project but also to fluctuations in agricultural production. After a disappointing agricultural campaign in 2000, increased production during the 2001-02 timeframe helped reduce inflation in 2002. In 2003, the contraction in investments, the 7% appreciation in the CFA Franc exchange rate, and bumper harvests combined to generate a 1% deflation in place of the projected 4.3% inflation. Chad?s economic performance, at least until the onset of oil exports, continued to depend on fluctuations in rainfall and in prices of its principal export commodities, especially cotton. Since 1995, the Government of Chad has made incremental progress in implementing structural reforms and improving government finances under two successive structural adjustment programs. Most state enterprises have been partially or completely privatized, non-priority public spending has been lessened, and the government has gradually liberalized some key sectors of the economy. Liberalization of the telecommunications, cotton, and energy sectors is expected to proceed over the next several years. Chad reached the enhanced Heavily Indebted Poor Countries (HIPC) initiative completion point in May 2001.