ReportNo. 6785-CD EconornicSituation and Priorities Public Disclosure Authorized October26,1987 Country Operations SahelianDepartnient Africa Regioni FOR OFFICIALUSE ONLY Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Documentof the World Bank

Thisdocument has a restricteddistribution and may be used by recipients onlyin the performanceof theirofficial duties. Its contentsmay not otherwise bedisclosed without World Bank authorization. CURRENCY EQUIVALENTS -/

Currency Unit CFA Franc (CFAF) US$1.00 CFA 302 1/ CFAF 1 million US$3,311

CFAF/US$

(Annual Average) (End Period)

271.7 1981 287.4 328.6 1982 336.3 381.1 1983 417.4 437.0 1984 479.6 449.3 1985 378.1 346.3 1986 322.8 303.2 1987 (8 mo.) 302.3

MEASURES AND EQUIVALENTS

1 meter (m) - 39.37 inches (in) 1 square meter (m 2 ) 10.9 square feet (sq ft) 1 kilometer (km) - 0.62 mile (mi) I hectare (ha) = 10,000 m 2 or 2.471 acres 2 1 acre - 4,047 m or 0.405 ha 1 kilogram (kg) = 2.2 pounds (lbs) 1 pound (lb) = 0.454 kg 1 ton (metric) = 2,205 lbs or 1,000 kgs 1 coro 11.7 to 2.3 kg

FISCAL YEAR

Government of Chad = January 1 - December 31

1/ Average for August, 1987. The CFA Franc (CFAF) is tied to the French Franc (FF) in the ratio of rF 1 to CFAF 50. The French Franc is currently floating. An exchange rate of CFAF320 = US$1.00 is used for projection purposes in this report. FOROMCIL USEONLY

ACRONYMSAND ABBREVIATIONS

ADB AfricanDevelopment Bank AEDES AssociationEuropeenne pour le D4veloppementde la Sante ADF AfricanDevelopment Fund AICF Action Internationalecontre la Falm

BADEA Banque Arabe de D6veloppementdes Etats d'Afrique BDEAC Banque de Developpementdes Etats d'AfiiqueCentrale BdL Brasseriesdu Logone BDT Banque de Developpementdu Tchad I3EAC Banque des Etats d'AfriqueCentrale BELACD Bureau d'Etudeset de L i.sond'Actions Caritatives et de Dgveloppement BGT BoissonsGazeuses du Tchad BIAT Banque Internationalepour l'Afriqueau Tchad BTCD Banque Tchadiennede Credit et de DAp8t

CM Caisse Autonome d'Amortissement CCCE Caisse Centralede CoopgrationEconomique CEPOD Centre d'Etudeet de Formationpour le Developpement CFAF Franc de la Conmunaut6Financigre Africaine CFDT CompagnieFrancaise des Textiles CHACOT Chambrede Commercedu Tchad CILSS Comit6 Inter-Etatde Lutte contre la Secheresseau Sahel CNPS Caisse Nationalede PrivoyanceSociale COTONTCHAD Soci6t6Cotonni&re du Tchad CSPC Caisse de Stabilisationdes Prix du Coton CTT Coop6rativedes TransporteursTchadiens

EDF. EuropeanDevelopment Fund EIB EuropeanInvestment Bank ENSPSS Ecole Nationalede Sante Publique et des ServicesSociaux

FAC Fonds d'Aide et de Cooperation FAO Food and AgriculturalOrganization FDAR Fonds de Dgveloppementet d'ActionsRurales FIPP Fonds d'Interventiondes ProduitsPgtroliers

HIID Harvard Institutefor InternationalDevelopment ICOR IncrementalCapital Output Ratio ILO InternationalLabor Organization IHAP InternationalHuman AssistancePrograms INADES InstitutAfricain pour le DiveloppementEconomique et Social INSE InstitutNational des Sciencesde l'Education IRCT Institutde Recherchedu Coton et des TextilesExotiques LICROSS Ligue Internationalede la Croix Rouge

MAS Ministeredes AffairesSociales MADR Minist4rede l'Agricultureet du D6veloppementRural MAGAVET MagasinGUngral d'Approvisionnement en Produitset Matgriels Vft6rinaires MCT Manufacturedes Cigarettesdu Tchad MEHP Minist4rede 1'Elevageet de l'HydrauliquePastorale

Thisdocument has a retricted distributionand may be used by recipientsonly in the performance of their officialduties. Its contentsmay not otherwisebe disclosedwithout World Bank authorization. - ii -

MIC Ministare de l'Industrie et du Commerce MSA Ministare de Is S6curitg Alimentaire et des Populations Sinistrees MSF Medecins Sans Frontieres MSP Ministere de la Sante Publique MTPHU Ministare des Travaux Publiques de l'Habitat et de l'Urbanisme MTPF Medium-Term Policy Framework NGO Non Governmental Organisation

OFCA Office des Carri6res OFNAR Office National des Routes OMVSD Office de Mise en Valeur de Sategui-Deressia ONADEH Office National de Developpement de l'Horticulture ONC Office National de Cgr6ales ONG Organisation Non-gouvernementale ONDR Office National du D6veloppement Rural ONHPV Office National de l'Hydraulique Pastorale et Villageoise OPE Office for Program Execution OPIT Office de Promotion Industrielle du Tchad ORSTOM Office de Recherche Scientifique et Technique d'Outre-Mer ORT Organization for Rehabilitation and Training OXFAM Oxford Committee on Famine

PEV Programme Elargi de Vaccination PHARMAT Centrale Pharmaceutique du Tchad PME Petites et Moyennes Entreprises

SCET Societe de Conception d'Etudes Techniques SECADEV Secours Catholique au Developpement SEDES Societe d'Etudes pour le Developpement Economique et Social S.HT Societe Hoteliare du Tchad SIMAT Societe Industrielle de Materiel Agricole SME Small and Medium Size Entreprises SMIG Salaire Minimum InterentrepriseGUngral SODELAC Societg de Developpement du SONAPA Socigt6 Nationale de Production Animale SONASUT Sociftf Nationale Sucriere du Tchad SOTERA Socigte Tchadienne d'Exploitation des Ressources Animales STEE SociWte Tchadienne pour l'Eau et l'Electricite STT Societg Tchadienne de Textile

UDEAC Union Douaniere des Etats d'Afrique Centrale VITA Volunteers in Technical Assistance - iii -

PREFACE

This countryeconomic memorandum is based on the findingsof a mission which visited Chad in November 1986. The mission was composedof Mr. Bension Varon (missionchief), Mr. PhilippeAnnez, Mr. Alexander Marc, Mr. James Stevens, Ms. Ellen Goldstein, Ms. Anne-LaurenceDodge (consultant-education),and Ms. Oren Whyche (consultant-privatesector). Ms. Rebecca De Bakey was responsible for layingout and processingthe various drafts. The reportdraws on the analysescarried out by the ProjectsDivisions and the staff of the IMF over the last 18 months. It benefittedgreatly from the effectivecooperation A the Chadianauthorities at all levels,as well as the major donors (bilateral and multilateral) and non-governmentalorganizations represented in Chad.

The reportwas discussedwith the Governmentin July 1987. - fy -

CHAD: ECONOMIC SITUATION AND PRIORITIES

TABLE OF CONTENTS

Page No.

EXECUTIVE SUMMARY...... ,.#**...... xii

INTRODUCTION ...... ?**#so ...... **s xxv

I. BA,CKGROUND...... *.# ...... 1

A. GeneralCharacteristics ...... ,...... *...... 1

B. The Economy Since Independence.... 3

1. The First Seventeen Years ...... 0,. 5 2. The Period 197b-35....,.. . . . , . e ...... O * *....*..0.0 9

C. The Development Challenge a l l ....e ...... n ge.10...... 10

II. RECENT ECONOMIC DEVELOPMENTS...... , ,.14

A. The Cotton Secoe...... 14

B. The Public Sector...... 16

1. Overview of Revenues and Expenditures...... 16 2. Controlling the Fiscal Deficit ...... 21

C. The External Sector...... -...... 24

1. Overview of the Balance of Paymentsy...... 24 2. Increasing Flows of External Assistance,g...... 6tc... 26 3. The Burden of External Debt ...... 29

D. Macroeconomic and Sectoral Growtho...... ,...... 30

E. Money and Credit...... , ...... ,...... ,. . 33

F. Government Actions to Rebuild the Economy...... 34

G. Donor SupportOutook...... , ...... 39

H. The Current Outok... t ....l ....ook...#*o 40 PaRe No.

III. THE RURAL SECTOR...... 42

A. Cotton: How Soon Can Profitabilit be Restored.?...... 42

1. The RebabilitationProgramm...... 42 2. The ImprovedOutlook of Cotton...... 44 3. Cost of Cotton Productionat the ProducerLevel ...... , 45 4. Costs at the COTONTCHADLevel...... 47 5. Financial Projections...... O, . 48 6. Conclusion...... 53

B, Food-Crops: RegionalFood Self-Sufficiencyor Food Securit? 55

1. Introduction ...... , 55 2. Regional Food Self-Sufficiency...... 57 3. MinimizingFluctuations in Production...... ,.... 64 4. AgriculturalCredit and InstitutionalConstraints,,,,,,, 67 5. The Potentialfor AgriculturalDiversification...... 68

C. Livestock: What Is HoldingUp Development?...... 69,,,

2. Investment and Aid ...... ,...... *, 70 3, Production Strategy ...... , 71 4. The InstitutionalEnvironment ...... 72 5. WaterResources Development ...... 73 6. Export Constraintsand Potential...... 0*0**.. 73

D. Fishing: What Is the Potential?,...... 75

E. EnvironmentalConcerns: The Need for Action...... ,,...0,, 76

IV. INFRASTRUCTUREAND INDUSTRY ...... 77

A. Transport: What Are the Main Prioritiesand Issues?...... 77

1. The Transport Network 77 2. Traffic Volume .... ,, ..,. ** **,***...,,.,, 78 3. Transport Carriers and Institutions ...... 81 4. Sec tor Issues ..00*00**0#0.046es.#04. . * . . $ * 82

B. Petroleum: What ChangeswillDomestic ProductionBring?.... 84

1. The Sector at Present ...... 84 2. The Sector Once Domestic Production Begins ...... 85 - vi -

Page No.

C. Electricity and Water: High Rates and Low Recovery...... 86

D. The Urban Sector: How Is Chad Coping?...... 88

E. Trade and Industry: The Constraints Facing Existing andNew Enterprises...... 90

1. The Experience of Chad's Major Industries...... ,...... 91 2. Constraints for the Development of SMEs...... ,...... 94 3. Creating an Appropriate National and Regional Environment 98

V. THE SOCIALSECTORS ...... 100

A. Education: What Are thePriorities?...... ,...... 100

1. Background...... ,.,., 101 2. Community Participation...... 102

3. Teacher Training...... 0...... ,...... 103 4. Institutional Isus...... 105 5. Long-Term Strategy.... 106

B. Health: Status and Efforts to Improve It...... ,...... 106

1. Health Status...... ,...,..,...,...... ,, 106 2. Health Administration and the Institutional Framework.... 108 3. Defining Priorities in HealthCare...... 109 4. Personnel and Facilities for Health Care Delivery...... 110 5. Financing Health Care...... 112

VI. DETERMINANTS OF FUTURE TRENDS...... , 114

A. Political Climate.... o ...... o...... 0000000*6 114

B. Domestic Resource Constraints ...... *...... ,.. O 115

1. Revenue Constraints ...... 115 2. Implications...... 117

C. Investment and Develoment Assisance...... 119

D. EconomicManagement and TechnicalAssistance..... ,.....,0 .00. 129

1. Public Administration...... 130 2. Public Enterprises ...... 130 3. Public Investment Programming ...o....o...... 131 - vii -

Page No.

VII. PROSPECTS AND POLICIES...... , 133

A. Medium-TermProjections...... , 133

1. Base See n a r i o 133 2. Sensitivity Analysis,...... ,, 138

B. Medium-Term PolicyFramework ...... 140

1. Objectives and Policies,...... 140 2. Prerequisites for Successful Implementation... t...... 142

C. Beyond the Medium-Term...... o ...o , ,o,0 .,..,...0, 0 .. . 143

1. A Complementary Agenda ...... o.o..o...... ,...... ,.. 143 2. Towarda ChadianFuture .. *00000#0v 000* ... 0.0*9 145

ANNEXES

1. The World CottonSituation and Outlook...... ,,*...149 2. NGO Activitiesin Transition...... 158 3. Policy Matrix, 197-98 7 - 90.. . 162 4. A Complementary Agenda...... 168 5 Bibliography...... 18

STATISTICAL APPENDIX...... 182 - viii -

LIST OF TEXT TABLES

Table 1 - Central Government Consolidated Operations, 1983-86... 21

Table 2 - Balance of Payments, 1983-1986...... ,..... 25

Table 3 - Debt and Debt Service,1985-1986.,.....,...... 30

Table 4 - Gross Domestic Product and Output by Sectors, 1983/1986..... 31

Table 5 - Investment,Savings, and consumption,1985/1986 ....60... .. 33

Table 6 - World Cotton Situation, 1984/1985-1986/1987...... 44

Table 7 - Profitabilityof Cotton Cultivation,1986, CFAF.O...... 46

Table 8 - Cotton ProductionCost, 1983-1984o.9600... -...... ,.... 48

Table 9 - Operating Deficit/Surplus of COTONTCHAD and Cotton Sub-Sector...... o...... o * 53

Table 10 - Food Crop Production,1983-84 to 1986-1987.**#..*.*..*.. ...* 56

Table 11 - CerealsPrices in N'Djamena,1983-1986.... o...... 59

Table 12 - Per Capital Cereals Production, by Zone, 1984-1986....1..986 60

Table 13 - Ownership of Manufacturing Industries...... 0000 91

Table 14 - Volume Indices for Industrial Production..ducti...... n...... 92

Table 15 - Health and Population Indicators...... 00O..0...... 107

Table 16 - Health Problemsin 1985,,....,,..,...... *.o...,... 108

Table 17 - HealthPersonnel and Facilities,1985.o .....,...... 111

Table 18 - External Aid: Estimated Disbursements by Sector and Objective...... ,.,., ...... 123

Table 19 - Growth in AggregateOutput, 1986-1995...... *.*** ...... 135

Table 20 - Projected Merchandise Trade ...o *...... 136

Table 21 - Projected Aid and Debt Service..,,,,,G...... 137

Table 22 - Projected Balance of Payme atse ...... 138 - ix -

LIST OF CHARTS

Page No.

1. Food Needs, Cereals Production and Livestock Herd, 1965-85...,. 7

2. Seed Cotton Production and Producer Price, 1960-8404..... 11

3. World Cotton Production, Consumption and Stocks, 1980-86...... 17

4. World Cotton Price, 1980-87...... ,...... e ev.... 19

5. Composition of External Assistance, 1985-87.,...... 27

6. World Cotton Price, Short-Term Outstanding Debt to COTONTCHAD, and Net Foreign Assets of the Central Bank, 1984-86 984-..8...... 35

7. Projected World Cotton Price and COTONTCHAD's Production Costs, 1986/87-1994/95...... 51

8. Aid Projects: Estimated Disbursements in 1987, by Type of Activity ...... 121

9. Aid Projects: Estimated Disbursements In 1987, Distributionby Geographic Location...... 127 COUNTRYDATA: CHAD

AREA POPULATION DENSITY 1,284,000sq km 6.12 million(mid-1988 est.) 4.0 por squarekm Rate of Growth:2.4 POPULATIONCHARACTERISTICS (1986) HEALTH (1986) Crude Blrth Rate (per 1,000) 44 Populationper physician 38,482 Crude Death Rate (per 1,000) 21 Populationper nursingperson 3,441 Total FortilityRate 6.7 IrfantMortality R&z.e (per 1,000) */ 139 INCOMEDISTRIBUTION DISTRIBUTIONOF LAND OWNERSHIP Not available Not available ACCESSTO PIPED WATER ACCESSTO ELECTRICITY Not available Not available NUTRITION EDUCATION Not avellable Primary schoolenrollment % 38

CNP PER CAPITA in 1986:USS1I8

GROSS NATIONALPRODUCT IN 1988 ANNUALRATE OF GROWTH (X, constartprices)

US$ MIn. % 1988 ______------GNP at MarketPrices 811.0 100.0 -1.7 Gross DomesticInvestment 87.0 10.7 72.3 Gross NationalSaving -106.2 -13.0 CurrentAccount Balance -177.4 -21.9 Exportof Goods,NFS 142.8 17.6 Importof Goods,NFS 379.6 48.8

OUTPUT,EMPLOYMENT AND PRODUCTIVITYIN 1988 ------

Value Added Labor Force b/ V.A. Per Worker US$ Min. X Min. X US I X Agriculture 880.0 48.8 2.4 83.0 158.3 54.4 Industry 147.0 17.9 0.1 6.0 1044.0 368.6 Services 293.0 36.7 0.3 12.0 887.1 297.8 Total/Averoge 820.0 100.0 2.8 100.0 291.2 100.0

GOVERNMENTFINANCE ______ContralGovernment ------(CFAFBln.) X of GDP 1988 1988 1976 CurrentReceipts 16.8 6.9 14.3 CurrentExpendltures 24.8 8.6 16.1 CurrentSurplus -7.6 -2.7 -0.9 CapitalExpenditures c/ 30.0 10.6

------__------__------a/ Officialfigure. Healthworkers estimate actual IMR at around200 per 1,000 live births. b/ 1980 estimatesof size and distributionof laborforce are merely Indicative,being basedon 190 percentageestimates applied to 1986 populationestimates. c/ 1986 capitalexpenditures were entirelyforeign-financed and are estimatedat aroundCfAF 30 billion. - xi -

COUNTRYDATA: CHAD

MONEY,CREDIT and PRICES 1982 1983 1984 1986 1986

(millionsof CFAF outstanding,end of period) Money Supply 84,849 42,889 87,769 71,898 72,918 Bank Creditto PublicSector 11,888 10,936 10,498 3,473 7,061 Bank Creditto PrivateSector 29,991 32,465 45,930 84,960 76,004 (percentageor indexnumbers) Money as X of GDP 18.0 19.1 80.2 24.1 26.8 GeneralPrice Index (1977=100) 162.6 166.9 178.2 184.0 178.5 Annualpercentage change in: GeneralPrice Index 8.9 8.8 7.4 3.3 -3.0 Bank Creditto Public Sector .. -7.8 -4.0 -68.9 103.3 Bank Credit to Private Sector .. 8.2 41.5 41.4 1656

BALANCEOF PAYMENTS MERCHANDISEEXPORTS (AVERAGE 1984-86)

1988 1984 1986 1988 US$ Min X

(millionsof USS) Cottonfiber 61.3 67.9 Cattle 28.9 25.4 Exportsof Goods, NFS 188.7 185.7 128.1 142.8 Textiles 6.0 4.8 Importsof Goods, NFS 203.9 226.1 347.2 379.8 Beer 0.2 0.2 ResourceGap (deficit=-) -67.2 -80.4 -224.1 -237.3 Other goods 12.6 11.8 Total 106.9 100.0 InterestPayments (not) -4.7 -3.7 -3.1 -3.8 Other FactorPayments (not) -1.6 -4.6 -2.3 -5.8 Not transfers 68.0 49.0 94.1 89.2 EXTERNALDEBT, DECEMBER81, 1986 Balanceon CurrentAccount -17.6 -19.6 -135.4 -177.3------US$ MIn DirectPrivate Investment -1.1 7.3 58.7 83.3 ------OfficialCapital Grants 81.2 27.6 4686 128.8 PublicDebt, ncl. guaranteed 206.2 Net MLT Borrowing -1.8 -1.0 14.1 17.8 Non-guaranteedPrivate Debt Disbursement 2.5 8.9 19.8 28.9 Total outstandingand disbursed 206.2 Amortization 4.8 4.9 656 6.1 Other Capital(not) -2.8 6.2 -3.3 -18.4 NET DEBT SERVICERATIO for 1986

IncreaseIn Reserves(4) 8.6 19.S -24.3 -20.8 Gross Reserves(end year) 29.1 48.6 24.8 8.65--- PublicDebt, lncl.guaranteed 1.6 Non-guaranteedPrivate Debt RATEOF EXCHANGE Total outstandingand disbursed 1.6 ______AnnualAverages End Period IBRD/IDALENDING, May 31, 1987 (Millionsof USS)

1984 1985 1986 Aug. 1987 IBRD IDA

Outstanding A Disbursed 0.0 68.1 US I 1.00a CFAF 487.0 449.8 346.0 802.8 Undisbursed 0.0 58.7 C-A-FC.00 = US 8 0.0023 0.0022 0.0029 0.0098 Outstanding, lnl. Undisb. 0.0 116.8

------__------__------CHAD

ECONOMICSITUATION AND PRIORITIES

EXECUTIVESUMMARY

Background

1. Chad Is one of the world'spoorest countries. Its economic developmenthas been held back by a landlockedlocation and harsh and variableclimatic conditions. At Independence(1960), the new nation found itselfpoorly prepared, even in comparisonto other Africancountries, in terms of physicaland social infrastructure,the level of educationand health,and the role of nationalsin the managementof economicactivity. Moreover,Independence was followedby internaland externalconflict which has lasteduntil recently.

2. The Chadianeconomy nevertheless expanded at an annualrate of 2 percentin the 1960s. Climaticconditions were about normal for most of this period,and Chad was self-sufficientin cerealsthroughout the decade. The first half of the 1970switnessed a multi-yeardrought which caused averageGDP growth to fall to less than one percenta year. Real GDP shrankby about 30 percentduring the 1979-82war, reflectingthe severity of the economicdisruptions caused by the war. After the establishmentof the currentgovernment in 1982, and with the progressiverestoration of stability,the economybegan to recover. A droughtof unprecedented severityin 1984, followedquickly by a sharp declinein the world price of cotton,slowed this progress.

3. Chad has considerabledevelopment potential. It has provento be self-sufficientin food duringvarious periods in each of the last three decades,apd the possibilitiesfor expandingagricultural output are significantand real. Althoughonly 15 percentof the land is arable,the countryis so large that this representsnearly ten times the currently cultivatedarea. There is also significantpotential for irrigation. In addition,Chad has substantialpetroleum resources which can potentially satisfynearly all domesticdemand. Chad truly has the potentislto make significantprogress. In spite of exceptionallyvaliant efforts on the part of the people and their leaders,it has hithertosimply lacked a reasonablechance to realizethis potential.

RecentDevelopments

4. In 1985 and 1986, Chadianswere forcedto grapplewith an economiccrisis of unprecedentedmagnitude resulting from the collapseof the world market price for cotton. The price of a representativevariety of cotton (Middling1-3/32 inch) fell from a peak of US$1.96/kgin mid-1984 to US$0.83/kgin mid-1986. Depreciationof the US dollar in 1986 exacerbatedthe declinein the sale price in CFAF terms. Moreover,the price declinecoincided with a sharp increasein the production expendituresof COTONTCHAD(the mixed capitalenterprise which processes and markets all of the Chadiancrop), caused by poor financialand administrativemanagement. As a result,the companysustained huge losses and accumulatedarrears to the domesticbanking system totaling CFAF 43 billion. Despitethe downturnin the cotton industry,Chad's remarkable rebound from the drought -- cereals production more than doubled -- allowed - xiii -

GDP to grow by nearly 30 percentin 1985. GDP growthwas reversedin 1986 as the effectsof the cottoncrisis were felt. They were, however, mitigatedby anotherexcellent cereals harvest and continuedreconstitution of the livestockherd. The real declinein GDP was held to 2 percent, while nominalGDP droppedby 5 percentas a resultof an estimated 3 percentdecline in prices. This deflationreflects the sharp drop in cerealprices, as well as the negativeeffects of the cottoncrisis on demand in the economy.

5. The Governmentand the donorsresponded to the cottoncrisis swiftlyby implementingan "emergencyprogram" to supportthe cotton industrythrough a periodof adjustment. The programcomprises a number of measuresaffecting producers, COTONTCHAD and the Government;they include the phased eliminationof input subsidies,the freezingof the producer price,the closingdown of redundantginneries and purchasingcenters, reductionof COTONTCHADstaff, and suspensionof exporttaxes paid by COTONTCHAD, Most of the programhas alreadybeen implemented.Moreover, the regionalcentral bank, BEAC, has undertskento rescheduleCOTONTCHAD's domesticdebt over a period of 10 years with 5 years grace and a two-year moratoriumon the paymentof interest.

6. The loss of exporttaxes on cotton is estimatedto have contributedto a declineof more than 20 percentin governmentrevenues in 1986. The declinewould have been even greaterbut for new taxes introducedduring the year. The Governmentalso implementedausterity measureswhich succeededin reducingcurrent expenditures, already at a criticallylow level,by 3 percentin nominalterms. The budgetdeficit is neverthelessestimated to have increasedfrom CFAF 3.8 billion in 1985 (on a commitmentbasis) to CFAF 7.5 billionin 1986, or from 1.3 percentof GDP to 2.6 percent. The deficitwas financedlargely through budgetary aid. In the absenceof cottonrevenues, the avenuesopen to the Governmentfor reducingthe fiscaldeficit are to trim expendituresor to generate additionalrevenues through improvements in the fiscalsystem and tax administration.There is littleroom to maneuveron the expenditureside, becauserevenues are insufficientto cover even the most basic expenditures.Public investment,estimated at 10-12 percentof GDP, is entirelyfinanced through external assistance, as is a significantportion of the associatedrecurrent costs. Most civil servicesalary payments are equivalentto 60 percentof their 1967 level in nominalterms. And the CentralGovernment does not subsidizethe parapublicsector in any way, barringthe possibilityof compressinggovernment expenditures in this area.

7. Chad's externalcurrent account deficit, which had been modest in 1983 and 1984 rose to CFAF 60 billion,equivalent to about 25 percentof GDP, in 1985. In 1986, the deficitequaled that of the previousyear but disbursementsof capitalgrants more than doubled. The focus of aid also changed-- from emergencyfood aid to developmentassistance. Budget supporthas also increasedin responseto the impactof th3 cottoncrisis on publicfinances. In 1987, disbursementsare estimatedto reach CFAF 77 billion (US$240million) -- a 50 percentincrease over the 1985 level -- raisingper capitaaid from about US$23 to US$48 over a period of two years. This would boost Chad above the per capitaaverage for low-incomeSub-Saharan Africa, but it is still quite low for a countryas poor as Chad, with such criticalpost-war reconstruction needs. - xiv -

8. Chad's actualdebt serviceratio in 1985 and 1986 was quite low at about 5 percent. Paymentsdid not, however,fully cover the debt servicedue, and arrearswere accumulatedin both years. By end-1986, arrearsamounted to about US$80 million, Scheduleddebt serviceis on the order of US$10-13million in 1987-89,or approximatelytwice what the Governmenthas been able to pay in recent years. Althoughthe debt service ratio (5-7 percent)is low by most standards,it representsa heavy financialburden for the Chadianeconomy; the debt servicedue in 1987 amountsto about 15 percentof expectedgovernment revenues for the year.

CurrentSituation

9. The Chadianeconomy has, in many respects,recovered from the devastationof the war. Rapid growth,from an exceedinglylow base in 1982, has broughtmany economicindicators back to pre-warlevels. The cottoncrop has been quite variablebut well within the productionrange of the past severaldecades. At the same time, in years of adequaterains, foodcropproduction has achievedor surpassedpre-1977 levels, with minimal inputs. Althougl'manufacturing suffered a setbackin 1986, all the major industrleshave the capacityto produceat or above 1977 levelsand have done so in the 1984-85period. Overall,real GDP has risen to nearly its 1977 level, althoughit must be sharedamong an estimatedone millionmore people. Most strikingis the limitedexpansion of the publicsector, which has remained,in real terms,much smallerthan In previousdecades.

10. There are many non-quantifiableaspects of recoveryas well, includingan atmosphereof dynamismand growth in the informalsector, where Chadianshave been exploringways to fill the gaps in their economy. The number of formal sector,small- and medium-scaleenterprises may have declinedcompared to the 1970s,but more may be owned by Chadians,rather than expatriates. The overwhelmingimpression is that Chadian entrepreneurshave a wealth of ideas and a dynamicentrepreneurial spirit, but there is a severeshortage of capitaland the technicalskills needed to turn these ideas into reality.

11. Having recouped many of the losses to the economy in the years followingthe war, Chad is now movingbeyond a period of ->latively"easy" growthassociated with immediatereconstruction efforts. The task is now more difficult,especially when the traditional"engine of growth"-- the cottonsector -- is unable to fulfillits formerrole. The paiallel difficultiesof restructuringthe cotton sectorand definingan appropriate plan for economicdevelopment and diversificationwill limit real growth in the short-run. Similarly,the risk of recurringdrought or a resumptionof the conflictin the North casts a shadowover prospectsfor growth. However,the outlookfor 1987 and 1988 has severalencouraging aspects. First, the world price for cotton is recoveringmore rapidlythan anticipated: it more than doubledin nominal terms from June 1986 to June 1987. Second,incentives for livestockmarketing and exportwill improve with the resumptionof exportsto Nigeria,which were interruptedin late 1986/early1987. In general,trade relationswith Nigeriashould improve as a resultof recentbilateral discussions, Third,and finally,donor supportis increasing,particularly aid for investment.This will allow Chad to lay the necessaryfoundation over the next few years for modestbut sustainedgrowth. xv -

SectoralConstraints and Priorities

12. Cotton, Cost estimates and financial projections used in this report,indicate that cottonremains a viable crop over the medium-and long-termin Chad. However,this viabilityis contingenton implementing the reformsdefined in the EmergencyCotton Program. Indeed,efforts to improveCOTONTCHAD's efficiency must be reinforced. Furthermore,given Chad'sover-dependence on cotton,economic diversification must remaina high priority,regardless of the prospectsfor the world cottonmarket. Also, policiesshould be developedto make the volume producedand the price paid for seed cottonmore responsiveto world market conditions. At the same time, mechanismsand systemsmust be strengthenedto preventa reoccurrenceof the poor financialmanagement and excessiveexpenditures which inflatedCOTONTCHAD's production costs beyondprofitable levels -- even if world marketprices had not collapsed.

13. These concernswill be the focus of the next phase of the rehabilitationprogram for the cottonsub-sector. A numberof flexible solutionsare being considered,some of which have recentlybeen adoptedby neighboringcotton-producing countries. Thesemight include,not exclusively: (a) differentiatingproducer prices by ,to favor productionin more profitableareas and minimizeCOTONTCHAD's pre-processingtransport costs; and (b) indexingproducer prices for seed cottonto world cottonprices, to increasesupply responsiveness to market conditions,or partialindexing to mitigate the risk to producers associatedwith fluctuatingprices.

14. COTONTCHAD'sprofitability and competitivenesson the internationalmarket will depend on governmentactions in certainother sectorsas well. In particular,government investments in the road network,transport policies, and transportarrangements with neighboring countrieswill significantlyaffect the FOB price of Chad'scotton fiber. In the courseof supervisorymeetings for the on-goingEmergency Program -- and assistedby severalconsultants' studies of the sub-sector-- the Government,COTONTCHAD, and the donor communityhave begun to shape the secondphase of the cottonprogram, although more profounddiscussion is now needed to define the necessarypolicy reformsand formulatea precise actionprogram.

15. Fooderops. The 1984/85drought, which produceda serious nationalcereals deficit, also underlineda chronicproblem in Chad: the regionsof the Sahelianzone are generallycereal-deficit , while those in the Sudanianzone are self-sufficientor in surplus. However, inter-regionalmarketing is underdevelopedin Chad, constrained,in large part, by communicationand transportproblems. Therefore,in definingits strategyfor foodcropproduction, the Governmentmust addresstwo key issueswhich are interrelated: (i) minimizingproduction fluctuations and increasingoutput at a rate which maintainscereals self-sufficiency; and (ii) encouragingmarketing, and especiallyinter-regional transfers, to alleviateregional supply/demand disequilibria. To definean appropriate strategy,the Governmentneeds, first, to clarifyits overallgoal with respectto food productionand food security. - xvi -

16. The Covernment's 1985-88 Interim Plan established regional food self-sufficiency as a p-riuirity objective. (iven the current isolation of some of Chad's regions, the idea of self-suifficiencvon a regional basis is an attractive one. However, it may he unattainable, or attainable at too high a cost, making Inefficient use of scarce investmentresources. There is certainly a value inherent in assuring a degree of regional self-sufficiency,and it justifies exploration of alternative production methods in a variety of settings, hut the emphasis on regional self-sufficiencyshould not overshadow the importance of making efficient investments in production, and, where feasible, in efficient inter-regional trade. A broader objective of ensuring food security is warranted. To this end, the Government needs to make the medium- to long-term Investment in facilitating inter-regionalmarketing by the private sector in order to (i) provide incentives for increased food production, and (ii) avoid excessive regional price fluctuations and localized food shortages. Given Chad's exceptional transport problems, opening up inter-regionalmarketing channels will be a lengthy and difficult process. However, in the long run, it is the most efficient and most sustainable means of stabilizing prices and avoiding localized food emergencies.

17. In addition to expanding marketing channels, the Government will have to focus on appropriate research, improved seeds and cultivation techniques, better water management, greater credit availability, and development of support institutions in order to minimize the risk associated with fluctuations in foodcrop production and increase output to maintain Chad's overall cereals self-sufficiency.

18. Although food aid is essential in Chad to overcome periodic aggregate food deficits, it has the potential to depress market prices and discourage cereals production in years of good rains. Chad has made relatively good use of its food aid, but currently -- after two bountiful harvests -- most such aid is no longer needed. However, much of the food aid linked to development activities is difficult to eliminate without jeopardizing its developmental benefits. Such is the case for a number of agricultural projects which are not yet self-financingand for school-feedingprograms which provide the primary motivation for sending children to school. In addition, certain non-governmentalorganizations (NGOs) have a vested interest in the continuation of food aid programs which are the mainstay of their operations. These issues are not easy tu resolve, although donors might consider replacing food aid with surplus local cereals. Regardless of the source of cereals, given Chad's internal and external transport constraints, an in-country security stock is warranted, although the optimal size and location of this stock needs to be determined. Adeqtuateplanning for emergency interventions is also necessary.

19, Livestock. The livestock sector of Chad can make a significant contribution to the countrv's economic growth provided that well-focused actions are taken to promote the productive environment, develop water resources, create an appropriate institutional climate, and reform the system of livestock trading and export. Livestock raising and marketing are carried out strictly on a traditional basis, with the fam.ily constituting the basic production unit and ethnic relationships defining migratory patterns. Care must be taken to improve the production environment without drastically altering the sector's socioeconomic - xvii -

patterns. The actionisiieoded include: (i) support for animal health; (ii) teclhnical and organizational assistance; (iii) breeding research; (iv) train1ingfor extension agents; and (v) the creation and support of producer groups, based on existing socia] structures, which can progressively assume fiull responsibility for distribution of veterinary drugs and( other inputs, and a role in marketing. The present system of livestock trading poses a serious constraint to sector development. First, it cons1st, largely of exports of live animals. Second, the taixed-ownershipenterprise SO1ERA has an official monopoly on exports of livestock and meat products; this monopoly needs to be relinquished. Third, trade and marketing efficienev is also hindered by a complex system ol export taxes and licenses, which should be reviewed and streamlined as soon as possible. The Government is currently preparing (with the support of IDA and FAO) a national livestock project which will provide critical institutional support whlle encouraging a larger role for the private sector.

20. Fishing. Chad's fisheries sector is based on the unsystematic exploitation of lake and river resources. Direct interventions in support of this sector have been few and have had little impact. As with the livestock sector, strong ethnic and social traditions have worked against the introduction of organizational structures from outside. Future interventions should be designed to utilize and build on traditional structures through which technical advice and production inputs can be channeled. Given the sector's potential with respect to food self-sufficiencyand employment and income generation, fisheries components should be considered for all rural development interventionsnear major rivers.

21. Industry and Trade. Chad's industrial sector, which contributes about 20 percent of GDP, is dominated by seven enterprises which produce cotton and textiles, sugar, cigarettes, beer and soft drinks, and agricultural equipment. Although five of these are mixed-ownership companies, government interference in the management of industry and trade is minimal. Industrial growth is constrained by weak domestic demand, lack of raw materials, and high production costs, which are attributable, in turn, to over-dependence on imports and the diseconomies of small-scale operations. Moreover, locally-producedgoods have to compete with unofficial, untaxed imports which set market prices. However, in order to generate employment and income, Chad needs to give priority to the development of viable, small-scale industries and enterprises. The factors which constrain this development include lack of access to credit and a shortage of management and technical skills. A number of NGOs, particularly Volunteers in Technical Assistance (VITA), have been very helpful in alleviating these constraints. However, greater efforts are needed to channel Chad's considerable entrepreneurial energies from trade to industrv. The Government has a special responsibility for creating an appropriate institutional environment, both at the national and regional level, which encourages domestic production and helps to promote trade through legal channels. This requires actions in the following areas: (i) trade relations, particularly with Nigeria and Cameroon; (ii) fiscal reform, (iii) revision of the Investment Code (to extend tax and customs advantages to Small and medium-scale enterprises); (iv) streamlining of administrative procedures concerning industry and trade; and (v) implementationof an appropriate transport sector strategy. - xviii -

22, Transport. Chad's transport sector, which is dominated by road transport, is so underdeveloped that it hampers not only agriculture, industry and trade, but also hinders the provision of social services. Long distances, difficult terrain, widely dispersed population, lack of suitable construction materials, and high energy prices contribute to high construction and transport costs, which cannot be fully supported by current low volumes of traffic. Chad's highest priority is the restoration of critical road communication between different parts of the countrv. A priority rehabilitationnetwork has been identified for that purpose, although it needs further review. Another priority is the selection of suitable design standards for the various regions. It is also important to ensure that the benefits of rehabilitationiare not lost through lack of miaintenance. Although there may be some scope for increasing the revenues (petroleum tax) earmarked for that purpose, donors will need to assume a major share of maintenance costs in the foreseeable future. The efficiency and development of the sector would be assisted by the removal of the monopoly enjoyed by CTT, the truckers' cooperative, and by elimination, if possible, of the various contrc-.sand fees imposed on Chadian traffic in neighboring countries,

23. EergyZ. Petroleum resources were discovered in 1974 east of Lake Chad and, more recently, in the South as well. U'ntilthese resources are exploited, petroleum products have to be trucked over long distances, which greatly increases their landed cost. In 1985, Chad's petroleum import bill was about US$50 million, equivalent to about 27 percent of merchandise imports and 8 percent of GDP. Because the cost of bringing finished products to Chad exceeds the cost of extracting and refining domestic crude, it is economically justified to exploit Chad's oil reserves (in the North) even at prevailing low world prices. Preparation of a project to achieve that was resumed in 1986. If the project proceeds on schedule, Chad should be able to satisfy 80 percent of its demand for petroleum products beginning in the early 1990s. Production for export will have to await a reconfirmationof reserves and a major improvement in world prices.

24. Flectricity production costs are high in Chad, mainly because of the large share of petroleum products in the cost structure and the high cost of imported petroleum. The national electricity and water company (STEE) has been experiencing serious financial difficultieswhich are attributable to (i) significant technical losses, and (ii) problems in billing and collection. The company is currently defining a rehabilitation plan to deal with these and other problems such as cross-arrears with the Government. Furtlhermore,the construction of a power plant, to be supplied with domestic fuel, is under consideration.

25. Education. Chad's education sector ceased to function during the period 1979-82. Schools throughout the country were looted, destroyed or converted to military use; nearly the entire stock of teaching materials was lost, as were all education statistics and records. Only limited progress has been made since then in restoring minimal acceptable operating conditions in the sector. To meet the country's most basic educational requirements, Chad will have to conicentrateits scant resources on the development of primary education. The Covernment s strategy for this sub-sector should focus on: (i) encouraging community participation in the cost and management of the sub-sector; (ii) strengthening and expanding teacher training, particularly in-service training; and (iii) reinforcing the planning and monitoring capacities of the institutions involved. Once - xix - the basic requirements of the primary education system have been assured, Chad should address the long-term priorities for secondary and post-secondary education. Specific areas which merit examination include the development of a core curriculum suited to the countrv's educational environment and human resource needs, and the potential for private sector participation in vocational training.

26. Health. Infant, child .nd maternal mortality rates are very high in Chad, reflecting poverty, chronic malnutrition, lack of access to safe water, little or no health education, limited access to health care, poorly trained health personnel, and inadequate health facilities, equipment and medical supplies. Health care has been the focus of numerous, sustained interventions by donor agencies, NGOs and church-related groups. Many have created delivery systems which operate for the most part independentlyof the national health care system. These parallel systems, though essential and laudable, have made the coordination of health services and the definition and implementationof a national health sector strategy more complex. Such a strategy is needed in order to arrive at the most appropriate allocation of scarce resources among competing needs. Moreover, new aid commitments in the health sector are declining as donors diversify into other sectors; the Government is, therefore, faced with the need to develop alternative methods of health care financing. Here, as in education, cost recovery offeis possibilities. The growing number of community and church-sponsoreddispensaries and pharmacies that do charge fees suggests that access may be a bigger constraint to health care than willingness or ability to pay, provided that fees are kept very modest.

Medium-Term Prospects

27. According to this report's projections, the Chadian economy is expected to expand at an annual rate of 2 percent through 1989 -- slower than the population growth rate of 2.4 percent. This is largely because of the gross under-investmentwhich has occurred over the last 10 years; the inevitable focus of recent and on-going investments on reconstructionand rehabilitation; the short-term recessionary impact of the cotton crisis; the already high level of fooderop production as a result of generally favorable weather; and the rormal lag between policy decisions and results. However, as the policy and institutional changes on which the projections are predicated take hold and, in particular, as the focus shifts from emergency operations to development-orientedprojects, the growth rate of CDP can be expected to accelerate to 2.4 percent a year in 1989-92 and to receive a further boost by the projected start of domestic refined-petroleumproduction in the early 1990s. Thus, GDP growth is projected to overtake population growth beginning in 1991 and to average 4.7 percent a year in 1992-95, with petroleum, 3.2 percent without petroleum.

28. Under the same base scenario, Chad's external current account deficit is anticipated to double in absolute terms by the mid-1990s, but it would remain at roughly the present share of GDP, namely 23 percent. -he projected aid flows, moreover, should be sufficient to finance the deficit. Total assistance to Chad (grants and loans) would increase from about US$148 million in 1986 to nearly US$450 million in 1995, implying a trebling of per capita assistance. Despite this rapid growth (14 percent - xx - in nominal terms a year), by 1995, per capita aid to Chad would be US$52 in 1986 US dollars -- a figure significantly lower than the recent level of assistance to a number of low-income African countries, none of which have suffered similar devastation.

29. The sensitivity of the above projections was tested by considering six alternative sets of assumptions regarding cotton prices and output, cereals production, and aid flows. The analysis revealed that variations in aid flows have the biggest impact on aggregate production. This is not surprising because 65 percent of aid is estimated to consist of development assistance, which "drives" investment; moreover, aid is the biggest "sector" of the Chadian economy, being equivalent to more than 2.5 t±mes the level of export earnings. The results of the sensitivity analysis have nevertheless three important implications:

o Given the importance of external assistance in shaping Chad's future, avoiding fluctuations in it should be as important as its absolute level. Systematic and effective aid coordinationand investment programming are essential to achieve that objective.

o Projections are even more sensitive to Government policies than to aid flows because they determine: (i) how much aid Chad needs, especially budgetary support; (ii) whether and how easily Chad can obtain aid; and (iii) how well it uses it -- which, in turn, influences its ability to mobilize additional aid.

o , Chad has an interest in maximizing aid. But two caveats are in order in this connection. First, as a result of the aid flows underlying the above projections, Chad's total debt (disbursedand outstanding) would rise from about US$200 million in 1986 to more thdn US$1.3 billion, or around 80 percent of GDP, by 1995. Practically all of this aid is projected to come from multilateral organizations at highly concessional terms (most bilateral aid already consists of and is expected to remain in the form of grants). Although the resulting debt service will be low compared to that of most countries, it will prove a heavy burden for the fragile Chadian budget. Second, an increase in aid of the magnitude projected will require an extraordinary effort to identify projects which can effectively absorb such assistance and to establish the institutional capacity needed to implement and supervise these projects. Although the increase is feasible, it is less certain that it can be achieved in the projection timeframe of eight years without exceptional efforts by Chad and the donors, Therefore, until the institutional and micro (project) bases for them take shape, the macro projections summarized above must remain merely illustrative.

Medium-Term Policy Framework

30. The realization of the above projections depends on the implementation of certain policies and actions over the medium-term. These are incorporated in a coherent policy framework prepared by the Government in collaborationwith the IMF and the World Bank. The framework covers the period July 1987 to June 1990 and comprises two groups of actions: sectoral policies, especially in the rural sector, and economic management. - xxi -

Many of the measures are already under Implementationand all are embodied in a detailed action program, prepared by the Government, which itemizes the various steps and their implementationschedules. Only the general objectives of the measures -- and only the most important among them -- can be highlighted in this space.

31. In support of the cotton sub-sector, the policy framework integrates the on-going Emergency Program but also includes measures which aim to (a) strengthen management and Improve financial monitoring through technical assistance and external audits, and (b) adjust prices and production levels as warranted by market conditions. For foodcrops and livestock, the framework alms largely at the preparation of sector or sub-sector strategies, currently lacking, with the help of well-focused studies. Specific measures include redefinition of the roles of ONC (the National Cereals Office) and SOTERA. In both cases, the objective is to minimize market intervention,which has proven ineffective and, in some cases, detrimental to sub-sector growth. In the transport sector, a key objective is the definition of a sector strategy. The action program for the sector includes the reexamination of the role of CTT with a view to stimulating competition in the industry. The action program for economic management is centered on the programming and budgeting of public investment, where the objective is the preparation of a rolling multi-year public investment program to be implemented through annual investment budgets. A number of actions are also planned to address the problems of the public enterprise sector. These are to be implemented in phases, starting with audits, which are to be followed by measures to improve accounting practices and enterprise management. The action program includes reexamination of the role and justification of a number of enterprises which have a significant impact either on public finances or on the economy.

32. The objectives of the policy framework in public finance are to: (i) increase revenues by strengthening tax collection and administration, reduce abatements and exemptions and introduce a new system for taxing petroleum products; (ii) restrain the growth of expenditures through the application of strict controls such as quarterly ceilings, the integration of certain extra-budgetarv expenditures into the general Treasury balance sheet, and limiting recruitment of civil servants; (iii) eliminate existing domestic arrears and prevent the accumulation of new ones; and (iv) improve external debt management with respect to both borrowing and orderly debt service payment.

33. The implementationof the policy framework will depend first and foremost on political will, especiallv the Government's resolve to act on all the policy areas stipulated, as the measures are inter-dependent. Judging by the Government's performance to date, the needed resolve is there. The donors can assist in the implementation of the policy framework by: (i) ensuring coordination of financial and technical assistance, both among themselves and with the Government; (ii) financing recurrent costs as much as possible; and (iii) maintaining a frank dialogue with the authorities on strategies and policies. Finally, implementationwill depend on the quality and effective use of technical assistance, for which both the donor community and the Chadian Government must take responsibility. - xxii -

34. It should he underlined in this connection that (.hadis so highly dependent on aid that it cannot adequately influence allocation decisions: if budgetary aid arrives, salaries are paid; if it does not, they are not paid. Often donors take full respf-sibility for choosing, financilng, executing and monitoring aid projects. lt is important to malkethe Chadian authorities equal partners in these decisions by helping them acquiirethe necessary statistical base, knowledge and analytical skills, In Chad's context, slow progress may be preferable to fast if the by-product is the reinforcement of Chadian skills -- and self-confidence.

A ComplementaryAgenda

35. The policy framework is limited to the most urgent actions in key sectors. In parallel with those actions, the Government will need to take or plan actions in the same or other areas that go beyond the medium term. Highlights of such a complementary agenda are as follows. With regard to the all-important COTONTCHAD, actions fall into two categories: (i) follow-up on the Fmergency Program. Chief among this group of actions is a realistic rescheduling of COTONTCIIAD'sarrears owed to the Central Bank. The financial projections in this report indicate that a significantly more liberal rescheduling is essential for the recovery of COTONTCHAD, the cotton sub-sector and the overall economy; (ii) new questions that would need to be addressed in the design of Phase II. Among these are the nature of the fiscal regime to be applied to COTONTCHAD once the company's profitability is restored, and the possibility of restructuring the ownership of the enterprise. Concerning agriculture other than cotton, three areas merit special attention: (a) research, (b) marketing, and (c) irrigation, where a national strategy is needed to minimize fluctuations in production. Two other problems need to be addressed under the agriculture heading, although their solution is long-term and requires multisectoral approaches; they are desertification and soil conservation. In the livestock sector, increasing attention needs to be given to the problem of distribution of drugs, vaccinations and pastoral water points, taking into account nomadic routes and grazing systems, and the development of a market for frozen meat exports.

36. The complementary agenda also includes (i) reactivation of mineral exploration (which, before the war, revealed indications of a number of minerals); (ii) reexamination of energy sector policies once petroleum production starts, as the latter will have ramifications for the cost and price structure of STEE, the availability and cost of sub-products, etc; and (iii) definition of a strategy to develop the tourism sector, which has a not insignificant potential. With regard to industry and commerce, key questions that need to be addressed are the long-term viability and growth potential of the existing four large manufacturing enterprises (textiles, cigarettes, beer, and sugar) and the potential for diversificationof manufacturing.

37. Concerning economic management, the complementary agenda extends the focus from programming and budgeting to medium and long-term planning, paying particular attention to developing in-house capability. With respect to public finance, the priorities include the implementation of a fiscal reform and other measures to expand the revenue base partly by bringing an increasing part of the informal sector into the official, - xxi i - recordedeconomy; improvement of the budgetaryprocess so as to base it more closelyon resourceavailability; and preparationof an actionprogram for restoringcivil servicesalaries to a more realistic,equitable level consistentwith financialresources and efficJency.

Toward a ChadianFuture

38. The outcomeof theseactions will depend to a significantextent on Chad's successin learningfrom experienceand avoidingthe mistakes made by other developingcountries in the past. Chad needs to avoid especiallyan over-expansionof the governmentapparatus, over-regulation, and projectsthat are not foundedon clearlyarticulated strategies or which involvethe crea!ionof new public enterprises. Chad shouldalso beware of creatinga structuraldependence on technicalassistance, i.e., introducingit without a time-boundprogram for replacingit tlhrcugh well-focusedon-the-job and other training. Chad shouldalso try to avoid an unmanageablerate of urbanization,given the problemof unemployment, the needs for services,and the high import-contentof urban consumption.

39. While avoidingthe mistakesof others,Chad must take careful accountof its own heritageand experienceas well as local conditionsin defininga future. This is particularlytrue with respectto fostering nationalunity, diversificationof the economy,promotion of the private sector, human resourcedevelopment, and preservationof the ecological system. Key pointsare:

o NationalUnity. This is an extremelyimportant goal of the Government. Althoughsignificant progress has been achieved, expandingand solidifyingit will requireeconomic integration, i.e., the interlinkingof regionsthrough transport, trade and balancedaccess to services. The objectiveshould be the participationof the largestpossible number of communitiesin the developmentprocess.

O Diversification.Efforts should concentratenot only on the introductionof new activitiesbut also on the revitalizationof traditionalproduction (niebe, gum arabica,etc.), the outputof which can be significantlyincreased. Furthermore, diversificationshould be pursuedin the contextof the regional Africanmarket; Chad's economicfuture depends more on that market than on the nationalor overseasmarket.

o Promotionof the PrivateSector. The successof the adjustment effort,of which diversificationis a vital part, will depend just as much on privatesector initiative as on government action. Despitethe considerableprogress achieved since the end of the war, the revitalizationof the privatesector has a long way to go. Creatingthe conditionswhich permitChadian entrepreneursto launchproductive enterprises and which encouragethe returnof foreigncompanies or the arrivalof new companieswould acceleratethe developmentof the privatesector.

o HumanResource Development. Rather than rely on eco,Lomicgrowth to graduallyimprove welfare, Chad needs to investin human resourcedevelopment now in order to make an accelerationof - xxiv -

economic development possible. These investments need to be tailored to existing social structures. Traditional bonds, whether at the level of the extended family or the ethnic group, are still very strong in Chad. They are an extremely important asset in a country where the Government does not have the resources to assume the role of all-giver (Etat providence). The country was able to withstand the effects of drought largely because of those bonds. Development must therefore be based on them rather than act against tlhem.

O Ecological Balance. Cho1 has a fragile ecological system which faces many problems: deforestation, deterioration of soil conditions, and exhaustion of water supply. The problems are difficult, but not insurmountable, if the key parties concerned -- the Chadian authorities, donors, farmers and herders -- work together. And this they must do, because the physical environment, which has shaped Chad's past more than any other factor, will also shape its future. - xxv -

INTRODUCTION

1, The last countryeconomic memorandum (CEM) on Chad was distributedin 1977 and covereddevelopments through 1975. 1/ A total of four CEMs were preparedfrom 1968 to 1977, with a cycle of roughlythree years (1968,1971, 1973, and 1977). This cycle was interruptedprimarily becauseof the political/militaryevents experiencedby Chad between1979 and 1982.

2. The timingof the currentCEM is attributableto a number of factorsbesides the return of stabilityto most of the country. The first concernsthe statisticalbas of Chad, which was almostentirely destroyed during the conflict. AlthouE the data base still has serious deficiencies,which inhibita full and classicalanalysis of the economy, ,iere is -- after a long hiatus -- sufficient information to prepare a reasonablyreliable assessment of Chad'soverall economic situation, major constraintsand broad prospects. Second,the main economicinstitutions (ministries,banks, large enterprises,etc.), which have been substantially reconstitutedsince 1982, have begun to turn their attentionfrom short-termconcerns to longer-termissues. Third,Chad's relationswith the donorsare normalized,and the policydialogue with them is strongand growing. Fourth,as noted in the Preface,cooperation among the donors is also at a high level;they are eager to share informationand pursue shared objectives.

3. These factorshave also shaped the intendedaudience and the objectivesof this CEM, which is addressed,in particular,to the Bank, the Governmentof Chad, and the donor community: the Bank, becauseof the hiatus of 10 years since the last CEM; the Government,because Chadian institutionshave, for the moment,very limitedcapacity for economic analysis;and the donors,because shared objectives presuppose shared knowledge.

4. The objectivesof the CEM are to take stock of the economicand socialsituation of Chad -- in the aftermathof a turbulentperiod characterizedby protractedconflict, two droughtsand the collapseof the world price of cotton,Chad's major export-- and to defineas clearlyas possiblethe actionsand resourcesnecessary to improvethe situationand prospects. It shouldbe stressedthat any diagnosisof the problemsin the Chadianeconomy at this time is subjectto a significantmargin of error (partlybecause of statisticallimitations), and its prospectsare subject to wide uncertaintiesas well. It is therefore,too early,and risky,to proposelong-term solutions to this country'swell-known, long-standing problems -- low income, landlocked location, overconcentrationon cotton -- which have been exacerbatedby the war of 1979-82. It is now time, however,to raise long-termquestions and suggestfirst steps,accepting the risk which this entails. The theme of this reportis, therefore,the identificationof prioritieswherever possible.

1/ Republicof Chad: EconomicMemorandum (Report No, 1340-CD), June 30, 1977. - xxvi -

5. Chapter I of the CEM provides background on the evolution of the Chadian economy since the mid-seventies, the period covered by the last CEM, focusing on the far-reaching and lingering effects of the 1979-82 conflict. Recent developments are th( focus of Chapter II; in addition to examiniingthe main macroeconomic aggregates, this chapter reviews the initiatives taken by the Government as well as the donors in the last 2-3 years. Chapters III to V contain a discussion of sectoral issues and priorities, covering the productive, infrastructure and social sectors and focusing, inter alia, on sectoral strategies and the need to define or refine them. Chapter VI examines the determinants of future trends in Chad, which include exogenous and semi-exogenous factors such as trade relations, domestic resource mobilization, investment prospects, and institutional constraints. Finally, Chapter VII presents medium-term projections and the policies associated with them, distinguishingbetween those already adopted by the Government and those to be adopted or implemented. That chapter closes with a brief discussion of the issues which belong on the longer-term agenda of Chad but require increasing attention. Among these are diversification,private sector strengthening, environmental issues, and development of human resources -- Chad's most important asset by far.

6. Annex I presents a synopsis of the world cotton situation and outlook. The activities of non-governmental organizations (NGOs) in Chad are reviewed in Annex 2, and the Government's action program for the next three years is outlined in matrix form in Annex 3. Annex 4 contains a list of suggested actions that complement the medium-term program. To assist the researcher at this critical juncture, the report also contains (in Annex 5) a bibliography of relevant publications, including official documents which are not available to the public at large.

7. This is the Bank's first economic report on Chad in more than a decade. For this reason, the choice was made to focus intently on those sectors and sub-sectors which are of primary and immediate importance to the Chadian economy. A number of other topics were addressed only briefly, including, most notably, telecommunications,air transport, environmental concerns, and tourism. In many instances, the almost complete lack of information and data prevented anything but a cursory analysis. Such was the case, for example, for the informal sector which clearly plays a central role in the development of the Chadian economy. As the Government increasingly establishes priorities for longer-term development, and as studies are launched and data gathered, the scope of the Bank's future economic reports will be broadened to encompass other important sectors and issues. I. BACKGROUND

A. GeneralCharacteristics

1. Chad has a numberof characteristicswhich determineits economic as well as socialand politicaldevelopment. These fall into three broad categories. The first group,and the most important,are physical, beginningwith the country'slocation. AlthoughChad is not the only landlockedcountry in Africa,it is among the least accessibleand the largest.1/ The distarcebetween the nearestseaport (PortHarcourt, Nigeria)and the capitalcity, N'Djamena,is 1,765 km. The Chadiantowns of Abeche and are furtheraway from the sea by 760 km and 560 km, respectively(see the map on the next page). Moreover,because of the poor state of the roads, the cost of land transportper t/km is significantly greaterwithin Chad than on externalroutes. It is, therefore,not uncommonfor the cost of a product in Abeche or Sarh to be twice the f.o.b. cost in Europe. This is an extraordinarypenalty for a countrywith Chad's per capita income. The landlockedlocation of Chad accentuates,inter alia, the importanceof maintaininggood politicaland economicrelations with its neighbors.2/

2. Anotherphysical characteristic of Chad is its "asymmetrical" naturewith respectto climate,especially rainfall. Whereasthe northern half is arid, lying within the Saharanzone, the southernregion is tropical, with abundant rains feeding two perennial rivers, which feed a major lake (LakeChad). This asymmetry-- which is also found in the distributionof populationand the configurationof cultures-- produces extremes. For example,the North has generally4 days of rain per year comparedto 95 days for the South (66 days for N'Djamena). Floodingis commonand a major problemin the South (also becauseof soil conditions) makingroads impassablefor days or weeks. On the other hand, becauseof the temperaturelevel, which reaches120 degrees (F) in the shade in April, 90 nercentof the water flowinginto Lake Chad evaporates.

3. More importantthan the variabilityof weatherand rain by region is their variabilityover time. Chad has experiencedno less than six droughtsin the last twentyyears, two of them especiallysevere. A dramaticillustration is providedby the variationin the size of Lake Chad over the last century. Its size, which had been estimatedat 28,000 sq.km. in 1870, stood at 12,700sq.km. in 1908; it reached26,000 sq.km. in 1963 but shrank to less than 5,000 sq.km. in 1984. The amplitudeof the fluctuationsand the uncertaintyof their timingplace a heavy burden on the administrationand the population,and constrainthe utilizationof naturalresources. Well-beingseverely suffers; occupations change -- one

1/ With about 1.3 millionsq. km. (morethan twice the area of France), Chad is the 5th largestcountry In Africa and the 20th largestin the world.

2/ Sudan,C.A.R., Niger, Nigeria, Cameroon, and Libya. - 2 - year there may be 50,000 fishermen, next vear none; and planning becomes d.fficult, if not impossible, in an environment where the extreme is not unusual: it is as if one had to plan for two lives. Moreover, the end of the drought brings its own problems or dangers such as premature resettlement and overdependenceon food aid. All of these problems are difficult enough, and more so for a poor country like Chad.

4. A second group of characteristics concern the Chadian population's adaptation to the physical environment. Chad's population was estimated at about 5 million in 1985 -- an average density of 4 inhabitants per square kilometer although density varies greatly by region. Only about 3 percent of the population live in the northern Saharan zone where soils are sandy and annual rainfall is less than 300 mm. The dominant activity here is nomadic and transhumant livestock herding; crop production is limited to oases and to the lowlands during occasional flooding. Roughly 40 percent live in the southern, Sudanian zone which covers 25 percent of Chad's area, where soils are heavy clay and annual rainfall is 600-1,200 mm. Physical conditions in this region allow the production of cotton as a ca,h crop and of cereals, tubers and groundnuts (for the local market) as major foodcrops. In between these two extremes lies the Sahelian zone with mixed sand and lcam soils and 300-600 mm of rainfall. More than half of the population live in this area, where subsistence agriculture is blended with livestock herding by settled farmers and semi- nomadic herders. The blend changes in favor of livestock as one moves north. Crop production is centered on millet and sorghum, the main staples in the Chadian diet. Although 80 percent of Chad's population live in rural areas, the urban population has been growing faster thap the total population, as elsewhere in Africa. N'Djamena is estimated to have about 400,000 inhabitants, or twice the level of just 12 years ago.

5. The demographic pattern mirrors the distribution of economic opportunities -- which are shaped largely by the physical environment -- except in the case of N'Djamena whose growth is more recent and the reasons for which are more complex. Cotton, too, is perhaps a special case. Although the climate and soil in the southern region are suitable for its cultivation, it was only introduced -- indeed, imposed -- by the colonial government in 1925: cotton cultivation was "mandatory" for a number of years. Production increased steadily since then, largely because of the organization of inputs distribution and processing, which led to expanded acreage.

6. The third and last group of Chad's distinguishing characteristics is cultural pluralism of its population, in particular: its 20 major ethnic groups, the largest being the Sara (in the south), the Arabs (in central Chad) and the Maba (in east-central Chad); its religions (Tslam, Christianity and Animism); and its languages (consistingof 12 groups and as many as 110 dialects).

7. These three groups of characteristics go far to explain Chad. For example, the physical differences that are observed as one moves north are reflected in income disparities which reinforce the potential for conflict; even the interruptionof communication (because of flooding and the poor state of the roads) on a seasonal basis reinforces that potential by adversely affecting different sub-regions and ethnic groups '3- ~~~~~~~IBRD2 146

,, o. ,¢8, ,> 150 /s t0° 15° ~~~~~~~ARABREP. v s ~~~~~~LIBYA jOF EGYPT ALGERIA //V '.

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MOYOum0 f4 BR^AZZVtLv INTERNATIONALTRANSPORT k- "'N - vSINSHASAI CONNECTIONS _0~ ~ ~ pn*Nii Oj1. t Airports

og i ~~~~~~~~~~~~NationalCapHitas

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ANGOlA RiverRoute . I~~~~~~~~~~~~~~~~~~~~~~~ntemnotional Boundairies

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v>>@f>2b#tt-£tth*s**f6-*@S*t-W~~~~~~~ o 0 260 30 _ 0CSVa ¢11lVlrlfftO_liEte.vlS ~~~~~~~~~~~~~~~~~~~~~~~Kilo0efe,s

_ I __ i * - | ~~~~~~~~~~~~~~~~~~~~~~MAY1987 7-

;Z-p - 5 - disproportionatelv. Similarly, the unrecorded exportation of 14ve animals, or livestock "on the hoof," to Nigeria is the product of physical (not just economic) factors, and the existence of ethnic ties across borders.

8. One fact stands out above all others: the extent of Chad's dependencv on che physical environment and on fluctuations in it which are beyond the country's control. Although the dominant share of cotton in its export earnings makes Chad especially vulnerable to fluctuations in the world price of this commodity, this vulnerability is accentuated by weather-induced fluctuations on the supply side: since Chad is a price taker on the world market, a decline in output may coincide with a lower world price.

B. The Economy Since Independence

9. There are very few statistical series that go back to 1960 in Chad. Even when historical estimates are available and they show a change, it is difficult to determine whether the change is real or whether it reflects a change in the estimation methodology or in the accuracy of the data. This is true of the population estimates, which suggest an acceleration in the growth rate since 1960. 3/ Although this is not inconsisteintwith experience elsewhere in Africa, there is a particularly severe lack of supporting data in Chad. Similar reservations apply to historical estimates of GDP, which lack both continuity and consistency. Partly for that reason, this section does not attempt to trace the economic history of this period; it focuses, rather, on selected developments which can help to understand where Chad stands now and why.

1. The First Seventeen Years

10. Chad's economy expanded more or less steadily, but modestly, in the first seventeen years after Independence. Available data indicate that during the 1960s, GDP grew at an estimated annual rate of 5 percent in current prices and about 2 percent or less in constant prices, possibly leading to a decline in real per capita income (see para. 9 for population figures). Growth occurred primarily in the monetized economy, which includes cotton, commercial activities ard public sector services; the traditional economy is estimated to have growr by 1.6 percent annually. In the first half of the 1970s, which witnessed a major multi-year drought, the average annual (real) growth rate of GDP decelerated to less than one percent. 4/

3/ The last five CEMs cite the following estimates: 1968 CEM, 1.4 percent; 1971 CEM, 2.0 percent; 1973 and 1977 CEMs, 2.1 percent; current CEM, 2.4 percent.

4/ World Bank, Chad's Economic Development: Constraints and Potential (Report No. 75a-CD), July 2, 1973, p. 3; and 1977 CEM, op.cit, Table 2.2. - 6 -

11. Chad was less prepared at Independence than most other countries in Africa. In 1960, the countrv had no paved roads, and the only all-weather road was from N'Djamena (Fort-Lamy) to Sarh (Fort-Archambault). There was one phvsician per 73,000 people; life expectancy at birth was 39 years; onlv 17 percent of the primary-school age population attended school; and the enrollment ratio for secondary school was less than one percent. Moreover, even in 1967, 15 percent of the labor force consisted of non-Chadians. The proportion of non-Chadians in top and middle management was about 95 percent; even in the case of foremen, it was 80 percent. 5/

12. Independence was followed by internal and external turmoil which has persisted in recent years. The most revealing statistical indicator of the first years of Independence is the share of detense and security outlays in government current expenditures,which increased from 7.7 percent in 1960 to 29.4 percent in 1966. 6/ Yet government revenue increased by 15 percent a year during this period (faster than GDP), and the current budget was in surplus or in balance from 1963 to 1967. The increase in revenues came from new taxes, improved tax administration and larger cotton crops. The surpluses helped to finance 20 percent of the government Investment budget.

13. The ratio of investment, public and private, to GDP hovered around 10 percent during the sixties -- not an impressive figure -- partly because of the growing security outlays. Moreover, while external assistance did expand in the second half of the decade, a growing proportion went to finance the emerging budgetary deficits (after 1967) and miscellaneous current expenditures. In 1969, only 37 percent of the external aid consisted of "development assistance;" 36 percent consisted of "technical assistance," mostly to pay foreign teachers, and 27 percent of "current assistance". 7/ This pattern was to be repeated in the early 198Cs.

14. The most important influences on this period -- other than internal instability -- were the weather and the evolution of the decisions affecting the cotton sector. Climatic conditions were normal-to-favorable during the sixties, with the exception of a drought in 1969. Chad was self-sufficient in cereals throughout the decade -- by a large margin in the second half (see Chart 1). A severe drought from 1971 to 1973 transformed the surplus into a deficit which was met largely through food aid. The drought, nevertheless, had a profound effect throughout the economy. GDP declined by 9 percent in real terms in 1973, its agricultural component recording a 14 percent drop. Moreover, a third of the cattle herd was lost, bringing about a net disinvestment irnthat peak drought year.

5/ 1973, op.cit., Table 1.10.

6/ World Bank, The Economy of the Republic of Chad, (Report No. SF0071), March, 1968, Table 15.

7/ World Bank, The Current Economic Situation and Prospects of Chad (Report No. AW-24a), April 9, 1971, p. 13, FOOD NEEDS, CEREALS PRODUCTION AND L-IVESTOCK HERD, 1965-85

800' *16000 LEGEND

700-_ - 15000 _- PRODUCTION

t -- NEEDS - 14000

200 2 I l l l 0 013000 cn 500

-12000 o

..'400 \V

11000 =

: 300- -10000

200 - 9000

(D ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~FO ED COYFSOL CR>ED

100- 8000

o f-] ~~~~~~~~~~~~~~~7000 U

65 67 69 71 73 75 77 79 81 83 85 Yea r MOOD NEEDS OOVERS ON4LY CE0REALS NM:S Pe I 15. Cotton prodtuctionwas also affected bv the fluctuations iD climatic conditions through the first seventeen years. A bigger influence, however, was the introductionof "productivity programs" beginning in 1960, as discussed in Chapter TJJ. These programs contrilbutedto increasing yields by as much as 40 percent in the late sixties and led to a dramatic decline in area planted beginning in the mid-1970s. In addition, after remaining unchanged at CFAF 26/kg for 14 vears, the producer price of cotton was raised in four successive steps to CFAF 43/kg by 1974/75 (Chart 2). The price increase, together with the normalization of weather after the 1971-73 drought, boosted production by 25 percent and earnings by even more, as ic coincided with the worldwide commodity boom. This produced a "euphoria", as manifested in the adoption of the extraordinary cotton production target of 750,000 tons for 1975/76 which, under "Operation Agriculture", was to be achieved by directing city workers into cultivation 8/. Although the scheme was swiftlv abandoned, cotton output nevertheless Increased bv another 21 percent that year, to 174,000 tons -- a historical record.

16. lt should be noted that government revenue declined by more than 20 percent during the 1970-73 drought and the current deficit doubled. The current deficit was halved when good weather returned and revenues increased in 1975. By the mid-seventies Government revenues were at a higher level than their pre-drought level, and aggregate production was at its peak with a GDP of CFAF 160 billion (US$157 per capita) in 1977, thanks to the large cotton crops. At that time, in addition to an active informal sector, Chad had four local banks, several large manufacturing industries, and about 90 small and medium-scale enterprises (SMEs).

2. The Period 1978-85

17. Over the past decade, Chad has been devastated by three successive calamities: (i) an internal conflict which was much more divisive and violent than any experienced before; (ii) a drought of unprecedented severity; and (iii) a decline in the world price of cotton, sharper and more abrupt than any in that commoditv's history. Although data for the war period (1979-82) are limited and unreliable, the drop of about 30 percent in aggregate output over those years reflects the severity of the economic disruption experienced. The modern sector was the hardest hit, with u,ostinidustries severely reducing or suspending operations. The banking sector shut down for two years, as did the Central Bank. Amazingly, the cotton industry continued to operate, overcoming great logistical difficulties and maintaining an average seed cotton production of about 65 percent that of 1973-77. More than half of the small- and medium-scale enterprises (SMEs) were abandoned or temporarily shut down. The population of N'Djamena fell to less than a third of its pre-war level of 300,000, and the city was largely destroyed. Most expatriates left the courtrv. Political administrationat all levels ceased to function, and public utilities and government services were abandoned. Much infrastructureand physical capital was destroyed or dilapidated from lack

8/ Africa South of Sahara, p. 294. - 10 -

of maintenance;the road network,in particular,deteriorated severely, cripplinginternal trade and producingeconomic fragmentation.

18. With the establishmentof the currentgovernment in 1982 and the progressiverestoration of relativepolitical stability, the economybegan a period of recovery,with real GDP growingby 5.5 percentin 1983, to reach nearly 78 percentof the 1977 level. Economicrecovery was stalled, however,by the unprecedenteddrought of 1984-85,which shrankLake Chad to one-tenthof its normal size and dried up segmentsof the Chari River. Cerealsproduction dropped to only 346,000tons, causinga cerealsdeficit of about 300,000tons, or half of total requirements.The northern Sahelianzone was particularlyaffected, creating an influxof refugeesin the Sudanianzone. A well-coordinatedinternational relief effort, led by UNDP and with full cooperationfrom the Covernment,averted widespread famineand avoidedthe establishmentof refugeecamps throughthe skillful relocationand resettlementof displacedpopulations in productive agriculturalzones (see page 1 of Annex 2 on the role of SECADEVin definingthis resettlementpolicy). Nonetheless,the declinein cereals productionbrought economic recovery to a halt, with a 5.5 percentdrop in real GDP in 1984.

19. Althoughgood rainfallreturned in 1985,this favorable developmentwas overshadowedby the collapseof the world price of cotton: betweenApril 1984 and mid-1985,the price of Chadiancotton fell by nearly 40 percent. These developmentsare examinedin the next two chapters.

20. During the 1983-85period, Chad benefittedfrom substantialdonor assistancetotaling about US$325million. The allocationof that assistancereflected the emergencynature of the difficultiesand Chad's revenueconstraints: 52 percentconsisted of emergencyaid, mostly food, 10 percentof budgetaryassistance, and less than 40 percentof development assistance.9/

C. The DevelopmentChallenge

21. This reviewof Chad's experiencesince Independenceleads to the followingobservations. First, if Chad is one of the poorestcountries in the world, this is only partlydue to its physicaland human resource constraints. It is also because (i) it startedwith littlephysical and administrativecapital at Independence;(il) it has receivedrelatively littledevelopment aid; and (iii)political conflict absorbed a great deal of attentionard resources,domestic and external,at the expenseof development.

22. Second,despite the physicallimitations highlighted in SectionA, the countryhas considerabledevelopment potential. It has

9/ Governmentof Chad, Plan Int6rimaire,1986-89, p. 28. SEED COTTON PRODUCTION AND PRODUCER PRICE, 1960-84

180- 360 LEGEND

170-.

180 - PRODUCTION

150-. -5 '' PRICE

t14S0-- . / \300 AREA 130- -- 280 120- g ~~~~~~~~~~~~~~~~~~~~~~~~~-260

100- -240

CD 90 220 O

70 -_200

60- 180

50- 50 160 40 /

30- ,,,¢D - 140 1 5 -L - - -I 5-- -t 5-- 5-- -_ C_|S 20 i i I I I I I 1 1 - 120 60 62 64 66 68 70 72 74 76 78 80 82 84 Year Produation and area are three-year moving averag. I

I

%r4

7C - 13 - proven to be self-sufficient in food during various periods in each of the last three decades, and the possibiliti.s for expanding agricultural output are significant. Although only 15 percent of the land is arable, the country is so large that this represents nearly ten times the currently cultivated area. There is also significant potential for irrigation. 10/ In addition, Chad has substantial petroleum resources which can potentially satisfy nearly all of the domestic demand (Chapter IV). Indeed, it is not that Chad does not have the promise to make significant progress, but that it has not had a reasonable chance to do so.

23. Third, by most counts, the development clock has stood still for Chad during the last 10-15 vears. On the negative side, it means that valuable time has been lost, This loss can be measured in different terms, all tragic: in terms of health status and well-being, agricultural research, personal and societal rewards of education, training opportunities and administrative experience... There is also another kind of loss: it is often said that economic development is a "unifier" -- politically and ethnically; if it is, this too is a measure of Chad's loss. The development challenge both at the macro and the sector levels is not too different than it was 10-15 years ago. As stated forthrightly in the 1973 CEM, it is essentially (i) to raise rural production, which would also produce the resources to alleviate poverty, and (ii) to improve health, nutrition, and education -- and of course transport -- without which the potential in agriculture and labor productivity cannot be realized. 11/

1O/ T. James Goering, Toward Greater Food Security in the Sahel: An Overview of Issues and Prospects, World Bank AGREP, Division Working Paper No. 15, March 23, 1978, p. 16.

11/ 1973 CEM, op.cit., pp. 16 and 32. - 14 -

II. RECENT ECONOMIC DEVELOPMENTS

24. Although Chad's economic recovery suffered a setback in 1984 from the impact of the drought on agricultural production, recovery from the destruction and dislocations of 1979-82 continued in other sectors. By 1984, the Central Bank (BEAC) had already re-opened, as had two commercial banks, while all major industries had resumed operations and were producing at or above 1977 levels. The informal trading sector, which had sustained the economy throughout the hostilities, was thriving, and a number of small- and medium-scale enterprises had resumed operations. Although the economy lagged behind 1977 levels in many respects, there were encouraging trends: fiscal revenues were recovering, while export earnings were more than double their nominal 1977 level, thanks ';oan exceptional cotton Crop in 1983/84 and a strong world market.

25. Because of cotton's crucial role in shaping the evolution of the Chadian economy, especially in the last two years, this chapter begins with a review of recent developments in that sector. This is followed by an analysis of the evolution of the public sector and the external accounts. The aggregate macroeconomic picture is examined next within the limitations of available data and estimates. The review then turns allocated to the principal actions taken by the Chadian Government and the donors in recent years. The chapter closes with a summary of the current situation and a brief evaluation of the short-term outlook.

A. The Cotton Sector

26. The story of the Chadian economy in 1985 and 1986 is to a large extent the story of how a crisis in the cotton sector has negatively affected virtually all key sectoral and macroeconomic variables. As a resul,t,.,Chadianshave been forced to grapple with an economic crisis of unprecedented magnitude, at a time when the country is still recovering from the effects of drought and war. In 1984, and with moderate variation in preceding years, the cotton industry generated about 20 percent of Government budgetary revenues and 60 percent of total export earnings (almost 75 percent of earnings from merchandise exports) as indicated below:

Budgetary Export Industrial Credit to Revenues Earnings Turnover Private Sector (in billions of CFAF)

1984 Total 14.8 73.0 64.0 45.9 of which: cotton 2.7 42.4 42.5 18.0

1986 Total ./ 14.2 50.4 42.3 75.0 of which: cotton 0.0 14.7 17.2 42.8

The sector provided cash income and employment for an estimated 650,000 farmers and industrial workers, while the sales of COTONTCHAD, the mixed-ownership cotton enterprise, represented two-thirds of Chad's - 15 -

industrial turnover. By the end of 1984, COTONTCHAD had also absorbed almost 40 percent of all domestic credit to the private sector, a figure which would rise as the financial crisis deepened.

27. The roots of the cotton crisis are both exogenous and endogenous. The collapse of prices (see Annex 2) coincided with the ballooning of COTONTCIiAD'sproduction expenditures resulting from poor financial and administrativemanagement. Favorable world market prices in 1983/84 led to an unprecedented 9 percent increase in world cotton acreage in 1984/85. Record yields then produced a world supply totalling 19 million tons of cotton fiber for an estimated world demand of 15.1 million tons. Of particular importance was the emergence of China -- until recently a net importer of cotton -- as a major exporter on the world market. By mid-1986, world stocks had risen to about 10 million tons -- or two-thirds of annual world consumption (see Chart 3). China held nearly half of these stocks. This market disequilibriumled to the sharpest decline ever recorded in the world cotton price: from a peak of US$1.9^/kg in mid-1984 to US$1.34/kg in mid-1985, bottoming out at US$0.83/kg in mid-1986. 12/ Given the level of world stocks, full price recovery is expected to take time, reaching into the next decade. However, the outlook for 1987-88 is significantly better than anticipated less than a year ago. In late 1986, prices began recovering faster than had been expected bv cotton market analysts, reaching more than US$1.40/kg in early 1987 -- rather than the US$1.10/kg predicted six months earlier (Chart 4). The upward movement has continued with prices climbing to US$1.70/kg by mid-1987.

28. Depreciation of the US dollar in 1986 exacerbated the decline in cotton prices in CFAF terms, so that COTONTCHAD's export price fell from a peak of over CFAF 850/kg in 1984 to less than CFAF 300/kg in early 1986, This coincided with a period of lax financial management which led to a rapid escalation in average production costs (see Chapter III, Section A). These costs increased by 70 percent in nominal terms between 1982/83 and 1984/85 -- years with similar levels of production. With average costs of over CFAF 1,100/kg in 1984/85 and an average market price of only about CFAF 430/kg, COTONTCHAD sustained an operating loss of CFAF 18.1 billion (US$41 million) in 1984/85, followed by a CFAF 23.3 billion (US$67 million) deficit in 1985/86. The company was unable to service its considerable short-term debts or fulfill its fiscal obligations, and the continuation of operations in the cotton sector was suddenly thrown into question.

29. The complete collapse of the sector as a result of these developmentswould have had extraordinarilyharsh economic and social consequences, including an abrupt decline in rural income, increased unemployment, paralysis of the banking system, and losses of both Government revenues and export earnings. Faced with this bleak scenario, the Government, in cooperation with the donor community, acted swiftly to implement an emergency program (described in Chapter III) to support the

12/ Unless otherwise specified, all references to world prices in this report are for the "A" index, Middling 1-3/32 inch quality, CIF North Europe. - 16 -

cotton industry through a period of adjustment, thereby allowing the continuation of cotton operatlons and banking activities in the short-term.

30. It is against this backdrop that one must assess recent economic developments in Chad. The task is made more difficult by a lack of information on certain fundamental aspects of the economy. Basic data with respect to population, GDP, prices, and investment are either completely lacking or very sketchy, making it extremely difficult to assess real growth and social welfare at the macro level. However, using sectoral and micro-level analyses to supplement macro-level estimates, one can paint a reasonably reliable portrait of an economy struggling to overcome the latest in a series of obstacles to its lohg-run development.

B. The Public Sector

1. Overview of Revenues and Expenditures

31. Chad's public sector is small relative to the size of its economy, and has declined as a proportion of GDP in recent years. In 1977, total revenues of the ~entralGovernment amounted to about 9 percent of GDP while total expenditures represented 11 percent. These figures had dropped to approximately 6.0 and 8.6 percent, respectively, by 1986, and the deficit reached a new peak at 2.6 percent of GDP -- not a particularly alarming figure until one realizes that it represented more than one-third of government revenues in that year. 13/ The small size of Government operations is a consequence of the recent establishment and limited resources of the administration, It also reflects the Government's preference for a liberal economy, where the public sector serves as a complementto -- rather than a substitute for -- private sector activity. On the positive side, the reduced size of Government operations should help Chad to shape an efficient, streamlined administration and avoid subsidy schemes (e.g., for parastatals or consumer goods! 4htlchhave drained Government resources in other countries.

32. In absolute terms, both revenues and expenditures increased througlhoutthe 1°83-85 period, until the impact of the cotton crisis led to a retrenchment in 1986. In the previous year, 1985, the fiscal system had been unaffected by the emerging financial crisis in cotton. In fact, export revenues, swollen to CFAF 3.4 billion by the delayed export of the exceptional 1984 cotton crop, helped total revenues to increase to a record CFAF 21 billion (see Table 1). Expenditures increased more slowly, reducing the fiscal deficit from CFAF 5.6 billion in 1984 to CFAF 3.9 billion in 1985. As in previous years, the deficit was financed partly through the accumulation of arrears, and, in larger part, through external budget support (see Appendix Table 22).

13/ The fiscal accounts presented in this report record only a portion of actual transactions. The actual fiscal deficit is presumed to be significantly greater, predominantly du2 to unrecorded military outlays. WORLD COTTON PRODUCTION, CONSUMPTION, AND STOCKS, 1980-1986 20 1 LEGEND

CONSUMPTION

16 _ -PRODUCTION

CHINASTOCKS

14- W4-_ . |WORLD STOCKS

F-~~~~~~~-

80 81 82 83 84 85 86 Year I

I WORLD COTTON PRICE, 1980-87 2.50.._.. LEGEND

2.25 -- AC

2.00- _ESIATE

1.75-. E

O1.50-

1.5 0~~~~~~~18 .00-

1.7

Year i N4 a I - 21 -

Table 1 - CentralGovernment Consolidated Operations, 1983-86 (billionsof CFAF)

1983 1984 1985 1986

Total Revenues 1/ 8.5 18.3 21.3 16.8 of which: tax revenues- 6.5 14.8 17.2 14.2 of which: export duties 0.3 2.7 3.4 0.1

Total Expenditures2/ 13.2 23.9 25.2 24.3 Salaries3/ 6,6 6.3 8.2 9.5 Military - 2.1 9.0 9.4 8.4 Goods and services 3.3 2.4 4.5 2.7 External debt service - 0.0 0.1 1.8 1.4 Other 1.2 6.1 1.3 2.3

Deficit(on a commitmentbasis) -4.7 -5.6 -3,9 -7.5

1/ The consolidatedaccounts of the Governmentinclude the operationsof the CAA. 2/ Capitalexpenditures financed with domesticresources were insignificant in the 1983-86period. 3/ In addition,there are large militaryexpenditures which are externallyfinanced and do not appear in the Government'sbudget. 4/ Including1986 paymentsfor the settlementof arrears. Does not include paymentsmade by the BEAC directlyto the IMF.

Source: AppendixTables 17 and 22.

33. The 1986 budgetwas based largelyon the resultsof the 1985 exercise,and did not foreseethe completeloss of cotton revenuesfor both the Treasuryand the AutonomousAmortization Fund (CAA)which is responsiblefor servicingthe externalpublic debt. This loss led to a 21 percentdecline in total revenues,reversing the growth of the past two years and producinga 90 percentincrease in the fiscaldeficit. The urgentneed to finance the CFAF 7.5 billiondeficit was met with exceptionallevels of externalbudget support.

2. Controllingthe FiscalDeficit

34. During 1986,COTONTCHAD was absolvedof all fiscalobligations in the medium-termas part of the EmergencyProgram. Therefore,the challenge for the Governmentin the near futureis to controlthe fiscaldeficit (in the absenceof cottonrevenues) by trimmingexpenditures, which are already exceedinglylean, or generatingadditional revenues through improvements in the fiscalsystem and tax administration.It is clear that on the expenditureside, there is littleroom to maneuver,because revenues are insufficientto cover even the most basic currentexpenditures. Public investment,estimated at CFAF 30 billion in 1986, is entirelyfinanced throughexternal assistance, as is a significantportion of the associated - 22 - recurrent costs. 14/ Nor does the Central Government subsidize the parapublic sector in any way, barring the possibility of compressing Government expenditures in this area. 15/

35. Military outlays and salaries are the largest budget items. The former Is highly unpredictable and unlikely to be significantly reduced soon; the latter (salaries) is difficult to compress from its present level. With the reestablishment of the administration and the resumption of normal Government activities in 1982, the number of civil servants increased quickly, and has remained between 20,000-23,000 since early 1985 (see Appendix Table 37). This reflects, in part, the Government's strong support for a policy of national reconciliationwhich guarantees positions to former civil servants wishing to reenter the administration. The Government wage bill totalled CFAF 8.2 billion in 1985 and CFAF 9.5 billion in 1986 (Table 1). Civil servants are still being paid only 60 percent of the salary scale adopted in 1967. At 60 percent, salaries currently range from CFAF 7,200 to 126,000/month (or US$21-360/month),and the mean salary in 1985 and 1986 was approximately CFAF 38,000/month (around US$100/month). By way of comparison, this mean salary is only 40 percent of the average for employees of Chad's five major industries, and is roughly equivalent to the lowest, entry-level salary in Senegal's civil service in 1985. 16/ Although salaries are low, the Government has not been able to finance the entire wage bill, and, in several instances, wages have been delayed for months at a time while awaiting disbursement of external budget support. There continues to be strong pressure for growth in the civil service, but because of financial constraints, the overall wage bill cannot increase significantly in the near future.

36. Expenditures on goods and services are also extremely compressed, as evidenced by the generalized lack of basic equipment and supplies (e.g., desks, chairs, paper, simple office machines) in Government offices. After reconstruction of,Chad's external debt records in 1983, the Government has attempted to service a growing proportion of the debt due and avoid further arrears. However, a lack of resources has thus far prevented the CAA from servicing the full amount of debt due. Actual payments were only US$4.1 million out of a scheduled US$6.1 million in 1985 and US$2.2 million

14/ See Chapter VI for a discussion of the public investment program and external assistance.

15/ The parapublic enterprises are discussed in Chapters ITT-V dealing with the sectors and in Chapter VI, Section D, under the heading "Economic Management".

16/ Wage distribution appears to be more skewed in Chad's industrial sector than in the administration, however. Several industries have wage scales reaching as low as about 10,000 CFAF/month for semi-skilled laborers, and surpassing 400,000 CFAF/month for mid-level Chadian managers. - 23 - out of a scheduledUS$6.8 million in 1986. 17/ The CAA also made a payment of US$1.9million to settlearrears in 1986. Althoughthe Governmenthas activelynegotiated cancellations and re8chedulingsof debt serviceand arrears,the CAA will be responsiblefor scheduleddebt serviceon existing loans which is expectedto rise from about US$7 millionin 1987 to more than US$13 million in 1989, placingadditional pressure on the Government to find new revenuesources,

37. Until 1986, between55 and 60 percentof Governmenttax revenues were derivedfrom internationaltrade, especially import duties. The loss of cotton exportduties in 1986 reduced this figure to 45 percent,with the bulk of the remainingtax revenuescoming from "unitary"and turnovertaxes on goods and services,and from the personalincome tax. 18/ The search for additionalrevenues, particularly in the wake of the cotton crisis,has run up againstcertain weaknesses in the fiscalsysteut. First, ic rests on a narrow,undiversified base, for which the yield is reducedby inadequate tax administration.Second, the Governmenthas only a limitedcapacIty to analyzethe economicand socialimpact of fiscaloptions -- a factor leadingto a ratherunintegrated, ad hoc systemof taxation. Often3 this systemproves too cumbersomeand complex,or too distortionary,causing consumption-switchingtoward smuggled goods, which createssignificant disincentivesto domesticproduction. and/or to marketingthrough official channels. This, in turn, undercutsthe ve,.yrevenues the Governmentseeks to tax. Accordingto the directorsof Chad'smajor industries, consumption-switchingto smuggledgoods has been a particularlyserious problem in the manufactureof cigarettes,soft drinks,sugar, oil and soap. Chad faces an inevitableconflict between the need for Governmentrevenues and the need for undistortedmarkets in a countrywhere permeableborders permit a steadyflow of free-market,smuggled goods. The sectorsin which tax mechanismsare particularlycumbersome and/or the tax burden is extremelyheavy are generallyhighly visible sourcesof revenue,such as livestockmarketing, petroleum marketing and manufacturingindustries.

38. With the loss of cotton revenues,the Governmentestablished i"supplementary"unitary taxes on severalkey industries(cigarettes, beer, textiles)to bolsterCAA's revenuesfor debt service. It is too early to assess the impactof these taxes,which enteredinto effect in October 1986, but local heads of industrypredict that the increasein consumer prices (whichgenerally reflects 100 percentof the tax under Chad's system of "prix homologu6s")will encouragegreater consumption of untaxed,

17/ This does not includeadditional debt servicepayments of approximatelyCFAF 1.0 billionper annum made directlyby the BEAC to the IMF. Beginningin 1988, the CAM will assumeresponsibility for all IMF paymentsas well.

18/ The unitary tax functionsas a tax on industrialproduction which grants industriesexemptions from customsduties on importedinputs. - 24 - smuggled goods, thereby reducing sales of domestic production. 19/ This would exacerbate the recessionary impact of the cotton crisis, which has reduced domestic purchasing power. The Government urgently needs additional sources of revenues, but it must try to broaden the tax base to the greatest extent possible and improve yields. This, in turn, requires increased capacity to analyze fiscal options and to administer the resulting taxes. The potential for improving the fiscal situation is further discussed in Chapter VI.

C. The External Sector

1l Overview of the Balance of Payments

39. Chad has experienced trade deficits throughout the 1980's, the Tvagnittudec.f which are determined largely by cotton exports. In 1984, Chad had exceptiorally high export earnings and registered only a modest trade deficit due to the record production of cotton and a strong world market for cotton fiber. The following year, with lower production and collapsing market prices, cotton export earnings were halved and total export earnings on goods dropped by one-third. If livestock exports -- for which no 1977 data are available -- are excluded, 1985 export earnings only reached approximately the same nominal level as in 1977. Continued difficulties in the cotton sector in 1986 led to further decline in export earnings. At the same time, the value of imports increased by almost 40 percent in 1985 to more than CFAF 80 billion, and were only partially cut back -- to about CFAF 70 billion -- in 1986. As a result, the modest trade deficits of 1983 and 1984 grew into a large deficit in 1985, which only marginally improved in 1986 (see Table 2). At the same time, payments for non-factor services skyrocketed, predominantly because of services associated with oil exploration. Chad's current account, which had also registered relatively modest deficits in the 1982-84 period, recorded a deficit of CFAF 60 billion (US$130 million) in 1985. This deficit was equal to almost one-fifth of,estimated GDP for that year. Despite substantially increased disbursements of development assistance (both grants and loans), as well as US$54 million in direct investment by the ESSO oil company, net reserves were drawn down -- for the first time since 1981 -- by CFAF 11 billion (US$32 million).

19/ "Prix homologu6s'"are Government price ceilings based, in principle, on production costs plus 7 percent profit margin. Establishment of 2 rix homolo&u6s is slow and often does not keep pace with rising costs. In establishing new taxes, the Government sought to protect industries by increasing the prix homologugs by the full amount of the tax (except for textiles). However, passing 100 percent of the tax on to consumers may lead to switching in favor of smuggled goods. Fiscal questions aside, it is difficult to see the value of price ceilings if, in fact, smuggled goods are continually placing downward pressure on domestic prices. - 25 -

Table 2 - Balance of Payments, 1983-86 (billionsof CFAF)

1983 1984 1985 1986

MerchandiseBalance (net) -6.7 -2.7 -43.6 -37.2 Non-factorservices (net) -18.8 -23.7 -57.1 -45.0 Factorservices (net) -2.4 -3.6 -2.4 -3.2 CurrentTransfers (net) 21.3 21.4 42.3 23.9

CurrentAccount Balance - 6.6 -8.6 -60.9 -61.4

Officialcapital grants 11.9 12.1 20.9 42.9 Medium- aiidlong-term lending (net) -0.7 -0.5 6.3 6.2 Direct investmentand other capitalflows -1.4 5.5 22.8 5.1

Change in Net Reserves 3.2 8.5 -10.9 -7.2

Memo item: cottonexports (22.5) (42.4) (19.8) (14.7)

Source: AppendixTable 15.

40. In 1986, the currentaccount deficit equaled that of the previous year, but disbursementsof capitalgrants more than doubled. Despitea reductionin direct investmentby ESSO, the draw-downin reserveswas reducedto CFAF 7.2 billion (US$21million), but Chad'sofficial reserves equaledonly about one month of merchandiseimports by the end of 1986. Direct investmentfor oil explorationwas almost fully disbursedin 1986, so that furtherimprovement in the balanceof paymentsdepends in large part on recoveryin the cottonsector and/or diversification of exports,as well as on continuedhigh levelsof aid flows to Chad.

41. The sharp declineof world cottonprices and the weakeningof the value of the US dollar,in which the bulk of this commodityis traded internationally,accentuated the pressureon Chad'sbalance of paymentsin recentyears. Until 1986, domesticinflation (estimated unofficially at 5-10 percentper annum),contributed to this pressure. A number of countrieswith fixed exchangerates like Chad have dealt with this problem by placinga surtaxon importsand using its proceedsto help finance exportsubsidies. This is not as urgentor clear-cuta choicefor Chad. Cottonprices have been recoveringfaster than anticipatedand two consecutivegood cereals'harvests have contributedto bringingabout a generaldecline in the price level. Furthermore,existing tariffs and very high transportcosts alreadytend to counteractany bias towardimports, which, throughofficial channels, are largelylimited to importsessential for growth. Under these conditions,an importsurcharge would only raise the economy'soverall cost structurewithout the benefitof encouraging importsubstitution. The effectivenessof an importsurcharge would be furtherconstrained by the permeabilityof Chad'sexternsive frontier. Given the predominanceof cotton in merchandiseexports, at a price which is determinedoutside of Chad, and in view of the limitedpotential for manufacturedexports, the impactof exportsubsidies to promoteexports - 26 - would be marginal. An export subsidyon cottonwould only improvethe cash positionof COTONTCHAD,with little impacton farmers'income, while financingit throughan import surtaxwould run the risk of stimulating smugglingand seriouslyreducing imports through official channels. Althoughany improvementin COTONTCHAD'sfinancial situation is desirable, it would be difficultto argue for an importsurtax/export subsidy strictly on that basis, and withoutfurther study, consideringthat COTONTCHAD's productioncost structureis favorablecompared to other Africanproducers (see para. 88).

2. IncreasingFlows of ExternalAssistance

42. A look at aid flows in the recentpast revealsa significant shift in the compositionof externalassistance to Chad. Followingthe 1984/85drought, Chad enjoyedtwo years of bountifulharvests, as well as growingpolitical stability in the South. This permitteda shift away from emergencyoperations towards longer-range development planning, and, in parallel,a shift away from emergencyfood aid towardsdevelopment assistance(see Chart 5). Budgetsupport has also increasedin responseto the impactof the cotton crisison public finances. This trend is expected to continuein 1987,with 85 percentof estimatedaid flows being in the form of developmentassistance for projects,and 12 percentas budget support. Of equal importance,the volume of disbursementsis expectedto increasefrom about CFAF 52 billion (US$115million) in 1985 to an estimatedCFAF 77 billion (US$250million) in 1987, raisingper capitaaid from about US$23 to US$48 over the two years (seeAppendix Table 18). 20/ This would boost Chad above the per capitaaverage for low-income Sub-SaharanAfrica, but it is still quite low for a countryas poor as Chad, with such criticalpost-war reconstruction needs.

43. In the 1983-85period, project assistance was concentrated(in descendingorder) on human resourc&A(especially health), agricultural development,and infrastructure.In 1986, the urgentneeds of the cotton industryboosted commitments to the industrialsector. In terms of sector disbursements,however, infrastructure development (mostly roads) was the highestpriority, followed by agricultureand rural development,industry, and health (see AppendixTable 19).

44. All of Chad'sexternal assistance in the past decadehas been on concessionalterms. However,1986 saw a significantincrease in the proportionof loans comparedto grants-- an increasewhich is likelyto be maintained. In the 1983-85period, with its emphasison emergency assistancefor health and nutrition,loans representedonly 9 percentof disbursements.In 1986, witb the shift towardsproject assistance, the resumptionof World Bank lending,and the need to targetrelatively large sums of money on the cotton sector,loan commitmentsincreased dramatically,although loan disbursementslagged behind, equaling only

20/ It shouldbe recognized,however, that these 1987 disbursement projections,which are based on donor surveys,may prove to have an upwardbias. COMPOSITION OF EXTERNAL ASSISTANCE, 1985-87 200 -- L-EGEND

180 - _ t t FOODAIDE

BUDGETSUPPORT

160 [II] DEVELOPMENTAID

140

> 120

° 100-l

> 80 _

60-

40- _

rt

20+

1985 1986 1987 * Year e 1987 oatimatea biaed on aurvey of donOr. I - 29 - about 14 percent of total disbursements. This figure, however, is expected to rise to as much as 33 percent in 1987. Although these loans are concessional, their impact on Chad's future debt service will not be negligible.

3. The Burden of External Debt

45. By the end of 1986, Chad's public and publicly-guaranteeddebt outstanding and disbursed (DOD) stood at about CFAF 71 billion (US$206 million), equivalent to 25 percent of estimated GDP. Over three-quarters of this debt is on concessional terms, with two-thirds owed to multilateral creditors and one-third to bilateral donors. The remaining, non-concessional loans are split fairly equally among suppliers' credits, private financial institutions, and certain bilateral creditors (most notably, Kuwait); and all predate the conflict of 1979-82. Before the conflict, the terms of lending to Chad hardened as risk increased, and Chad's creditworthinessprogressively became -- and has remained -- insufficient to tap private financial markets. In the 1983-85 period, the degree of concessionality returned to the level of a decade earlier, with a grant element of about 50 percent. However, the volume of new commitments was exfremely low, averaging less than US$10 million per annum. This reflected two factors: (i) lending from oil-exporting nations and institutions had tapered off; and (ii) official creditors hesitated to resume lending to Chad. With the resumption of World Bank lending in 1986 and increased lending from France, new commitments returned to their pre-1977 levels of around US$40 million per annum.

46. Chad's actual debt service ratio in 1985 and 1986, based on the public and publicly-guaranteeddebt for which the CAA is responsible,was exceedingly low, at 3.3 percent and 1.5 percent, respectively (Table 3). Payments did not, however, cover the full amounts of scheduled debt service, and arrears were accumulated in both years. By the end of 1985, arrears stood at CFAF 25.4 billion (US$57 million), or about a third of debt outstanding and disbursed, a-. this total was reduced slightly, to CFAF 24.8 billion (US$72 million) in 1986 due to an arrears payment of about CFAF 650 million and the rescheduling of arrears owed to private sources in Europe. If one includes the payment of arrears, the debt service ratio in 1986 rises to 2.8 percent. In addition to debt service payments by the CAA, BEAC has made direct payments of approximately CFAF 1.0 billion per annum to the IMF, raising Chad's overall debt service ratio to around 5 percent in both years. Debt service of this magnitude will continue to be paid to the IMF in coming years, but the obligation will be transferred to the CAA, beginning in 1988. Overall, Chad will face scheduled debt service on existing loans of between US$10-13 million per annum in the 1987-89 period, or nearly twice what the Government has been able to pay in the past two years. Although the debt service ratio -- at 5-7 percent -- will remain low by most standards, it represents a heavy financial burden for the Chadian Government. Debt service of US$10 million is about 15 percent of expected Government revenues in 1987, and this does not yet begin to address the settlement of existing arrears. - 30 -

Table 3 - Debt and Debt Service,1985-86 (millionsof US$)

1985 1986

Debt outstandingand disbursed(DOD) 155.2 206.2 includ.undisbursed 226.3 320.7 DOD/GDP (%) 24.5 25.1 Accumulatedarrears 56.5 71.8

Scheduleddebt service,exclud. arrears and IMF payments 6.1 6.8 Actual debt service 4.1 2.2 Debt serviceratio (%) 3.3 1.5

Settlementof arrears 0.0 1.9 Debt serviceratio, includ.arrears payments (%) 3.3 2.8

BEAC paymentsto IMF 2.4 2.9 Debt serviceratio, includ. arrears and IMF payments(%) 5.2 4.8

1/ Debt serviceas a proportionof exportearnings on goods and services.

Source: AppendixTable 17.

47. The Governmenthas a two-prongedapproach to debt management. First,negotiations are continuingwith certaincreditors for the cancellationor reschedulingof existingdebts. In 1983, two major bilateralcreditors, France and the FederalRepublic of Germany,cancelled debts amountingto CFAF 5.3 billion (US$13.8million) and CFAF 2.2 billion (US$5.8million), respectively. Second, the Governmentrelies on the CAM to collectrevenues, not includedin the Governmentbudget, with which to servicethe externaldebt. CAA revenuesconsist predominantly of unitary taxes on manufacturE.dgoods and taxes on the profitsof variousindustries, banks,and specialfunds (e.g. Sugar Fund, PetroleumFund). These revenues totalledCFAF 1.6 billion (US$4.6million) in 1986, includingthose from new taxes imposedin Octoberto help compensatefor the loss of cotton revenues. With these additionaltaxes, and, in particular,the strengtheningof CAA's capacityfor tax administration,the Government expectsCAA's revenuesto more than double in 1987, to CFAF 3.9 billion (US$12million). It is not clear whetherCAA will be able to achieve this optimisticprojection -- which rests heavilyon the taxationof goods and services-- particularlywhen the economyis sufferingfrom the recessionaryimpact of the 1986 cottoncrisis. However,results from the first half of 1987 are encouraging:CAA collectedCFAF 1.7 billionin revenues,or more than 40 percentof their annualtarget.

D. Macroeconomicand SectoralGrowth

48. In using estimatesof GDP to measuregrowth in the Chadian economy,it is importantto recognizethe limitationsof the methodology used and to interpretthe resultswith caution. Since 1977,value-added - 31 - has been calculated based on changes in production volume, using fixed input-output ratios which were established, for the most part, in 1973. These input-output ratios, as well as the weighting of sub-sectoral components within a sector, may have changed significantly since then as a result of technological change or other factors. In addition, Chad has no Inflation index; as a working hypothesis, inflation is assumed to have been 8-10 percent per annum in the 1978-83 period, and is estimated using extremely limited information on prices thereafter. In this respect, nominal GDP has an additional aspect of uncertainty relative to real GDP. Despite these limitations, the available GDP estimates can be used to assess aggregate changes in the volume -- and less reliably, the value -- of output in the Chadian economy. Interpretation of the estimates can be cross-checked and supported through examination of sectoral and subsectoral production figures.

Table 4 - Gross Domestic Product and Output by Sectors, 1983-86

Gross Domestic Product 1983 1984 1985 1986

Nominal (billions of current CFAF) 223.9 224.2 298.7 283.0

Real (billions of 1977 CFAF) 133.5 125.8 162.3 158.5

Primary sector 62.2 46.7 74.3 73.0 Secondary sector 23.4 29.5 29.8 28.2 Tertiary sector 47.1 48.8 57.3 56.4 Indirect taxes 0.8 0.8 0.9 0.9

Production

Agriculture Cotton (000 MT) 158 98 99 89 Cereals (000 MT) 453 346 739 726 Livestock (millions of head) 10.4 8.6 9,1 9.3

Industry Cotton Fiber (millicns of MT) 38 60 36 39 Cooking Oil (000 hectoliters) 79 88 112 77 Sugar (000 MT) 2228 25 24 Textiles (millions of meters) 13 14 16 15 Beer (000 hectoliters) 121 135 152 124 Cigarettes (millions of packs) 8 15 15 12

Services I/ Transport - (000 MT) n.a. 162 152 105

Electricity consumed (millions of kwh) 35.4 37.3 43,7 48.3

Source: Appendix Tables 1 and 9

1/ By CTT, the Chadian truckers' cooperative. - 32 -

49. In 1983, the record cotton crop, combined with an initial surge of industrial recovery, allowed real CDP to grow by 5-6 percent. This growth was completely reversed in 1984 due to the severe impact of drought on foodcrop production and livestock. Recovery and growth in industry and construction were impressive, however. Chad's remarkable rebound from the drought -- with cereals production more than doubling -- led to 29 percent growth in real GI)Pin 1985, despite the downturn in the cotton industry. This growth allowed real GDP to surpass, for the first time, its peak 1977 level, with nominal GDP estimated at CFAF 299 billion. However, real growth was reversed in 1986 as the direct and indirect effects of the cotton crisis were felt, particularly in the industrial sector, where production in all major industries except COTONTCHAD declined by 5-21 percent. The negative impact of the cotton sector was mitigated by another excellent cereal harvest (despite a slight decline in production attributable to localized locust damage) and continued reconstitution of the livestock herd. Overall, the decline in real GDP was limited to 2 percent, while nominal GDP dropped to CFAF 283 billion, as a result of an estimated 3 percent decline in prices in the economy. This deflation reflects the sharp drop in cereals prices, as well as the downward adjustment of the economy to the cotton crisis. Losses of income and the limited availability of credit have constricted demand, placing downward pressure on prices to re-establish market equilibrium. The decline in real GDP, in conjunction with estimated population growth, implies that real per capita income dropped by 5 percent in 1986. However, official population estimates are open to question, being based on a 1964 survey and a 1968 administrative census, with no adjustments for the effects of war or drought. Nonetheless, even if Chad's population were 4 million, as opposed to the official figure of 5 million in 1985, nominal per capita GDP in both 1985 and 1986 would be between US$100 and 200 -- clearly placing Chad among the lowest income countries.

50, Little can be said about consumption and savings levels in the recent past because of the lack of data on public and private investment. Donor surveys conducted in preparation of the 1987 Public Investment Program -- Chad's first such program in over a decade -- permit an estimation of public investment of around CFAF 26 billion in 1986. Along with estimated private investment, gross investment is estimated at around CFAF 30 billion, or around 65 percent of total aid disbursements. Gross domestic savings were highly negative implying aggregate consumption well in excess of GDF and per capita consumption of around CFAF 66,300 (US$192). (See Table 5). Taking a similar ratio of gross investment to aid disbursements in 1985, per capita consumption is estimated at CFAF 72,700. It should be noted, however, that these figures for savings and consumption are merely indicative, resting on very rough estimates of public and private investment, as well as on questionable estimates of Chad's GDP and population, as noted above. - 33 -

Table 5 - Investment, Savings, and Consumption, 1985-86 (billions of CFAF)

1985 1986

GDP 299 283 Net imports 83 87 Available resources 382 370 Gross investment 18 30 Gross domestic savings -65 -57 Constumption 364 340 Consumption per capita (CFAF) 72,700 66,300

E. Money and Credit

51. Growth and diversification of the economy have been inhibited in recent years by the limited financial resources of the banking sector. On the surface, the situation appears favorable -- although money supply has increased quite rapidly: in the 1982-85 period, it grew at an average annual rate of 27 percent, while growth of domestic credit averaged 18 percent per annum. The proportion of credit to the Government, which was approximately 25 percent in 1982-83, has been reduced, both in absolute terms and proportionally, to less than 9 percent in 1985 and 1986 (see Appendix Table 27). Although more than 90 percent of credit has been extended to the private sector, two factors have diminished its impact on the economy: a moratorium on all credits and deposits prior to 1980, and the dominance of lending to COTONTCHAD in the overall credit portfolio.

52. The Government imposed a five-year moratorium, which will end in December 1988, freezing all deposits and credits outstanding prior to 1980. The purpose was to prevent a run on capital when banks re-opened in 1983, as well as ease the financial burden for borrowers, many of whom had assets destroyed in the conflict. Initially, frozen credits dominated the banks' portfolios, but as new credits were extended, the proportion dropped to three-fourthsby the end of 1984 and to one-half by the end of 1985 (see Appendix Table 30). Similarly, the proportion of frozen deposits declined to about 40 percent by end-1985, due to new deposits as well as the unfreezing of certain existing deposits.

53. The aggregate impact of the moratorium is difficult to assess. Certainly, the magnitude of frozen credits implies limited turnover of capital, reducing credit availability for the private sector. In addition, some entrepreneurs are unable to withdraw their frozen capital for investment or operations. However, the amount of frozen credits is more than twice that of frozen deposits, and has served to protect certain entrepreneurswho would otherwise be unable to service their debts -- either because assets were destroyed or, as in some instances, because the business was in financial straits prior to the conflict.

54. Government and banking officials have begun planning for the end of the moratorium. They were reassured by the recent unfreezing of certain deposits that the lifting of the moratorium will not trigger massive capital flight from Chad. The other concern is that investors may not - 34 - returnto Chad becauseof the accrualof substantialinterest arrears on their debts,and that many other borrowersin Chad will still not be in a positionto servicetheir debts. Althoughthe commerclalbanks are willing to renegotiatethe terms of these loans, the BEAC is requiredunder its statutesto receivefull interestpayments on rediscountedcredits, which make up the vast majorityof frozencredits. The commercialbanks fear they will be squeezedbetween a large contingencyof defaultingdebtors and a demandingCentral Bank -- at a time when the bankingsector will not have fully resolvedthe problemof cotton credit. BEAC, however,is unlikelyto insiston paymentswhich would provokethe collapseof Chad'scommercial banks.

55. The creditportfolios of Chad'sbanks are overwhelmingly short-termand dangerouslyundiversified. By mid-1986,almost 90 percent of the claimson the privatesector were short-term,and more than 70 percentof this was extendedto COTONTCHAD. Overall,COTONTCHAD claimed 64 percentof all credit to the economy;with the additionof the other four major industries,this figurerises to 72 percent. This situation reachedcrisis proportions in late 1985 and earlv 1986 when COTONTCHADfell into arrearson its short-termcredit. The story is revealedclearly by the banks'balance sheets: in mid-1984,short-term credit to the economy began to expand quickly,reaching CFAF 65 billionby mid-1986. Virtually all of the creditextended to COTONTCHADwas in the form of rediscounted creditsfrom BEAC, and this creditpermitted a level of industrialand consumerimports which drainedBEAC's exchange reserves rapidly. By mid- 1986, these reserveshad plungedto almostzero, and Chad's overallnet foreignassets dippeddangerously low (see Chart 6 and AppendixTable 28). Operationsin the bankingsector ground to a halt as COTONTCHADfell into arrearson CFAF 44 billionin short-termcredit.

56. In late 1986, the regionalBEAC negotiateda reschedulingof roughlythree-fourths of this debt, on terms permissibleunder its statutes: a maturityof ten years,plus five years'grace and an interest rate -- after two years' grace -- of 6 percent. Althoughthis arrangement may prove to be an interimsolution, given COTONTCHAD'sexpected financial difficultiesin the medium-term,it does positivelyaffect the attitudeof the regionalBEAC towardsfurther lending to Chad. In fact, an interim solutionto the arrearsproblem was a de facto prerequisitefor approvalof new crop creditneeded for workingcapital in the cotton sector. This solutiondoes not, however,reduce the exposureof the commercialbanks or directlyimprove credit availability in the economy.

F. GovernmentActions to Rebuildthe EconomY

57. The Government'sfirst task in the post-warperiod wac to reestablishnormal administrative and public serviceactivities through the reintegrationof formercivil servantsand the hiring of "temporary" employees. A difficultrehabilitation of the payrollservice was accomplishedwithout external technical assistance, and whereascivil servantswere paid only once in 1982, the situationgradually improved, so that in 1983, fairly regularpayments were being effectedin N'Djamenaand some of the provinces. By 1986, wages were being paid regularlythroughout the country,although with occasionaldelays. Tn early 1987, the proportionof pre-warsalaries actually being paid was increasedfrom 50 to WORLD COTTON PRICE, SHORT-TERM DEBT OUTSTANDING TO COTONTCHAD AND NET FOREIGN ASSETS OF THE CENTRAL BANK, 1984-86

45- -180 LEGEND

40-_ -170 - DEBT

354 ./160 ASSErS

PRICE 30-_ 150

25+ -140 c_>

02 o2t0o m- T130 UU, 0 ~~~~~~~~~~~~~~~~~~c>

1 5 t X t 120

10- 110

5-- 100

0 90 0

-5- I I I i I 80 9/84 12/84 3/85 6/85 9/85 12/85 3/86 6/86 Month and Year Io

I,)~~~~~~~~~~~~Q - 37 -

60 percent, except for those civil servants at the rank of director or above, and the police, who have received 100 percent of their salaries for the past several years. In 1986, the Government halted the hiring of ""temporary" employees and began a census of civil servants which will permit better financial management of the pay-oll service.

58. The Government is relying on the development or the Controle d'Etat to monitor public sector financial management. The Contrale d'Etat is an auitonomousauditing unit directly attached to the Presidency. It performs audits and investigationsat the request of the President, providing ex post control over the operations of public agencies and enterprises, carried out on either a random basis or when there is a probability of impropriety. In recent years, it has performed this task to considerable effect, thereby acting as a major deterrent to public fraud and the misuse of public funds. While in some countries an autonomous audit agency has become overly powerful to the point of encumbering the work of the Ministries, this situation is unlikely to arise in Chad, given the small size of the Controle d'Etat.

59. In 1983, the Ministry of Finance produced its first Central Government budget in four years. The budgeting process has since improved, and in 1986, a nomenclature was adopted which will allow more effective management of revenues and expenditures. In addition, in 1984 and 1985, the Government introduced certain measures to improve tax administration, including the reorganizationof N'Djamena into three tax inspection areas, the creation of a tax enforcement team, the establishment of tax offices in secondary cities, the creation of tax control records for the largest tax-paying enterprises, and improved coordination among relevant administrative services.

60. A ministerial restructuring took place In April 1986, leaving twenty-one functioning ministries. The Government's structure has always reflected its pragmatic, issues-orientedapproach, as evidenced by the creation of the Ministry for the Campaign against Natural Disasters (the MLCCN, now called the Ministry for Food Security) as well as the existence of a number of interministerialcommittees to grapple with issues such as the coordination of drought relief, negotiations with the IMF, and the crisis in the cotton sector. Given the relatively recent establishment of the admJnistration, and its severely limited resources, the Government has made remarkable strides in overcoming emergency situations and taking the first steps toward planning for long-term development.

61. In the aftermath of the 1984 drought, Chad has often been cited as a model for the effective use of food aid -- not just to meet emergency nutritional needs, but to resettle affected populations in productive areas and build assets through Food-for-Work schemes. This was possible only because the Government was receptive to innovative uses of food aid, and was determined to avoid the creation of refugee camps and a dependency on free distributions. The MLCCN worked closely with the international community to overcome exceptional logistical difficulties, and organized weekly meetings with donor agencies and NGOs to assess the progress of relief efforts. Similarly, the Government recognized the gravity of the impending crisis in the cotton sector and the lack of a "quick fix" solution. It has since worked diligently with COTONTCHAD, the principal - 38 - donors, and the banking (ommunity to develop and implement the emergency adjustment program for the cotton sector. t):,. IWile placing top priority on resolving crisis situations such as Vhose described above, the Covernment has also made considerableprogress in creating a healthv environment for the recovery of economic activity. Tii the hankinR sector, the Government was instrumental in the establishment of the 1983 moratoritumand the resumption of banking activities. It has taken ftillresponsibility for the settlement of damages and theft incurred by the Central Bank during the conflict, and is actively reconstructing financial records to determiniethe internal arrears sltuation. With respect to regional trade, Chad rejoined the Customs Union for Central African States (UDEAC) in 1984, with plans to progressively align customs duties with those of the other member countries by 1990 (see Chapter IV, para. 77). To encourage investment, the Government is revising the Investment Code, which was first introduced in 1963. Although the exact nature of the changes are still under discussion, key objectives are to increase the eligibility of small- and medium-scale enterprises (SMEs) for tax and customs incentives, and to develop stronger employment criteria for potential investors (see Chapter IV, para. 71).

63. Considerable efforts to cement relationships with the international community have been made as well. The Government has taken full responsibility for the financial obligations of previous administrations, and, in 1983-84, it conducted a survey of creditors to reconstruct external debt records. By the end of 1984, the CAA had developed a fairly complete picture of the debt situation, including the substantial arrears accumulated. At the same time, the Government worked to negotiate rescheduliig and/or cancellations with certain creditors and began servicing the deb. within the constraints of its limited resources.

64. In emergency situations, as well as in efforts to engage in longer-term development planning, the Government has worked closely and fruitfully with the donor community. In 1985, as the urgency of drought relief subsided, the Covernment produced, with the assistance of UNDP, an Interim Plan for 1986-88, which was presented to donors at a UNDP-sponsored Round Table Conference in December 1985. Although the Interim Plan fell far short of a full definition of sectoral strategizs and investment criteria, it was an impressive first step in the planning process, containing a thoughtful description and analysis of the macro and sectoral situation, as well as over 200 project outlines for further study. At the Round Table conference, the donor community pledged to help build the Government's capacity for development planning and investment programming, and to follow up the Round Table process with improved coordination of donor activities in Chad. To this end, the Government has recently prepared, with assistance from key donors, several sector meetings. The most recent, in December 1986, focused on the discussion of a new strategy document for the agricultural sector, and documents are currently under preparation for a transport sector meeting scheduled for late 1987.

65. The year 1987 also marks the Government's first attempts in more than a decade to prepare a Public Investment Program (PIP) and to initiate an investment programming process which will permit better coordination of external assistance and, eventually, better evaluation of the recurrent - 39 - co8t burden arising from public investments (Chapter VI). The planning and programming process is in a nascent phase, however, and the challenge for the Government in the next few years remains the precise definitioniof sectoral strategies and investment priorities.

C. Donor Support

66. A number of donor agencies and NGOs were active in Chad in the aftermath of the war. They provided valuable political and financial support to the Government -- often at considerable risk to themselves -- as it struggled to solidify administrative control of the country and reverse the most devastating effects of the fighting. In more recent years, they continued to respond positively to Chad's most urgent needs. The severity of the 1984/85 drought in Chad was recognized quite late, and there was little demographic information available with which to determine the location and the likely condition of affected popul&tions. It proved even harder to reach these affected populations, but the donor community surmounted incredible logistical difficulties in their largely successful relief operations. They rehabilitated certain roads and constructed a temporary pontoon bridge in order to create an access route for heavy trucks laden with food aid. They established regional radio contacts to facilitate the weekly coordinationof relief efforts, and they avoided a massive rural exodus and the creation of refugee camps, with the exception of one camp at Ati. Instead, they experimented with rural resettlement schemes in areas where cultivation was still possible (e.g., in the wadis), often using Food-for-Work incentives. These efforts contritbitedgreatly to the rapid rebound in agriculture following the drought.

67. Non-governmentalorganizations were particularly important in executing nutrition and health relief programs, and many have continued to function as models for, and extensions of, the Government's own public health and social welfare efforts. For example, the NGO, Medecins Sans Frcntieres (MSF), in cooperation with the Ministry of Public Health, has taken full responsibility in recent years for primary health care in over half the country. Now, because of abundant harvests and the Government's shift toward longer-term development planning, the donor and NGO community must continue to act responsibly to eliminate unnecessary food aid, tailor remaining programs to development needs, and work closely with the administrationto coordinate external assistance and transfer important management skills. 21/

68. Donor response to the cotton crisis was timely, as well, A number of donors cooperated to provide quick-disbursingfinancial support linked to the emergency adjustment program. They are continuing to work with the Government, COTONTCHAD, and the banking community to explore the options available for the cotton sector and develop an appropriate medium-term policy.

21/ For further information on the activities of NGOs, see Annex 2. 40 -

69. The donor community has been stupportiveof the Government's initial efforts to establish a long-term planning process and expand planning and implementation capabilities. The UNDP was instrumental in the development of the Interim Plan and the organization of the first Round Table Conference and is now financing a technical assistance project for the Ministry of Planning, to be executed by the World Bank. At the Round Table, the UN (UNDP and FAO) anclthe World Bank agreed to take the lead in coordiniatingexternal assistance and sponsoring meetings for the agriculture, cotton, transport, and energy sectors.

H. The Current Outlook

70, The Chadian economy has, in many respects, recovered from the devastation of the war. Rapid growth, from an exceedingly low base in 1982, has brought nmanyeconomic indicators back to pre-war levels. With respect to production, the cotton crop has been quite variable but well within the production range of the past several decades. At the same time, in years of adequate rains, foodcrop production has achieved or surpassed pre-1977 levels, with minimal inputs. Although manufacturing suffered a setback in 1986, all the major industries have the capacity to produce at or above 1977 levels and have done so in the 1984-85 period, Overall, real GDP has risen to nearly its 1977 level, although it must be shared among an estimated one million more people. Most striking -- in addition to the apparent decline In real per capita income -- is the limited recovery of the public sector, which has remained, in real terms, much smaller than in previous decades.

71. There are many non-quantifiable aspects of recovery as well, includinigan atmosphere of dynamism and growth in the informal sector, where Chadians have been exploring ways to fill the gaps in their economy. The number of formal sector, small- and medium-scale enterprises may have declined compared to the situation in the 1970s, but more may be owned by Chadians, rather than expatriates. The overwhelming impression is that Chadians have a wealth of ideas, as well as enthusiasm and the will to succeed, but there is a striking shortage of capital and the technical skills needed to turn these ideas into reality.

72. Plavingrecouped many of the losses to the economy in the years following the war, Chad is now moving beyond a period of relatively "easy" growth associated with immediate reconstructionefforts. The task is now more difficuilt,especially when the traditional "engine of growth" -- the cotton sector -- is unable to fulfill its former role. The parallel difficulties of restrumcturingthe cotton sector and defining an appropriate plan for economic development and diversificationwill limit real growth in the short-run. Similarly, the risk of recurring drought or a resumption of hostilities casts a shadow over prospects for growth. However, the outlook for 1987 and 1988 has several encouraging aspects, First, as mentioned previously, the world price for cotton Is recovering more rapidly than anticipated, and Chad can expect to export its usual level of 36,000-39,000 MT of cotton fiber. Second, incentives for livestock marketing and export will improve with the lifting of the export ban to Nigeria, In general, trade relations with Nigeria should improve as a result of recent bilateral discussions and Nigeria's exchange rate reform. Third and finally, support from the donor community is increasing, - 41 - particularlywith respectto aid for investment. This will allow Chad to lay the necessaryfoundation over the next few years for modestbut sustainedgrowth. One area with considerablegrowth potentlal is the agriculturalsector, broadly defined to includeboth crop productionand livestockdevelopment. This sector,which providesemployment, subsistence,and incomefor most Chadians,will be examinedin the followingchapter. - 42 -

ITT. ThF RURAL SECTOR

73. This chapter is devoted to the agricultural sector, broadly defined, which generates nearly half of the country's estimated CDP. Section A focuses on the cotton sub-sector, and especially on the implications of recent and projected prices for producers, the industry, and the sub-sector as a whole. Section B discusses foodcrop production in the larger context of Chad's food security. Two key Issues are addressed: (i) the need to minimize fluctuations in production and increase production at a rate which preserves Chad's cereals self-sufficiency;and (ii) the need to improve marketing, especially interregionally,to alleviate localized supply/demand disequilibria. Section C concentrates on the livestock sector, which has made important contributions to national income and export earnings, but represents an underutilized resource. Constraints to unlocking the potential of this sector are given special attention. The chapter closes with a brief discussion of the fishing sector which highlights the need for more information regarding the possible contribution o!'fishing to food security and income generation in Chad.

A. Cotton: How Soon Can Profitability Be Restored?

74. The crisis confronting COTONTCHAD is attributable in part to its weak management in the period preceding the establishment of its rehabilitationprogram. Among its management problems were: (i) inadequate accounting and financial supervision; (ii) inadequate management of inventories of spare parts, rolling stock and motor vehicles; and (iii) overall weakness of the monitoring and control system. These problems were exacerbated by the political/militaryenvironment in which the company operated from 1979 to 1982, when it was obliged to provide logistical and other support to the military forces controlling the region. The investment program of COTONTCHAD was also far from optimal (e.g., with respect to the number, location and capacity of ginneries). These factors contributed to raising COTONTCHAD's production costs by 70 percent in nominal terms between 1982/83 and 1984/85, as mentioned in Chapter IJ. The fundamental problem is that the sale price of cotton (FOB) has been well below average production costs for nearly three years. This has led to the question "is cotton production still viable?" ln order to provide an answer, it is necessary to: (i) take stock of the rehabilltation program initiated in response to the crisis; (ii) re-examine the world cotton situation; (iii) review the economics of cotton production and processing at the level of the producer and COTONTCHAD, respectively; and (iv) revise the financial projections for COTONTCHAD.

1. The RehabilitationProgram

75. The Chadian Government and COTONTCHAD have launched a comprehensive action program to restore the financial and economic viabllity of the cotton sector. This program was combined with a number of immediate measures, such as changes in the executive officers of the company. The principal measures of the program are the following:

* At the producer level: (i) moving to full cost recovery on inputs from the 1987/88 season onward, with an intermediary step - 43 -

(75 perceiitcost recovery) in 1986/87; (ii) no increase in the producer price of seed cotton, which has been set at CFAF 100/kg for the moment; and (iii) iImitingseed cotton production to not more th.n 100,000 tons through adjustment of the area under intensive cultivation.

* At the COTONTCHAD level: (i) closing down seven out of twelve ginneries in operation; (ii) selling non-essential or non-performing assets to the private sector (two aircrafts, 80 trucks, 69 cars); (iii) closing down the Bangui and Pointe-Noire branches and laying off the staff; (iv) reducing the number of cotton-buying centers; and (V) reducing the COTONTCHAD staff by half.

* At the Government level: (i) exempting COTONTCHAD from taxes (export tax) and other contributions (e.g., to CAA, the debt amortization fund, and ONDR, the extension agency) until its accounts are balanced; (ii) redefining the role of CSPC (the cotton price stabilization fund) and reducing its staff; (iii) reducing the staff of ONDR and reassessing its role and objectives.

76. The objective of the program is to reduce production costs to enable the company to reach financial equilibrium as soon as feasible -- that is, in 1991, according to projections made in mid-1986. Most of this program has already been implemented. BEAC has also undertaken to reschedule COTONTCHAD's domestic debt: on November 25, 1986, the Executive Board of BEAC authorized the rescheduling of the domestic arrears over a period of 10 years with 5 years' grace and a two-year moratorium on the payment of interest. Although the terms are too hard to be manageable over the medium- to long-term, given the difficult financial situation and prospects of COTONTCHAD, they do remove the immediate threat of a collapse of the Chadian banking system.

77. The actual and potential impact of this program on the economy is substantial. Freezing of the producer price of cotton at its current level of CFAF 100/kg, along with the phased elimination of input subsidies, will gradually reduce the profitability of intensive cotton cultivation (particularly through the use of fertilizers), as well as decreasing the net revenue of farmers (see para. 11). The firing of 1,300 employees -- more than half of the COTONTCHAD staff -- appears to be having a negative impact on incomes in the Sudanian zone. Furthermore, the lost revenues of the Government and the public agencies as a result of the cotton crisis are estimated at CFAF 3.7 billion (US$10.3 million) in 1986. The direct impact of the adjustment program on the central Government (CFAF 2.8 billion) is equivalent to 17 percent of the Government's 1986 revenues of CFAF 16.8 billion.

78. To support this Government program, France, the European Community, the Netherlands and the World Bank, have put together an Emergency Cotton Program for two years (1986/87-1987/88),totalling approximately CFAF 17 billion (US$47 million). This program is designed to finance the inputs program of COTONTChAD (and thus avert the financial deficit that would arise from it); support the cost reduction policy that - 44 - the companyis implementing;and allow other institutionslinked to cotton productionto continueoperating. The programwill also allow the preparationof the next, post-emergencyphase which will concentrateon rehabilitationof the sub-sector,and increasedresearch and experimentationon optionsfor agriculturaldiversification.

2. The ImprovedOutlook for Cotton

79. In August 1986, when the above programwas approved,world cotton prices had hit a low of US$0.82/kg. World stockswere approximately 60 percentabove their "normal"level, equaling 7.5 months of world consumptioninstead of the 4.5-5.0months generallyconsidered sufficient to accommodateinternational trade withoutexerting undue pressureon prices. Priceswere expectedto recoverslowly, given the size of the world surplusand a long-termgrowth in world consumptionof only 1,6 percenta year. Since then, the situationh3s changedsignificantly. The demandfor cottonat low priceswas much higher than anticipated,so that world consumptionincreased by 6.6 percentin 1985/86and is expected to increaseby 3.7 percentin 1986/87(Table 6). At the same time, bad weather,low world prices and changesin incentivepolicies led to a 10.4 percentdecline in world productionin 1985/86,and a similardecline is anticipatedfor 1986/87.

Table 6 - World CottonSituation, 1984/85 - 1986/87l/ (millionsof tons)

1984/85 1985/86 1986/87

World Production 19.2 17.2 15.3 World Consumption 15.2 16.2 16.8

(beg.) (beg.) (beg.) (end) World Stocks 5.4 9.4 10.5 8.9 "Normal" 6.0 6.4 6.6 6.6 Excess -0.6 3.0 3.9 2.3

1/ Crop seasonruns August-July.

Source: Annex 1, Table 1.

80. World excessstocks have, therefore,declined much fasterthaRn anticipated:by 40 percentin one year. By July 1987, these stockswere equivalentto 15 percentof world production-- a levelwhich could, in fact, be eliminatedby just one poor crop season. The recentreduction in stockshas been reflectedin an upturn in world prices. Indeed,price projectionsfor the next two seasonshave been revisedupward by about 20 percent,although even after this revision,the February1987 price of cotton (US$1.44/kg),was alreadyabove the level projectedfor 1988 (US$1.41/kg).By mid-1987,the price had climbedto US$1.70/kg. It is possible,even probable,that some of the gain in prices is seasonaland may be lost as the 1987/88crop comes on the market,but there is no - 45 - questionthat the surplussituation has eased dramaticallyand that Chad will benefitin the short-runfro.n a highercotton exportprice than had been anticiDatedonly six months ago. The changedcotton situation is describedmore fully in Annex 1.

3. Cost of CottonProduction at the ProducerLevel

81. Today,most cottonproducers in Chad have the optionsof (i) cultivatingonly food crops,using traditionalmethods; (ii) cultivatingfood crops traditionallyand cottonintensively, using the full packageof fertilizersand insecticides;and (iii) cultivating both food crops and cottontraditionally. A numberof variationscan also be envisaged,including increased use of animaltraction, varying levelsof intensiveinputs for cotton,and developingintensive Jinput packages for foodcropproduction. One interestingoption to examinewould be to cultivatecotton semi-intensively, using only insecticides-- an approach which farmersmay alreadybe using in practice,although they have not had the choice of buying just insecticides.Fertilizers and insecticideshave alwaysbeen sold as a packageto cottonfarmers, It must be proven, however,that such an optionwould not provokesoil deterioration.

82. Until the crisis,cotton cultivationwas quite profitablefor the farmet,especially under the subsidizedintensive-input program, as has been substantiatedin a numberof studies.22/ The significantexpansion of cottonproduction from 1960 to 1986, averagingapproximately 9 percent per year, was achieveddespite a downwardtrend in the total area planted with cotton. However,the area under intensivecultivation expanded steadily: from 1 percentof the total in 1960/61to 13 percentin 1970/71, 43 percentin 1980/81,and 69 percentin 1985/86. Two factorscontributed to this: (i) the subsidizationof inputsby donorsand the Government(by 50 percentuntil 1985/86),and (ii) the increasein producerprices for cotton after 1979, and especiallysince 1981. Producerprices did not changefrom 1960 to 1970 and rose only slowlyfrom 1970 to 1981. This situationprogressively eroded the incentivefor cottoncultivation, particularlysince input priceswere rising constantlyduring this period. The substantialincrease in producerprices since 1980 contributedto restoringthe profitabilityof cottonproduction for the farmer. The cotton emergencyprogram changes, a priori,the equationfor the producer, mainly becauseof the eliminationof subsidieson inputsand the freezing of the producerprice.

83. Table 7 shows the valuationof a day of work for cottonunder traditionalcultivation and intensivecultivation. It indicatesthat, withoutsubsidies, cotton under the intensiveprogram becomes slightlyless profitablethan cottonunder traditionalcultivation. Comparison with foodcropcultivation is difficultbecause of the much poorerstatistical informationand the high variabilityof foodcropprices from one seasonto another. However,estimates made by ONDR and IRCT (the cotton research

22/ See, for example,SEDES, Le Projet Sud-Tchad: octobre1980, and CILSS,Bilan programmedes productions,v6ggtalesau Tchad, 1983. - 46 - institute)show that without subsidies,cotton could prove to be less profitablethan a number of food crops.

Table 7 - Profitabilityof CottonCultivation, 1986 (CFAF)

Intensive Cultivation Insecticides Traditional 50 Percent 25 Percent No Only, No Cultivation Subsidies Subsidies Subsidies Subsidies

Yield (Kg/ha) 300 925 925 925 725

Price (CFAF/Kg)-/96.4 -/ 96.4 96.4 96.4 96.4

Revenueper ha 28,920 89,170 89,170 89,170 69,890

Repaymentsfor Inputs 0 2,400 37,000 49,000 25,500

Net Revenue 28,920 65,170 52,170 40,170 44,390 Days of Work 85 120 120 120 105 Daily Income Generated 340 543 435 335 427

1/ Weightedaverage price for two qualitiesof seed cotton.

2/ This figuredoes not allow for the fact that, with traditionalcultivation, a largerproportion of cottonwill be of an inferiorquality and therefore fetch a lower price.

Source: ONDR.

84. The above analysismust be temperedby the following considerations.First, eliminatinginsecticides for cottonproduction would tend to reducethe overallquality of seed cottonand would certainly lead to greaterannual fluctuations in yield due to insectdamage. Second, the effectsof eliminatingfertilizers are still open to debate. Yields would decline,but so would productioncosts. Yieldson food crops might also decline,if farmershave been using these fertilizersfor both cotton and food crops. Risk would not necessarilyincrease, however, because fertilizeruse itselfcarries a considerablerisk, dependingon the level and timingof rainfall. Eliminatingfertilizers might also lead to some soil degradation,although some agronomistsfeel that the existing, traditionalsystem of crop rotationand the usual lengthof fallowperiods in this land-abundantcountry are sufficientto maintainsoil quality. In short,an argumentcan be made for eliminatingfertilizers, but the same cannotbe said for eliminatinginsecticides. Finally, in terms of the choicebetween food crop productionand cottonproduction, the large fluctuationsin food crop prices typicallyseen in Chad (see SectionB) makes the tradingof these productsuncertain, while the fixed producer prices for cotton tend to assure a relativelysteady cash revenue. This stronglysuggests that even if their revenuefrom cottonwere to drop due to the freezingof producerprices and eliminatinginput subsidies,farmers - 47 - would still be attracted to cotton cultivation. However, if a system is adopted indexing producer prices to world market prices for cotton fiber, the attractivenessof cotton cultivation as a stable source of cash income would be thrown into question. More information is needed on farmers' revenue sources and production patterns in order to better understand the decision-makingprocess at the producer level and, therefore, assess the viability of cotton production under varying circumstances. Unfortunately, no system exists to gather this type of information, and it is strongly recommended that a study be launched for this purpose.

4. Costs at the COTONTCHAD Level

85. The viability of cotton fiber production depends on how far COTONTCHAD's costs of production can be reduced and whether COTONTCHAD can be -- and stay -- competitive, at least with the other cotton producers of West Africa, given the local production conditions and, in particular, the landlocked situation of Chad. In 1985 and 1986, the situation was not representativeof the performance of COTONTCHAD because it was significantly affected by the mismanagement that occurred in 1984/85. The performance of COTONTCHAD should be analyzed with reference to more normal years of financial management such as 1983/84, and also by estimating the effect of the Emergency Program on production costs.

86. COTONTCHAD's ginning yields are slightly lower than the average for cotton producers in West Africa: 38.9 percent in Chad against an average yield of 39.4 percent. (In comparison, ginning yield in the United States are 21.7 percent for machine-stripped,24 percent for machine-scrapped,and 31.5 percent for machine-picked.) However, COTONTCHAD's yields have increased rapidly with the introduction of new varieties, and are expected to reach 40 percent in one or two years as a result of the distribution of new seed varieties currently being produced by IRCT on COTONTCHAD's seed farms. According to CFDT figures, in 1983/84, COTONTCHAD's buying price for seed cotton was lower than the West African average and, as a consequence, the factory gate price was one of the lowest in francophone Africa, However, the ginning cost was slightly higher than the West African average in 1983/84 and increased significantly in 1984/85. This has two reasons: industrial investments have not been optimal; and, because of poor management, in particular since 1984, the cost of spare parts, the wage bill, and the various expenses linked to ginning have been higher than they should have been. The Emergency Program aims to improve this situation, especially by strengthening management and closing down excess ginneries.

87. Another element of production costs that is more structural and more difficult to reduce is the cost of transportation from the ginneries to the export port. , the center of the cotton producing region, is situated 1,350 km fromiDouala, the major port used for cotton exports. The resulting high cost of transportation affects both the FOB export cost of cotton and the cost of imported inpits for cotton production. Although costs are very high, Chadian cotton is of good quality and generally fetches a price slightlv higher than the world price for a comparable staple length. Moreover, COTONTCHAD has adopted an efficient, dyniamicand flexible marketing strategy, and the company has a good reputation on the international market. - 48 -

88. In summary, a comparison of COTONTCHAD's overall cost of production with other West African producers before the management problems of 1984/85 shows that cotton production was viable in Chad. In 1983/84, a relatively normal year, Chad had the lowest ex-ginnery cost among nine producers in the region (Table 8); it had the third lowest FOB embarkation port cost, despite its geographic location; and its net profit per kg was exceeded only by that of Senegal, entirely because of a transport advantage, 23/

Table 8 - Cotton Production Costs, 1983/84 (CFAF/kg)

Seed Cotton Ex-ginnery Transport FOB - CIF -/ Sale Net Cost Cost Cost Cost Cost Price Profit

Benin 100 449 67 516 552 725 173

Burkina 70 454 40 494 542 749 207

Mali 75 441 67 508 545 750 205

Ivory Coast 100 603 45 648 693 780 87

Senegal 70 424 28 452 500 793 293

Togo 75 472 52 524 574 750 176

Cameroon 117 551 70 621 668 746 78

CAR 80 534 85 619 664 732 68

Chad 80 372 130 502 532 777 245

1/ Here, FOB refers to border pr-ce and CIF to price at port of embarkation (i.e., Douala, for Chad).

Source: CFDT.

5. Financial Projections

89. Since the preparation of the financial projections underlying the Emergency Program, there have been changes affecting some of the income and expenditure components, the price projections, and the exchange rate projections. The estimated revenues from COTONTCHAD's soap and oil

23/ Although the producer price has been raised from CFAF 80 to CFAF 100 since 1983/84 in Chad, the difference and its incidence on total costs are too small to alter the above conclusions. Besides, similar -- and, in some cases, larger -- increases in producer prices have taken place in almost all the countries included in the above comparison. - 49 - subsidiary operations have been revised downward; the sale of these products has seriously suffered from competition with imports passing through Nigeria and from the decline in the world price of all edible oils. The operating costs of the subsidiary operations have been higher than previously projected. Expenditure estimates were also modified to include the cost of training and of providing some additional extension services and small implements which had been omitted from the original estimates. The net effect of these and other revisions was to increase the operating deficit for 1986/87 (the year most affected) from CFAF 6.6 billion to CFAF 8.3 billion.

90. The latest price projections by the commodity projection services of the Bank are given in Annex 1. They show that the recovery will continue in both nominal and real terms. In nominal terms, by 1990 the cotton price will be just 5 percent below the 1982-84 average -- a period when the market was roughly in balance and stocks were roughly normal -- and by 1995 they will exceed the same average by 42 percent. In real terms, the recovery is expected to be slower: the price will come within 5 percent of the 1982-84 average by 1995.

91. The experience of the last two years has shown the difficulty of projecting annual change (as opposed to the trend) in the world cotton price, especially 2-3 years in advance. For that reason, it seems appropriate to use, in making financial projections, a price range as illustrated in Chart 7. 24/

92. The same type of uncertainty applies to the US$/FF exchange rate. Chad's cotton export earnings have suffered as a result of the depreciation of the US dollar against the CFAF in the past year. The current projections show further weakening of the US dollar vis-a-vis the French franc and the CFA franc (whose parity to the French franc is fixed) until 1989, before beginning a recovery (Annex 1). The incertaintiesabout the rate are too great to rely on a single forecast, especially because exchange rates can be influenced more directly and quickly than cotton prices through government policies and agreements. We have assumed, as an alternative, that the rate will remain constant at its projected 1987-95 average, namlelyUS$1 = CFAF 320. 25/

93. The Break-even Point for Cotton Fiber Operations. It should be underlined that the projections made on the basis of the above assumptions are by no means definitive and, despite the adjustments made, are still not entirely up-to-date. (The results and lessons of the first year under the Emergency Program will be extremely meaningful and may alter them significantly.) These projections are not, therefore, offered for setting precise targets or prices. They are intended, rather, to show the range of possibilities and choices. Chart 7 suggests that there are, indeed,

24/ See Annex 1 for the estimation of the range.

25/ This is slightly below the rate of CFAF 330 used in the calculations for the Emergency Program. -50- multiplescenarios and outcomes. The chart isolatesCOTONTCHAD's revenues and expendituresconcerning its cottonfiber operationsalone. 26/ It shows that:

- if the producerprice is kept at CFAF 100/kg,a break-evenpoint could be reached,at the earliest,during 1988/89,depending on the world price;

- if the producerprice were reducedto CFAF 80/kg,the break-even point may be reachedas early as 1987/88;

- if the producerprice remainsat CFAF 100 but the cost of intereston the existingdebt is added (not includedin the two illustrationsabove), the break-evenyear is pushedto between 1990/91and 1992/93,depending on the world price. The interest adds roughly10 percentto the averagecost of cottonfiber.

94. The Break-EvenPoint for COTONTCHADand the Cotton Sub-sector. Table 8 summarizesthe financialconsequences of the revisedprojections distinguishingbetween: (i) projectionsfor COTONTCHAD,i.e., including Its cottonfiber operationsand its soap and oil operations(panel A); and (ii) those for the sub-sector,i.e., includingCOTONTCHAD as definedabove and the other organizations(ONDR, IRCT) providingsupplementary services to the sub-sector(panel B). The latter is consistentwith the projections underlyingthe EmergencyProgram, which includedfinancing for these organizationsin the project. They are, however,not part of COTONTCHAD; COTONTCHADmay have a responsibilityto financethem in part but has no controlover their operatingefficiency. Althoughboth the sale price of fiber and the producerprice of seed cottonwere varied in the sensitivity analyses,for the sake of simplicityof presentation,Table 9 summarizes the resultsvarying only the producerprice and the paymentof interest. The table shows the following:

the break-evenpoint for COTONTCHADunder the basic scenario, occurs in 1989/1990,one year before it occursfor the sub-sector;

loweringthe producerprice to CFAF 80/kg advancesthe break-even periodby one year; adding interestpayments pushes it back by two years;

althoughthe break-evenyear (underidentical producer prices) is the same as under the EmergencyProgram, the cumulativelosses over the period 1986/87-1988/89(either for COTONTCHADor the sub-sector)are roughlyCFAF 2 billion (US$6.4million) less than projectedlast year. Since the earlierprojected loss had been financedunder the EmergencyProgram, the CFAF 2 billion

26/ The projectionsIn this sectiondo not includedepreciation. No capitalreplacement is plannedfor the next few years and no estimates of currentor futureneeds are available. PROJECTEDWORLD COTTON PRICE AND COTONTCHAD'S PRODUCTIONCOSTS, 1986/87 to 1994/95

800 -

750- FE PROD.COSTS @ 80 CFAF.NO INTEREST I PROD.COSTS @ 100 CFAF,NO INTEREST

700 X PROD.COSTS 100 CFAF. W/ INTEREST /

a~ 650-

0600 iŽ 550

500 s /

450 - COTTONPRICE RANGEC

400- 86/87 87/88 88/89 89/90 90/91 91/92 92/93 93/94 94/95 Year l

I - 53 -

representsa "savings",or a cushionwhich can be used to cover lossesif the break-evenpoint were pushedback by one or two years.

Table 9 - Oerating Deficit/Sur2lusof COTONTCHADand CottonSub-Sector

Producerprice and interest assumEtion 1986/87 1987/88 1988/89 1989/90 1990/91 1991/92

A. COTONTCHAD

CFAF 100/kgw/o interest(base scenario) EmergencyProgram -3.7 -2.8 0.4 2.6 3.1 5.8 New Projections -3.5 -1.1 0.1 1.4 2.6 5.6 CFAF 80 w/o interest -1.5 0.9 2.1 3.4 4.6 7.6 CFAF 90 w/o interest -2.5 -0.1 1.1 2.4 3.6 6.6 CFAF 100 w/interest -3.5 -1.1 -1.9 -0.6 0.6 3.6

B. Cotton Sub-Sector

CFAF 100/kgw/o interest(base scenario) EmergencyProgram -4.9 -4.3 -0.9 1.2 1.7 4.3 New Projections -4.9 -2.1 -0.9 0.3 1.5 4.4 CFAF 80 w/o interest -3.2 -0,4 0.8 2.1 3.2 6.2 CFAF 100 w/interest -4.9 -2.1 -2.9 -1.7 -0.5 2.4

ProjectedWorld Cotton Price (CFAF/kg) EmergencyProgram 385 399 488 548 574 647 CurrentProjections - 451 493 531 576 618 659

1/ Based on "high"price assumptions,exchange rate of US$1 = CFAF 320.

Source: Missioncalculations.

6. Conclusion

95. Whethercotton production in Chad is viable or not is a complex questionwhich depends,inter alia, on: (i) how one defines"viability" or the "cottonsector", (for its benefitsextend beyond the sector in its strictsense); (ii) the world price of cotton;and (iii) the options availablegiven the evolutionof the economicsituation. Uncertainties attach to each of these,and the evaluationof the third factor (the economy)is hinderedby the shortcomingsof the statisticalbase. In addition,the above financialprojections (which are based on the model used in the preparationof the EmergencyProgram) have limitations.The methodologydid not allow the measuringof the impactof changesin net producerprice on productionlevels or estimatingchanges in certain - 54 -

productioncosts associatedwith variationsin production.27/ Despite thesecaveats and limitations,cotton remainsa viable crop over the medium- and long-termin Chad. However,this viabilityis contingenton implementingthe reformsdefined in the EmergencyProgram. Even under optimisticassumptions, world prices in real terms will not returnto the 1982-84average level until 1995, and it is possiblethat the recovery could be slower than currentlyanticipated. For this and other reasons, effortsto improveCOTONTCHAD's efficiency must be reinforced. Furthermore,given Chad'sover-dependence on cotton,economic diversificationmust remaina high priority,regardless of the prospects for the world cotton market. A priori,viability -- narrowly defined -- does not necessitatea reductionin the producerprice; i.e., under the world price assumptionsused here, the break-evenpoint can be reached withoutit in two years. This however,is withoutallowing for depreciation,interest payments or debt amortization.Any of these would requirea reductionin the producerprice if COTONTCHAD'sbreak-even year (dependingon the scenario)is not to be delayed.

96. To reducecosts further,COTONTCHAD can: (i) reduceexpenditures on fixed assetsor variablecosts associatedwith transportand processing activities;(ii) reduce the volume of seed cottonpurchased making sure that this will have a positiveimpact on net incomeby reducingfixed costs;and (iii) reducethe producerprice paid for seed cotton. Policies shouldbe developedto make the volumeproduced and the price paid for seed cottonmore responsiveto world market conditions,without unduly increasingthe risk involvedfor producers. Mechanismsand systemsmust also be strengthenedto preventthe reoccurrenceof the poor financial managementand excessiveexpenditures which inflatedCOTONTCHAD's productioncosts beyond profitablelevels -- even if world market prices had not collapsed. In addition,the futureof the cottonprice stabilizationfund (CSPC)must be determined. Consideringthe very importanttransfers that COTONTCHADmade to it over the years, it should have been able to alleviatesignificantly the financialcrisis of the cottonindustry (as will be discussedfurther in ChapterVI). However,it has never functionedproperly, and in any event, the necessityof having any kind of independentfund to serve as a financialcushion for COTONTCHAD againstmarket fluctuationshas not been demonstrated.

97. These concerns,as well as the issue of agricultural diversification,will be the focus of the secondphase of the rehabilitationprogram for the cotton subsector. This phase is being defined,and a number of flexiblesolutions are being studied,some of

27/ It appears,however that changesin productionwould not have as big an impacton the financialresults as changesin prices,largely becauseof the importanceof fixed costs for COTONTCHAD-- unless the reductionin productionis sufficientlylarge to justifyclosing down a ginneryand sellingtrucks and other equipment. A similar conclusionwas reachedin the analysiscarried out for the Emergency Program. - 55 - which have recentlybeen adoptedby neighboringcotton-producing countries. After thoroughstudy, these solutionsmight include,not exclusively:

* differentiatingproducer prices by regionand by cotton quality,to favor productionin more profitableareas;

* minimizingCOTONTCHAD's pre-processing transport costs, particularlyby purchasingseed cottononly at the factory gate;

* indexingproducer prices for seed cotton to world cotton prices to increasesupply responsiveness to market conditions. A three-yearmoving average,partial indexing, or the establishmentof a floor price could be used to mitigatethe risk to producersassociated with fluctuating prices;

* Governmentmonitoring of averageproduction costs in the cotton industryand/or determination of an "averagecost ceiling"which would guide industrydecisions on investments,inventory levels, debt servicingcapacity, etc.

98. COTONTCHAD'sprofitability and competitivenesson the internationalmarket will also dependon governmentactions in certain other sectors. In particular,Government investments in the road network, transportpolicies, and transportarrangements with neighboringcountries will significantlyeffect the FOB price of Chad'scotton fiber. In the courseof supervisorymeetings for the on-goingEmergency Program -- and assistedby severalconsultants' studies of the sub-sector-- the Government,COTONTCHAD, and the donor communityhave begun to shape the secondphase of the cottonprogram, although more profountddiscussion is now needed to definethe necessarypolicy reformsand formulatea precise actionprogram.

B. Food Crops: RegionalFood Self-Sufficiencyor Food Security?

1. Introduction

99. In Chad'snorthern Saharan zone, foodcropproduction is infrequent and consists mostly of pearl millet cultivation in oases and ouaddisduring periodic flooding. In the Sahelianzone, there is considerablecereals production, of which 60-80 percentis pearl millet and sorghum,10-30 percentis berbere,and the remainderis maize and wheat grown largelyin poldersand ouaddis (Table10). In addition,niWbe, manioc,groundnuts and a numberof vegetablesare grown for subsistenceas well as marketing. Fooderopproduction in the Sudanianzone is more diverse,including cereals, nigb6, manioc, groundnuts,sesame, sugarcane, and a varietyof fruitsand vegetables.28/ However,between 80 and

28/ Sugarcaneis producedonly on plantationsowned by SONASUT,using wage labor exclusively. - 56 -

90 percentof the cereal productionin the Sudanianzone is pearl millet or sorghun.

Table 10 - Food Crop Production,1983/84 to 1986/87 (thousandsof metric tons)

1983/84 1984/85 1985/86 1986/87

SudanianZone Pearl Millet 73.5 87.8 134.9 142.2 Sorghum 178.7 194.2 260.5 259.1 Berbere 6.7 7.8 15.5 17.7 Rice 18.0 1.6 7.6 19.5 Maize 12.9 13.3 16.3 22.6 Sub-total: Cereals 289.8 304.7 434,8 461.1

Groundnuts 76.8 76.6 104.9 97.9 Sesame 7.9 8.8 il.4 10.3 Sugarcane 277.0 208.0 239.0 237.0

SahelianZone Pearl Millet and Sorghum n.a. 23.0 165.6 191.9 Berbere n.a. 12.0 79.8 24.6 Rice n.a. 0.8 0.2 0.2 Maize n.a. 4.2 18.8 2.7 Wheat n.a. 1.2 5.3 0.6 Sub-total: Cereals 163.2 41.2 269,7 220.0

Groundnuts n.a. 2.4 6.6 8.4 Sesame n.a. 0.1 0.1 0.9

Other Cerealsproduction 1 n.a. n.a. 34.3 45.6 Total: Cereals 453.0 345.9 738.8 726.7 Total: Area ('000ha) 1,009.8 958.7 1,314.9 1,272.8

1/ From agriculturalprojects outside the ONDR operationalzones.

Source: ONDR.

100. In general,cereals dominate the Chadiandiet, although consumptionpatterns differ according to geographiczone. There is very littleprecise informationon consumptionin the variouszones, but it is clear that the relianceon cerealsdeclines in favor of milk and meat consumptionas one moves north in the country. Accurateinformation on populationdistribution is also lacking. The officialpopulation estimates used in the remainderof this chapterare based on a 1968 censusand should be acceptedwith caution. War and droughthave since provokedsubstantial migrationwithin Chad and to neighboringcountries. Tne magnitudeand reversibilityof these populationshifts are not known. This sectionwill focus largelyon cerealsproduction in the contextof Chad'sfood self-sufficiency,although it is recognizedthat alternativecrops -- oilseeds,tubers, fruits and vegetables-- could play an increasingly - 57 -

importantrole in Chad, both nutritionallyand in terms of generatingcash income. More researchand experimentationon the potentialfor these alternativesis clearlycalled for within the broaderexamination of agriculturaldiversification possibilities in Chad.

2. RegionalFood Self-Sufficiency

101. The extremevariation in rainfalllevels and the predominant relianceon rainfedagriculture leads to considerableannual fluctuations in productionin the Sahelianzone and generallylesser fluctuations in the Sudanianzone. When rainfallin the Sahelianzone taperedoff to only 372 mm. in 1984, cerealsproduction plummeted to around 40,000tons -- one-fourththat of the previousyear, which was alreadybelow average (see AppendixTables 3 and 4). Rainfalland productionin the Sudanianzone were also low but remainedwell within the normal range. Overall,total cerealsproduction of 346,000tons was the lowestrecorded level in the past twentyyears, fully 100,000tons below productionin the 1973/74 drought.

102. With the returnof good rains in 1985 and despitesome locust damagein 1986, Chad has experienceda remarkablerebound in agriculture, with cerealsproduction exceeding 700,000 tons in both 1985/86and 1986/87. At this level,Chad is consideredto be self-sufficientin cermals. This has been demonstratedin a numberof attemptsto calculateChad's "food balance",generally using estimatessuggested by the FAO for export and importvolumes, and per capitaminimum cereals needs by region.29/ These calculationsare inevitablyquite approximative,given the almost complete lack of import/exportstudies and consumptionsurveys, as well as the unreliabilityof populationdata. However,the dramaticdecline in market prices for cerealsin the past year supportsthese calculations.

103. The 1984/85drought underlined a chronicproblem in Chad: the regionsof the Sahelianzone are largelycereals-deficit regions, while those in the Sudanianzone are self-sufficientor in surplus. However, inter-regionalmarketing is underdevelopedin Chad, constrained,in large part, by communicationand transportproblems. Therefore,in definingits strategyfor foodcropproduction, the Governmentmust addresstwo key issues: (i) minimizingproduction fluctuations and increasingoutput at a rate which maintainscereals' self-sufficiency; and (ii) encouraging marketing,and especiallyinter-regional transfers, to alleviateregional supply/demanddisequilibria. To definean appropriatestrategy, the Governmentneeds, first,to clarifyits overallgoal with respectto food productionand food security. Polic'esregarding agricultural production, trade in foodstuffs,Government market intervention,and use of food aid need to be betterarticulated and coordinated,so that the Governmenthas an internallyconsistent strategy to ensurefood security. The diversity of institutionsdealing with these issues (i.e.,the MADR, MSA, ONC, ONDR, OMVSD,etc.) may inhibitthe integrationof these policies. The sectoris

29/ It is generallyagreed that at productionlevels above about 650,000tons, Chad is currentlyself-sufficient in cereals. - 58 - also characterizedby the weaknessof supportinstitutions for foodcrop production(e.g., for research,credit, extension services, and marketing) and the inadequacyof their financialand human resources.

104. The Government's1985-88 Interim Plan establishedregional food self-sufficiencyas a priorityobjective. Given the currerntisolation of some of Chad's regions,the idea of self-sufficiencyon a regionalbasis is an attractiveone. However,it may be unattainable,or attainableat too high a cost, making inefficientuse of scarce investmentresources. There is certainlya value inherentin assuringa degree of regional self-sufficiency,and it justifies explorationof alternativeproduction methods in a varietyof settings,but the emphasison regional self-sufficiencyshould not overshadowthe importanceof making efficient investmentsin production,and, where feasible,in efficientinter-regional trade. A broaderobjective of ensuringfood securityis warranted. To this end, the Governmentneeds to make the medium- to long-termi.vestment in openingup marketingchannels in order to (i) provideincentives for increasedfood production,and (ii) avoid excessiveregional price fluctuationsand localizedfood shortages. In addition,given Chad's vulnerabilityto climaticfluctuations, the Governmentneeds to plan for emergencysituations and maintain,with donors'assistance, a security stock,so it can responddirectly with targetedinjections of locally-producedcereals, or, in times of aggregatedeficit, food-aid cereals.

a. Producerand ConsumerPrices

105. Producerand consumerprices for food crops are not controlledby the ChadianGovernment. 30/ Nor are there any Governmentsubsidies for food productionand consumption.31/ The Governmentgenerally supportE a liberalpricing policy, although concern over recentprice fluctuationshas provokeddiscussions about the Government'spotential role in ensuring price stabilityand has led to unsuccessfulmarket interventionsby the NationalCereals Office (ONC)as discussedlater.

106. Market forcesproduce dramatic seasonal, annual, and regional price differentialsin Chad. Regionaland annualfluctuations aside, prices tend to be between50 and 150 percenthigher in the pre-harvest season than in the immediatepost-harvest period. 32/ Althoughthere is currentlyno standardizedsystem of price checkingthroughout Chad, the Governmentand donorshave tried to monitor cerealsprices, particularly to

30/ However,COTONTCHAD does buy a portionof the groundnutcrop at a pre-determinedprice and severalof the large-scaleirrigation projectsdo the same with respectto th(ir variouscrops.

31/ In the past, subsidieson inputs for cotton productionindirectly benefittedfoodcrop producers when the inputswere used to increase productivityin both areas. These subsidieshave now been eliminated.

32/ The harvestperiod is roughlyfrom Octoberto January. - 59 -

assist in targetingdrought relief operations. Table 11 illustratesthe impactof droughton cerealsprices in N'Djamenain recentyears. Prices began to rise in late 1983, followingthe poor 1983/84harvest, and shot up rapidlyprior to the 1984/85harvest. By September1984, prices in N'Djamenawere two to three times higher than at the same time in previous years,and presumablywere even higher in isolatedregions of the Sahelian zone. The 1984/85harvest, combined with a massive inflowof food aid, produceda modest declinein prices in early 1985,with a rapid drop followingthe excellent1985/86 harvest. With anotherexceptional harvest in 1986/87,and residualfood aid distributions,prices have continuedto fall, returningto 1978-80nominal levels by late 1986. In November,the average price for pearl millet or white sorghum in N'Djamena was CFAF 200 per "coro",a traditionalvolume measurewhich holds about 1.7 to 2.3 kg. That same coro sold for CFAF 100 in a villagemarket less than 30 km from N'Djamena,and severalsources reported that prices in more isolatedareas had droppedto as littleas CFAF 25 per coro. The pricesin N'Djamenawere considered"normal" by Chadiansin a year with good rains,but accordingto sellersin the market,they were, for the most part, still sellingoff surplusfrom 1985/86. Priceswere expectedto fall even furtherwhen the 1986/87crop reachedthe market.

Table 11 - CerealsPrices in N'DJamena,1983-86 ('000CFAF/40 coro sack)

Pearl White Red 2/ Millet Sorghum Sorghum Maize Rice Wheat -

1983 March 11.5 10.0 8.5 10.0 16.5 n.a, September1 / 10.0 9.0 8.5 10,0 16.5 n.a. November- 13.5 11.0 11.0 n.a. 17.0 n.a.

1984 March 15.8 12.0 10.3 11.5 19.6 4.8 September 30.0 20.0 17.5 15.0 21,3 8.0 December 19.0 13.5 14.5 14.5 22.0 9.3

1985 March 20,0 18.0 18.0 15.0 20,5 7.0 September 20.0 n.a, 7.0 8.0 17.0 4.3 December 10.5 n.a. 8.5 10.5 17.0 4.0

1986 March 10.3 7.9 6.7 6.1 15.5 2.8 September1/ 8.5 8.2 6.4 6.0 15,5 2.4 November - 7.5 8.3 4.8 4.9 14.0 2.1

1/ Decembernot available.

2/ 50 kg sack. - 60 -

b. Marketing

107. It was estimatedin the early 1970s that only about 10 percentof the cerealscrop in a good year was marketed in Chad, with the rest providingsubsistence for farmersand their families. This figureis still used, althoughthe actuallevel of cerealsmarketed in Chad or exportedto neighboringcountries is unknown. A number of long-termobservers claim that during the drought-ridden1973-85 period, farmers have -omewhatlost the habit of storingcereals year-round. Even in years of abundant p,z-uction,they tend to sell off too much of their crop at low prices in the imn>ediatepost-harvest period. Perhaps this reflectsurgent cash needs or the need to repay debts accumulatedduring drought years. They often sell to local merchants,some of whom reportedlymanipulate the market, creatingartificial shortages to increaseconsumer prices.

108. Most Chadianfarmers and merchantsmarket cerealslocally or within a limiteddistance. A portionof the crop is informallyexported, and severalprominent traders in N'Djamenaspecialize in importingcereals -- mostly rice from Cameroonor wheat flour which has been importedthrough Nigeria. The volume of inter-regionaltrade within Chad is difficultto assess,as are the actual regionalimbalances. Using the best available estimatesof regionalpopulation and cerealsproduction, one finds that per capitaproduction is well below the nationalaverage in most regionsof the Sahelianzone, and well above in most regionsof the Sudanianzone (see Table 12 and AppendixTable 5). During the most recentdrought,

Table 12 -Per Capita CerealsProduction, by Zone 1984-86

Estimated Cereals Per Capita Population Production Production ('000 inhabitants) ('000 MT) (kg per annum)

- 1984… Saharan 94 n.a. n.a. Sahelian 2,456 41.3 17 Sudanian 2,393 304.6 127 Total 4,942 345.9 70

…------______------1985… Saharan 96 n.a. n.a. Sahelian 2,515 290.2 115 Sudanian 2,450 449.0 183 Total 5,061 739.0 146

…______------1986… Saharan 98 n.a. n.a. Sahelian 2,575 257.9 100 Sudanian 2,509 470.6 188 Total 5,182 728.5 141

Source: AppendixTable 5. - 61 - aggregateproduction in the northernzone may have averagedless than 20 kg per capita,and even in years of good rainfall,it remainsbelow suggested norms for minimum per capitaneeds. 33/ Migrationmay have significantly alleviatedthe aggregatedeficit in the Sahelianzone, but nonetheless, there appear to be considerableregional imbalances in per capita productionwhich couldprovoke localizedfood shortagesand price instabilityin the absenceof sufficientinter-regional trade. Certain regions,such as Salamatand Lac, currentlyhave large surpluses,as well as considerablepotential for increasedproduction if adequatemarketing opportunitiesexist. The recent collapseof prices in isolatedregions with high levelsof cerealsproduction (e.g., ) is testimonyto the inadequacyof inter-regionalmarketing, which can be attributedto a number of factors,including poor roads, a lack of appropriatevehicles, high transportcosts, insufficientpricing incentives, little or no inter-regionalflow of market information,and insufficientcapital to undertaketrading operations. A medium-termpolicy to promote inter-regionalcereals transfers is necessaryin order to help unlock the agriculturalpotential of regionsin both the Sudanianand Sahelianzones, as well as mitigateregional price differentialsfor cereals.

co GovernmentIntervention in the CerealsMarket

109. The Government'sresponse to the inadequacyof inter-regional marketing-- and the resultingprice instabilityand localizedfood shortages-- has been throughthe NationalCereals Office (ONC),Its objectivesare to:

* maintaina securitystock for direct interventionin emergencysituations;

* assist in the sale of food aid while retainingfinancial autonomyfrom the Government;

* improvecereals distribution throughout the country;

* regulateprlces for b-*h producersand consumers.

Althoughthe ONC is under the supervisionof the Ministryfor Food Security (MSA),it relies on externalaid or counterpartfunds generatedby the sale of food aid and is not subsidizedby the Government. It is also not the Government's intention -- even if adequate resources were available -- to createa cerealsmonopoly. Since 1984,ONC has engagedin two actions: (i) purchasesand sales of local production;and (ii) sales of food aid on a limitedbasis.

110. ONC's interventionsin the local cereals'market have been very modest (1,270tons in 1984/85and 7,530 tons in 1985/86),and their impact

33/ The FAO suggeststhat 135 kg per capitaper annum is the necessary minimumrequirement for the Sahelianzone, althoughactual consumption patternshave not been adequatelystudied. - 62 - has proven to be negligible. The 1984/85 effort was delayed for lack of resources and was not adequately guided by the most basic principles of price stabilization: ONC made purchases at the wrong time (at elevated prices offered by middlemen, not farmers), and then could not resell the bulk of its purchases (in largely the same locations) at prices which covered costs. Timing improved in 1985/86, but the rapid decline of market prices agaln led ONC to sell at well below its purchase price. In short, ONC has been ineffective in stabilizing market prices and improving cereals distribution through purchases and sales of local production, and has sustained serious operating losses in its attempts to do so. This situation is untenable and calls for reconsideration of ONC's operations. Purchases and sales of local production should be abandoned, to avoid institutionalizingthem as Government functions, thereby pre-empting the pot.tial role of the private sector in carrying out inter-regional cereals marketing. Furthermore, it is unlikely that ONC would have adequate resources in the medium-term to intervene effectively in the market. There are already merchants and farmers marketing cereals at the village and sub-regional levels, and a generally dynamic informal sector engaging predominantly in trading. The Governmeat's role should be to open up marketing channels in the mediuim-termand facilitate private sector marketing, especially between cereal-sueplusregions and chironic cereal-deficit regions. This could involve any or all of the following policy initiatives:

* improving the regional radio links established during the drought, and providing, through radio broadcasts, a regular flow of market information based on price checks in local markets;

* offering credit, other financial assistance, and technical assistance to enable farmers and merchants to purchase appropriate vehicles and expand their marketing areas;

* eliminating fixed transport tariffs and other impediments to competition (Chapter IV), if necessary, using external assistance to subsidize -- with a gradual phase out -- private transporting and marketing.

Of course, the Government must continue its medium- to long-term investmert in road rehabilitationand maintenance (see Chapter IV). Given Chad's exceptional transport problems, opening up inter-reoionalmarketing channels will be a lengthy and difficult-process. However, in the long-run, it is the most efficient and most sustainable means of stabilizing prices avoiding localized food emergencies and ensuring increased aggregate production. lll. ONC's other area of activity has been the sale of relatively small quantities of food aid at market prices. In 1984/85, ONC sold 5,000 tons of rice, and in the following year, it sold 17,500 tons of a 32,500 ton allocation of wheat, sorghum, and maize, some of which was in - 63 -

poor condition upon arrival. 34/ The rest of Chad's food aid, which totalled around 176,000 tons in 1984/85 and 53,000 tons in 1985/86, was either distributed free or through a variety of Food-for-Work and special programs. The Ministry for Food Security (MSA), which has very limited implementationcapacity, directly handled free distributions for less than 10 percent of the total volume. Donors and NGOs distributed the bulk of the aid, often through school-feeding programs, agricultural resettlement projects, urban sanitation projects, or other food aid programs with a developmental impact. These distributions are done in cooperation with the MSA, par.icularly through the Government-sponsored,Action Committee for Food Security (CASAD), which brings together government agencies, official donors, and NGOs active in the field.

112. Chad has made relatively good use of its food aid, but after two bountiful harvests, such aid is no longer needed to overcome an aggregate food deficit. However, much of the food aid linked to special programs is difficult to eliminate without jeopardizing the developmental benefits of the programs. Such is the case for a number of agriculture projects which are not yet self-financingand for school-feeding programs which provide the primary motivation for sending children to school. In addition, certain NGOs have a vested interest in the continuation of food aid programs which are the mainstay of their operations (see Annex 2). These issues are not easy to resolve, although donors should be encouraged to replace food aid with surplus local cereals. On the whole, the donor community has done a relatively good job of cutting back food aid in the past year. Only about 30,000 tons are expected in 1986/87, which will be added to approximately 30,000 tons in existing stocks to act as a security stock.

113. Given Chad's internal and external transport constraints, an in-country security stock is warranted, although the optimal size and location of this stock needs to be determined. Adequate planning for emergency interventions is also necessary, including adequate coverage of related storage and transport costs, which are quite high in Chad. Although food aid is needed occasionally to overcome periodic aggregate food deficits, it has the potential to depress market prices and discourage cereals production in years of good rains. Managing food aid in this changing environment requires close cooperation among the relevant Government institutions, as well as between the Government and the donor community. Basically, there are two food security activities for which the ONC and the MSA are responsible: (i) preparation for emergency food interventions,and (ii) promotion of cereals marketing. The first includes maintaining a security stock, working with the donor community to develop appropriate intervention strategies for emergency situations, and developing food emergency warning systems such as the SAP (systeme d'alerte precoce), a program currently being implemented in the MSA with the help of the NGO AEDES. The second involves monitoring regional markets and disseminating market information inter-regionally,supervising any marketing promotion schemes (e.g., technical assistance, credit, private

34/ The food aid year runs from November to October. - 64 - sectorsubsidies, etc.), and coordinatingand monitoringthe market impact of non-emergencyfood aid programs. Responsibilityfor these various activitiesneed to be clearlydelineated; however, ONC's autonomyshould not lead to an administrativeschism between the Officeand the MSA. Administratively,ONC shouldoperate within a food securitystrategy adoptedand implementedby the Ministry,and its responsibilitiesshould be clearlydistinguished from those of other sectionsof the Ministry. Overall,food securitystrategy needs to be definedin close cooperation with the Ministryfor Agricultureand Rural Development(MADR). The coordinationof food aid policywith the emergingagricultural development strategymay prove difficultas two independentMinistries are involved. The Governmentmay wish to considerthe costs and benefitsof merging them, althoughsuch a merger is not essentialas long as the necessary administrativelinks and informationflows are establishedto ensure adequatecommunication and producea consensusin definingan appropriate food securitystrategy.

3. MinimizingFluctuations in Production

114. In additionto expandingmarketing channels, the Governmentwill have to focus on appropriateresearch, improved seeds and cultivation techniques,better water management,greater credit availability, and developmentof supportinstitutions in order to minimizethe risk associatedwith fluctuationsin foodcropproduction and increaseoutput to maintainChad's overallfood self-sufficiency.

115. Researchon Food Crops. Until recently,agricultural research in Chad focusedexclusively on the cotton sector. Today, there is no research center in the Sahelianzone, and no researchefforts focusing on traditionalcereals, although before the war, limitedexperimentation with millet, sorghum,and maize was carriedout at centersin Dougui-Bokoroand Ain-Dam. In the Sudanianzone, the IRCT has initiatedresearch on certain food crops, includingmaize, niebe, rice, and groundnuts. Researchwas also carriedout a the Deli center. However,resources are very limited, and additionalresearch is needed on regionally-adaptedseed varietiesand productiontechniques, as well as on soil conservationand water management. The socioeconomicimplications of introducingnew varietiesor productiontechniques must also be addressed. The World Bank's AgriculturalRehabilitation Project will includetechnical assistance to help define an appropriateresearch program.

116. Seed Selectionand Multiplication.Chadian farmers generally store their own seeds,although during the recentdrought, many were forced to rely on food aid or emergenrydistributions of seeds to replenishtheir stocks. Thus, a number of new varietieswere introducedwhich were not necessarilywell-adapted to Chad'svarious ecological zones. There are currentlyonly three multiplicationcenters in Chad, one in the Sahelian zone and two in the Sudanianzone for rice and traditionalcereals. An expandedseed programis needed to introduceimproved varieties at the regionallevel and to encourageseed storageand multiplicationat the producerlevel. The Governmentrecently outlined the key elementsof a nationalexpanded seed programand presentedit to the donor communityat the agriculturalsector meeting held in December1986, althoughthe design and fundingof such a programhave not been finalized. - 65 -

117. Production Techniques. Food crop producers in Chad rely overwhelmingly on simple agricultural tools and traditional methods, such as alternating fallows and slash-and-burn cultivation. In addition, a system of crop rotation which includes cotton is practiced in the Sudanian zone, and chemical fertilizers purchased for cotton may sometimes be used indiscriminately to benefit food crops as well. Damage from the 1986 locust infestation was largely avoided through emergency insecticide sprayings by several donors. The need for such emergency interventions served to underline the necessity of developing adequate institutionsand systems for foodcrop protection in Chad,

118. A major animal traction program -- mostly linked to cotton production -- was introduced prior to the war, but progress was stalled by subsequent events. In 1982/83, it was estimated that only 16 percent of producers in the Sudanian zone used animal traction, and the practice was virtually non existent in the Sahelian zone. 35/ Growth has been limited by several factors: first, the local production of ploughs and other equipment ceased in 1979 and was only resumed in 1984. Second, nearly all. veterinary services for cattle were interrupted. Finally, the losses in cash income associated with the war, the drought .,nd,most recently, the restructuring of the cotton sector, have made it extievely difficult for producers to purchase the oxen and equipment necessary fot animal traction, particularly at prices which cover SIMAT's relatively high costs. In the past, this constraint was eased by subsidies on tha purchase of equipment which were financed by the extension agency, ONDR. However, ONDR's current financial difficulties have eliminated this subsidy, and the lack of agricultural credit systems (discussed later) has further compounded the problem.

119. Irrigated Farming, Chad urgently needs to define a coherent strategy for the development of irrigated farming, which has thus far evolved rather haphazardly, with limited coordination of projects and policies. According to the FAO, Chad has approximately 12 million ha. of potentially irrigable land. This represents the largest irrigation potential in the Sahel, although Chad's existing rehabilitationand extension projects will cover 12,000 ha., half of which will benefit from controlled irrigation. Currently, only about 3,500 ha. are under irrigation.

120. Traditional, uncontrolled irrigation has been practiced in Chad's polders since pre-colonial times. Today, there are three large-scale irrigation projects: the polders of SODELAC, which recently resumed operations on Lake Chad, the rice perimeters of OMVSD, and the Casiers A, B, and C on the Logone River. In addition, work has resumed on the principal small-scale irrigation project launched prior to the war along the Chari River, and the Government is planning a new project for the polders of Lake Chad. During the drought, a number of donors and NGOs, in

35/ Limited attempts were made just prior to the war to introduce donkey traction in the Sahelian zone, for groundnut cultivation around Bokoro and in the ouaddis of . - 66 - cooperationwith the relevantGovernlment institutions, introduced and/or improveda varietyof water managementtechniques, including the use of chadouf, or levered water pumps, small-scale dam building, and small-scale irrigation. Many of these projectsare provingsuccessful and merit more systematicexperimentation and diffusion.

121. In defininga developmentstrategy for irrigatedproduction, the Governmentmust addresscertain fundamental questions, including: (i) how heavily shouldChad invest in irrigation;(ii) how best to assure adequate cost recoveryfor investmentsand recurrentcosts; (iii)which crops should be produced;and (iv) how best to introduceproducers to a new structureof productionand new cultivationmethods. Littleresearch has been conducted in Chad to determinewhich crops are most appropriatefor irrigated development. Initially,some additionalcotton production was envisaged, althoughmost perimetershave focusedon rice productionand, to a lesser extent,maize and wheat. However,information on consumptionpatterns and the demand for differentcereals is limited. Demand for rice, for example, may be laggingbehind the developmentof rice production,particularly when a large portionof the availablesupply is smuggledin from large-scale irrigatedperimeters in northernCameroon.

122. The on-goingirrigation projects in Chad have generallynot discovereda satisfactory,self-sustaining system for cost recovery, neitherfor the initialinvestment costs, nor for subsequentrecurrent costs. The Governmentdoes not, and cannot,subsidize these projects,and full cost recoverythrough the producersthemselves requires that there be adequateproduction incentives and marketingopportunities to guaranteean acceptablerate of return. In particular,the returnmust be greaterthan is possiblethrough traditional cultivation techniques, although, thus far, this may not alwayshave been the case. Yields for irrigatedperimeters have tendedto be low, perhapsbecause the projectsare relativelyyoung and the producershave not entirelyadapted to the new organizationof productionand the cultivationtechniques involved. Furthermore,the level of cerealsproduction in the past two years has reducedmarket pricesand may discouragefarmers' interest in irrigatedproduction, despite the longer-termneed to increaseproduction and productivity.

123. Anotherkey issue is the streamliningof the managementof the parastatalsresponsible for managingChad's large-scaleirrigation projects (e.g.,SODELAC, OMVSD). These parastatclsgenerally have excessive administrativestructures and elevatedoverhead costs. To cover these costs, they have resortedto either loweringtheir fixed producerprices, which discouragesproduction, or raisingconsumer prices, diminishing their competitivenesson the market and inhibitingsales. Optionsfor alternativemanagement systems need to be explored. At the very least, overheadcosts need to be reducedto a minimum,and the variouspricing policiesneed to be coordinatedto create consistentincentives.

124. Strengtheningof extensionservices and establishmentof appropriatetraining programs are essentialin introducingproducers to new irrigationtechniques and enablingthem to achieveyields which are superiorto those obtainableby traditionalmethods. Care must also be taken to ensurethat irrigatedfarming systems are compatiblewith other economicactivities undertaken by many Chadianproducers. The difficulty - 67 - of establishing producer cooperatives to manage small-scale irrigation projects was also often under-estimatedby executing agencies and has led to a large number of abandoned perimeters. Certain projects were initiated very rapidly during the drought, often using Food-for-Work schemes, and insufficient attention was paid to the need for a progressive shift toward self-financingand producer management. The many approaches to irrigation development and the policies (e.g., for credit availability, marketing guarantees, etc.) adopted by various projects were largely uncoordinated and, in some cases, contradictory. Therefore, it is essential for the Government and the donor community to work together to establish a common approach and a coherent policv framework within which irrigation projects of all dimensions can operate. A study of irrigation experiences in Chad is currently underway.

4. Agricultural Credit and Institutional Constraints

125. The cash income of Chadian farmers is now more limited than usual as a result of the crisis in cotton and the recent decline of market prices for cereals. The lack of formal credit systems for the sector is, therefore, more acute. No banking institution or other agency currently specializes in agricultural credit, although a number of project-related and informal credit systems exist. Several NGOs extend and manage medium-term credit for ploughs and other simple agricultural equipment. Similarly, the large-scale irrigation projects often distribute tools and inputs on credit, with repayment automatically deducted from marketed output. There is also a poorly documented, informal credit system through local merchants who extend credit, at reportedly very high interest rates, in exchange for guarantees of future production.

126. Before the war, crop credit was first extended by the BDT, and later, by ONDR. The Government's Fonds de D_veloppement et de I'Action Rurale (FDAR), also extended credit on a limited basis for the marketing of agricultural products, but experienced poor repayment rates. The FDAR ceased operations in 1981, and, in 1985, the Fonds d'InterventionRurale (FIR) was established. It is not vet operational and has never received the financing it has been allocateo under the Government budget. Nor has the donor community provided financial support for agricultural credit at the broader, sectoral level. The needs are varied and include credit for (i) equipment and tools; (ii) oxen for animal traction; (iii) simple processing equipment (e.g., peanut grinders and oil presses); and (iv) packaging and vehicles for marketing. The role of FIR in addressing these needs remains to be defined, and appropriate credit systems must be designed in cooperation with other institutions such as ONDR (extension services) and SIMAT (agriculturalequipment manufacturing). A study of credit needs and options, as well as long-term technical assistance for the MADR on credit issues, is being financed under the World Bank's Agricultural Rehabilitation Project.

127. The Ministry of Agriculture and Rural Development (MADR) is responsible for the definition and execution of Chad's agricultural strategy, working through its four principle departments: Agriculture, Rural Engineering, Water Resources and Meteorology, and Agricultural Training. Activities in the field are largely carried out by a variety of Government offices and parastatals, including SODELAC, OMVSD, ONDR, and - 68 -

ONADEH (the latterfor the developmentof market gardening). In addition, there is the Ministryof Livestockand Rural Water and all Its associated agencies,as well as agro-industrialproduction of sugarcaneand tobacco throughSONASUT and MCT (see ChapterTV).

128. Many of the institutionsin the agriculturalsector were reestablishedin the past few years accordingto the sectorstrategy and institutionalframework which prevailedprior to the war. Many of them are seriouslycrippled by a lack of human and financialresources. Thus, there is a criticalneed to reexaminethe goals, structures,and activitiesof these institutionswith respectto the agriculturalstrategy which is being definedcurrently (with the supportof FAO, UNDP and the World Bank, under its AgricultureRehabilitation project) and within the existingresource constraints.The most salientfeature of the new strategywill be the increasedemphasis on agriculturaldiversification and, in particular,on food production-- in contrastto a previouslynarrow focus on the cotton sub-sector. The Governmentwill have to reorientexisting institutions as well as developappropriate support systems and institutionsfor foodcrop production. Large gaps are evident,for example,in terms of credit availability,research programs, marketing channels, and extension services. ONDR has functionedrelatively effectively, but until recently it concentratedits extensionservices predominantly on cottonproduction. Effortsare being made to developand implementa more integratedprogram, but this has been difficultas ONDR strugglesto adjust to the loss of revenuesfrom the cotton sector,which totalledapproximately three-quartersof the agency'sbudget in 1985. As a result,ONDR has begun a major restructuringprocess with the help of technicalassistance from Franceand Switzerland.

5. The Potentialfor AgriculturalDiversification

129. The possibilitiesfor agriculturaldiversification vary by region and will depend largelyon the potentialfor water managementsystems (especiallyirrigation) and proximityto domesticor externalmarkets. In the Sahelianzone, as water managementsystems are introduced,it may be possibleto expandproduction of traditionalcrops such as millet,ni6b6, sesame,and onionsto supplysecondary urban centersin the North. In the Lac and Chari-Baguirmiregions, the proximityto the relativelylarge N'Djamenamarket affordsthe opportunityto diversify,particularly into fruits,vegetables, and wheat. Throughoutthe Sudanianzone -- and to a lesserextent in the southernpart of the Sahelianzonie -- there is potentialto expandproduction of traditionalcereals as well as to pursue diversificationinto rice, maize, oilseeds,tubers, roots, fruits and vegetables. Some exportpotential for these crops exists,especially in the large market in northernNigeria, although fluctuations in production -- particularly for traditional cereals -- tend to be regional in nature (i.e.,when southernChad is in surplus,so are the northernregions of C.A.R.,Cameroon, and Nigeria). None of these crops offer the potential for large-scaleexport to Europeanmarkets, as cottondoes; and Chad has thus far been unable to competein the Europeangroundnut market due to its transportdisadvantage relative to other groundnutproducing countries. Finally,there appearsto be littlescope for expansionof Chad'n other industrialcrops: tobaccoand sugarcane. Domesticdemand for cigarettes and sugar is relativelysmall and growingslowly, particularly in the face - 69 - of competition from unofficial imports. It is also unlikely that either industry could compete in external marketsin the medium-term.

C. Livestock: What Is Holding up Development?

130. The livestock sector in Chad can make a major contribution to the country's growth and incomes, replacing in part the lost income and export potential of the hard-hit cotton sector. Before this potential can be realized, however, a number of key constraints to the development of the sector need to be addressed. Needed actions include the implementationof well-focused strategies for the promotion of the productive environment and for the development of water resources, the creation of an appropriate institutionalenvironment, and the reform of the system of livestock trading and export.

1, Background

131. Livestock has traditionallybeen an important source of income, export revenue and food self-sufficiency in Chad. Despite serious set-backs to growth in the sector (the 1979-82 war, a Rinderpest outbreak and drought in 1984), livestock production accounted for approximately 17 percent of GDP in 1986, not counting the mostly informal transformation and marketing activities the value added of which is difficult to measure. The Ministry of Livestock and Rural Water (MEHP) estimates that there are currently 3.5 to 4 million head of cattle in the country, about the same number estimated in the last official livestock census taken in 1975-76. 36/ The annual offtake of cattle is estimated at 10 percent, and production is estimated at 64,000 tons. Approximately 4.5 million goats and sheep and 0.9 million camels, donkeys and horses round out the livestock sector.

132. About half of the cattle are in herds which migrate seasonally between the Sahelian and Sudanian pastoral zones. Although sedentary livestock raising is concentrated in the South, this practice Is gaining importance in the Sahelian zone, and there is ample scope for expanding the use of animal traction and other forms of integration with agriculture. The country has major fodder reserves in normal rainfall years and, even in drought years when fodder production in the Sahelian zone is inadequate,

36/ The last official census of Chad's livestock herd was published in the "Inventaire Qualitatif du Cheptel Tchadien". Following the cen.us, two growth rates were used to estimate the evolution of Chad's herd over a ten-year period. Due to a reduced birth rate resulting from the 1978 drought, it was estimated that the herd would grow by 1.6 percent from 1977 to 1981. A growth rate of 2.5 percent, estimated to be normal for Chad, was used from 1982 to 1986. The rate of exploitation for cattle was estimated at 12 percent, a figure which probably declined considerably as a result of the above-mentioned set-backs to growth in the early 1980s. 70 - total f.eedproduction in the Sudanian zone would be enough to support a somewhat expanded herd. 37/

133. lJvestock market-inf! in Chad is carried otit prlmarily on a traditional basis; herders sell animals to large traders through a network of 40 principal and secondary centers. Some refrigeratedmeat was exported in the late 1960'3 (reaching 11,460 tons in 1971), but the market declined rapidly durirngthe 1970's as a result of increased competition from Europe and Latin America and higlhertransport costs, and stopped altogether with the outbreak of hostilities in 1979. 38/ Chadian livestock is currently exported almost exclusively "on the hoof" mainly to Nigeria, with a small quantitv goinig to the Central African Republic. Approximately 180,000 cattle were officially exported in 1985, although the number is closer to 300,000 if informal channels are included. An estimated 150,000 sheep and goats were also exported in 1985, all via unofficial channels. Using these estimated figures, the total value of livestock exports for 1985 was about 11S$60million, surpassing for the first time the export revenue of the cotton sector.

2. Investment and Aid

134. In view of the livestock sector's proven durability and its potential for expansion, investments to increase the sector's efficiency are a key element of Chad's rehabilltationefforts. During the Rinderpest epidemic in 1983, a major effort was undertaken by the EDF, FAC, BTD and FAO to reequip the Ministry of Livestock and Rural Water with vehicles and vaccination equipment. Since that time, a number of externally-financed, small-scale projects have included support for veterinary services, rehabilitation of the vaccine producing facilities at the Farcha Laboratory (which already exports vaccines to neighboring countries), restoration and expansion of the pastoral well system, and provision of technical assistance for the institutions involved in the sector. The most important of these is financed by EDF, FAC, FAO, the Federal Republic of Germany, and the NCO, OXFAM. However, these projects are regionalized and function independentlvwith little coordination. According to the Covernment's inventory of aid projects for 1987, approximately US$4.5 million equivalent of external assistance will be devoted to development of the livestock sector as compared to US$45 million equivalent for agricultural development. This imbalance will be addressed in the Government's

37/ In addition to Chad's major fodder reserves, large amounts of cotton-seed grain suitable for animal consumption are produced during COTONTCHAD's milling operations. This resource has, however, yet to be fully exploited.

38/ Approximately 30 tons of refrigeratedmeat has been exported to Cameroon and the Congo since 1983. Expansion of this market is a prlmary objective of Chad's livestock development strategy (see para. 146). - 71 - investment program for 1988. For the time being, development activities in the sector focus largely on cattle, although camels, sheep and goats all represent an important resource for the country.

135. Given Chad's financial constraints, the highest priority should be given to investments which: (i) increase national livestock production on a sustainable basis; (ii) improve the efficiency of livestock marketing; and (iii) increase the sector's contribution to the economy. Based on these investment criteria, the Government is currently preparing, with the support of IDA and FAO, a National Livestock Project which will provide urgent institutional support while encouraging a Larger role for the private sector. The project's main objectives will be to expand the availability of key inputs and services, improve the quality of sectoral planning and extension, and reorganize the administrationand financial regulations governing livestock export.

3. Production Strategy

136. In view of the country's weak financial base, utilizing and building on the traditional methods of managing Chad's herd is the most appropriate approach to increasing livestock production. While the family is the basic production unit of migratory herders, ethnic relationships between herder families and the traditional hierarchy are still strong and continue to define migration patterns. In addition, the relationships between herders and the Chadian administration,as well as between herders and cultivators, have long been a source of social and political tension. 39/ Priority should, therefore, be given to support actions which promote the productive environment through provision of technical advice and inputs without drastically altering the sector's socioeconomic patterns. Such actions would include increased suDport for animal health (particularly the distribution of medicines), the introductionof technical and organizational assistance, breed improvement research, and training for extension agents.

137. In line with the objective of reducing recurrent costs while expanding production incentives at the producer level, the Government's medium-term development strategy needs to focus on the creation and support of producer groups based on existing social structures. These groups would form a national umbrella structure which would gradually assume full responsibility for the distribution of veterinary drugs and other inputs, and eventually take on an important role in meat and by-product marketing. Responsibility for the management of water points and rangelands would also be transferred to producer groups in an effort to maintain a high degree of mobility in the more drought-prone Sahelian zone. Predominantly public sector tasks such as sanitary inspection, vaccination against major epidemics and other essential veterinary treatments, research and provision of technical advice should remain government responsibility in the

39/ The assessment of a tax on livestock in 1964 was a catalyst for civil disturbances at Mangalme which proved to be precursors of the hostilities to come. - 72 - medium-term. However, a gradual transfer of vaccination and extension responsibility to producer-group organizations should be envisaged over ti.e long term, with research and sanitary control eventually remaining the only Govermnent operational tasks.

4. The Institutional Environment

138. In correlation with actions at the producer level, the creation of an appropriate institutional environment is essential for growth in the livestock sector. All institutions in the sector, with the exception of the Farcha laboratory, ceased to function during the war, and their facilities (buildings and vaccination centers) remain largely dilapidated. Despite a number of externally-financedemergency relief actions In support of the MEHP, the scarcity of funds for refurbishing buildings, purchasing vehicles and equipment, and especially for operating expenses has reduced the Ministry to a provider of minimal emergency assistance. In addition to the lack of operational resources, the MEHP's capacity for planning and the provision of technical advice is severely limited by the lack of qualified personnel at all levels.

139. Several parastatal enterprises operating in the sector are faced with the same constraints as the MEHP. The National Office for Village and Pastoral Water Supply (ONHPV) is charged with planning, coordinating and, in some cases, executing the rehabilitationand construction of rural water points in cooperation with the MEHP's Water Bureau. Although the ONHPV benefits from numerous externally financed projects in support of its rehabilitationand construction operations, it still lacks the capacity both to program and coordinate all interventions in the sector and to provide certain necessary technical expertise, particularly in the area of well maintenance. In the field of veterinary services, MAGAVET has a de lure monopoly on the importation and distribution of veterinary products. Its distributionnetwork, however, is grossly inadequate and needs to be broadened, and it is unable to recover its costs. Chad's only slaughterhouse located at Farcha suffers from a dilapidated plant and a shortage of qualified management personnel, which cause the enterprise to operate at a loss. Similarly, the National Society for Animal Production (SONAPA), charged with the production and marketing of milk, eggs, chickens and animal feed, is subject to weak financial management and the lack of markets for some products, which severely limits its profitability. With respect to disease control, the Farcha laboratory has played a key role over the last decade through research and preparation/distributionof vaccines. Both activities are being Ptrengthenedwith assistance from France, the EDF and IDA.

140. Strengthening the services of MEHP and those of its associated enterprises will be a principal objective of the Government's livestock development strategy. Funds will be provided under the National Livestock Project for office construction and rehabilitation,equipment, vehicles, training and technical assistance, as well as for operating costs on a declining scale. Training and organizational assistance will also be provided on a pilot project basis in support of producer groups. Further operational support will be provided to MAGAVET, which will transfer responsibility for delivery of common medicines to the producer groups in the designated pilot areas while maintaining its import monopoly. MAGAVET - 73 - will limit its responsibilitiesto the wholesale distrIbution of medicines in the pilot areas, while working to improve its efficiency in the rest of the country.

141. A reevaluation of SONAPA's operations will be necessary to determine the institution's future viability. Because of the lack of viable markets, there appears to be little justification for several of SONAPA's activities, in particular the production of animal feed. A major investment recently approved by BDEAC in support of SONAPA's operations -- because of its vast size (CFAF 500 million) conpared with the small turnover of the company -- further complicates the question of the institution's financial viability. Following an analysis of market prospects, the rationale for continued State participation in the sector nceds to be examined with an eye to, rds resolving SONAPA's debt issue. In any case, the potential for private sector participation should be investigated for production and marketing activities which might prove viable.

5. Water Resources Development

142, Also crucial to the development of livestock resources in Chad is the need to define a strategy for the creation, rehabilitationand maintenance of pastoral wells. Since 1983, donors have financed numerous small and widely-scattered interventions in this field, which have resulted in a variety of policies and operational strategies for the development of the sector. The lack of basic information such as specific head counts, herder routes, fodder production capacity and ground water reserves makes it all the more essential for the Government and donors to expand their knowledge of the sector's capacity and to coordinate future development efforts.

143. Of particular necessity in the short term is the definition of a strategy for the creation of water points along herder routes in relation to the capacity of the surrounding grazing lands. The implementationof an appropriate strategy would avoid a repetition of the mass starvation of cattle and severe ecological damage that resulted from over-grazing around water points during the 1973 drought. Technical assistance will be provided under the National Livestock Project to MEHP's Water Office for the programming of water points along established marke:tingtrails. While ONHPV will be responsible for monitoring the establishment of these facilities, the actual construction should be carried out, where possible, with private sector participation. The responsibility for maintenance of water points should also be transferred to producer groups and to small entrepreneurs.

6, Export Constraints and Potential

144. The pres.nt svstem of livestock trading also poses a serious constraint to the sector's development. The mixed-enterprise SOTERA (Society for the Exploitation of Animal Resources) has an official monopoly on the exports of livestock, meat and by-products, but in practice its function has been reduced to controlling exports of live animals by allocating export permits among its shareholders. Numerous permits, licences, certificates, fees and taxes are required not only for export but - 74 - also for the domestic market, making the system prohibitive for many traders. Consequently, extensive use is made of informal export channels for livestock, depriving the State of needed tax revenues. In addition, as explained in Chapter IV, the weakness of the Nigerian naira in relation to the CFA Franc has encouraged Chadian traders to use export revenue to purchase Nigerian goods which are subsequently smuggled into Chad for resale, further depriving the Chadian Government of trade revenues linked to the livestock sector.

145. Faced with this situation, the Government temporarily banned livestock exports in March 1986, citing the need to rebuild stocks and to organize livestock marketing through official channels. The ban ended in January 1987. Because Chad's livestock exports to Nigeria represent only about 5 percent of total Nigerian meat consumption, the impact of the ban on prices has probably been negligible. On the contrary, according to customs officials, the ban has cost the Government an estimated CFAF 300 million in tax revenue, and may have even cost a loss in market share,

146. In order to create a more favorable environment for commercial activ-Jies in the livestock sector, the following actions are required in the short-term: (i) SOTERA's export monopoly, which severely restrains marketing efficiency, needs to be relinquished; SOTERA should limit its role to the promotion of exports of meat and animal by-products; and (ii) the complex system of export taxes and licenses needs to be reviewed and streamlined. While a certain amount of unrecorded trade is unavoidable due to the traditional nature of the sector, the implementationof these actions should serve to increase the Government's revenue from livestock exports by as much as 50 percent in a period of one year. The Government, with assistance from IDA, is currently examining the role of SOTERA, as well as formulating its proposals for the simplificationof the administrative and financial framework of livestock exports, which will be supported under the National Livestock Project.

147. The potential for increasing exports of meat and meat by-products also needs to be examined in order to retain a higher value added for the national economy. Because of competition with subsidized European and Latin American exports of frozen boneless meats, Chad, which unusually high costs for air transport, has been unable to recapture its share of the regional market for refrigerated meat. In addition, Chad's processing facilities (mainly the Farcha slaughterhouse)do not have the capacity to produce boneless meat, so that "had can only export meat on the bone, which further increases transport costs. In practice, SOTERA grants export authorizations to independent merchants, so that its export monopoly is not strictly enforced. The Government has recently commissioneda livestock meat and by-products study which will examine the present and projected supply and demand situation in the region, especially the Nigerian market. Based on the scope of these opportunities, recommendationswill be made on the necessary investments in the processing and refrigeration facilities. The potential for exporting leather and other animal by-products also requires further study. In the meantime, the development of a parastatal enterprise in this area should be avoided. Depending on market conditions and the possibility for private sector intervention, investments could be considered in the area of leather production. 75 -

D. Fishing: What Is the Potential?

148. ln view of Chad's limited resource base and the need to diversify output In the agricalta1ralsector, the expansion of production in the fisheries sector -- a resource with considerablepotential in Chad -- merits closer studv.

149. Little formal information has been collected on Chad's fisheries sector since a comprehensive study was carried out by the French Research Institute, ORSTOM in 1973. 40/ At that time, it was estimated that, in years of normal rainfall, approximately 100,000 metric tons of fish are produced annually from Lake Chiadand the Chari and Logone rivers. 41/ This output represents an important contribution to Chad's food self-sufficiency. However, as in other Sahelian countries, fish production in Chad is extremely sensitive to rainfall conditions, and supply can vary greatly between the wet and dry seasons as well as from year to year. Fresh fish marketing in Chad is limited to N'Djamena, Sarh and Moundou, while smoked and dried fish is traded throughout the c..untryand exported informall; to Cameroon and Nigeria, and to a lesser extent to the Central African Republic. However, improved drying techniques must be developed to eliminate frequent parasi-? problems.

150. Direct interventions in support of the fisheries sector have been few and largely ineffective. During the 1960's, the Government made several attempts to organize marketing cooperatives for fish production, but results were disappointing. As with the livestock sector, strong ethnic and social traditions have worked against the introduction of organizationalstructures from outside particularly when accompanied by administrativeconstraints. Efforts in this area should be designed to utilize and build on traditional social structures through which technical advice and productive inputs can be channeled. The Government has adopted a more flexible approach to fisheries promotion based on the creation of small-scale, self-managed pre-cooperatives.

151. In an effort to reduce the rainfall sensitivity of fish production, the Government is currently examining, with the support of UNICEF and several NGOs, the potential for fish farming in man-made stock ponds. The marketing strategy for pond fish will focus on the dry season when prices are driven up as a result of decreased supplies of fresh fish. Future development of these activities will depend on the results of pilot schemes currently underway.

152. Given the sector's potential in the areas of food self-sufficiencyand income generation, fisheries components should be

40/ "Le Commerce du Poisson au Tchad" (P. Couty & P. Duran, ORSTOM).

41/ 100,000 metric tons represents total estimated output from the above-mentionedbodies of water including Nignrian and Cameroonian catches. Chad's share of this total is estimated to be approximately 70 percent. - 76 - considered for all rural development interventions situated near major rivers or Lake Chad. In the meantime, a comprehensive review of the sector's current rapacity is needed to determine growth potential and to define a medium-term development strategy. A study of this type is underway, with financing from the BDEAC,

E. Environmental Concerns: The Need for Action

153. Development of the agro-sylvo-pastoralsector is closely linked to ecological conditions, in particular to the questions of desertification and soil degradation, Chad, like other Sahel countries, has been seriously affected by recurrent drought since the late Sixties. However, a number of observers ieel that drought-induced damage and degradation have been less severe than in other Sahel countries due to Chad's relatively low population density. Nonetheless, the situation is serious and the Government is currently reviewing the components of a proposed national program to combat desertification which was designed in collaboration with technical experts from CILSS. 2-'sertificationin Chad has multiple causes, including, among other reasons, indiscriminatecutting of fuel wood, brush fires, and overgrazing by livestock. The Ministry of Environment,which is grossly under-equipped and lacking in skilled technicians,has initiated several tree nursery and reforestation projects, with support from the donors and NGOs such as Africare, CARE, SECADEV and AICF. Many of these NGOs also have their own programs to combat desertification, frequently within the framework of larger agricultural development projects.

154. Although a reforestation policy is essential, it is not sufficient to effectively combat desertification. A number of other actions are also necessary, some of which have already been introduced in Chad. In the Lac and Kanem regions, efforts have focused on dune stabilization around the polders, protection of ouaddis against sand and salt intrusion, and the installation of wind-breaks and sheltering screens around dwelling areas. Throughout the Sahelian zone, and in vulnerable areas in the Sudanian zone, actions underway or in planning, have included the building of anti-erosion barriers, water conservation measures, regeneration of gum arabic and palm oases, development of tree varieties appropriate for fuelwood production, distribution of improved-efficiency cookstoves, and the promotion of a program for fuelwood conservation. Simultaneously, there is a need to combat brush fires, determine the placement of rural water points based on available pasture lan;s, and ensure adequate management of forest areas surrounding urban ( nters. The defirition and rapid implementationof a comprehensive plan to combat desertification is essential and cannot be separated from the formulation of policies for rural development. Sw

- 77 -

IV. INFRASTRUCTUREAND INDUSTRY

155. Transportation is crucial to the development of not only agriculture, as we have seen, but also industry and trade, and even education. This chapter begins, therefore, with a section on this sector. Given Chad's limited resources and the urgency of improving the transport network, the sector identifies and discusses the issues and actions which deserve priority. Section B examines Chad's petroleum sector and how it may change after domestic production begins, which is possible as early as 1990. This is accompanied by a brief review (Section C) of the main problems of the electricity and water sub-sectors, namely high production cost and low cost-recovery. Chad's urban population has been increasing dramatically in recent years, largely because of the successive droughts; Section D examines how Chad is coping with this situation. Section E is devoted to trade and industry, distinguishingbetween the constraints facing existing and new enterprises.

A. Transport: What Are the Main Priorities and Issues?

1. The Transport Network

156. The transportationnetwork of Chad is dominated by road transport. Chad has no railroad. It has one international airport and five domestic airports, three of which receive regularly scheduled services provided by Air Tchad. 42/ River and lake navigation, once important, have declined with the drought and appear unlikely to justify the major investments which would be required to ensure reliable waterborne transport in the future. Formal intercity passenger services are virtually non-existent. Statistics on freight and passenger transport are very weak.

157. Chad has about 7,300 km of classified roads and tracks and some 24,000 km of unclassified tracks serving rural areas. 43/ Only 28 km are paved, a decline from 253 km in 1978, and only about 1,260 km are engineered, all-weather roads; most of the remaining are passable only during the 7-8 months of the dry season. Road distribution is uneven; roads are more concentrated in the cotton producing area in the South approximately defined by the triangle N'Djamena-Sarh-Moundou(see map on next page). In this area, soil conditions permit the construction of easily maintained later4te roads.

158. Circulation on roads is restricted by the difficulty of crossing rivers and lo..lying areas during and for several months after the rainy season. There are very few bridges and only elever ferries. Two bridges

42/ Two-thirds of Air Tchad is owned bv the Chadian Government and one-third by UTA.

43/ The classified network consists of roads that have been maintained from time to time; the unclassified network refers to an estimate of recognized or marked tracks. - 78 -

-- one near N'Djamenaand the other at Lere, both connectingChad to Cameroon'sroad network-- have recentlybeen rehabilitated.Only seven ferrieshave been rehabilitated;the cost of rehabilitatingthe othersis at presentnot economicallyjustified by the volume of traffic.

159. The ChadianGovernment has identifieda priorityroad networkof 3,800 km which will be reconstructedin the next five years. Rehabilitationor spot repairsare currentlybeing carriedout on about 2,000 km of the high-prioritynetwork, and a capacityto maintainthese roads is being developedunder projettsfinanced by IDA and USAID. Experiencehas shown that spot -epairshave a very short lifetime,while rehabilitationto all-weatherstandards is extremelycostly in the Chadian contextdue to the scarcityof suitablematerials. Therefore,careful considerationneeds to be given to the definitionof the high-priorityro.d network,the standardsof improvement,and the selectionof maintenance policiesand practices.

160. On the whole, the transportsector of Chad is so underdeveloped that it seriouslyhampers overall economic development. Long distances, difficultterrain, widely dispersedpopulation, lack of suitableroad constructionmaterials, and high energyprices contributeto high constructionand transportoperating costs, which the small dispersed populationand low volumesof trafficcannot fully support. Intensive effortswill be needed to move Chad from a low equilibriumcharacterized by high transportcosts and low trafficvolumes to a situationsimilar to that of other countriesin West Africa.

2. TrafficVolume

161. Chad's externaltraffic of some 350,000tons per year is, at present,carried predominantly on the road/rail route from the port of Douala in Cameroonto N'Djamena(1,750 km). The main exceptionsare petroleumimports (90,000 tons), which come by road from Cameroonor Nigeria,and cottonexports (40,000tons), which go directlyfrom southern Chad to Cameroon. Alternativeroutes through Nigeria should be shorterand cheaperbut have remainedlargely closed to Chadiantraffic in recentyears for politicalreasons. The Transequatorialroute (2,500km) throughCAR and Congo is no longerin use, nor is the Benoue riverroute through Cameroon.

162. Domesticfreight transport handles about 265,000tons per year; of this, 180,000tons representtraffic internal to the cotton zone and 25,000tons the distributionof petroleumproducts. Domesticfood flows in a normalyear are estimatedat about 50,000 tons; however,this traffic does not appear in officialstatistics. The remainderaccounts mainly for the distributionof beer (10,000tons), sugar (9,000tons), and miscellaneousconsumer goods.

163. Presentroad trafficlevels are low: less than 100 vehiclesper day everywhereexcept in the immediatevicinity of tne major urban centers, and less than 10 vehiclesper day on most of the road network. Currently, domestictraffic between the northernand southernparts of the country often has to pass throughCameroon during the rainy season. The on-going rl s/A- I

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t°l g .t' x,, tlQz ,(,7 let" 'e' ''+ -- - - 81 - road rehabilitationand maintenanceprogram will re-establish communicationsbetween the country'sprincipal cities (N'Djamena,Sarh and Moundou).

3. TransportCarriers ard Institutions

164. There are five main groupsof transporters:the Cooperativedes TransporteursTchadiens (CTT), COTONTCHAD, the UNDP/OPEEmergency Food Programtransport fleet, a small number cf enterpriseswhich providefor their own needs,and independentoperators.

165, The CTT is an associationof privatetruck owners and ihasa de jure monopolyon all internaland externaltransport for Chad, except for the domesticoperations of COTONTCHADand other enterprises. In 1985, CTT had 382 memberswho owned 580 truckswith a total capacityof 16,700tons, and 108 tanker truckswith a capacityof 3,427m 3 . They transportedan estimated150,000 tons of dry cargo and 8,700 m93 of petroleumproducts. Most trucksunder 5 tons are not owned by CTT members. While they do not officiallytake part in petroleumtransport, they carry significantquantities of goods and passengers,usually over short distances.

166. COTONTCHADis the largestsingle transporterin Chad and is not a member of CTT. It providestransport services to cottonfarmers in the southwestof Chad: it collectsseed cotton and distributesseeds and agriculturalinputs. Up to 1985, it operateda fleet of about 260 heavy trucksand about 100 light to medium vehicles. As part of its Emergency Program (ChapterIII), it has sold about 80 tractortrailer trucks to CTT and, in the future,will rely on this organizationfor all long distance export-importfreight movement.

167. In additionto CTT and COTONTCHAD,UNDP/OPE still managesa fleet of more than 150 truckswhich representsthe remainsof the 240 truck fleet broughtin to help with the distributionof emergencyfood aid in 1985. Althoughthis fleet is still transportingsome reliefaid to pocketsof populationstricken by locust infestation,part of the fleet is underutilizedand competeswith the CTT in certainareas to cover its recurrentcosts. The Government,fearing a renewedcatastrophic drought, is reluctantto lose the securityprovided by this extra transport capacity. A technicalcommission comprising representatives of the Ministriesof Road Security,Planning, Transport and PublicWorks, as well as of the participatinginternational agencies, has been appointedto preparea plan for disposingof truckswhich are eithersuperfluous or unsuitedto currentoperating conditions in Chad.

168, In short,present capacity in the truckingindustry far exceeds the foreseeabledemand for transportservices associated with domestic productionand externaltrade. Moreover,much of the vehiclefleet is oversized,over-aged or in poor conditionand can only be operatedon the internationalroutes. Thus, while there is an excess capacityfor carrying large loads over paved roads,there is at the same time a shortageof appropriatetransport (small trucks, vans and off-roadvehicles) and supportservices (fuel depots, garages and workshops,break-bulk handling and storagefacilities) to promotelocal and regionaltraffic flows. - 82 -

169. Domestictransport tariffs are fixed,broadly reflecting differentroad conditionsin the threemajor climaticzones. Considering that 10 percentof the revenuesgo to CTT, these tariffs,though high, barely cover transporters'actual costs on the domesticroad network. Consequently,few privatetransporters provide domestic services. By agreementbetween Chad and Cameroon,Chadian truckers may transport 50 percentof Chad'simport-export traffic to and from Ngaounder6in Cameroon, The tariffsapplicable to such trafficare favorablein cnmparisonto actualuser costs on the almost fully-pavedroad. For those reasons,Chadian truckers, strongly prefer to travelon the international routes. The limiteddistribution of garagesand workshopsin countryand the difficultiesof obtainingspare parts are additionaldisincentives for Chadiantruckers to operateon the domesticroad network.

170. The recentlycreated Ministry of Transportand Civil Aviationis responsiblefor transportsector planning and policy formulation. It is supportedin this role by technicalassistance funded by UNDP. The Ministryhas very limitedstaff and resources,and needs to focus sharply on the most pressingpolicy issuesand on implementationof agreed policies. The Ministry of Public Works, Housing and Urban Development (MTPHU),through its Public Works Department,is responsiblefor planning the developmentof the road network. Road maintenanceis the responsibilityof the OfficeNational des Routes (OFNAR),an autonomous publicenterprise under the tutelageof MTPHU. Three OFNAR subdivisions (N'Djamena,Sarh and Moundou)are operational,and the subdivisionsof Ab6ch6 and Mongo will be made operationalas road rehabilitationadvances into these areas. Technicalassistance and trainingis being providedby USAID to OFNAR'scentral staff and equipmentdivisions, and will be providedunder the ongoingIDA-financed Highway Maintenance project to OFNAR subdivisions,as well as to the Departmentof PublicW'rks. Except for planning,management and design staff,most of the personnelof the PublicWorks Departmenthas been transferredto OFNAR. Anotherpublic enterprise,the OfficeNational des Carrieres(OFCA), has recentlybeen createdunder the tutelageof the Ministryof PublicWorks to manage quarry operationsand, in particular,the large crusherwhich will be installedat the Mani quarrywith USAID financing.

4. Sector Issues

171. Definitionof the PriorityRoad Network. Chad'shighest priority at the moment is the restorationof criticalroad communicationbetween differentparts of the country. A start has been made on this through severalroad rehabilitationprojects supported by donors. Once the basic networkis rehabilitated,Chad's next priorityshould be to rehabilitate existinglinks betweenagricultural areas and internaland external marketingcenters. Althoughthe broad objectivesare clear,the designationof the priorityroads requiresfurther careful consideration, especiallywith a view to reducingcosts and maximizingreturns.

172. Selectionof SuitableDesign Standards. Widelyvarying soil conditionsin Chad make the choice of road design standardsparticularly difficult. Partlybecause of differencesin these standards, rehabilitationprojects to date have estimated unit costs ranging from CFAF 1.5 millionper km to CFAF 10 millionper km. The choiceof an appropriate - 83 - design dependson reasonablyaccurate estimates of constructionand maintenancecosts and trafficvolumes. Consequently,design standards may to vary by region.

173. Financingof Maintenance. The rehabilitatednetwork appears likelyto expand fasterthan the country'sfinancial or technicalcapacity to assure even routinemaintenance. Chad has made a significanteffort to contributeto the cost of road maintenanceby settingaside a shareof petroleumtax revenuesfor the OFNAR budget but, for a variety of reasons, these revenueshave not been as high as anticipated.Although revenue performanceis expectedto improve,this will take time, and revenuesare not likely to grow as fast as the rehabilitatedroad network. Alternate solutionswill have to be found,at least in the short term, to ensurethat the benefitsof rehabilitationare not lost becauseof inadequate maintenance. Donorswill need to assumea major share of routineand periodicmaintenance costs, as well as financethe costs of rehabilitation in the foreseeablefuture.

174. Encouragementof the PrivateSector. The Governmentis committed to limitingthe growth of the public sectorand encouragingthe private sector,particularly small-scale and traditionallyrooted enterprises. Applyingthat policy in transportwould require,first, the phased removal of the de jure monopolyof CTT. Eliminationof the variousinformal controlson the externalnetwork and removingthe causesof delays in customswould also encourageprivate truckers, in additionto helping reduce transportationcosts. Privatecontractors could also be used more regularlyfor the executionof routineroad maintenance,emergency repairs and minor improvements.Another area where the Governmentshould relinquishits role is quarrying-- a criticalactivity in a countrywhere constructionmaterials are extremelyscarce. The newly createdOFCA should be abolishedand this activityshould be left to the privatesector, with regulatoryauthority vested in the Ministryof PublicWorks.

175. Definitionof a Sector Strategy. Chad'stransport sector strategyis not well definedat present. A sectorstrategy statement is under preparationfor presentationto a transportsector donors' meeting currentlyscheduled for late 1987. The principalsector objectives should be: (i) to reconstruct,rehabilitate and maintainhigh-priority infrastructure;(ii) to reorganizeand rationalizetransport services; (iii)to removea wide range of constraintsin order to lower costs for the transportuser; (iv) to improvethe planningand managementof infrastructureand facilitatethe provisionof transportservices by the privatesector; and (v) to mobilizeadditional resources for maintenance and improvecost recovery. The sector strategyshould define, in particular,what is meant by "high priority"infrastructure. Two issues that are criticalto the definitionof a sectorstrategy require further study. One is a study of soil and climaticconditions and consequent constructionand maintenancecosts, leading to the definitionof optimal designstandards for road rehabilitationin differentgeographical zones and trafficclasses. The second,which dependsin part on the first, is a study of air transportalternatives, leading to an assessmentof the most cost-effectivemeans of meeting transportneeds in remoteareas. Finally, the Government'scapacity to devise and implementappropriate transport - 84 - sectorpolicies and to plan and manage the developmentof transport infrastructurerequires conslderable strengthening.

B. Petroleum: What ChangesWill DomesticProduction Bring?

176. Althoughoil has been discoveredin Chad, it is not producedat present. Explorationactivities started in 1970 and a consortiumled by Conocodiscovered oil in 1974 in Sedigi,north of Lake Chad. Since then, the same consortium,this time led by Esso, discoveredoil in the South as well. Althoughexploration continues, it is possiblethat oil resourcesin the South may be sufficientto justifyan export-orienteddevelopmant as soon as oil prices rise sufficientlyto make the transportcosts to a seaportaffordable.

1. The Sectorat Present

177. Until Chad's domesticresources are exploited,its landlocked situationmeans that importedpetroleum products have to be truckedover long distancesfrom the nearestsources of supply: Douala,Cameroon or Kano, Nigeria. This greatlyincreases the landedcost (i.e.,in N'Djamena) of petroleumproducts in Chad. In 1986, their cost was about US$600per ton (CFAF 200 per liter),compared to a CIF cost of about US$150per ton (CFAF 50 per liter)on the West Africancoast. Chad's oil importbill in 1985 was more than US$50 million (equivalentto about 27 percentof merchandiseimports and 8 percentof GDP). 44/ It shouldbe noted that becauseof the high cost of transport,even a significantreduction in the internationalprice of oil has a relativelysmall impacton the cost of productsdelivered in Chad. For example,while the averageCIF price of petroleumproducts on the West AfricanCoast droppedby 40 percentbetween 1985 and 1986, the relevantlanded cost in Chad only decreasedby 15 percent.

178. Cameroonianpetroleum products have a lower ex-refinervprice than Nigerianproducts. The differenceis largelyoffset by higher transportcost for Cameroonianproducts: the refineryin Douala (Cameroon) is 1800 km from N'Djamenawhile the Kano (Nigeria)refinery is only 800 km away. The differenceis furtherincreased by a CFAF 25 levy per liter of gasolineand CFAF 10 per liter of diesel imposedin Cameroon. The levy serves to fund Cameroon'sCaisse de stabilisation.Chad's Fonds d'interventiondes produitsp6troliers (FIPP) was set up to equalizeimport pricesby taxingNigerian imports and subsidizingCameroonian imports. (The FIPP is discussedfurther in ChapterVI in the contextof domestic resourcemobilization.) The systemhas never worked properlyand has led to fraud: cheaperNigerian imports received subsidies after transiting throughCameroon. Chad halted importsof oil productsfrom Cameroonafter it failedto persuadethe Cameroonianauthorities to lift the levieson oil exportsto Chad, and now the entire fuel price equalizationlevy, amounting to CFAF 39 per liter of gasolineand 33 per liter of diesel fuel, accrues

44/ Chad'soil consumptionis estimatedat more than 90,000cubic meters, includingsmuggled imports. - 85 - to the FIPP. In addition,some retailerspay into FIPP an amount representingthe differencebetween the real and presumedex-factory purchaseprice, amounting to about CFAF 40 per liter in mid-1986. The Governmenthas begun implementinga reformof petroleumtaxation based on a reductionin the numberof taxes and a simplificationof collection procedures,which aims to reducesmuggling.

179. Chadiantaxes on fuels,excluding price equalization,are about 15 percentof the CFAF 200 per liter retailprice; 9 percentis earmarked for OFNAR, the road maintenanceorganization. If the price equalization levy is included,total taxes amount to 40 percentof retailprices, three-fourthsof which goes to FIPP. Distributormargins accountfor about 13 percentof retail costs; they includeallowances for storage,losses, depreciation,overhead, financial costs, delivery,and wholesaleand retail profits. Becauseretail ceilingprices are set by the Governmentfor all petroleumproducts, any decreasein cost of petroleumproducts at the refineryor any decreasein other costs cause profitson officially-sold petroleumproducts to soar.

180. The domesticconsumption of energy in Chad is comparativelyvery low, becausedomestic supply sources and incomesare very limited,and importedenergy is much more expensive -- about three times world prices -- than in most other countries. The majorityof the populationrelies on wood or charcoalfor cookingand heating;a minority,mainly urban,uses keroseneinstead. An even smallernumber, mainly expatriates,use electricityand/or butane gas. In 1985, total consumptionof oil products amounted to only 90,000 m3, or about 15 kg of oil per capita -- about 12 kg, if one excludesthe aviationgas and jet fuel used by militaryand civil aviation.

2. The SectorOnce DomesticProduction Begins

181. Becausethe cost of bringingfinished petroleum products to Chad excecdsthe cost of extractingand refiningdomestic crude, it makes sense to exploitChad's oil reservesas soon as possible,even when international oil priceshappen to be very low. It is estimatedthat petroleumcould be purchasedat the domesticrefinery at a price roughlyequivalent to US$150/ton,which is equal to the CIF price obtainableon the West African coast. A domesticrefinery would thus save Chad the high external transportcosts associatedwith importingpetroleum. In 1978, the World Bank prepareda projectfor US$62 million (supportedby a US$20 million IDA credit)to produce,transport and refinedomestic crude and to use residualfuel oil for power generationin N'Djamena. Processingof the projectwas suspendedwhen the war broke out in January 1979. In mid-1986,preparation of a new projectresumed, taking into account changesin the Chadianeconomy and currentdownward price pressuresin the oil industry. Currently,the projectis expectedto includewell developmentin the Sedigi field,a pipelineto N'Djamena,a mini-refinery (2,000-5,000barrels/day), and the transformationand/or acquisition of power-generatingequipment in N'Djamenato burn the refinery'sresidual fuel oil. If currentprogress continues in projectpreparation, in engineeringdesign and in the negotiationsbetween the Governmentof Chad and oil companiesconcerning oil leases,Chad shouldp.7oduce its own gasoline,diesel fuel, kerosene,butane gas, and fuel oil by the early 1990's. - 86 -

182. When the refinerycomes on stream,Chad will be over 80 percent self-sufficientin petroleumproducts. The effecton the balanceof paymentswill be immediate;not only will Chad not have to importgasoline, diesel,butane and kerosene,it may even export some residualfuel oil and other light productswhich may be temporarilyin excesssupply. This will representa gross savingsof about CFAF 10 billion (US$33million) per year (not countingthe incomeeffect on all other importsand the repaymentof debt incurredto developthe sector). The conversionof most large power-generationequipment in Chad from diesel to the cheaperresidual fuel oil will reduce the cost of power which, for the moment, is among the highest in the world (aboutUS$0.50 per kwh). Since all petroleum products,except jet fuel and lubricants,(which will still need to be imported),will be producedin the refineryin N'Djamena,the Government will be able to tax all other productsat the source. Under these conditions,fraud preventionshould be easier and cheaper,even if current tax rates remain,and revenuesshould increasesubstantially. As an added benefit,the sale of cheaperkerosene and butane gas may cause households to consumeless wood and charcoal,slowing down environmentaldegradation and deforestation.

183. Once the refinerycomes on stream,the importsof most petroleum productsby the large oil companies(among them, Shell,Mobil and Total) will come to an end, as will importsby a larg*snumber of independent operators. The distributionof oil productsis currentlycarried out by both the large oil companiesand a vast networkof small informal retailers. This situationwill most likely continuefor a while after the openingof the refinery,but it may change thereafter,depending on the evolutionof profitmargins, which are largelya functionof the systemof market regulationsand taxation. Petroleumdistribution should be placed in the hands of a competitiveprivate sector, The currentlarge-scale foreigndistributors should be encouragedto eithersell their trucks to local companies,set up local subsidiariesor leave. The small-scale operatorsmay regularizetheir situations(e.g., become gas station owner-operators)but shouldnot be drivenout of businessby a state petroleumenterprise which monopolizesdistribution; nor shouldany monopolybe accordedto CTT or other transportorganizations.

C. Electricityand Water: High Rates and Low Recovery

184. STEE (SocieteTchadienne d'Eau et d'Electricite)is a mixed-ownershipenterprise (81 percentof its sharesbelonging to the State and 18 percentto the CCCE) that suppliesthe four main urban areas -- N'Djamena,Moundou, Sarh and Abeche -- with electricityand water and six additionaltowns with water. 45/ Despiteold equipmentand high maintenancecosts, STEE facilitiesare, in principle,adequate to satisfy

45/ The four mentionedabove, plus Mao, Moussoro,Bongor, Kelo, Doba, and Fianga. - 87 - projecteddemand for electricityand water until 1990. However,there is a risk of frequentbreakdowns due to delapidatedequipment; rehabilitation of the existingplant is, therefore,extremely urgent. Productionof electricityand water has increasedsignificantly since 1983 as shown below:

1983 1984 1985 1986

Electricity(mill. kwh) 40.0 53.2 58.1 62.1 Water (mill.33) 8.2 8.7 9.3 10.8

185. Electricityproduction costs are relativelyhigh in Chad, mainly becauseof the large share of petroleumproducts in the cost structureand the high cost of importedpetroleum (Section B). The averageoperating costs per unit producedare CFAF 90/kwhfor electricity(compared to CFAF 25 in C.A.R.)and CFAF 65/mi3 for water. To compensatefor it -- and to cover the high productioncosts -- electricityand water tariffsare set at especiallyhigh levels: the averageelectricity rate for low-voltage serviceis about CFAF 145 kwh (US$0.50/kwh),and the averagerate for the first two tranchesof water is CFAF 167/m3 (US$0.55/m3), to which a monthly servicefee and taxes of 9.9 percentof the sellingprice are added. In additionto discouragingthe developmentof small and medium-scale enterprises,these high tariffsaccentuate the problemof bill collection, given the very low purchasingpower of the Chadianpopulation.

186. Not surprisingly,STEE has been experiencingserious financial difficultieswhich are attributableto three factors: (i) significant technicaland non-technicallosses; (ii) problemsin billing;and (iii) a collectionrate which is extremelylow. The technicallosses are estimated at approximately10 percentof production,of which 3-4 percentare power losses. This situationis due to the age of the equipment,which makes maintenanceparticularly difficult. Billingis unsatisfactorymainly becauseof the anarchythat prevailedduring the war: meterswere tampered with and a number of illegalconnections were made. An inventoryof customerswas carriedout (with assistancefrom the CCCE) in 1986; it helped to improvebilling to some extent. However,illegal connections and tamperingwith meters continue,given the inadequacyof control arrangementswithin STEE. Cash collectionfrom privatecustomers is only around25 percent (but higher for medium-voltagecustomers). Followingthe completionof the above-mentionedinventory, a committeewas createdin order to implementdecisions concerning disconnection of serviceto non-payingcustomers. The committeewas instrumentalin the recoveryof about CFAF 100 million of an estimatedCFAF 800 millionin arrears.

187. STEE's financialrelations with the Government-- which accounts for about 25 percentof its sales -- are complexand far from clarified. STEE receivesgrants from France of about CFAF 600 million each year. It counts those subsidiesagainst the chargesdue by the administration.But this is not enoughto clear the Governmentdebt or alleviatethe company's financialdifficulties. STEE registeredlosses of CFAF 82 million in 1984 and CFAF 280 million in 1985. On June 30, 1986, its balancesheet showeda slightprofit, despite the recoveryproblem, which is encouraging. - 88 -

188e The management of STEE is currently defining a rehabilitation plan for STEE which will include the following: (i) computerization of billing in order to improve cost recovery; (ii) updating of the customer inventory and files and definition of a cash collection strategy; (iii) evaluation of personnel training and supervision needs and definition of a training strategy; (iv) replacement of obsolete or old equipment; and (v) preparation and implementationof a plan for the settlement of Government arrears, curtailment of Government consumption, and making realistic budgetary provisions to pay for estimated consumption in order to avoid the build-up of new arrears. Some of these activities have already been initiated by STEE. For the longer term, the petroleum project (Section B) provides for the construction of a new power plant which would be supplied with heavy residual fuel produced by the mini-refinery. This power plant would be operational by 1991.

D. The Urban Sector: How Is Chad Coping

189. Whereas in many countries the urban areas, and the capital city especially, appear much wealthier and better developed than the rest of the country, in Chad they are a reflection of the situation in the country at large. Urban areas have practically no public infrastructure;most streets are unpaved, unlit and have only open ditch sewers; few areas have water lines or standpipes. Public buildings are mostly old, damaged by war and by lack of maintenance. Private dwellings, on the other hand, are fairly well maintained, but mostly built out of non-durable mud blocks. The absence of storm drainage causes flooding in many cities during the rainy season, makes the dirt roads impassable and damages the mud walls of dwellings. Except for expatriates and a few rich merchants, the bulk of the population live in relatively similar conditions, giving the impression that income and wealth are fairly evenly distributed.

190. The urban population is estimated to be growing by about 6 percent per annum -- a rate approximately three times higher than that of the total population. Still, Chad is not highly urbaniztd: only about 20 percent of the population live in cities; but, if the current trend continues, 35 percent of the population will live in urban areas by the year 2,000. Currently, there are only about 40 settlements of more than 5,000 inhabitants, The largest by far is N'Djamena which now counts nearly 400,000 people. The next two largest, Sahr and Moundou, have together about 150,000 inhabitants.

191. In N'Djamena, the majority of households have access to water. However, there are only about 3,000 officially connected customers, a good portion are collective connections, and there are, in addition, an estimated 1,500 illegal connections. The rest of the population receives water directly from standpipes. Only the 10 largest cities in Chad have continuous electricity supply and many households are not connected to the electricity network. In N'Djamena, currently, only about 5,000 customers are officially connected. As with water, however, there are many illegal accounts which serve more than one premise. Because electricity is very expensive and because most appliances which consume electricity are out of the reach of most inhabitants, power consumption per connect(d household is still very low. - 89 -

192. Storm and sewer drainageis a seriousproblem during the rainv season In severalcities, especially N'Djamena. The capitalis built o, a very flat plain and much of the soil consistsof impermeableclay. Waste water is inadequatelydrained, leading to contaminationof underground water sourceswhich supplymuch of the city'sdrinking water. Effortsto improveN'Djamena's drainage situation were startedin 1974 with a study financedby the ADB. Actual construction,also financedby the ADB, began in 1978 but was interruptedby the hostilities. Recently,ADB has taken steps to allowwork on major drainagecanals to resume. When completed, the ADB-financedproject will only cover about half of N'Djamena. The Municipalityis responsiblefor the maintenanceof all drainagefacilities, but lacks the qualifiedpersonnel, equipment and spare parts to performits duties. Instead,the Municipalityappeals regularly to citizensto clean and maintainthe open ditchesin front of their plots,and in some cases such effortsare coordinatedby neighborhoodassociations.

193. A great majorityof urban roads are not paved, and even those which are paved,are in bad need of repair. Under the ongoingIDA Highway MaintenanceProject, OFNAR is providingassistance to the Municipalityof N'Djamenato carry out the most urgentlyrequired road repairs.

194. All urban areas are under-fundedand under-equipped.The 1984 budgetof the municipalityof N'Djamenawas only CFAF 325 million (about CFAF 800, or US$2.60,per inhabitant).This is equivalentto only about two-thirds,in nominalterms, of the annualbudget before the war (only about a quarterin real terms). N'Djamenahas neverthelessbeen able to balanceits budget; it has achievedthis mainlyby cuttingthe level of servicesand by delayingalmost all needed investments.The principal revenuesof the largermunicipalities are, by order of importance, municipaltaxes, market fees, nationaltaxes earmarkedto municipalities, and other taxes. Municipaltaxes includetaxes on businessturnover, fees for a varietyof officialcertificates and documents,entertainment taxes, taxes on rents of professionalfacilities, and utilityfees. Roughly 60 percentof municipalresources are spent on personnel,and the balance on materials,mainly for maintenanceand repair of buildingsand for the operationand maintenanceof vehicles. All municipalitieslack machinery and trucks to performroutine repair work and to collectgarbage. Recently,to help with the most urgent needs,the ItalianGovernment offereda numberof trucks to N'Djamenaand the EDF offeredsome fire fightingequipment.

195. Municipalrevenues are likelyto remain insufficientin the near futureunless governmentrevenues improve drastically. Municipalities will have to rely on externalfinancing to pay for major investments(such as drainagesystems). Community-basedimprovements such as those realizedby CARE Chad in cooperationwith UN Food-for-Workprograms, or those underway in N'Djamenawith financingfrom OXFAM, shouldbe encouraged. Such investmentsdo not put a burdenon Governmentresources because investment costsare sharedby donorsand the local population,and becausethe maintenancecost of small investmentssuch as streetdrainage ditches is assumedby the beneficiaries.Overall, it is unlikelythat large resources will be availablein the near futureto improvepublic amenities in most urban areas. However,municipalities will continueto urgentlyneed managementand technicaltraining to help theirpersonnel use scarce - 90 - resourcesmore efficiently.Also essentialis the preparationof a master plan for urban managementin N'Djamena,or at least, the preparation-- withoutdelay -- of a sanitationplan which would allow better targetting of donor financingtoward priority needs in this sector.

E. Trade and Industry: The ConstraintsFacing Existingand New Enterprises

196. Historically,Chad has been a countryof traders. The kingdoms that predatedthe colonialera (such as those of Kanem,Bornou and Ouaddai) built their power largelyon commerce. Their principalpartners were Libya,Egypt and Sudan. During the colonialperiod, trade was increasingly orientedtoward the francophonecountries as well as Nigeria. This shift benefittedthe westernregions of Chad at the expenseof the eastern provinces,which saw their economiesdecline despite their considerable potential. During the 1970s,the structureof Chad'sexternal tlade closelyresembled the patterninherited from the colonialperiod. The most importantpartners were Franceand Nigeria,although much of the trade with the latterdid not pass throughofficial circuits. After the eventsof 1979-82,unofficial exchanges with Nigeriaincreased, while officialtrade with Francecontracted. This is partly explainedby the closingdown of many French-affiliatedfirms and the virtualelimination of customs controls. Frenchgoods continuedto come in, but mostly unofficially throughNigeria. Anotherchange since the war has been the disappearance of certainexports, most notablyrefrigerated meat.

197. Chad'strade with Nigeria,Cameroon and C.A.R.has historical roots,and much of it is carriedout by familieshaving interestsin more than one country-- a fact which permits them to move their capitalquickly in responseto changesin the businessenvironment and opportunities.In this respect,commerce is trulymultinational. Unofficial exports from Chad are made up largelyof cattle,fish, meat, skins,cereals and tubers; unofficialimports consist of petroleumproducts (representing 80-90 percentof the country'sneeds) and consumergoods imported illegally,many of which (sugar,cooking oil, soap, and cigarettes)compete with Chadianproducts.

198. ControllingChad's border is very difficult;the borderis long and part of it (northof Lake Chad) lies totallyin the desert. Chad and its southernneighbors have limitedresources to devote to bordercontrol, and collusionamong smugglersand borderpatrols is not uncommon. Trade relationswith Cameroonand C.A.R.have been fairly smooth,and official trade channelsare open. However,relations with Nigeriahave been more problematic,and the border has been officiallyclosed for extendedperiods in recentyears. Given the type of terrainand both countries'limited capacityfor applyingcontrols, the closinghas never been very effective. It has neverthelesscontributed to a sense of uncertaintyand insecurity, especiallyregarding the supplyof petroleumproducts to Chad. The two countries -- particularly the neighboring regions -- are natural partners, and regularizationof trade would serve both.

199. The permeabilityof Chad'sborders resulus in a significantloss of Governmentrevenues from export/importduties. It also createsa market in which untaxed,smuggled goods set prices. Locally-producedgoods, as - 91 - well as legal imports,must compete in this environment,although they face a number of constraints,including high productioncosts, diseconomies of small-scaleoperations, and price distortionsresulting from Government pricingand fiscalpolicies. This sectionconcentrates on the constraints facingthe trade and industrysectors in Chad, distinguishingbetween the experienceof Chad's existing,relatively large-scale manufacturing industries,and additionalconstraints and specialproblems faced by entrepreneursattempting to laun^hsmall- and medium-scale enterprises (SMEs)in Chad. The sectionalso exploresways for creatingan appropriate regionalenvironment both to promotetrade throughlegal channelsand to encourageChadian production for domesticand externalmarkets.

1, The Experienceof Chad'sMajor Industries

a. Background

200, Chad's industrialsector has traditionallybeen dominatedby five manufacturingenterprises: COTONTCHAD, SONASUT (sugar),STT (textiles), BdL (beer),and MCT (cigarettes).It is estimatedthat these industries generatearound 20 percentof GDP. With the escalationof hostilitiesin 1979, all of Chad'sformally-registered enterprises either ceasedto operateor considerablyreduced their activities. Infrastructureand physicalcapital were destrcyedor deterioratedfrom neglect,purchasing power was reducedsignificantly, institutional support mechanisms were curtailed,and nearlyall foreigninvestors withdrew from the country. However,by 1983, all five of Chad'smajor industrieshad resumednormal operations,and in more recentyears, two smallerindustries, SIMAT (agriculturalequipment) and BGT (soft drinks),have been reestablished. Five of these seven industriesare mixed-ownershipenterprises (Table 12). The State holds majorityshares in the two biggest,COTONTCHAD and SONASUT, as well as in SIMAT. The State is a minorityshareholder in MCT and STT. The remainingcapital is mostly from foreign,private sector sources, and one industry,BdL, is completelyunder foreign,private ownership. As Table 12 shows,participation of the Chadianprivate sector in ownershipof the major industrialenterprises is extremelylimited. In addition,with the exceptionof COTONTCHAD,these industrieshave expatriatedirectors, and often expatriateaccountants and mid-levelmanagers as well.

Table 13 - Ownershipof Major ManufacturingIndustries

COTONTCHAD SONASUT MCT STT BdL SIMAT BGT

Total capital (millionsof CFAF) 3,800 4,711 312 800 800 200 110 of which: Chadian, state (%) 75.0 83.0 15.0 27.5 -- 65.0 -- Chadian, private (%) 6.0 19.0 Foreign, state (%) 2.0 37.5 Foreign,private (%) 17.0 17.0 85.0 35.0 100.0 35.0 81.0

Source: Enterprisescited. - 92 -

201. Industrial output grew rapidly in 1983 and 1984 as Chad's major industries resumed and expanded operations. Growth slowed in 1985, however, as the effects of the cotton crisis began to be felt. In 1986, output declined for all products except cotton fiber -- which was supported by the Fmergency Program -- as the full recessionary impact of the cotton situation took its toll (Table 13). This downturn in production has left Chad's major industries with considerable unused capacity, ranging from 15 to 50 percent.

Table 14 - Volume Indices for Industrial Production 1/ (1983=100)

1975 1984 1985 1986

Cotton fiber 139 157 94 101 Fdible oils 2 112 143 98 Sugar 79 126 114 108 Beer 112 112 126 103 Textiles n.a. 111 122 116 Cigarettes n.a. 198 196 155

1/ Major enterprises only.

Source: Appendix Table 10.

202. Thus far, employment has not registered a decline corresponding to the downturn in production, except for COTONTCHAD under the Emergency Program. As of 1986, Chad's seven largest manufacturing industries had around 6,000 employees, or less than 0.2 percent of the estimated population. In comparison, there were more than 21,000 civil servants. Overall, the wage bill for Chad's major industries is equivalent to only about 10 percent of aggregate industrial turnover. Nonetheless, the average wage in these industries is high compared to that of the civil service, although it appears to be elevated by a small number of employees earning high salaries. Whereas the mean industrial wage in 1985 was around CFAF 94,000/mo. (US$215/mo.),several industries reported minimum wages as low as CFAF 10,000/mo, (US$23/mo.). The official minimum wage (SMIG), which has been unchanged since the early 1970s, is still CFAF 8,320/mo. (US$19/mo.),

b. Constraints

203. The growth of manufacturing in Chad is limited by weak domestic demand. Much of the economy is non-monetized; purchasing power is extremely low; and cash income has declined for many as a result of the cotton crisis and the dramatic fall in cereals prices. Sales of locally-producedconsumer goods began falling off in 1986, causing production to decline and leading several industries to project further declines in output for 1987.

204, Industrial growth in Chad is also constrained by production costs which appear to be high relative to those in neighboring countries. A detailed study of comparative costs is needed to determine which of Chad's - 93 -

industries are -- or can be -- competitive with imports from neighboring countries. Factorswhich undoubtedlyraise Chad-anproduction costs includethe overdependenceon importedinputs and the diseconomies associatedwith relativelysmall-scale operations. Importedinputs are equivalentto approximately30 percentof industrialturnover for COTONTCHAD,BdL, and STT, and more than 60 percentfor MCT. When local materialsare used, in many instancesit is more costly to do so. In additionto COTONTCHAD'suse of seed cotton and groundnuts,MCT uses local tobaccoand SONASUTuses local sugarcane. In addition,STT processes COTONTCHAD'scotton fiber and BGT adds SONASUT'srefined sugar to its products. However,MCT blendsone-third local tobaccoto two-thirds importedvarieties, which it claimsare both higher-qualityand less expensiveto use. SONASUTimports refined sugar at less than local productioncosts and marketsit to subsidizelocal production. BGT would prefer to import its sugar as well, but is obligedunder its "convention" to buy locally.

205. The Government does not -- and cannot -- subsidize prices for consumergoods, but appliesa systemof "prixhomologu6s" for most industrialproducts, with the major exceptionof STT textiles(see Appendix Table 43). These prix homologu6sare, in principle,price ceilings designedto protectconsumers while assuringindustries of adequatereturns above productioncosts. Industriesare free at any time to submittheir estimated production costs, with appropriate documentation, to the Governmentfor revisionof the prix homoloSu6s. However,industry heads claim that the procedureis unwieldlyand slow, and the Governmentfails to reviseprices fast enoughto keep pace with risingproduction costs, therebysqueezing their profit margins to unacceptablelevels. In addition to the systemof prix homologuesfor manufacturedgoods, the Government also establishesprice ceilingsfor the marketingof certainimports, based on the costs of importingand internaltransport.

206. Prix homologueshave littleimpact as price ceilingsbecause smugglingexerts constant downward pressure on consumerprices. Their eliminationis advisable,although liberalizing prices will not necessarily mitigatethe smugglingproblem; industries have been free under the system of prix homologu6sto reducetheir sales price in order to competeon domesticmarkets. They have not done so, perhtps indicatingthat price reductionswould not allow them to cover costs -- raisingonce again the fundamentalquestion of cost competitiveness.

207, Recent fiscalinitiatives threaten to divertdemand further towarduntaxed, smuggled goods. In October 1986,new unitarytaxes were introducedfor beer (CFAF20/liter), cigarettes (CFAF 7.25/pack for local production,CFAF 15/packfor MCT imports),textiles (CFAF 30/meter), and soft drinks (CFAF25/liter), as part of a broaderseries of fiscalmeasures to compensatefor the loss of cottonrevenues. Thus far, wheneverthe Governmenthas introducednew taxes and/orhigher tax rates on manufactured goods,prix homologueshave been adjustedupward to cover the full value of the tax.

208. For MCT, the prix homologuesfor cigaretteswere raised in April 1985 and October 1986 to take accountof tax increases. Followingthe first increase,MCT experienceda 13 percentdecline in monthly sales of - 94 - local productionfor the remainderof 1985. The averagefor the first nine monthsof 1986, however,was 21 percentbelow the late 1985 level,although taxes had not changed. Followingthe latesttax increase,MCT predicteda furtherdecline, by nearly one-third,in sales of local production. It is difficultto assessto what extentthese declinesare attributableto an overallreduction in consumptionor to a shift in demandtoward smuggled goods. They may also have resultedfrom MCT's changein productionand marketingstrategy in responseto the increasedrelative profitability of marketingimported cigarettes. In fact, MCT's importlevel and turnoveron importshave approximatelydoubled between 1984 and 1986.

209. Textileprices are not regulatedby the Government,and textile retailersdid not believethey could pass the entireburden of the new tax on to consumerswithout seriously losing sales. They raisedconsumer prices by about one-thirdthe value of the tax, obligingSTT to cover the cost of the remainingtwo-thirds. STT managementdecided that it could not cover this cost at prevailingmarket prices, and informedthe Government and its shareholdersof its intentionnot to pay the tax. No action has yet been taken by the Government,although financing for a study to assess the fiscaland economicimpacts of the new taxes has been requested.

210. The fundamentalissue here is whether Chadianindustries can compete-- not just in the exportmarket, as with cottonfiber, but in the domesticmarket, under prevailingpricing and fiscalpolicies, against both legal and illegalimports. More detailedstudy of comparativeproduction costs and the impactof pricingand fiscalpolicy is essential,not only to informpolicy-makers at the Governmentand industrylevel, but also to assessthe scope for industrialdiversification and, in particular,for the developmentof small-and medium-scaleenterprises (SMEs).

211. For large-scale industries, it is imtportant to first ascertain the long-runviability of existingentreprises. In addition,the Governmentis consideringtwo other industrialprojects: a mini-refinery for petroleum(see para 183) and a cement factory,to be locatedin Mayo-Kebbi. For the latterproposal, a prefeasibilitystudy was recently carriedout by UNIDO, with UNDP financing The Governmentis currently reviewingthis study in order to determinethe optimaldesign of such a factory. Given the proximityof the Figil cementfactory in Cameroon,and the overallsluggishness of Chad's industrialsector, this proposalshould be studiedwith great care before a decisionis made.

2. Constraintsfor the Developmentof SMEs

a. Background

212. In additionto the major manufacturingindustries discussed above, Chad'spre-war industrial sector included 80 to 100 SMEs, the majorityof which were involvedin the processingof agriculturalproducts or export/importactivities. Approximately half of these enterpriseswere the local subsidiariesor distributorshipsof foreign-ownedcompanies, or Chadianfirms with significantforeign capital. Foreign-ownedfirms were principallyinvolved in petroleumexploration and distribution,sales of agriculturalequipment and constructionmaterials, and the bankingsector. In addition,a significantnumber of individualforeign investors from - 95 - neighboring African countries and the Middle East were involved in the import/export and services sectors. With the exception of agricultural processing, few enterprises were engaged in directly productive activities.

213. During the 1979-82 period, the Chadian economy was largely reduced to informal activities, and the informal sector proved flexible and resilient in meeting the basic consumer needs of the population. Since 1983, and with the exception of Chad's major enterprises and direct investment in oil exploration, foreign Investment has not returned to any great extent because of the heavy losses experienced during the war, the high costs of reinst:l1ation, and the perception of continued political uncertainty. 46/ Ho;.ever,despite the lack of small-business credit and institution3l support, most Chadian-owned enterprises have managed to reestablish operations. As before the war, the majority of small business activities remain family-owned enterprises operating mainly in the import/export sector with no formal relationship to the banking sector.

b. Constraints

214. The scope for development of manufacturing and processing SMEs in Chad will depend on whether incentives can be created to channel entrepreneurial energies from commerce to more directly productive activities, although both industrial and commercial SMEs should be encouraged. Many constraints to SME development could be alleviated in the short-term by improving credit availability, providing appropriate technical assistance, creating a supportive institutional environment, and developing managerial skills.

215. Lack of access to credit is one of the major constraints to the development of SMEs in Chad. Although two commercial banks (BIAT and BTCD) and the Chadian branch of the BEAC have reopened in Chad since 1983, local SMEs have resumed operations largely without access to the Chadian banking system. As discussed in Chapter II, the banking moratorium and the high proportion of credit issued to Chad's major industries have limited the volume of credit available for SMEs.

216, A number of factoi8 combine to limit the access of entrepreneurs to that credit which is available for SME development. Because of the high-risk nature of SME lending, the loan qualifying criteria of Chad's commercial banks are particularly strict. Potential borrowers must provide the banks with a financial history of their operations, including audited and certified balance sheets and income statements for at least two years. Proposals must contain an analysis of the market potential as well as sales projections. In addition, the banks require collateral and life insurance guarantees, often in excess of the loan amount. Given the fledgling nature of private sector development in Chad, few SME owners have adequate accounting procedures and the technical skills needed to provide the

46/ Approximately 20 foreign-owned firms have returned to Chad since the end of the war. Most of these have been small operations involved in import/export activities. - 96 - requiredinformation, nor do they have sufficientcollateral or insurance coverage. Lacking adequate human and financial resources to supply the technicalassistance that SMEs need, the Chadiancommercial banks are unableto help entrepreneursmeet theirlending criteria.

217. Since 1983,several donors have establlshedshort-term credit programsin cooperationwith the ChadianGovernment and commercialbanks. The CCCE and EIB have each providedlines of credit in the amount of CFAF 700 millionto be administeredby the BTCD and BIAT, respectively. However,because the com..ercialh'anks are solelyresponsible for promoting and administeringthe programs,and all credit risk remainswith the banks, littlehas changedin the lendingprocess, and use of theseprograms has been minimal. A technicalassistance project financed by UNDP and executed by UNTDOworks with Chad's IndustrialPromotion Office (OPIT)to help entrepreneursidentify and evaluateSME projectsand preparethe necessary documentsto obtainbank credit. However,OPIT believesthat a loan guaranteefund must be establishedto increaseSMEs' access to credit. One of the major obstaclesto obtaininga loan,according to OPIT, is the inabilityof individual,small-scale entrepreneurs to providethe guaranteesrequired by commercialbanks. Althoughthere is an obviousneed for the kind of technicalsupport provided by OPIT, the projecthas sufferedfrom the lack of a well-definedtarget group, particularly with respectto the types of enterprisesand the size of the loansrequested. Since 1984,96 requestsfor financinghave been presentedto OPIT but only one requesthas been approvedand funded,arnd fi-ve others are under study by the localbanks. The Governmenthas asked UNDP, within the frameworkof the project,to undertakea study of industrialstrategy in preparationfor a proposedsector meeting scheduledfor late 1988.

218. In contrast,the USAID-fundedVITA (Volunteersin Technical Assistance)project provides a good exampleof how technicalassistance can be used effectiveiyto increasethe accessof entrepreneursto short-term creditfacilities. Despiteinterest rates and collateralrequirements similarto those of the commercialbanks, VITA has approved97 of 550 loan requests,providing financing valued at aroundUS$470,000 equivalent. Approximately75 percentof all mouthlypayments are paid on time and there have been no loan defaults. The relativesuccess of VITA's lendingprogram is attributableto two principalfactors. First,VITA has focusedits effortson fundingless ambitiousprojects (US$5000 average loan size) which are more appropriategiven Chad's limitedmarket potential. Targeted sectorsinclude poultry marketing, fisheries, vegetable and fruit gardening,seed producticnand distribution,expansion of grain milling operations,distribution and storageof importedmachinery, and furniture productionand marketing. Second,after a proposalis judgedpotentially viable,VITA's staff (two expatriatesand six Chadianprofessionals) work closelywith entrepreneursto preparethe loan applicationand meet loan qualificationcriteria. This includesassistance in settingup simple accountingprocedures. Once loanshave been approved,the VITA staff monitor the progressof each projectthrough monthly field visits, and providelogistical ind operationalassistance, if necessary,to modify the projectdesign. The cost of such technicalassistance is indeedhigh, but apparentlywell-justified. - 97 -

2i9. The successof VITA's"hands-on" approach has promptedthe BTCD to investigatethe potentialfor co-financingprojects with VITA. Such cooperationwould allow the BTCD to expand its clientbase among SMEs while exposingits staff to VITA's lendingand follow-uptechniques. A reevaluationof the bank's lendingcriteria, including requirements for comprehensivehistorical information, collateral and insurancecould then be carriedout based on VITA'slower risk approach. Co-financing arrangementswould also allow VITA to leverageits limitedfunding and graduallyundertake lending to enterprisesrequiring larger loans.

220. Effortsto replicateVITA's hands-on approach could be one importantelement of Chad's SME developmentstrategy. Lendingworkshops and tiainingprograms could profitablyorganized utillzing VITA's technicalassistance expertisu. The possibilityof using the VITA approach facilitatelending under donor-financedlines of creditshould also be investigated.Because VITA's approachis labor-intensive,other effortsto use this approachwill have to includefinancial support for maintainingan adequatestaff to providethe necessarytechnical assistance.

221, The lack of informationon the Chadianprivate sector is also an obstaclein defininga strategyfor SME development. Reliabledata are currentlyunavailable on the numberof existingenterprises, their contributionto GDP, the types of productsand servicesprovided, the number of employeesper enterprise,salary levels, capacity utilization, and skill requirementsfor the workforce. Recognizingthe urgent need for such informationin the Government'seconomic and socialservices planning, Chad'sMinistry of Industryand Commerce(MIC) is cturrentlyundertaking a surveyof the privatesector. Becauseof the MIC's limitedresources, the survey is proceedingslowly, and it is unclearwhether the pertinent informationis being compiled. In view of the MIC's budget and personnel limitations,technical assistance is needed to improveand acceleratethe surveyand to developa plan for the analysisof the informationonce it has been collected.

222. In conjunctionwith the developmentof a privatesector data base, the MIC is focusingits effortsto createa favorableenvironment for SME developmenton the revisionof the ChadianInvestment Code, which currentlyoffers no tax or customsadvantages to SMEs. Chad's Investment Code has remainedunchanged since its adoptionin 1963. Accordingto MIC officials,proposed changes include an amendmentto the Code grantingSMEs fiscaland customsadvantages similar to those of Chad's larger industries. Althoughefforts to amend the Code indicatea desireon the part of the Governmentto addressthe obstaclesfaced by SMEs, it is unclear to what extent,if any, tax and customsobligations effect SME investment decisions. Before addressingspecific SME issues,a comprehensivereview of the Code'spast effectivenessis needed. Followingcompletion of the privatesector survey, short-term technical assistance could be used to help the MIC to carry out an analysisof the Code (includingcomparison with codes in neighboringcountries) and make recommendationsfor revisions that reflectrealistic objectives for privatesector development. Particularattention should be given to the Code'sfiscal implications,the potentialfor stimulatingforeign investment, the need for employment generation,and streamliningthe applicationprocess for enterprise licenses. - 98 -

223. Anotherkey constraintfor privatesector development is the paucityof managementand technicalskills. A professionaland vocational trainingstrategy is necessaryto identi; priorityneeds and recommend specificinterventions in the sector. Recognizingthe need for management training,the ChadianChamber of Commerce(CHACOT) is in the processof reestablishingits ProfessionalTraining Center which providedmid-level managementtraining to Chadianstudents before the war. BecauseCHACOT has an excellentreputation in the Chadianprivate sector, as well as the activeparticipation of its dues-payingmembership, it providesa convenientinstitutional structure through which to channeltraining materialsand technicalassistance. An analysisof the Professional TrainingCenter's pre-war performance needs to be carriedout along with an evaluationof CHACOT'splans for reestablishingthe center.

224. Two technicalschools have reopenedsince 1982, but resource limitationshave severelyreduced their effectiveness.The Governmentis currentlyconsidering a proposalto adopt specializedcurricula for these institutionsbased on the skill needs of the Chadianworkforce. The technicalschool in N'Djamenawould expand its currentfocus on accounting and financeto includeauto-mechanics, small-scale civil engineering, electronicsand carpentry. The technicalschool at Sarh would offer an agriculture-relatedcurri.ulum including agronomics, agricultural mechanics and technicalskills used in processingindustries. Final decisionson core curriculafor these institutionsshould reflectthe specificskill needs identifiedin the privatesector survey.

3. Creatingan Apprriate Nationaland RegionalEnvironment

225. Despitethe constraintshighlighted above, severalfactors favor the developmentof the private sectorin Chad. Its historicallydynamic tradingsector provides a base of small-scaleenterprise activity and a reservoirof entrepreneurialskills. Establishedtrade links with the more developedNigerian and Cameroonianmarkets offer additionalmarket opportunitiesfor Chadianentrepreneurs. The Government'srole has, for the most part, been limitedto providingsupport services for the private sector. With certainnotable exceptions (e.g., livestock exporting), Government-managedparastatals and/or de jure or de facto monopolieshave not been a major disincentiveto privatesector entrepreneurship. In order to build on these advantages,the Governmentneeds to focus on creatingan appropriate environment -- both nationally and at the regional level -- which helps to promote trade throughlegal channelsand encouragesChadian productionfor domesticand/or externalmarkets. This will requireaction in the areas of (i) trade relations;(ii) fiscalreform and streamliningof administrativeprocedures associated with trade and manufacturing,and (iii) implementationof an appropriatetransport sector strategy.

226. Until September1986, the Nigeriancurrency, the naira,was not freelyconvertible, and its exchangerate was fixed. The currencywas significantlyovervalued and was, therefore,traded in large quintitiesin a "parallel"market. In March 1986,whereas officiallyone US dollarwas equivalentto one naira, in the parallelmarket it was worth five naira. Under these conditions,it was to the advantageof Chadianexporters to obtaingoods in Nigeriain exchangefor their exports (eitheras barter or by using the naira they earned). The goods obtainedwere brought in - 99 - withoutpaying customsduties, giving them a competitiveedge over official importsor locally-producedgoods. Chadianimporters were also encouraged to buy the naira they needed in the parallelmarket. In 1986,Nigeria initiateda number of far-reachingreforms as part of its structural adjustmenteffort, The reformsinvolve, inter alia, moving towarda market-orientedofficial exchange rate, ln September1986, the Nigerian authoritiesadopted an auctionsystem which, by February1987, brought the rate to 4 naira per US dollar,compared to the parallelmarket rate of 5 naira per US dollar. This significantdevaluation should not have an immediateor significanteffect on Chadiantrade, which was alreadybased on the parallelmarket rate. It should,however, progressively induce the use of legal trade channels,permitting more effectiveborder controland generatingadditional Government revenues from customsduties.

227. In recentyears, disputesover territorialrights, trade policy, and transportarrangements, as well as politicalunrest within Nigeria-- have promptedNigerian officials to close the borderwith Chad for extended periods. The ChadianGovernment is keenlyaware of the importanceof trade with -- and transport through -- Nigeria, and has pursued bilateral discussionsto resolvethese issues. In December 1986, Nigeriaand Chad signeda cooperationagreement in the technicaland commercialfields. Althoughthe agreementis general,it affirmsthe two countries' appreciationof the need for such cooperation,and shouldpave the way for concreteactions to improvetrade relations.

228. Chad's trade relationswith other neighboringcountries are, to an increasingextent, regulated by the customsunion of the CentralAfrican States (UDEAC),which Chad rejoinedin 1984, after a fifteen-yearhiatus. UDEAC members,which consistof those countriesmaking up BEAC, have preferentialtariffs for trade among themselvesand a commonexternal tariff. When it rejoined,Chad agreed to align its tariffsto those of UDEAC by 1990, progressivelylowering its tariffsaccording to an agreed calendar. Chad's trade balancewith UDEAC countriesis negative,and loweringtariffs could exacerbatethis officialtrade deficit. The Chadian customsauthorities will soon completea study of the revenueimplications of joiningUDEAC, althougha study of the economicimplications has not yet been undertaken. In addition,joining UDEAC will entaila specialcost in 1987, as Chad is assumingthe Presidencyof the Heads of State committeeof member countries. While membershipmay lead to some shift in trade with the CAR and Cameroon,it is not expectedto affectChad's trade with overseascountries significantly.

229. Finally,the impactof the existingfiscal system and administrativeregulation on trade and industrialproduction has not been adequatelyanalyzed. Reformmay be needed in areas (e.g.,livestock trade, manufacturingindustries) where the fiscalsystem and administrative proceduresserve as disincentivesto local productionand marketingthrough officialchannels. Reformmeasures are alreadybeing implementedwith respectto trade in petroleumproducts. At the same time, the Government will be implementingits transportstrategy (Section A) which should progressivelyimprove the environmentfor trade and industrialproduction by reducingthe fragmentationof the Chadianmarket, by reducingtransport costs as a component of total production and marketing costs, by providing adequateincentives for privatesector transport,and by assuring relativelystable transport arrangements with Nigeria and Cameroon. - 100 -

V. THE SOCIAL SECTORS

230, The social development of Chad, as measured by demographic, education and health indicators, lags seriously behind those of most countries, even low-income countries, and was further set back by the sar, Requirements in the education and health sectors far exceed Chad's financial and institutionalmeans. After reviewing the situation in these two sectors, this chapter examines the most important constraints in each and discusses the role of community participation, cost recovery and, in certains cases, NGOs in overcoming them. This chapter provides a brief overview of the education and health sectors, two sectors which have been the focus of numerous interventions in recent years. It is recognized that the social sectors cover a broader range of issues, Including -- but not limited to -- labor and employment, and women's role in development. Although these issues warrant a more thorough analysis, they are beyond the scope of the present report and will he the focus of more detailed analysis in subsequent economic reports.

A. Education: What Are the Priorities?

231. The education sector in Chad virtually ceased to function from 1979 to 1982, Since that time only slow progress has been made in restoring minimal acceptable operating conditions in the sector. To meet the country's most basic educational requirements in the short-term, Chad will have to concentrate its limited available funding for the sector on the development of primary education which is the priority objective of the Government. Based on the limited knowledge currently available on the sector, and the country's weak financial base, the Government's development strategy for primary education should focus on low-cost, practical solutions which have an immediate impact and can be easily implemented. The priority elements of this strategy include encouraging community participation in the cost and management of schools, strengthening and expanding teacher training -- particularly in-service training, and reinforcing the planning and monitoring capacities of the institutions involved.

232. In the long-term, the need for rehabilitation of Chad's education sector offers the Government an opportunity to create a new educational model for all levels of education based on the country's educational environment and human resource needs. Such a model would be designed to supply qualified workers to the productive sector3 of the Chadian economy in the most cost-effectivemanner possible. However, efforts to design a Chadian education model cannot be initiated until a more thorough analysis of the sector has been developed. Similarly, the institution of a new model must be preceded by the strengthening of the sector's institutional framework and the creation of basic delivery systems for pedagogic support and control. The section which follows provides a preliminary analysis of pioblems and priorities in primary education. - 101 -

1. Background

233. The damage to educationalinfrastructure during the 1979-82 hostilitieswas substantial.Schools throughout the countrywere looted, destroyedor convertedto militaryuse. Almost the entirestock of teachingmaterials was lost, as were all educationstatistics and records. Since the end of hostilities,financial constraints have limitedthe abilityof the ChadianGovernment to rebuildthe sector. In 1985 and 1986, Chad's Ministryof Educationwas allocateda budget of CFAF 4.6-4.8billion, or about 11-12 percent of the overallbudget proposal. However,actual total governmentexpenditures have been only about half of the budgetedamount, and the socialsectors have received only a fractionof their proposedallocation. Education,like the health sector (see below) appearsto have receivedonly about a third of its allocation,although the actual level is not well documented. Of the available amount, the majority -- perhaps 90 percent -- was allocated to pay teachersalaries, and the rest was used for operationsand for the purchaseof materials. Even with such a large percentageof the budget allocatedto salaries,Chadian teachers are currentlypaid only 60 percent of official1967 teachersalaries. No fundswere allocatedfor school constructionin 1986, and only two donors,the World Food Programand SWISSAID,have providedsignificant external financing for the construction of elementaryschools.

234, About 30 percentof the primaryschool-age population is currentlyenrolled in formal public schools,with a retentionrate of 1 in 4 by the end of the six-yearcurriculum. 47/ Despitefinancing provided by a numberof internationaldonors includingUNICEF, the ACCT and IDA, there are few books or other educationalsupplies, and those that do arrive in Chad are distributedslowly due to the poor transportationnetwork. Classes in most communitiesare held in makeshiftstructures or out-of-doors,and teacher-to-studentratios are often as high as 1/100in early gradesand even higher if only qualifiedteachers are considered. Furthermore,the difficultteaching conditions and the fact that teachers are only receivinghalf pay have combinedto createmotivational problems and high teacherabsenteeism.

235. Despitethe difficultconditions, student enrollments at the primarylevel have increasedby approximately8 percentper annum in recent years,up from an estimated4 percentbefore the war. Much of this increasecan be attributedto the presenceof emergencyfeeding programs in the primaryschools. It is unclearwhether the upswing in enrollmentswill continuenow that the crisisis past and internationaldonors are discontinuingemergency food aid. At present,however, the demandfor qualifiedteachers far outstripssupply.

47/ Girls accountedfor approximately28 percentof primaryschool studentsin 1986. - 102 -

2. CommunityParticipation

236. In responseto the breakdownof Chad'seducational system during the period of hostilities,an educationalself-help movement emerged in many communitiesacross the country. Since 1983,many of these village-basedefforts have been supportedby donor-financedemergency feedingand food-for-workprograms, particularly in the northernpart of the country. Now that the emergencysituation has passed,local parent associationsin many areas are continuingunder their own initiativeto build schoolsand collectschool fees for hiring teachersand purchasing educational materials and supplies. The success of self-help at the village level in Chad demonstratesa commitmentto basic educationwhich merits the supportof the ChadianGovernment and the donor community.48/

237. The self-helpmovement presents a unique opportunityfor the Governmentof Chad to increaseits resourcebase for primaryeducation by transferringa portionof its costs and administrativeresponsibilities to the privatesector, In an effort to legitimizethe spontaneousschool movement,the Governmentneeds to recognizeparent associationsas official entities through which available resources -- material or financial -- can be channeled. Moreover,official lines of communicationneed to be establishedbetween the associationsand the EducationMinistry. Cost-sharingagreements for teacher'ssalaries (including in-kind support) and for the provisionof materialsand suppliescould then be negotiated with parentassociations based on the community'sability to pay. Such arrangementswould allow the Ministrythe flexibilityto increaseteacher salariesor redirectbudgetary resources to priorityteacher training programs.

238. Internationaldonors shouldalso be encouragedto take an active role in supportinglocal associations. In particular,NGOs working in integrateddevelopment projects at the villagelevel could financeand delivernon-indigenous construction materials as well as educational materialsand supplies. NGO-implementedprograms should also be conducted on a cost-sharingbasis. Since interestedcommunities in Chad have demonstratedthat they are capableof acting on their own initiativeto rebuildeducational facilities, all future interventionsfor the provision of communityinfrastructure should includea significantself-help component.

239. A seriesof projectsfinanced by SWISSAIDprovide an excellent exampleof how self-helpcan be exploitedto reduceproject costs and Instilla sense of communitypride In an undertaking. SWISSAIDforms a contractwith the parent associationin a communitywherein the community

48/ It shouldbe noted in this connectionthat the self-helpmovement has also given birth to a number of non-secularschools that often use only Arabicand do not follow officialprograms. The spreadof these schoolshas been particularlyimportant in the Sahelianzone and impliesa need for minimum controlby the Governmentco ensure that educationis orientedtoward the country'sneeds. - 103 - agrees to providelabor and local materials,while SWISSAIDprovides technicaltraining in masonryand materialinputs, such as wood and tin roofing. Two innovativeaspects of the SWTSSAIDprojects are worth noting. First,once a structurehas been completed,the communityis left with semi-skilledmasons who can help direct futureprojects. Second, 25 percentof SwissAid's budget for Chad is spent on researchto improve local buildingmaterials and indigenousarchitectural designs. The success of its programsat the villagelevel has earnedSWISSAID an excellent reputationwith the Ministryof Educationand with local populations.

240. The Governmentmav wish to considerthe creationof a national committeeon educationto improvecommunication between all parties involvedin Chad'seducational system and to coordinatethe distributionof resourcesln supportof self-helpefforts. The Ministerof Educationcould chair the committeecomposed of representativesfrom parentand teacher associations,as well as from NCOs and other internationaldonors activein the sector.

3. TeacherTraining

241. There Is a severeshortage of trainedprimary school teachers in Chad, The country'sfive teachertraining colleges had a total enrollment of 762 in 1985-86and have a projectedenrollment of 878 for 1986-87, Althoughthere has been notableexpansion of facilitiesin recent years, the capacityof these schoolsis far less than studentdemand for places, which has increaseddramatically as a resultof Chad'shigh rate of unemplovmentfor studentswho have completeda secondaryeducation. In 1986, therewere over 2,000 candidatesfor only 350 placesin the first year teacher-trainingclass. Due in part to the spontaneousschool movement,there has also been a large increasein the demandon the EducationMinistry to provideteachers at the villagelevel. When qualifiedteachers have not been available,parent associations have resortedto recruitinguntrained teachers. An estimated1,300 of these "benevole"teachers (accounting for approximatelyone-third of the teachers at the primarylevel in 1985-86)are currentlyteaching throughout the countrywithout the necessaryacademic credentials; some have only completedtheir primaryeducation while othershave completeda secondary degree. The EducationMinistry does not have the capacityto monitorthese teachers nor to providetraining for them.

242. Meeting the growingdemand for qualifiedteachers at the primary educationlevel is the highestpriority in Chad'smedium-term development strategyfor the educationsector. Since many teachersare currently functioningin the primaryschool system with littleor no formaltraining, particularemphasis will be put on the provisionof in-servicetraining for thosealready teaching. In additionto being more cost effectivethan formalteacher training programs, the developmentof an innovative in-servicetraining program will minimizethe distributionof ongoing educationalactivities during the schoolyear.

243. Chad'sNational Institute of EducationSciences (INSE) has respondedto the demand for more teacherswith a plan for recruitingand trainingnew teachersand for upgradingthe qualificationsof teachers - 104 - alreadyin the field.49/ This program,if fully implemented,would consolidatethe wide range of qualitativecategories for teachersin Chad which currentlyinclude "educators", "associate educators" and three categoriesof "monitors". All associateeducators who have taughtfor at least four years will be allowedto take an examinationfor entrance directlyinto the third and final year of teacher-trainingcollege and, upon graduation,be qualifiedfor full educatorstatus. The monitor categorywill be phased out and currentmonitors will be encouragedto enter one or two-yearspecial training programs qualifying them for associateeducator status. Any personwho has passed the Baccalaureate exam will be allowedto enter a one-yearintensive training program which will qualifythe studentfor full educatorstatus.

244. While it is extremelyimportant to raise the qualificationsof existingteachers, the INSE plan raisesseveral issues. First, in view of the severeteacher shortage that currentlyexists, it is inappropriateat this time to withdrawup to 300 teachers(associate educators and monitors) per year from active serviceas proposedby INSE. Althoughthe INSE claims that newly trainedteachers will take the places of all those teachers being recalledfor more advancetraining, this at best would result in the number of teachersin the field remainingconstant at a time when there is a high demand for more qualifiedteachers. Second,the upgradingof teachersto full educatorstatus would mean a proportionateraise in teachersalaries at a time when the Governmentis hard pressedto pay half salariesto teachersat their currentlevel. Finally,a plan for addressingthe statusand upgradingthe qualityof the large number of "benevole"teachers has yet to be proposed.

245. In view of the severeteacher shortage, Chad's weak financialposition and the overwhelmingeducational needs at the primary level in Chad, formal,long-term academic training to increasethe quality of existingteachers is not justifiedat this time. A more efficient strategyin the short-termwould be to concentrateon providing well-qualified,new teachersand upgradingthe skillsof teacherscurrently in the field using on-site,in-service programs held duringholidays and the summerbreak. Such programswould help ease the strain on an already overburdenedsystem by allowingteachers to remain in the field during the schoolyear. To the extentpossible in-service training should be focused initiallyon the "benevole"teachers who have receivedno formal training. Followingsufficient professional and academictraining, "benevoles" should be allowedto present themselvesas private candidatesfor classification as monitors (underthe existingclassifications) based on competitive exams. In order to avoid the questionof salaryincreases, in-service trainingprograms should not be tied to reclassificationof teachergrades in the near term.

49/ INSE is stronglysupported by a FAC projectthat is providing technicalassistant in the form of a pedagogicadvisor in order to help INSE to define its trainingpolicy and to implementit. - 105 -

246, In-servicetraining is currentlycarried out at the "prefecture" level in two differentforms: groups of pedagogicadvisors provide periodicon-site visits under the supervisionof the INSE, and regional trainingcenters are organizedby the Inspector'sDepartment at the Ministryof Education. It is unclearhow these two systemsinterrelate or whetherthey representa duplicationof effort. An evaluationof the organizationand contentof in-servicetraining programs is needed to ensure that Chad's limitedtraining resources are being used in the most efficientand effectiveway possible. Dependingon the resultsof the evaluation,short-term technical assistance could be used to introduce innovativemethods for rapidlytraining large numbersof teachers. Similar assistancemight also be called for to adapt pedagogicalmethods to Chad's difficultteaching environment characterized by large numbersof students per class and few educationalmaterials.

247. Since it is uncertainwhether the increaseddemand for teachers will continueat currentlevels, major investmentsin the rehabilitationof existingtraining facilities and the constructionof new facilitiesshould not be committedat this time. A comprehensiveevaluation of the country's long-termrequirements in the educationsector, including projected teacher needs,will be carriedout once sufficientinformation on the sectorhas been amassed. Until that time, the use of make-shiftfacilities and externally-financedtraining assistance in the form of grant aid will allow Chad to make significantprogress in meetingthe short-termdemand for education.

4. InstitutionalIssues

248. Little informationis currentlyavailable on the operationaland managementperformance of Chad'sMinistry of Education. Followingthe end of hostilities,the Ministrywas reestablishedwith the help of a managementconsultant, but an analysisof its internalefficiency or effectivenesswas not feasibleat that time. The INSE functionsas a self-containedunit within the EducationMinistry. Whether there is a duplicationof responsibilitiesor competitionbetween the INSE and the Inspector'sDepartment is unclear. Nonetheless,increased cooperation between these two departmentsin the area of in-servicetraining is necessary.

249. In order to concentratelimited resources on the provisionof basic primaryeducation to Chad'sschool-age population, a comprehensive institutionalreevaluation of the country'seducation sector should remain a long-termobjective. A participatorydiagnosis of the Ministryof Education'splanning and monitoringcapabilities could, however, be useful in helpingthe educationalleadership to identifyand addressthe sector's longer-termneeds and correspondinginvestment priorities. Such a diagnosiscould be carriedout with the assistanceof an organizational developmentspecialist on the basis of a short-termconsultancy combined with peritodicfollow-up visits to evaluateprogress.

250, Assistanceis also needed to developa sustainablesystem of teachersupport. While effortsto share teachersalary and supportcosts with the local populationswill help to reduce the EducationMinistry's budgetconstraints, increased external support for salarieswill be - 106 - necessaryto alleviatethe severemotivational problems now evidentamong teachersin Chad. Externalfinancing for the salarybudget is now being providedby USAID and IDA. The allocationof additionalexternal funding for salarieswould be an effectivemeans to improvethe short-term efficiencyof Chad'seducational system.

5. Long-TermStrategy

251. Comprehensivestatistical documentation for the 1985-86school year has recentlybeen completedby an IDA-financedUNESCO consultant attachedto the Ministryof Education. The data will be immediatelyuseful for the short-termprogramming of investmentsin the educationsector. It will also provide,along with annualupdates, a basis upon which to analyze Chad's longer-termeducation priorities at the primarylevel, as well as for secondaryand post-secondaryeducation and vocationaltraining. The objectiveof this strategyshould be how best to supplyqualified workers to the productivesectors of the economy. Specificareas which merit examinationinclude reform of the sec. 's institutionalstructure, investmentsfor the rehabilitationand constructionof the sector's infrastructureand trainingfacilities, the potentialfor privatesector participationin vocationaltraining, and, as mentionedpreviously, the developmentof a core curriculumsuiting the country'seducational environmentand human resourceneeds.

B. Health: Status and Effortsto ImproveIt

1. Health Status

252. The health statusof Chad'spopulation -- short life expectancy, high infantand child mortality,high fertilityrate -- only too clearly reflectsthe country'sstatus as one of the poorestand least-developed nationsin the world. Very littleis actuallyknown on an aggregatelevel; the lack of demographicsurveys in the past two decadesmeans that the standardindicators for healthhave all been estimatedbased on scantydata from the mid-1970sor earlierand/or formulated using models from other low-incomecountries. Thus, the indicatorsin Table 15 representmore what demographerswould expect to find in a countrylike Chad than what has actuallybeen found. However,health professionals working in Chad confirm that conditions are as bad -- and in many cases worse -- than indicated. The infantmortality rate is consideredto be much higher than the official estimateof 139 per 1,000 babies,and is probablycloser to 200, making it among the highestin the world (see Table 15). 501 Child and maternal mortalityare also extremelyhigh, reflectingpoverty, chronic malnutrition,lack of accessto safe water, littleor no health education, limitedaccess to healthcare, poorly-trainedhealth personnel,and inadequatehealth facilities,equipment, and pharmaceuticalsupplies.

50/ Recently,the Ministryof PublicHealth indicatedthat they had adopteda revisedofficial estimate for infantmortality of 210 per 1,000 infants. - 107 -

Table 15 - Healthand PopulationIndicators

Averagefor low-income, Chad Sub-SaharanAfrica

Population (1985) 5.0 million -- PopulationGrowth Rate (1980-2000) 2.4% 3.0% Total FertilityRate (1984) 5.6 6.6

Life Expectancy- male (1984) 43 years 47 years - female (1988} 45 years 50 years InfantMortality Rate (1984)27 139 129 Child MortalityRate (1984)- 27 26

Inhabitantsper Physician(1985) 38,462 27,922 3/ Inhabitantsper NursingPerson (1985) 3,441 3,148-

1/ Infantsunder 1 year of age.

2/ Childrenbetween 1 and 5 years of age.

3/ 1980 figures.

Source: World Bank, World DevelopmentReport 1985, and African DevelopmentBank, HealthServices Devekoment in the Republicof Chad, April 1986.

253. Officialpopulation figures are unreliable,taking no accountof war casualtiesand outmigration.Total populationis assumedto be anywherebetween 4.0 and 5.2 million. The growthrate of population,as well as the total fertilityrate, are probablyunderestimated. This means more babiesare being born than indicated-- but sadly,more are dying as well.

254. Diseasereporting has been very spotty and unsystematic. In 1986, a health planningproject executed by the HarvardInstitute of InternationalDevelopment (HIID) attempted to analyzeincomplete morbidity data for 1985 from a wide varietyof health facilitiesin Chad. The reportingforms were not standardized,and the resultingcategories of "healthproblems" were very general,reflecting the inabilityof many poorly-trainedChadian health workers to make more specificdiagnoses. The resultsof the surveyare summarizedin Table 16. Althoughthe sampleis biased, includingonly those cases for which formaltreatment was sought, it is indicativeof Chad's overallhealth problems. Dysentaryand other diarrhealdiseases are a leadingproblem; one study in 1983 reportedthat 70 percentof deaths in childrenunder five were due to, or associated with, diarrhea.51/ Diseases'h%.dden" within thesebroad categories

51/ AfricanDevelopment Bank, HealthServices Development in the Republic of Chad, p. 5. - 108 - includemalaria, measles, and vitaminA deficiency,among others. Malnutritionis generallynot reported,although it is often presentin conjunctionwith

Table 16 - Health Problems In 1985

Health problem Percentof Cases

Diarrhea 15 Fever 11 Trauma of all kinds 10 Acute respiratorydisease 8 Eye disorders 7 Ear, nose, throatdiseases 6 Digestivesystem diseases 6 Skin diseases 3 Gonorrhea 3 Bone and joint diseases 2 Other 29

T'otal 100

Source: Projetde Restaurationde la PlanificationSanitaire, Etude Preliminairedes Problemesde Sante au Tchad, 1985 other healthproblems. Some nutritionaltesting was carriedout during the 1984/85drought, particularly by severalNGOs and church-relatedgroups, but this has taperedoff in the past two years. At the height of the drought,the U.S. Center for DiseaseControl undertook a surveyof urban areas in Chad'sSahelian zone, findingthat anywherefrom 10 to 60 percent of childrenunder five were acutelymalnourished. 52/ Health professionals today claim that they rarely see acute malnutrition,although chronic under-nutritionis prevalent.

2. HealthAdministration and the InstitutionalFramework

255. Chad'sMinistry of Public Health (MSP) is, in principle, responsiblefor nationalhealth care delivery,although the Ministryof Defensemaintains many militaryhealth units and the Ministryof Social Affairs (MAS)manages certain maternal and child healthprograms. The MSP consistsof seven administrativedepartments: 1) preventiveand rural health;2) curativeand urban health care; 3) primaryhealth care; 4) sanitaryengineering; 5) pharmacyand medical laboratories; 6) professionaltraining and health education,and 7) administrativeand flnancialaffairs, The first three deal directlywith health-care delivery,although their actionsare often uncoordinatedat the delivery level,leading to inefficientuse of scarcepersonnel, equipment, and facilities. Generally,health-care coordination takes place at the central

52/ Ibid, p. 6. - 109 - level,with littlecoordination at the regionallevel or at deliverysites. Effortsare being made to improvethis situation,for example,by using the MAS networkof maternaland child health (MCH)centers as deliverysites for the nationalvaccination program.

256. The most strikingaspect of Chad'shealth care system is that it really consists of multinle, independent systems. Health-care, as one of the most basic needs,ha teen the focusof numerous,sustained interventionsby NGOs, donor agencies,and church-relatedgroups. Many have createddelivery systems which operate,for the most part, independentlyof the nationalhealth-care system. Most notably,the NCO MedecinsSans Frontiares(MSF) has providedvirtually all health-care servicesin nine of Chad's thirteenregions. MSF has acted as a substitute for, or as an extensionof, the MSP system,albeit a fairly independent extension. These parallelsystems have been essential,and laudable,given the MSP's severelack of resources,but they have made the coordinationof health servicesand the definitionand implementationof a nationalhealth sectorstrategy vastly more complex. They also tend to discouragethe developmentof a nation-widelocal capacityfor health care delivery,which could prove dangerousif a major health care providerwithdraws from the country. This threatmay soon become reality,as MSP considers substantiallycurtailing its activitiesin Chad.

3. DefiningPriorities in HealthCare

257. The lack of standardized,aggregated data on healthproblems and liealth-careneeds has hinderedGovernment planning in the sector. For the past two years, the HIID project,operating within the MSP, has worked to developa nation-widehealth informationsystem and train Chadian counterpartsto exploitthe resultingdata. A standardizedreporting form was developedwhich was acceptableto all governmentaland non-governmental health-careproviders, and respondedto the planningneeds of the MSP. The systemis now in place, althoughmuch of the fundingfor the projectis scheduledto end in September1987, despitethe neAd for more time to train Chadiancounterparts, ensure smooth operationof the system,and ascertain that the systemprovides appropriate information for health planning.

258. The Government'sstated objective in the health sector,as indicatedin the InterimPlan, is to improvethe healthstatus of the greatestnumber at the least cost. This will involvea three-pronged approachemphasizing (i) preventivecare (e.g.,immunization campaigns, nutritionprograms, maternal and child healthcare, sanitaryengineering); (ii) increasedaccess to care (e.g.,primary health care, supportfor small-scaledispensaries, services for the handicapped),and (iii) increasedquality of care (e.g.,support for academicand in-service trainingprograms). MSP is assistedin its planningefforts by a WHO technicalteam. Certainelements of the Government'sapproach are better definedthan others,depending in large part, on donor willingnessto sponsorparticular programs. The ExpandedVaccination Program (PEV),for example,is relativelywell-defined and has receivedconsiderable technical and financialsupport from the donor community. However,because of trainedmanpower constraints, the PEV has thus far fallen short of its annual goals. Similarly,the oral rehydrationtherapy (ORT) programhas been definedand implementationhas begun, althoughinstitutional rivalries - 110 - between the MSP and the MAS, as well as trainedmanpower constraints, have delayedimplementation. Other statedpriorities, such as water supplyand sanitationor servicesfor the handicapped,have receivedfar less external supportand are less clearlydefined. It is importantfor MSP to integrate these variouscomponents into an overall sectorstrategy, in order to determinethe most appropriateallocation of resourcesand encouragedonors to diversifytheir assistanceamong the many competingpriorities.

4. Personneland Facilitiesfor Health Care Delivery

259. Chad's limitedresources for health care are spreadfar too thinly: many facilitieshave crumblingwalls, no beds and no equipment; pharmacyshelves are often bare; and much of Chad'shealth personnel has only rudimentarytraining and is unable to recognizeand treat common illnesses. The medicalneeds of the militaryhave placedan additional strainon this over-taxedsystem. The actual number of physiciansand nursesworking in Chad is on par with other low-income,Sub-Saharan countries,that is, approximatelytwo to three times less than WHO minimum recommendednorms (see Table 17). Less than half of Chad'sphysicians work throughthe MSP health care system,with NGOs (especiallyMSF) providing another22 percent,donor agencies15 percent,and church-relatedgroups the remaining15 percent. In additionto the personnelshown in Table 16 below, there are an estimated350 villagehealth workers, most with little or no training,who are community-supported.In contrast,the Government estimatesthat there are as many Chadiandoctors practicing abroad as there are in Chad -- a common problemin placeswith no tn-countryphysician training.

260. The NationalSchool of PublicHealth and SocialServices (ENSPSS) offersthree-year programs for nurses,nurse-midwives, and sanitation workers,as well as two-yearprograms for intermediatenurses, and health and socialworkers. About 300 studentsattend ENSPSS,although the quality of trainingis seriouslyundermined by the lack of funds for instructors' salaries,textbooks, equipment, and supplies. As of late 1986, the start of the 1986/87academic year had been postponedindefinitely for lack of funds. Althoughdonors have providedscholarships for ENSPSS in recent years, these are decliningas some donorsshift resourcesout of the health sector in an effortto broadenChad's development activities. - ill -

Table 17 - HealthPersonnel and Facilitles,1986

GovernventalNon- 2 HealthPersonnel Governmental- Governmental Total

Physicians 63 67 130 Nurses 1,141 312 1,453 Other categories 714 45 759

Total 1,918 424 2,342

Health Facilities

Hospitals 5 3 8 Medical centers 17 4 21 Infirmaries 19 4 23 Dispensaries 140 66 206 Health stations 1 14 15 Preventive health centers 8 -- 8 Maternal/child health centers 22 -- 22 Military health stations 111 111

Total 323 91 414

1/ IncludesMinistry of PublicHealth, Ministry of SocialAffairs, and Ministryof Defense.

2/ Includeschurch-related groups, NGOs, donors.

Source: Ministryof PublicHealth and AfricanDevelopment Bank, Health ServicesDevelopment i the Republic f Chad, April 1986.

261. Thirtypercent of MSP healthpersonnel, including two-thirds of all MSP physicians,work in N'Djamena,which accountsfor an estimated 8 percentof Chad'spopulation. This imbalanceis mitigatedby non-governmentalhealth personnel,the majorityof whom work in other regions. Governmenthealth facilitiesare more evenlydistributed, althoughthe additionof non-governmentalfacilities disproportionally favorsthe southernSudanian zone. In 1977, there were 168 MSP facilities, most of which were closed or destroyedin the hostilities. By 1986 there were 190 MSP feilities, with the increasedue largelyto the Government's emphasison smaller-scale,wide-spread dispensaries and health stationsto increaseaccess to primarycare.

262. Improvedaccess to pharmaceuticalproducts is also necessary. The MSP directsthe NationalPharmacy Supplier (PASP), which is responsible for providingMSP facilitieswith medicinesand other pharmaceutical productson the Government's"essential" list. In recentyears, PASP purchaseshave been entirelyaid-financed and were sufficientto supply only about half the MSP facilities;some of the remainingfacilities have been supplieddirectly by NGOs and donor agencies. Militaryhealth units also draw on the PASP, as necessary,often leavinglittle for civilian facilities.Non-governmental facilities are generallysupplied by their - 112 - sponsoringagencies. In addition,PHARMAT, a mixed-capitalenterprise with a legal monopoly (exceptfor PASP) on importingpharmaceutical products, sells wholesa'eto about 75 privatepharmacies, mostly locatedin or near N'Djamena. Medicinesand suppliesare also availableon the parallel market,and reportedlymay help to supplyas many as 1,000 village-level, community-sponsoredpharmacies.

5. FinancingHealth Care

263. The diversityand independenceof health-careproviders in Chad make it difficultto assessaggregate expenditures in the sector. Governmentrevenues allocated to health are small and must be supplemerted with externalbudgetary support just to cover MSP salariesand operatlng costs. Externalassistance finances all equipmentand projectcosts. In the 1984-86period, expenditures by the MSP were constrainedto only about one-thirdof the amountsbudgeted, ranging between CFAF 0.4 and 0.5 billion per annum -- or just 2 to 3 percentof the Government'stotal expenditures. This is equivalentto less than CFAF 100 (US$0.30)per capita. In contrast,disbursements of aid for the health sector in the 1983-85period averagedmore than CFAF 3.0 billionper annum. In 1986, disbursementsrose to over CFAF 5.0 billion,or roughlyCFAF 1,000 (US$3.00)per capita. However,new commitmentsin the health sectorappear to be decliningas donorsdiversify into other sectors,and the Governmentis faced with the need to developalternative methods for healthcare financing.

264. One financingoption, particularly to cover recurrentcosts, is to increasethe use of servicefees and the sale of pharmaceutical products. Officially,the MSP chargesa token fee of CFAF 100 for out-patientvisits. In-patientservices are free, as are all PASP pharmaceuticalproducts. Revenuesgenerated by fees and reportedto the MSP were estimatedto total CFAF 43 millionin 1986. However,these revenuesdo not financethe health sectordirectly; they are placed in the Government'sgeneral Treasury. Fee collectionis reportedlyerratic, and when they are collected,they are often used to financethe immediateneeds of the healthfacility (e.g., medicines bought on the parallelmarket) or for other purposes.

265. PHARMATsells its productsat officialprices which have been quite profitable. PASP, with technicalassistance from USAID, is experimentingwith several"self-financing" pharmacies, which aim to cover recurrentcosts throughsales. Many of the NGO and church-related facilitieshave always chargedfees for servicesand pharmaceutical productsand, in many cases,have successfullycovered the recurrentcosts of their operations. The growingnumber of community-sponsored dispensariesand pharmaciesimplies that accessmay be a greaterconstraint to health care than purchasingpower. The Governmentneeds to explorethe potentialfor greatercost recoverythrough the use of fees, while being cautiousnot to imposeprohibitive fees which limit the access of many Chadiansto basic health care.

* * * * - 113 -

266. The lack of basic data on social welfare (e.g., income, emnployment,consumpticn, health and nutritional status, and education) of the Chadian people has hindered anaivsis, policy-making and programming for poverty alleviation. To ameliorate this situation, the Chadian Government has decided to participate in a regional project, financed by UNDP and executed by the World Bank, entitled the Social Dimensions of Structural Adjustment. The objective is to gather information on a broad range of social welfare indicators in order to determine the welfare effects of economic events and adiustment measures on differeuitgroups in Chadian society. The project will establish a permanent household survey capability within the Statistical Division of the Ministry of Planning, supported, initially, by technical assistance where necessary. A living standards survey will be launched to generate data for a series of socio-economic studies which will respond to the Government's priority policy questions. This should enable the Government to better define policies and development programs which improve the welfare of the most vulnerable groups and/or compensate groups which are negatively affected by economic adjustment. As a first step in this process, a demographic census survey will be carried out shortlv as part of a World Bank technical assistance project. This initial survey will permit the establishment of an appropriate sample frame for the upcoming living standards survey.

.,, O. - 114 -

VI . DETERMINANTSOF FUTURE TRENDO

267. A number of economic and non-economic, quantitative and qualitative, cross-sectoral factors can influence future trends in a country. In the case of Chad, the most important of these are (i) political stability, (ii) domestic resource constraints, (iii) investment and external assistance, and (iv) economic management. These are the focus of this chapter. Although their link to the projections is not always direct, these factors -- as well as the social factors reviewed in the preceding chapter -- affect expectationsconcerning the pace, limits and quality of change. They are therefore discussed here as a background to the projections presented in the next chapter.

A. Political Climate

268. Political instability has been a major deLerminant of the evolution of the Chadian economy since Independence. Examining the causes and prospects of this phenomenon is beyond the mandate of this report, but the question cannot be ignored because political stability is, beyond doubt, a pre-condition for Chad to realize its economic potential. The fulfillment of this pre-condition is, therefore, a key assumption in the rest of this report. The assumption is analytically necessary, but is also justified. The Government has made systematic and successful efforts to foster national unity and reconciliation. As a result, the internal and external security situation is better than it has been in a decade, and this augurs well for the future. The purpose of this brief section is not to speculate about the prospects for enduring political stability but, rather, to consider the changes which it may bring in terms of security outlays, decision-making,and external aid -- all relevant to an assessment of future economic prospects.

269. A priori, security outlays should decline as internal and external security is solidified. However, given the continued security risk along Chad's border, it would be unrealistic to expect such outlays to decline dramatically in the years ahead. Besides, the reduction is likely to be accompanied by some reconstruction/rehabilitationexpenditures in the North. For that reason, the net financial benefit of an improved security situation for the rest of the country is not likely to be great; on the contrary, care should be taken to make sure that it is not negative. Currently, an important part of security outlays are financed externally, If the financing is reduced without converting it into general development assistance or reconstructionassistance for the North, the impact on overall finances may indeed be negative.

270. The benefits of an improved security situation are likely to be greater in the areas of decision-making and external aid. In principle, it will be possible to devote increasing attention to economic questions -- this has already started; and the improved security situation should also lead both to a diversificationand expansion of external assistance -- as donors less familiar with Chad become willing, and find it feasible, to operate in the country -- and to an increase' ability to attract high-quality techrnicalassistance. Neither of these, however, will be easy or happen automatically. The challenge for the Chadian authorities will be - 115 - to base decisions affecting the economy as much as possible on economic (rather than political) considerations. This is not a simple task because the choices are not clear-cut: some decisions which are economically sound can have unacceptable political costs, while some motivated by political considerations (such as, for example, the promotion of nat.ial and unity) can have economic benefits. The expected positive impact on aid is not automatic or assured either; it will require the establishmentand pursuit of smooth external relations, including the expansion of trade with neighboring countries. In short, while the economic benefits of stability will be significant, they will depend on how Chad "manages" that stability.

B, Domestic Resource Constraints

1. Revenue Constraints

271. This section focuses on the financial resources of the State, which consist of fiscal revenues, "'specialfunds," and "exceptional" taxes. The next section discusses the implications of the financial constraint for the administration and development policy.

272. Fiscal revenues. Chad's fiscal base is small relative to the size of the subsistence economy and the informal sector, because of the limited size of the modern sector and because the average income level is low, with little variation around the mean. Furthermore, the tax base has shrunk since the advent of the cotton crisis. In 1986, fiscal revenues amounted to 5 percent of GDP, compared to 9 percent in 1977 and a peak of 15 percent in 1971. By comparison, in 1986, the ratio of fiscal revenues to GDP was 22 percent in Mauritania, 19.5 percent in Senegal, and 12 percent in the CAR. The production of petroleum, particularlywhen exports become feasible, could become a new revenue source in the medium-term. Besides this, the potential for expanding the base in the short- to medium-term is limited. There is scope for reducing existing exonerations and exemptions, particularly on import duties, although care must be taken not to discourage aid-financed imports deemed essential for Chad's development. Improvements are also possible in the structure of taxes in areas such as petroleum products and livestock marketing, as well as in the administration of taxes.

273. The potential for revenue generation is limited, but to exploit that potential, the tax burden should be shared as widely as possible, and the structure of taxes should be carefully considered in order to maximize fiscal revenues without discouraging domestic production and offjcial marketing. Currently, the tax burden is borne disproportionatelyby relatively few economic agents, and especially by the five major industries. They figure heavily in many of Chad's major sources of revenue, including, in descending order of magnitude, import duties, unitary taxes, corporate taxes, and turnover taxes (see Appendix Table 23). As discussed in Chapter IV, the problem is compounded by the pervasiveness of fraud: an increase in taxes leads to an increase in prices, which encourages fraud, reduces domestic sales and cuts the tax yield. This is a structural problem in Chad which has been the object of reform as far back as 1972. At that time, taxes were lowered in order to reduce fraud and stimulate domestic production, i.e., increase the tax base to offset the impact of the lower tax rates. The reform did not work; the tax/GDP ratio - 116 - was reduced, but formal (recorded) trade and production did not expand. This experience suggests the need to proceed with care in designing and implementing such reforms in Chad, Efforts to strengthen tax administrationand to diversify the tax base should start with a survey of taxpayers.

274. Special Funds. There are a number of special funds in Chad which either collect taxes on behalf of the Government or derive revenues from their activities, Although the Central Government's accounting system is undergoing a significant improvement (aided by the adoption of a new budget nomenclature), the accounts of most of these funds are seriously deficient -- even if some of the funds are relatively well-managed -- as shown by the following brief survey of their situation and problems.

275. The cotton price stabilization fund (CSPC) has had a broad mandate: stabilizing producer prices, financing the deficit of COTONTCHAD, and playing a financial role in all industrial and commercial operations in the sector. If, in a marketing season, COTONTCHAD produces a surplus, 80 percent of it goes to CSPC, 20 percent is retained by COTONTCHAD; if the industry produces a deficit, all of it is supposed to be financed by the CSPC. From 1971/72 to 1983/84, COTONTCHAD transferred roughly CFAF 21 billion to CSPC. Yet CSPC did not finance any of the COTONTCHAD deficits incurred in 1978/79, 1979/80 and since 1984/85. The resources went to subsidize the activities of ONDR and IRCT, to make investments in or loans to public enterprises, and to finance CSPC's own (high) administrative costs. Under the Emergency Program, CSPC no longer benefits from transfers by COTONTCHAD, so it cannot play its role; it manages to cover its expenses through rental income from buildings it owns.

276. The continued existence of a Petroleum Fund (FIIP) also does not seem entirely justified. As noted in Chapter IV, Chad imports petroleum from both Nigeria and Cameroon for reasons of supply security, xv.!2n though their prices are different -- a problem which is dealt with by taxing Nigerian oil and subsidizing Cameroonian oil. The Fund, which performs this role, should break even if the ratio of Cameroonian oil to Nigerian oil is roughly 40/60. Since 80-90 percent of imports have been coming from Nigeria, the FTIP should be accumulating very large resources, which is not the case. The reasons for this include fraud (falsificationof country of origin), but also poor accounting and financial management. Since administering the price equalization policy has proven difficult, and since the majority of imports now come from Nigeria, it would seem appropriate to move without delay to a simple unified tax taking into account the import cost and the retail price. The Government is currently preparing a reform of petroleum taxation which would move in this direction. At the same time, tax collection at the border points needs to be drastically improved.

277. In contrast, the Debt Amortization Fund (CAA) has a well-justified role and functions properly, servicing the debt from its own revenue/tax sources. It is currently reinforcing its collection capabilities, and its resources are included in the consolidated government accounts. The other funds are the Sugar Price Stabilization Fund, which the Government has agreed to abolish; the Social Security Fund (CNPS), the Rural Intervention Fund (FIR), which has, for the moment, no resources; the Veterans and War Victims Fund (funded through a share of import duties on - 117 - petroleum); and OFNAR, the road transport agency which, though not strictly a fund, is also financed through a levy on petroleum. On the whole, use of these funds constitutes a form of taxation which drains considerable resources from the economy: CFAF 3 billion In 1986, not counting the CAA. The recent decision to make these funds transit through the Treasury should assure better monitoring, although the role of most of them should be reviewed, and all can benefit from organizational reform.

278. Exceptional Taxes. The first exceptional taxes were introduced in 1984 in the form of relinquishing one month's salary to contribute to national reconstruction; the tax yielded CFAF 1.8 billion. The year 1985 saw the introduction of a tax to combat the effects of the drought, and 1987 a variable tax to support the war effort. None of these exceptional taxes are included in the Government budget, although they place a significant burden on taxpayers.

2. Implications

279. The above review leads to the following observations:

- it will be difficult for Chad to increase its fiscal revenues significantly; they have been historically low for structural reasons;

- a restructuring of the fiscal and parafiscal system could nevertheless lead to some increase in revenues. This is particularly true with respect to the yield on petroleum taxes;

- institutional reform of special funds and of tax collection services could also lead to increased revenues.

The low level of financial resources has implicationsfor (i) the functioning of the administration, (ii) its contribution to public enterprises and recurrent costs, and (iii) development strategy.

280. Functioning of the Administration. With current salaries, many civil servants cannot support a family. The average salary of a civil servant is about CFAF 38,000 per month, while the minimum cost of housing and feeding four people (and providing the charcoal or wood needed) is around CFAF 50,000, without allowing for electricity or running water. Thus, unless he/she or other members of the family have supplementary jobs, they will live in poverty, lacking in the most basic needs, particularly during the dry season when food prices tend to be much higher. Although the situation depicted may be better than before the war, it cannot continue without affecting the efficiency of the administration. Understandably, raising civil servants' salary payments is an Important medium-term objective of the Government. Yet in view of the financial constraints, it is important to ensure t;.atan increase in salary payments is not accompanied by an expansion of the civil service. The Government is conscious of this despite the political cost it represents. The new civil service statute which was adopted in February 1987 will put an end to automatic recruitment of university graduates; recruitment will be based on need and competition. This will help limit the quantity and improve the - 118 - quality of the civil service. The Government's operating budget also requires increased attention. With the rehabilitation of government buildings and the strengthening of public services, operating expenditures will have to be increased, particularly to ensure adequate maintenance of rehabilitated infrastructure. Given resource constraints, this will require the setting of clear priorities and strict management of expenditures to avoid the build-up of arrears.

281. Financial Contributions. Revenue constraints also have implications for the Government's ability to subsidize parapublic enterprises, finance the re"urrent costs of development projects, and service the external debt. Up to now, subsidies to public enterprises have been very rare and limited. Only SODELAC received an operating subsidy in 1985. As we have seen, some agencies and funds benefit from fiscal and parafiscal resources, but they do so to finance services which are the responsibility of the State: road maintenance in the case of OFNAR, extension services in the case of ONDR. It is important, however, to avoid allocating fiscal resources to activities for which external assistance may be available, This seems particularly applicable to the Rural Intervention Fund, which is supposed to be financed by the State, but -- by its nature and objectives -- could be appropriately funded with external assistance. In short, state enterprises should place the least possible burden on the Government budget. This also applies to recurrent costs of projects. A large proportion of the on-going aid projects (reviewed in the next section) do involve the financing of recurrent costs, often in combination with investment financing.

282. Development Strategy. The severe resource constraints of the State underline the need for community participation in the financing or provision of public services. Such community participation is already important in a number of areas such as health and education (see Chapter V), as well as in water supply. T'iL is welcome and should be further encouraged. It is, however, neither quick nor easy; it requires preparation and training -- an area in which a number of NGOs may have valuable experience to offer.

283. Another way for the Government to avoid taking on responsibilitieswhich it cannot finance is to encourage the private sector. However, as discussed in Chapter IV, the development of the private sector will require external assistance, training and institution building, and will take time. It is clear that given its resource constraints, the Government cannot finance for an extended period operations which are structurally in deficit, regardless of their justification. This necessitates selecting and designing projects in a manner that maximizes self-financing of recurrent costs, even if this entails less ambitious projects.

284. In a fragile country like Chad, pursuing a high growth rate through a multiplicity of Government programs could quickly provoke serious disequilibria in its public finances as well as in the balance of payments. A more appropriate objective would be to give greater weight to modest, but sustained growth. Such a policy would especially emphasize the development of the rural sector, which has proven to be both solid and dynamic. This sector also provides the basis for important social bonds which, once - 119 - broken, can be mended only slowly. The cooperative movement in Chad is not well-understood, but numerous "spontaneous" groups were formed during the war to assume the respcnsibilityfor certain public services (e.g. health care, education) as well as launch productive activities. The Government believes these groups have a critical role to play in Chad's development and has begun, with support from the ILO, an inventory of cooperatives in the countrv. In addition, a study is being carried out by CEFOD, with OXFAM financing, on the nature and operations of these groups.

C. Investment and Development Assistance

285. Public investment in Chad has been entirely aid-financed in recent years, as has a large portion of the recurrent costs associated with these investments, Given the limited outlook for augmenting fiscal revenues in Chad, the donor communitv must be prepared to continue financing -- for an extended period -- the bulk of recurrent costs and all the initial Investment costs of development projects, as well as the costs of providing basic social services such as health care and education.

286. ln the last quarter of calendar 1986, the Chadian authorities, with assistance from the World Bank and the cooperation of the major donors, prepared an inventory of aid projects -- those under implementation and those expected to start in 1987 (excluding budgetary and milita,ry assistance), The inventory was initiated primarily as a first step toward the preparation of an investment budget for 1987 and, later on, a multi-year investment program. The exercise was expanded from investment to aid projects partly because of the difficulty of distinguishingbetween investment assistance and other types of assistance (recurrent cost financing, technical assistance), but also because of the analytical value of an inventory of -id projects per se. The donors provided valuable assistance both in generating and in verifying the data. Nevertheless, the Inventory has a number of shortcomings which are attributable to the lack of standardization of donor reporting, the difficulty of reconstructing past series for comparison, and the problem of correctly gauging executing capacity. For those reasons, the disbursement estimates for 1987, for example, may have an upward bias, since they come essentially from the donors and are largely "planning estimates" by them. The focus of this section, however, is more on the distribution and potential effectiveness of the assistance than on its precise level, and the data do permit a number of meaningful generalizationsin that regard.

287. According to the inventory, disbursements of project assistance to Chad are expected to increase by nearly 50 percent (in current CFAF terms) in 1987, after more than doubling in 1986, as showm below:

1985 1986 1987 1988 1989

Thousands of CFAF 1 19,205 44,423 65,251 41,870 19,018 (millions of US$) - 43 127 204 131 59

1/ Converted at a rate of CFAF 320 per US dollar in the 1987-89 period. - 120 -

Disbursements from the projects surveyed are projected to decline as rapidly as they rose, reflecting their quick-disbursingcharacter. Keeping disbursements at their 1987 level, let alone raising them, will require the speedy identification and financing of other quick-disbursingprojects and/or a very sharp increase in balance of payments aid.

288. As noted, the data do not permit distinguishing between investment expenditures and others. However, a rough estimate can be developed by attrJbuting projects or sub-categories of expenditures to one grotupor the other, based on their primary objective. On that basis, roughly 55 percent of the projected aid disbursements in 1987 would support investment expenditures, 19 percent recurrent costs of the Government, and 21 percent operating costs of the public or mixed enterprises (5 percent would consist of miscellaneous outlays). The figures cited probably underestimate the weight of investment expenditures; even if they did not (i.e., even if investments expenditures represented only 55 percent of external assistance), this would not necessarily be bad: in Chad's actual situation, the financing of certain current expendituresmay deserve priority over capital outlays and may have a bigger developmental impact. More important is the purpose and activity that the expenditure is serving. The distribution of aid from that point of view is generally positive; as illustrated below, with few exceptions, the donors have done quite well in allocating external resources to priority needs.

289. Approximately half of the projected aid disbursements in 1987 are to finance rehabilitation activities, 10 percent for the expansion of existing capacity, and 14 percent for building new capacity (Chart 8). This distribution is consistent with both the physical state of existing capacity and the restraint that Chad and the donors must exercise in building new capacity. The proportion of rehabilitation is highest in Infrastructure and Services (80 and 73 percent, respectively). The proportion of new capacity is highest in education, although even there it is only 25 percent. Another feature of the distribution of aid by purpose is the large share (21 percent) allocated to financing "support actions" (institutionbuilding, technical assistance, training). The ratio of aid falling in that category is highest for rural development and education (54 and 51 percent, respectively). Overall, rehabilitationand support actions absorb three-quartersof the aid.

290. Table 18 presents a detailed profile of aid programs/projectsin Chad with an ad hoc functional classification developed for the purpose of the current analysis. The sectoral distribution of projected aid seems well adapted to Chad's intersectoral priorities, with 32 percent going to infrastructure, 26 percent to rural development, 22 percent to industry and energy, and 16 percent to the social sectors, split roughly equally between education and health. The intra-sectoraldistribution, too, seems consistent with Chad's problems and needs. Within rural development, about a third of the aid is directed at integrated regional development and 15 parcent at institutional support. Institutional support is also the object of 6 percent of the assistance to industry. Within the road sub-sector, 44 percent of the aid is for maintenance, compared to 36 percent in 1986. Primary education will absorb 24 percent of aid to the education sector, while higher education will receive 9 percent, compared to 18 percent the year before; the lion's share, 44 percent, will go to AID PROJECTS: E.STIMATED DISBURSEMENTS IN 1987 BY TYPE OF ACTIVITY 2250C)- - __ LEGEND

20000 [cm]NEWCAPACilY SUPPORTACTIONS

17500- _r 1750 |II]EXPANSION

15000-- REHABILITATION

Cl)

S)12500-

10000-15000 -_l'^i

=1125007500- -_iai

0 INFRASTRUCTURE IND 8 EGY HEALTH UVESTOCK X AGRICULTURE EDUCATION OTHER SECTORS * 2 17lV' tnclude Admtntatraton. S4"ce0 & Sochl Afutrs. V~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~'-4A

1/-E7

~ - L4I - 123 -

TABLE18: EXTERNALAID: ESTIMATEDDIS8LRSEMENTS BYSECTOR AND OBJECTIVE

(InCFAF MILLIONS)

1986 1987 %of Sector

Sector/Subsector * of e of ProJects Amount Projects Amout 1986 1987

Rl4ALDEVELOPMENT

IntegratedRegional Development 13 3.519 15 5.425 30% 32% SectoralDevelopment 15 3.123 18 5.703 27% 33% InstIttitnalSupport and Studies 5 844 6 2.489 7% 15% Research 1 252 1 265 2% 2% CropProtectlon 5 510 3 397 4% 2% Tralning 7 557 6 484 5% 3% Eoulpement 2 86 1 200 1% 1% Productlonand Storage of Seeds 2 438 2 529 4% 3% Llvestock 7 1.342 7 1.418 12% 8% FIsherIes 1 14 1 8 0% 0% Forestry 1 183 1 165 1% 1% Other 2 693 1 17 6% 0%

RuralDeveiopment SubtotaI 61 11.540 62 17.100 100% 100%

%of Total Investment 34% 26% 34% 26%

INDUSTRYANDENERGY

Marvwfacturlng 7 4.889 8 10.575 76% 72% Smalland Medlum Industrles 2 828 3 2.104 13% 14% Energy 3 571 3 592 9% 4% InstitutionalSupport 0 4 829 0% 6% ConstructIonMaterials 2 77 2 498 1% 3%

IndustrySubtotal 14 6.163 20 14.598 100% 100%

%of Total Investment 8% 14% 11% 22%

INFRASTRUCTURE

Roadand Brldge Construction 5 4.436 5 7.036 31% 34% RoadMaIntenance 3 2.467 2 5.610 17% 27% InstitutionalSupport toRoad Sector 1 43 2 113 0% 1% AlrTransport 4 2.543 2 2.677 18% 13% Water upply 10 2.033 8 2.997 14% 14% Sanitation 1 491 1 402 3% 2% Telecommunicatlons 1 426 2 795 3% 4% Other 2 1.862 2 1.128 13% 5%

InfrastructureSubtotal 27 14.301 24 20.758 100% 100%

%of Total Investment 15% 32% 13% 32% - 124 -

TABLE18 (cOnt IMd)

1988 1987 X of Sector

Sector/Stbsector * of * of Projects Amount Projects Anut 1986 1987 EDWCATION

PrlmaryEducatlon 3 1.142 3 1.204 352 24X SecondaryE.xatlon 2 263 4 707 8X 14X Hlor Eduatlon 4 592 3 441 18X 92 Teacher1ralning 7 867 7 2.20B 272 44X Other 2 375 2 442 122 92

EducatlonSbtotal 18 3.238 19 5.000 1002 1002

2 of Total Investment 10X 7X 102 82

HEALTH

MedicalCoverage 8 2.783 6 1.541 562 33X Vaccinatlon&Ejldemloiogy Programs 5 970 5 1.066 192 232 Nutritlonal& Rehydratlon Programs 4 112 3 101 22 2X HealthInfrastructure 3 162 5 1.031 3X 22X Training 3 164 4 468 3X 10X Institutionaland Logistical Stxvrt 7 792 7 522 162 J W

HealthSubtotal 30 4.982 30 4.731 100X 100X

2 of Total Investment 172 112 162 7a

OTHER

Telecwmnicatlons 4 459 4 304 112 102 Admnnistration 12 2.958 13 1.338 70X 442 SocialAffairs 9 302 8 364 7X 122 ServIces 4 479 3 1058 11X 352

OtherSlbtotai 29 4.198 28 3.064 1002 1002

2 of Total Investment 162 9X 152 52

TOTALFOR ALL SECTORS 179 44.423 183 65.252 - m - 125 -

teachertraining. Within the health sector,nearly a quarterof the aid will financevaccinations, and 22 percentwill help rehabilitatesector infrastruicturewhere the needs are acute, as noted in ChapterV; 10 percent will go to training.

291. The inventorynevertheless gives rise to a number of questions. First, it revealsa degreeof regionalconcentration by donor. For example,Italy focusesits interventionsin the Kanem and Lac regions,the EDF on Chari-Baguirmi,Germany on Mayo Kebbi and Ouaddai. This patternof concentrationmay make it difficultto followa nationalapproach, especiallyin the absenceof a well-defineddevelopment strategy, which is indeedlacking in a number of sectors. Second,the operationsin livestock and fishingare rathermodest in number or amount -- a fact which probably reflectsthe donors'hesitation to intervenein sectorswhere socialand ecologicalquestions make the elaborationof projectsdifficult. Third,a numberof on-goingprojects seem. to have been financedwithout studying or documentingtheir economicjustification adequately. In the agriculture sector,this is the case with the developmentof poldersat Mamdi undertakenby SODELAC. This projectinvolves the developmentof 1,600 hectaresover a period of five years. The pre-feasibilitystudy, which was preparedbefore the war and updatedby SCET AGRI in 1983, is primarilytechnical. Neitherthe SODELACorganizatioii nor its systemfor collectingwater fees has been adequatelystudied. Nor was it ascertained whether the outputof the irrigatedperimeters could be marketedand the projectedrates of returnrealized. In short, this projectcarries considerablerisks, and the financialconsequiences for SODELACcould be disastrous.

292. Overall,Chad seems to have embarkedon a programof rehabilitationand extensionof irrigatedperimeters (OMVSD, SODELAC, Chari-Baguirmi)without defininga strategy. Thus, the followingquestions remainunanswered:

what are the productswhich can be producedin the perimetersin a manner suited to culturalpractices and which can be marketed profitably;

what is the most suitableapproach for recoveringinvestment and operatingcosts;

- what is the appropriateorganization/management structure, especiallyfrom the point of view of minimizingoperating costs.

Similarly,large investmentsare allocatedto rice cultivation(OMVSD, rice developmentscheme at Gounou Gaya),which could raise productionabove Chad'sstill quite low domesticdemand. The rest of the agriculture programconsists of a varietyof projectswhich are not tied togetherby a precisestrategy, but this is unavoidablebecause the definitionof a strategywill take time. Some projectsinclude insufficient provision for extensionservices. In one case, the installation,let alone utilization, of water pumps alreadyin the field remainsblocked by the lack of resources, - 126 -

293. Tn the manufacturing sector, the expansion of some activities involves real risks. In the case of SONAPA (dairy and animal feed), the financing of CFAF 500 million by BDEAC represents a heavy burden, given its limited production prospects. The project places SONAPA in an extremely difficult financial situation and hampers present efforts to mobilize private capital (see para. 140).

294. In the transport sector, one donor has allocated US$35 million for the construction of a road that would serve Bol and the Lac region. Soil conditions are extremely difficult, and the construction of several test strips near Bol has not produced a technically satisfactory solution to this problem. In its current form, this project is highly problematic since it will absorb a large share of the funds allocated to the transport sector without making a commensurate contribution to the reduction of transport costs. These funds could be more effectively used in the rehabilitationand maintenance of the priority road network. The Government is conscious of this situation and has asked that, if the project is to be implemented, maintenance of the road for three years also be financed under the project. This continued donor involvement should also ensure that any technical deficiencies discovered will be remedied.

295. In general, the disbursement projections seem very optimistic. In the past, such projections have rarely materialized as foreseen, even though in Chad, in recent years, the donors have had a much bigger role in project execution than in other countries. The road project mentioned above seems particularly optimistic in that regard, since (i) the projected disbursements are quite large by Chadian standards (nearly CFAF 7.5 billion in 1987, equivalent to more than 10 percent of the entire aid/investment inventory), and (ii) physical progress is likely to be very slow due to technical problems. Disbursements of this magnitude and rhythm, even if they proved feasible, would provide little control over the quality of the intervention.

296. Despite the above observations, the inventory of projects seems to conform fairly well to Chad's needs and financial constraints, which severely limit its ability to finance recurrent costs. The inventory is also well balanced with respect to geographic distribution -- and this is particularly welcome. The N'Djamena district will be the beneficiary of just 16 percent of disbursements in 1987; projects in the Sahelian and Sudanian zones will receive 21 percent and 26 percent, respectively; the remainder, and the largest portion (36 percent), will go to "national" projects cutting across regions (Chart 9). The distribution is less even with respect to aid to Education, Administration and Services, but this is largely because of the distribution of population as well as actual facilities such as schools, government agencies, telecommunicationand other services -- a factor which influences the allocation of the rehabilitation expenditures and the support actions financed.

297. Information on the terms of the aid are not available for all the projects. The terms do seem, however, to be consistent with Chad's financial constraints. Approximately two-thirds of the projected disbursements consist of grants; one-third consists of loans but come almost entirely from multilateral organizations on concessional terms. Overall, 40 percent of the disbursements in 1987 will come from the AIDPROJECTS: ESliMATED DISBURSEMENTS IN 1987 NAnONAL SAHEUANZONE DISTRIBUTIONBYGEOGRAPHC LOCATiON N'DJAMENA , SUDANIANZONE

INDUST/ENERGY AGRICULTURE UVESTOCK 2.3% 6.3%

Vi 33.1X 71.0% 16.0.6%-' / o X .¢214% 0.6%1 38.8% ~ ~~~~~~~~~~~68 16.8% ~~~~~~70.0OX

INFRASTRUCTURE EDUCAMON HEALTH

36.4X 36.9%

7.------' 0.5% .,- -6.4X: 14.9%

3 g' I I - 129 -

bilateraldonors, with France,the largest,providing 24 percentof total disbursements,followed by Italy (11 percent),the UnitedStates (6 percent)and Germany (4 percent). The multilateralorganizations will supply55 percentof total disbursements.IDA, the largestcontributor in this category,will providenearly 15 percent,the other UN organizations will provide 11 percentand variousEuropean Community agencies another 12 percent (AppendixTable 18).

298. Accordingto the Inventory,5 percentof the projected disbursementsin 1987 are to come from NGOs' own resources. This figure underestimatesthe quantitativecontribution of this donor group, because the inventorydid not includeprojects of less than CFAF 50 millionwhich are typicalof the activitiesof many of these organizations.The figure certainlyunderestimates the qualitativecontribution of NGOs, which is much larger than the figureswould suggest (as they very often act as executingagency for some donors)and will, therefore,be reviewed separately -- and differently -- in the next section. The sectoral distributionof the NIGOprojects inventoried shows that roughlyhalf of the funds are directedat agriculture,the other half going to health care and industry,mainly small-scaleenterprise rehabilitation and promotion.

299. Furtherinformation on the variousaspects of the aid effort sketchedabove are found in the detailedtables of the Statistical Appendix. The above review indicatesthat the aid effortis significant, growingand by and large well-balanced. It would be wrong,however, to expect dramaticchange to resultfrom it in the medium term. As we have seen, more than half is focusedon rehabilitationand a quarteron support activities. These are appropriate.However, although they are necessary for growth,they are not likely to producedramatic growth in the medium- term. Furthermore,their impactwill dependon the timelyand efficient executionof the projectsas well as the economicand sectoralpolicies that must accompanythem. Chad faces a number of constraintsin that regard,which are beginningto be addressedonly now and will take time to overcome;these may also limit the absorptivecapacity for new aid (see ChapterVII),

D. EconomicManagement and TechnicalAssistance

300. State interventionin the Chadianeconomy is limited,compared to many Africancountries, Price controlsare appliedto a small group of commodities,and thlereis no evidencethat these have so far resultedin any major distortionsin the market. Monetarypolicy is definedby the ExecutiveBoard of BEAC based on a proposalfrom the nationalmonetary committee,which also monitorsthe implementationof the resultingpolicy, estimatesthe demand for credit in the economyand recommendsrediscount ceilingsto BEAC. The State grantedmonopoly privileges to some enterprisesin the past (CTT, SOTERA),but it is now beginningto reevaluatethe justificationfor these in light of its policyof encouragingthe privatesector. The responsibilityfor monitoringthis and other policyinitiatives taken since 1984 (describedin ChapterII) falls on the Ministriesof Planning,Finance, and Commerceand Industry. The State also intervenesin the economythrough the public enterprises, althoughtheir role has been relativelylimited in Chad. - 130 -

1. Public Administration

301. The successfuland widespreaduse of NGOs in Chad partly reflects the weaknessof domesticinstitutions. The problemwith the Chadian administration is not its size -- which is appropriately modest -- but the constraintson the majorityof administrativeorganisms. These include: (i) lack of equipment,facilities and vehicles;(ii) lack of staff possessingcrucial skills and lack of trainingmechanisms to impartthese skills;and (iii)weak organizationalstructures. On the positiveside, the Administrationis "open"and decision-makingis by-and-large "transparent";moreover, channels of communicationand decision-makingare not excessiveor cumbersomelike in many developingor developedcountries. Unfortunately,with the steady expansionof the administration'sactivities and the risingcomplexity of its tasks,bottlenecks have startedto appear. To help surmountthese and relatedproblems, the donorshave financeda number of technicalassistance operations. An assistanceproject for the PlanningMinistry, financed by the UNDP and executedby the World Bank has just begun. The objectivesof the projectare: (a) to strengthenthe informationbase; (b) to institutean investmentprogramming and monitoring system,as explainedlater; (c) to reinforcethe Ministry'scapacity for aid coordination;and (d) to assist the authoritiesin their negotiations with donors,especially regarding the definitionof structuraladjustment measures.

302. Another importantinitiative to improveeconomic management is the assistancebeing extendedby France to the Ministryof Financewith the objectiveof strengthening,in particular,the Customsadministration, the Treasury,and tax collectionservices. The same team of expertsis also expectedto assist in preparationof the budget,expansion of budgetary revenues,improvement of Treasuryaccounts, and implementationof the adjustmentmeasures agreed upon with the multilateralorganizations. A broadly-definedproject to strengtheneconomic, macro-economic and developmentplanning, which will focus,in particular,on the Ministriesof Financeand Planning,is under preparationby the Bank. Other donorsare also extendingtechnical assistance In the area of economicor financial management,but with narrowerobjectives such as monitoringthe disbursementand utilizationof their own assistance. Althoughthis type of monitoringbenefits the authorities,too, the donorsneed to give greaterattention to enablingthe Chadianauthorities to assume the responsibilityfor monitoring. In the last few years, the Governmenthas taken the initiative,without external technical assistance, to deal with a number of complexproblems and establishthe appropriateadministrative systemsto resolvethem. It is importantto avoid stiflingthe administrationwith technicalassistance which is too heavy and may undermineor erode the enthusiasmof a still fragileadministration.

2. PublicEnterprises

303. The parapublicsector in Chad consistsof 16 mixed-ownership companiesof which two are commercialbanks and a third is a development bank which is not functioningat present. The State has majority participationin a number of these,including several of the major industrialenterprises reviewed in ChapterIV and the major service enterprises,such as Air Tchad and PHARMAT. Governmentintervention in the - 131 - operationsof these enterprisesis minimal,with the exceptionof COTONTCHAD(see ChaptersII and III); both operatingand investment decisionsare taken at the enterpriselevel. By and large,the management of thesemixed-ownership enterprises is better than those of other public enterprises. The parapublicsector includesalso three fully-ownedstate enterprises(the slaughterhouseof Farcha,SONAPA and SODELAC), 19 governmentagencies/offices, and six major "funds"(see Appendix Table 26). These entitieshave a number of management-relatedproblems in common:

(a) Many of them sufferfrom inadequatefinancial controls and poor accountingpractices (this is less so for the mixed companies). A number of the companieshave not been audited for a long time and have recordswhich are grossly inadequate. Often, theirBoards are weak and do not fulfill their basic roles.

(b) The objectivesof a number of enterprisesare eithernot clear or no longer respondto clearlydefined needs. This is the case with the cottpnprice equalizationfund (CSPC), the sugar price equalizationfund (CSPS),the petroleumfund (FIPP),the hotel association(SHT) and the developmentbank (BDT) among others. The Governmenthas startedto evaluate the role and effectivenessof some of theseenterprises.

(c) A numberof enterpriseshave cross-arrearswith the Governmentand the private sector. An inventoryof these arrearsis in progress;when completed,it shouldbe followedby a plan for their liquidation.

(d) Since a number of enterprisesor officeshave limited resourceor revenuepotential (ONDR, OFNAR), their functions shouldbe reviewedand tailoredto their financial resources.

3. PublicInvestment Programming

304. As noted in SectionD, in 1986 the Governmentprepared an -inventoryof aid projectswhich permittedthe preparationof a draft investmentbudget for 1987,the first in nearly a decade. This budgetwill be integratedinto the existingfinancial statutes, and a proposalfor this purpose is already under preparation. The Government also drew up an investmentprogramming strategy. The key elementsof that strategyare: Mi) definitionof appropriateproject selection criteria which assign priorityto projectswhich supportdirectly productive sectors and have a substantialsocial impact. Once implemented,these projectswill help to increasethe country'sforeign exchange earnings, reduce foreign exchange costs and raise fiscalreceipts, while minimizingrecurrent costs; (ii) takinga number of measuresto improveboth the programmingand monitoringof investments,e.g., definingclearly the respectiveroles of the Ministriesof Planningand Finance,and adoptinga nomenclaturefor the budgeting,recording and monitoringof expenditures;(iii) articulation of the importanceto be accordedto the developmentof the privatesector and of the need to integrateinvestment decisions in strategypackages - 132 - involving policy reform, institutional development, and traIning; and, (iv) adoption of a phased program for the preparation and updating of an investment program consistent with the agreed criteria. The next phases of that program are: preparation by mid-1987 of a draft investment budget for 1988; and preparation by mid-1988 of a program for 1988-90, which can be rolled over annually thereafter. This schedule and sequencing will allow the work to expand as the technical assistance team under the Planning Assistance Project financed by UNDP takes its place and becomes operational, and as more sector knowledge is gained and feasibility studies on priority projects are completed.

305. The objective of the above steps should be not just to draw up a good program but to do so on the basis of decisions and arbitrages made by the Chadian authorities themselves, with external assistance of a purely technical or advisory character. This objective should apply to all areas of decision-making,and the donors have a special responsibility in this regard. Chad is generally so highly dependent on external aid -- particularly in certain areas -- that it cannot influence decisions: if budgetary aid arrives, salaries are paid; if it does not, they are not paid. The Government can't afford to refuse aid, but has difficulty reorienting it; often the donors choose, finance and monitor aid projects and programs. It is important to make the Chadian authorities equal partners in these decisions by helping them acquire the necessary training, knowledge, statistical base, and analytical skills. Both donors and the authorities can usefully learn from some of the NGOs in this respect. The effectiveness of many NGOs is largely the result of their participatory approach to decision-making, i.e., their philosophy of working closely with the population affected, acting by trial-and-error and modifying decisions along the way. The approach to technical assistance should recognize that, in the context of Chad, slow progress may be preferable to fast if the by-product is the reinforcement of Chadian skills and self-confldence.

306. The Bank is preparing an economic management project responding to the above needs. Its objective is to strengthen the Government's overall capacity to define and implement its development program and carry out effective economic management. More specifically, the project would help the Government strengthen its internal capacity to monitor economic performance, improve the collection of revenues, develop training programs in areas that might constrain economic development and Government operations, and re-establish the statistical base. The project, which will be cofinanced with the Swiss Government, would also be used to (i) support the development of project ideas and full-scale proposals; (ii) finance the construction of critically needed office buildings for the Ministries of Finance and Planning, as well as equipment and vehicles needed for routine operations; and (iii) provide scholarships for short- and long-term training overseas in key skill areas. It will also support a sample census survey, which will be carried out in cooperation with the Department of Statistics. Both the UNDP-financed project (para. 300) and the French technical assistance project at the Ministry of Finance will benefit from this broader, economic management project, especially through Its training and studies components and the improvement of the data base. - 133 -

VII. PROSPECTS AND POLICIES

307. On the basis of the preceding analysis, this chapter examines the prospects of the Chadian economy over the medium-term, and the policies necessary to continue the recovery and place the economy on the path to development. Chad's prospects are subject to a great deal of uncertainty, and projections can do no more than illustrate possible outcomes, given a set of assumptions or preconditions. The assumptions underpinning the projections presented in this chapter are noted in Section A and the supporting tables of the Statistical Appendix. The assumptions include the successful implementation of certain policies and actions, already adopted or agreed to by the Government, which are outlined In Section B. Section C focuses on some additional actions which seem to be called for over the medium- and long-term. The chapter concludes by highlighting what Chad needs to do -- and to avoid -- in order to start a development process which is sustainable and builds upon its national heritage.

A. Medium-Term Projet2ions

1. Base Scenario

308. Because of Chad's severe constraints, its level of poverty and its costly experience with the war, a bold approach should be the norm for the Government and the donors with respect to policies and aid, respectively. The base scenario is, therefore, an optimistic one which assumes favorable, rather than "average", developments in a number of respects and good, rather than adequate, progress in dealing with the major constraints, Optimism is warranted, given the achievements over the past two years, the seriousness of the Government, and the recent increases in aid flows. The downside risk is assessed through sensitivity analysis. The scenario, covering the period 1987-95, was developed with the help of the Bank's Revised Minimum Standard Model (RMSM) -- a trade gap model which provides an accounting framework for the national accounts, balance of payments, and external debt. The model uses current price trade projections, pipeline and projected aid flows, and other current and capital account items to calculate the amount of additional external financing needed to sustain the projected level of imports and, implicitly, the projected rate of economic growth. The main assumptions and results are summarized below.

309. Prices. Domestic prices, as measured by the GDP deflator, are assumed to increase at an annual rate of 5 percent. The world price of cotton is projected to improve as assumed in the financial projections for COTONTC1HADpresented in Chapter III. The sensitivity of the rest of the projections to a lower cotton price will be tested in the next section. The fact remains, however, that even under more conservative assumptions about the recovery of the world cotton situation, the direction of cotton prices over the next 7-8 years is likely to be upward in both nominal and real terms (see Annex 2). Largely because of the expected continued recovery of cotton prices, Chad's terms of trade index should improve by 25 percent between 1986 and 1995, as shown below: - 134 -

Indices (1977=100)

1986 1989 1992 1995

Exportprices 77.8 111.7 126.3 142.6 Importprices 100.1 126.3 134.2 146.4 Terms f trade 77.7 88.4 94.2 97.4

310. AggregateOutput. The outputprojections were shapedby five major factorsor assumptions: (i) the gross under-investmentwhich has occurredsince at least 1979: investmentwas nil or negativeduring the war; it amountedto an estimated5.7 percentof GDP in 1985 and 11 percent in 1986; (ii) the inventoryof existingprojects reviewed in ChapterVI which, given Chad'ssituation, focuses on rehabilitationof existing Infrastructurerather than the constructionof new productioncapacity; (iii) the expectationthat these investmentsand the Government's medium-termpolicies will, however,have a positiveimpact on production with a lag of 3-4 years and that the productivityof capitalwill improve as the focus shiftsfrom emergencyoperations (aiming at preventing productionfrom falling)to development-orientedprojects aiming to increaseproduction; (iv) the alreadyhigh level of foodcropproduction in 1986 (the base year) as a resultof favorableweather; and (v) the start-up of refinedpetroleum production in 1993. The refineryis estimatedto satisfyabout 80 percentof domesticdemand, or 83,000m 3; at average 1987 pricesfor petroleumproducts, this would representa value-addedof CFAF 10.8 billion (US$34million), or 4.6 percentof the estimated1993 GDP (withoutpetroleum). Productionmay actuallystart one or two years sooner,as indicatedin ChapterIV (SectionB); it was assumedto start in 1993 for the sake of prudence.

311. The projectedgrowth rates by sectorare summarizedin Table 19. GDP is estimatedto grow at an averageannual rate of about 2 percent through1989, acceleratingto 2.4 percentin 1989-92and 4.7 percentin 1992-95,including petroleum -- 3.2 percentwithout petroleum. In 1993, becauseof petroleumproduction, GDP is estimatedto grow by 7.7 percent, fallingto 3 percent the followingyear and 3.3 percent in 1995 (see AppendixTable 34). Thus, beginningin 1991, GDP growth is expectedto overtakeestimated population growth, resulting in a slow improvementin per capita income. Cottonproduction is assumedto remain constantat 100,000tons until 1992and to grow by one percenta year from then until 1995; this modest expansionwould enableChad to maintainits share of world exports (whichare projectedto grow at that rate). Cereals productionis initiallyassumed to grow by 2 percentannually from t'e 1986 base year, when productionwas relativelyhigh -- a projectionwhich may be optimistic,as it impliesthat favorableweather will continueor that its benefitscan be replicatedthrough improved cultivation practices. In fact, rainfallthrough July, 1987 has been sporadicand poorly-timed, leadingsome observersto predicta moderatedecline iii cereals production in 1987. If this predictionproves true, it would probablyreduce real GDP growth to less than one percentin 1987 -- making more acceleratedgrowth in followingyears essentialif a two percentaverage is to be maintained in the 1987-89period. The projectedgrowth rate for livestockis - 135 - consistentwith the weightedreproduction rate of the variousspecies. After the high rate of the post-warreconstruction period, the growthof constructiondecelerates but remainsnevertheless significantly above GDP growthand in line with the trend in aid flows (see below). For all the sectors,including transport, commerce and governmentservices, the projectionsforesee an accelerationof growth after 1989 with the pace increasingafter 1992, not becauseof petroleumbut, rather,because of the increasedproductivity of capital. Indeed,the five-yearincremental capital-outputratio (ICOR)is estimatedto declinefrom 10.6 percentin 1990 to 4.5 in 1995; the productivityof capital,as measuredby the reciprocalof the ICOR, would improvefrom 9.4 percentto 22.2 percent. The investmentto GDP ratio over the same periodwould be 16 to 17 percent.

Table 19 - Growthin AggregateOutput, 1986-1995 (percent)

Average Growth Per Year 1986-89 1989-92 1992-95

GDP 2.0 2.4 4.7 GDP, excl. petroleum 2.0 2.4 3.2

Value added

Agriculture 2.0 2.5 3.3 Cotton 1.7 0.0 1.0 Cereals 2.0 2.8 3.5 Livestock 2.4 2.4 2.4 Manufacturing 0.8 1.6 2.2 excl. cottonginning 0.8 2.0 2.4 Construction 12.0 8.5 9.0 Commerce/transport 1.8 2.5 3.5 Services 2.0 2.5 3.5

312. ExternalTrade. Chad'smerchandise exports are expectedto roughlydouble in value between 1986 and 1995, owing largelyto the projectedimprovement in cottonprices and livestockvolume (Table20). A major adjustmentin the compositionof exportstook place in 1985 when cotton'sshare fell drastically;over the projectionperiod, it will remain under 50 percent,with livestockaccounting for about 35 percent. The structureof merchandiseimports is expectedto undergoan equallydrastic change: first,the projectedhigh level of foodcropproduction will be reflectedin a declinein food importsby almost25 percentin nominal terms and 50 percentin real terms from their relativelylow level of 1986. Food aid will declinesharply, stabilizing at about 5,000 tons per annum in 1993-95,for use only in specialprograms such as maternaland infantcare or school feedingprograms; second, petroleum imports should be reducedby nearly 80 percentonce productionstarts ir 1993. On the other hand, project-relatedimports (capital goods and relatedmaterials) are expected to nearly trebleover the 1986-95period. These trendswill combineto increasethe trade imbalanceby roughlyUS$100 million to US$206million in 1995. - 136 -

Table 20 - Projected Merchandise Trade (millionUS Dollars)

1986 1989 1992 1995

Exports,FOB 99 133 163 198 Cotton 43 63 93 Livestock 35 45 55 68 'extilesT 5 5 6 7 Other 16 20 24 30

TEmorts,FOB 1/ 207 295 366 40 Food 24 23 18 19 Other ConsumerGoods 54 71 88 107 Petroleum 27 36 44 11 IndustrialInputs 28 47 58 79 Project-RelatedGoods 54 100 135 156 Other (Unclassified) 20 18 23 31

Trade Balance -108 -162 -203 -205

1/ In 1986, uncategorizedimports (valuedaccording to the amountof Chadianbanknotes collected in other BEAC countries)have, for the sake of the projections,been distributedamong food (20 percent) petroleum(20 percent)and other consumergoods (60 percent). See AppendixTable 12.

313. Aid and Debt. Total externalassistance to Chad is projectedto increasefro-mUS$148 million in 1986 to US$443million in 1995, representingan averagegrowth, in nominal terms,of 13 percenta year, more than doublingper capitaassistance (Table 21). Despitethis rapid growth,by 1995 per capitaassistance in 1986 dollarsto Chad would still be lower than the recentlevel of assistanceto a numberof low-income Africancountries, none of which have sufferedsimilar devastation. 53/ (The feasibilityof this sharp increaseof aid to Chad, and the sensitivity of the projectionsto it, are discussedin Section2.) The structureof assistanceto Chad is expectedto change significantlyover the coming years,with the share of medium and long-term(MLT) lendingin total disbursementsrising rapidlyfrom less than a one-fifthat presentto nearlyhalf of the total by 1995. This assumesrapidly increasing lending by internationaland multilateralorganizations. Although these are taken to be at very concessional(IDA) terms with respectto both interestand grace period,they will neverthelesscause interestpayments to rise steadily. The debt serviceratio is expectedto remainlow comparedto most countries,but will neverthelessprove a heavy burden for the fragile Chadianbudget. Moreover,as a result of this trend,total debt disbursed and outstandingwould rise seven-fold: from aroundUS$200 million in 1986

53/ US$52 for Chad in 1995, comparedto US$80 for Gambia,US$70 for Somalia,US$61 for Guinea-Bissau,and US$52 for Senegalin 1984. - 137 - to more than US$1.3 billion, or about 80 percenitof GDP, in 1995. Since nearly all of Chad's existingor projecteddebt is or will be owed to the multilateralorganizations, rescheduling is not a factorin the projections.

Table 2] - ProjectedAid and Debt Service (million US Dollars)

1986 1989 1992 1995

Official (.rants 124 162 198 243 MLT Disbursements 24 103 150 200 Total, current 148 263 348 443 Total, constant (1986 US$) 148 235 285 327

Per capita, current 29 48 59 70 Per capita, constant 29 43 48 52

Scheduled Debt Service 9.7 8.6 12.5 17.3 Amortization 6.1 3.7 4,1 6.3 Interest 3.6 4.9 8.4 11.0

Debt Service Ratio 1/ 6.7 4.5 5.3 6.1

Total Disbursed Debt 171 430 824 1,354

1/ Based on scheduled debt service.

314. Chad also benefits from net public transfers estimated at US$65 million in 1987, dividedas follows:

Food aid 17 million Budget support 28 million Other 54/ 20 million

These transfers are projected to increase to roughly US$90 million by 1995; it is imperative that the savings resulting from a reduction in food aid, and possibly in military assistance, be channeled to budget support, enabling Chad to increase selected, grossly under-funded current expenditures(Chapter VI, SectionB).

315. Balanceof Payments. Chad's currentaccount deficit is projected to more than double in absolute terms by the mid-1990s, although it would remain at roughly the current level relative to GDP, namely 23 percent (Table 22). The projected aid flows (net of amortization) should be sufficient to finance the deficit after allowing for a build-up of reserves

54/ Militaryassistance, French aid to STEE, etc. - 138 - to roughlytwo months of importsof goods and non-factorservices in 1995. Statistically,the projectionsshow a financinggap of aboutUS$16 million in 1992 and no financinggap in 1995. The small gap in 1992 can be financedif necessary,although Chad may not be confrontedwith this gap becauseit falls fullywithin the margin of error,amounting to less than two percentof the sum of the balanceof paymentsdebits and credits.

Table 22 - ProjectedBalance of Payments (millionsof US$)

1986 1989 1992 1995

MerchandiseBalance -108 -163 -203 -205 Non-factorServices (net) -130 -148 -184 -235 ResourceBalance -238 -311 -387 -440

Factor Services(net) -9 -11 -15 -18 Net CurrentTransfer 69 52 50 64

CurrentAccount Balance -178 -270 -352 -394 (% of GDP) (22) (25) (27) (23)

Official Grants 124 162 198 243 Net MLT Loans 18 100 146 194 Other CapitalFlows 15 0 0 0

Change in Reserves(--increase) 21 -5 -8 -43 Reserves(end of year) 19 31 51 115

FinancingGap (-=surplus) 0 13 16 0

2. SensitivityAnalysis

316. The sensitivityof the above projectionswas testedby consideringthree alternativeassumptions for cotton,an alternative assumptionfor cerealsproduction, and two alternativeassumptions for aid flows. The assumptionswere:

(i) a cotton exportprice 10 percentlower than under the base scenario;

(ii) a cottonexport price 20 percentlower than under the base scenario;

(iii) a cottonproduction level of 80,000tons, ratherthan 100,000tons, from 1987 to 1992;

(iv) a cerealsproduction of 550,000tons in the base year, ratherthan 730,000tons under the base scenario,same growth rate thereafter;

(v) a lower level of total aid, assumingthat MLT loan disbursementsin currentterms increaseby 7 percenta year - 139 -

in the 1986-91period, rather than 15 percentunder the base scenario;

(vi) a higher level of totalaid, assumingthat grantsin current terms increaseat a rate of 15 percentper annum ratherthan 7 percentunder the base scenario.

The sensitivityanalysis focused on the impactof thesealternative assumptionson growthand the currentaccount deficit. The findingscan be summarizedas follows:

* The lower cottonprice assumptionsaffect mainly the current accountdeficit but only marginally;they increaseit by US$8-15million, or 2.5 to 5.0 percenton average,each year.

* The assumptionof lower cottonproduction causes a similar increasein the currentaccount deficit and, on average,a 1.5 percentper year reductionin GDP relativeto the base scenario.

* The lower cerealsproduction causes a shortfallin GDP of about 7 percenton averageper year from the level under the base scenario. The currentaccount balance is unaffected, however,because the cerealsgap is filledthrough food aid importswhich are then countedunder currenttransfers (abovethe line).

* The lower aid assumptiondecreases both the GDP growthand the currentaccount deficit, and the high aid assumptionhas the oppositeeffect, as shown below:

Base Low High Scenario Aid Aid

Averageannual currentaccount deficit (US$ million) 314 290 320 Investmentgrowth (% p.a.) 4.0 1.9 9.5 GDP growth (% p.a.) 1986-89 2.0 2.0 2.0 1989-92 2.5 2.3 2.9 1992-95 4.7 4.1 5.9

317, The overallconclusion that emergesis that variationsin aid flows have the biggestimpact on production,especially in the later years. This is not surprisingbecause: (i) 65 percentof aid is estimatedto consistof developmentassistance which "drives"investment; and (ii) aid is the biggestsector of the Chadianeconomy, equivalent to more than 2.5 times the level of exportearnings. The above conclusionhas three importantimplications. First, given the importanceof externalassistance in shapingChad's future,avoiding fluctuations in it shouldbe as importantas its absolutelevel. Systematicand effectiveaid coordination and investmentprogramming are essentialto achievethat objective. - 140 -

Seco_d, in a fundamental way, any future scenario is most sensitive to Government policies because they determine: how much aid Chad needs (especially,but not exclusively, food aid and budgetary support); whether and how easily Chad can obtain aid; and how well it uses it -- which, in turn, influences its ability to mobilize additional aid. Third, in light of the above findings, Chad obviously has an interest in maximizing aid. It should be stressed, however, that an increase in aid of the magnitude projected above will require an extraordinary effort to identify projects which can effectively absorb such assistance, and to establish the institutional capacity needed to implement and supervise these projects; these conditions apply whether the assistance is in the form of project aid or balance of payments support. Although this scenario is feasible, it is less certain that it can be done in the projection timeframe of eight years without exceptional efforts by Chad and the donors. Therefore, until the institutional and micro (project) bases for them take shape, the macro proiections di:cussed above must remain merely illustrative.

B. Medium-Term Policy Framework

1. Objectives and Policies

318. As noted earlier, the realization of the above projections is dependent on the implementation of certain policies and actions over the medium-term. These are incorporated in a coherent policy framework prepared by the Government in collaboration with the IMF and the Bank, which was submitted formally to the two organizations on March 21, 1987. The framework covers the period July 1987 to June 1990. This important initiative is expected to form the basis for possible assistance by the IMF under its Structural Adjustment Facility (SAF),

319. The preparation of the medium-term policy framework (MTPF) is a natural outgrowth of efforts underway in Chad since 1983. As noted in Chapter II, following the war of 1979-82, policy-making was dictated by emergency needs and constrained by limited institutional capacity. Priority was accorded to reestablishing the administration,mitigating the effects of the 1984/85 drought, and putting in place programs to deal with emergency needs in the cotton and transport sectors. Priority was also given to the preparation of an interim recovery program which served as a vehicle for taking stock of the situation, setting broad goals, and beginning a dialogue with the donor community on policy options and priorities. The preparation of the MTPF is testimony to the progress that has been achieved in these areas and others, particularly in strengthening institutions and in creating the conditions -- in the economic as well as the political arena -- which permit a vision of a stable future for Chad, Yet, with respect to policies, the situation is still evolving. Although the medium-term framework is embodied in a set a specific measures with target dates, it should not be seen as a static (fixed) list of actions. It is, rather, in the nature of a "rolling" action program. Thus, while it contains actions such as studies to define strategies, once these actions/studies are completed, specific measures to implement the resulting strategies will be integrated into the framework.

320. The MTPF comprises two groups of actions: (i) sectoral policies, especially in the rural sector, and (ii) economic management. They are - 141 - summarized in a policy matrix (Annex 3) which is largely self-explanatory, as many of the measures are already under implementationand have been referred to in preceiing chapters. This section highlights simply the general objectives of these measures and the most important among them.

321. Sectoral Policies. In support of the cotton sub-sector, the MTPF integrates the on-going Emergency Adjustment Program described in Chapter III, but it complements the program with measures which aim to (a) strengthen management and improve financial monitoring through technical assistance and external audits, and (b) adjust prices and production levels as warranted by market conditions. A study has been launched to define mechanisms for setting the purchase price of cotton and the sale price of cotton fiber (to STT), cottonseed oil and other derived products. The elaboration of a system linking the producer price of cotton to world prices is under way. For other aspects of the rural sector (food crops, livestock), the MTPF aims largely at the preparation of sector or sub-sector strategies (currently lacking) with the help of well-focused studies. These measures include redefining the roles of ONC and SOTERA, the two parastatal enterprises which were examined in Chapter III (Sections B and C, respectively). In both cases, the objective is to minimize market intervention, which has proven ineffective and, indeed, detrimental to sub-sector growth.

322. In the transport sector, a key objective is the definition of a sector strategy in two phases: a medium-term strategy, on the basis of on-going studies, by end-1987; and a longer-term strategy, the studies for which are to be started soon. The action program for the sector also includes a reexamination of the role of CTT with a view to ending its monopoly and stimulating competition in the transport industry. With respect to the human resources sector, the program places emphasis oni increasing community participation in primary education, furnishing books and teaching materials, strengthening and expanding teacher training, encouraging the private sector to finance vocational training, and improving the capacity for planning in the sector.

323. Economic Management. The action program for economic management is centered on the programming and budgeting of public investments and the role and management of public enterprises. The measures regarding pblic investments were described in Chapter VI (Section C) and aim essentially at preparing a rolling multi-year public investment program to be implemented through annual investment budgets. The program for public enterprises is guided by both financial considerations (avoiding waste of resources) and economic objectives (avoiding distortions). The actions planned are multifaceted and will be implemented in stages, starting with audits which would lead to measures to improve accounting practices and enterprise management. The action program includes reexamination of the role and justification of a number of enterprises, discussed in the preceding chapters, which have a significant impact either on public finances (such as OFNAR, FIPP, and STEE) or on the economy (such as SOTERA, ONC, and CTT). The Government has stated that it will dissolve non-essential institutions. During the MTPF period, all operating subsidies to public enterprises will be eliminated. - 142 -

324. The objectivesof the MTPF in public financeare also to improve the tax system,restrain the growthof expendituresand preventthe accumulationof arrears. Effortsto increaserevenues will rely on strengtheningtax collectionand administration.Measures will also be taken to reduceabatements and exemptions;to introducea more rationaland effectivesyatem for taxingpetroleum products, which could increase revenuessubstantially; and to improvethe buoyancyof the tax systemby reducingreliance on "specific"taxes. Accordingto the MTPF, the Governmentintends to restrainoverall expenditure growth througha variety of measuresincluding the applicationof strict controlssuch as quarterly ceilings,integration of certainextra-budgetary expenditures into the generalTreasury balance sheet, and limitingrecruitment of civil servanta. A number of measureshave also been adoptedto eliminateexisting arrears, preventthe accumulationof new ones, and improveexternal debt management, with respectto both borrowingstrategy and orderlydebt servicepayment.

2. Prereguisitesfor SuccessfulImplementation

325. Despite its complexity,the policy frameworkoutlined above representno more than a "firststep" in addressingChad's many structural problems. Implementationwill depend,above all, on politicalwill -- especially,the will to act on all the policyareas stipulatedin the MTPF and to followup on these actions. Judgingby the Government'sperformance to date, there is strongevidence that the politicalwill is there. Implementationwill be affectedby a number of factorsother than political will. First, the MTPF will stretchthe institutionalcapabilities of the inexperienced,recently reconstituted administration; given this constraint -- and the demonstration effect of successful implementation -- it will be desirableto give priorityto completingthe actionsalready started or planned,and executingthem well, beforeadding new ones. Successful implementationwill also depend on fine-tuningof actionsas experienceis gained,which presupposesefficient monitoring and follow-up,as well as close coordinationwith donors to provideprompt and appropriatetechnical assistance.

326. Responsibilityfor implementingand monitoringthe MTPF lies primarilywith the Ministriesof Financeand Planning. Internal coordinationwill be achievedthrough a TechnicalCommittee composed of representativesfrom the Ministriesof Planning,Finance, Commerce and Industry,selected technical ministries, the CentralBank, and the CAA. In startingand supportingthese efforts,the Governmentwill have the benefit of a number of technicalassistance projects noted earlier(Chapter VI, SectionD). Other sectoralprojects also provideassistance to implement the agreedpolicies and fundingfor the studiesor auditsrecommended.

327. To help with the implementationof the MTPF, it is imperative that donors: (a) ensurecoordination of financialand technicalassistance with other donorsand with the Government,(b) participatein the financing of recurrentcosts, and (c) maintaina frank dialoguewith the authorities on strategiesand policies. Last but not least, successfulimplementation will dependon the qualityand effectiveuse of the technicalassistance. The donorshave the primaryresponsibility for the first,Chad for the second. - 143 -

C. Beyondthe Medium-Term

328. Althoughthe MTPF discussedabove is ambitiousrelative to Chad's institutionalcapacity, it is limitedto the most urgentactions in key sectors. In parallelwith these actions,the Governmentwill need to take or plan actionsin other areas or that go beyondthe medium-term. If the work ahead is so heavy, it is largelybecause the Chadianadministration practicallyceased to functionfrom 1978 to 1983 and the informationbase was almost completelydestroyed. Moreover,this is a crucialperiod and a unique opportunityfor Chad: in rebuildingits institutions,the actions takenby the Governmentin the next few years will set the courseof the economyfor a very long time to come. Althoughmany of the tasks involve the preparationof studiesand strategies,rather than the implementation of preciselydefined policies, they are no less important,because they representessential first steps; if they are delayed,so is a rational long-termsolution to the problemsat hand.

329. Annex 4 containsa list of suggestedactions that complementthe medium-termframework -- actionsto be consideredas the implementationof the MTPF advances. The followingsection highlights the thrustof the actions,the most importantamong t:iem,and the way they complementthe MTPF.

1. A ComplementaryAgenda

330. The actionsproposed in Annex 5 cover not only the sectorswhich were the object of the medium-termprogram, but health, industry,energy, and mining as well. They also deal with intersectoralpolicy questions such as desertificationand soil conservation.Within agriculture,cotton occupiesagain the centralplace. The measuresneeded follow-upon the objectivesset under the EmergencyCotton Program (PhaseI), which were integratedinto the MTPF, as well as measureswhich can form part of a Phase II program. Among the first group (follow-upactions) is a realistic reschedulingof COTONTCHAD'sarrears owed to the CentralBank. The financialprojections presented in ChapterIII indicatedthat a significantlymore liberalrescheduling would be essentialfor the recovery of COTONTCHAD,the cottonsub-sector and the o-veralleconomy. Improvement of the managementof the sub-sector,COTONTCHAD's in particular,also needs furtherattention, preferably through a "contratplan" betweenthe Governmentand the company. The new questionsthat would need to be addressed(in the designof Phase II) includethe natureof the fiscal regimeto be appliedto COTONTCHADonce the company'sprofitability is restored,and the ownershipstructure of the enterprise.

331. Concerningagriculture other than cotton,three areas merit specialattention: (i) research,a necessityfor defininga diversificationpolicy and a long-termwork programto implementit; (ii) marketing,which is essentialfor stimulatingproduction and improving food security,as discussedin ChapterIII (SectionB); and (iii) irrigation,where a policy is needed to minimizefluctuations in productionbut cannotbe properlydefined without resolving the questionof the viabilityof large perimeters(a reasonwhy the plannedaudits and studiesof SODELAC,OMVSD and the "casiers"are so important).Two other problemsneed to be addressedunder the agricultureheading, although their - 144 - solutionsrequire multisectoral approaches. They are desertificationand soil conservation,for which precisemeasures are yet to be formulated;an on-goingstudy by CILSS, focusingon the currentecological situation of Chad, may assist in that regard.

332. In the livestocksector, the MTPF focusedon institutions (SOTERA,in particular),market organization,and the regulatory environment.While market liberalizationobjectives are pursued, increasingattention will need to be given to the distributionof drugs, vaccinationprograms, and pastoralwater supplypolicy, which needs to be reconsideredtaking into accountnomadic routes and grazingsystems. Moreover,in the long-term,Chad needs to seek an exportmarket for frozen meat -- not just animalson-the-hoof -- so that the countrycan reap a highervalue added from its livestocksector. The fishingsector, already potentiallyquite dynamic in Chad, based principallyon Lake Chad and the Chari and LogoneRivers, requires the formulationof a well-conceived strategy.

333. Becauseof the essentiallylong-term nature of their prospects, the mining and energysectors were omittedfrom the medium-termframework. Mineral exploration,carried out on a limitedscale before the war, led to the discoveryof potentiallysignificant traces of a number of minerals, mostly in the northernregions. These mineralsinclude platinum, tungsten, gold, cadmium,tin, uranium,bauxite, copper, and iron ore. Exploration needs to be resumedon a systematicbasis as soon as the securitysituation allows. With respectto energy,sector policies will need to be reexamined once domesticpetroleum production starts, as the latterwill have ramificationsfor the cost and price structureof STEE, the availability and cost of sub-products,etc. The feasibilitystudy for the refinerywill providethe basis for the policy changesthat may be appropriate.

334. With regardto industryand commerce,a key questionis the long-termviability and growthpotential of the existingfour large manufacturingindustries (textiles, cigarettes, beer, sugar)-- a question which was not addressedin the MTPF. The steps designedto assist the SMEs (linesof credit,management assistance) have so far producedlimited results;the developmentstrategies for these sectorsneed to be clarified and strengthened.Special attention should be given to attractingforeign investors(those that left as well as new ones),adopting a more dynamic policy to promotetrade with neighboringcountries, and creatinga policy environmentwhich reorientsparallel market activitiestoward official channels.

335. Tourismhas some potentialin Chad. One of the richestnational parks of CentralAfrica, the Zakoumapark, is locatedthere, and the Lake and Tibestiregions offer tourismdevelopment possibilities, too. However, the high cost of transportationto reach Chad and to travelin it, as well as the shortageof hotels,constitute major constraints.A strategyshould be definedas soon as practicableto developthis sectorwhich, before the war, constituteda non-negligibleactivity.

336. In the transportsector, the need is essentiallyto shift attentionprogressively toward the longerterm, namely: rehabilitatingthe secondaryroad network,developing air transport,improving sector - 145 - management,decontrolling transport tariffs, avid a niumberof more technical objectives(see Annex 4).

337. Longer-termmeasures for the educationiand health sectorsare includedin the ComplementaryAgenda, while actionsconcerning the urban sectorand telecommunicationswill have to be identifiedat a futurestage, as resourcesavailable to Chad expand and after more urgentneeds have been met.

338. Concerningeconomic management, the ComplementaryAgenda extends the focus from programmingand budgetingto medium and long-termplanning, underliningthe importanceof (i) adoptinga flexibleapproach to it -- a three-yearrevolving plan ratherthan a five-vearplan -- given the significantexpansion of knowledgeabout the economyand of the Government'soptions which is expected,indeed planned for, over the next severalyears; and (ii) developingin-house capability. A priorityin this connectionis the definitionof a three-yearprogram to improvethe statistical base, starting with basic surveys. With respect to public finance,the prioritiesinclude the implementationof a fiscal reformand other measuresto expandthe revenuebase partly by bringingan increasing part of the iT.formalsector into the official (recorded)economy; improvementof the budgetaryprocess so as to base it more closelyon resourceavailability; and preparationof an actionprogram for restoring civil servicesalaries to a more realistic,equitable level consistentwith financialresources and efficiency. With respectto public enterprises, the measuresof the MTPF, which focusedmainly on auditsand strengthening of accounting,need to be followedby actions,such as concluding"contrat plans",designed to improvemanagement. Last but not least,aid coordinationefforts should be continuedthrough the vehicleof the UNDP Round Table as well as througha carefullyprogrammed series of sectoral meetingslinked to the advancementof the planningprocess and the preparationof the studies/strategiesin the MTPF and the Complementary Agenda. The next meetingof the Round Table shouldbe held as soon as possible (perhapsearly 1988).

2. Towarda ChadianFuture

339. The outcomeof the many actions/measuresin the MTPF and the ComplementaryAgenda are difficultto predictprecisely. Much dependson Chad learningfrom experienceand avoidingmistakes made by other developingcountries in the past.

340. Chad needs to avoid,above all, an over-expansionof the Governmentapparatus (ministries, agencies, offices, funds, and civil service);over-regulation; and projectsthat involvethe creationof new public enterprises.The last-mentionedwould not only be inefficientand costly, but would also give the wrong signals to the private sector. Chad shouldalso avoid lockingitself into a formalistic,rigid planningsystem, grindingout five-yearplans that rapidlybecome obsolete, Instead,it shouldaim at a flexibleapproach that combinesa rollingthree-year PIP with periodicallyrevised policy statementsthat trace out the longer term objectivesand sectoralstrategies, adjusting to new informationas the economyexpands. Above all, Chad shouldnot approveprojects that are not foundedon clearlyarticulated sector strategies. It will be importantto - 146 - avoid the creationor perpetuationof industriesthat have a large import contentwithout generating export earnings(which is the case now with SONASUT,for example)and projectswhich have large recurrentcost requirements,even if these are initiallyfinanced entirely by donors. The latterwould tend to accentuatedependence on aid, which is dangerous,even if the aid is entirelyin the form of grants or loans on very concessional terms. In the same vein, Chad shouldbeware of creatinga structural dependenceon technicalassistance, i.e., introducingit withouta time-boundprogram for replacingit throughwell-focused training, particularlyon-the-job training. Last but not least, Chad shouldavoid an excessiveand unmanageablerate of urbanization,given the problemof unemployment,the needs for services,and the high import contentof urban consumption.

341. While Chad can usefullybe inspiredfrom the experienceof other countries,as suggestedabove, it must take carefulaccount of its own heritageand experienceas well as local conditionsin defininga future. This seems particularlytrue with respectto the followingfive key areas:

* Diversification.The precedingchapters have noted the importantrole that agriculturalresearch and mineral explorationand developmentcan play in the diversification process. Three additionalpoints need to be underlinedin this connection: (i) the successof this effortwill depend more on privatesector Initiative than on governmentaction; (ii) the diversificationstrategy should be based not only on the introductionof new activities,but also on the revitalizationof traditionalproduction such as nieb6 and gum arabicaas well as fruit production,the outputof which can be significantlyincreased; and (iii) diversification shouldbe pursuedin the contextof the regionalAfrican market; Chad'seconomic future depends on that marketmore than on the nationalor overseasmarkets.

* NationalUnity. Nationalunity is an extremelyimportant goal of the Government,but it will be difficultto achieve or will prove fragilewithout economicintegration, i.e., the interlinkingof regionsthrough transport, trade and a balancedaccess to services. The objectiveshould be the participationof the largestnumber of communitiespossible in the developmenteffort. This task must be pursued becausenational unity is not possiblewithout economic integration, and economic integration -- and growth -- cannotbe achievedwithout national unity.

* PrivateSector Development. As noted in the preceding chapters,the role of the privatesector is crucialfor recoveryand development.Although the traditionof commerceand the reservoirof entrepreneurshipthat exist in Chad are important assets -- and the resilience of the indigenousprivate enterprise was remarkableduring the period of war -- the revitalization of the private sector has still a long way to go. Creatingthe conditionsfor the returnof foreigncompanles and for attractingnew companies - 147 -

shouldaccelerate rather than thwartthe developmentof the Chadianprivate sector. Foreigninvestors would bring capital,extend know-how, and change the perceptionof risk throughtheir involvement.

* Human ResourceDevelopment. Chad'shealth and welfare indicatorsplace it among the "poorestof the poor". In the long-run,the most effectiveway to increasethe population'sproductivity and welfareis througheducation. Rather than rely on economicgrowth to improvewelfare, Chad needs to investin long-termhuman resourcedevelopment now, in order to make an accelerationof economicdevelopment possible. Althoughinvestments in health,education, and other socialservices may not have an immediateand quantifiablereturn, they are crucialnot only in the implementationof developmentprojects, but in making them sustainablelong after the externaltechnical assistance has left. These investmentsneed to be tailoredto -- and take advantageof -- the social structures(see below) and aim at increasingproduction as well as generatingthe administrativeleadership which will be needed in years to come in order to make the most of Chad's resourcebase, externalassistance, and human capital.

R SocialStructure, Traditionalbonds, whether at the level of the extendedfamily or the ethnicgroup, are still very strong in Chad. In additionto socialsupport, many importanteconomic activities such as creditprovision, maintainingseed stocksand livestockherding are carried out throughinformal systems at the level of the local community. The countrywas able to withstandthe effectsof the droughts,largely because of these bonds; they are an extremelyimportant asset in a countrywhere the Government does not have the resourcesto assume the role of all-giver (Etat providence). Developmentmust be based on using these bonds rather than weakeningthem, which would cause emigrationfrom rural areas and destabilizationof the agro-pastoralsector as well as unemploymentin the urban centers. Specialattention in this regard shouldbe devoted to livestockraising where lifestyle-- and indeedlife itself-- is closelytied to economicactivity.

* EcologicalSystem. As underlinedin ChapterI, Chbd has a fragileecological system, especially in the Sahelianzone. Althoughnearly half of the countryis desert,according to CILSS experts,desertification is occurringless rapidlyin Chad than in other countriesof the region;it is neverthelessa very importantproblem with significant consequencesfor the agropastoralsector. The problem, moreover,has many facets: deforestation,a major cause of desertification;deterioration of soil conditions,another importantproblem caused by inappropriatecropping systems and overgrazing;exhaustion of water supply,due to indiscriminatepumping and the inappropriateplacement of - 148 - wells; and increase in salinity, especially in the Kanem area. The problems are difficult but not insurmountable if the key parties concerned -- the Chadian authorities, donors, farmers, and herders -- work together. And this they must do, because the physical environment,which has shaped Chad's past more than any other factor, and with which this report opened, will also shape its future. - 149 -

Annex 1 Page 1 of 9

WORLD COTTONSITUATION AND OUTLOOK

1. In August 1986,world cotton priceshad hit a low of US$0.82/kg. World stocksamounted to 10.5 milliontons, equivalentto about eight months of world consumption.According to cotton analysts,a stock level of 4.5 to 5 months' consumptionis considered"normal", i.e., sufficientto accommodatetrading without exerting undue pressureon prices. By this guide,world stockswere then 35-40 percentabove normal..The long-term growth in world cottonconsumption (based on the trend from 1970 to 1984) had been 1.6 percentper annum. In August 1986, it was clear that if consumptioncontinued to expandat that rate, the reductionof excessstock would take a very long time; it would have to dependprimarily on adjustmentson the productionside, since the effectsof lower priceson consumptionwere not estimatedto be great.

2. The situationhas changedvery significantlysince then, although these changesdid not become apparentuntil recentlybecause of lags in the compilationof the data. They are reflectedin the significantupturn in prices (ChapterII) and have been broughtabout by unexpecteddevelopments in both demand and supply,some price-induced,some weather-induced,and some structural.World consumptionexpanded by 6.7 percentin 1985/86 (four times faster than the long-termtrend) in the currentseason (TableI.1). World productionis estimated-o have declinedby 11 percent this season,falling 8 percentbelow consumption.The declineis attributableto changesin area as well as yields;weather negatively affectedboth plantingsand productivity,although planting decisions respondedalso to pricesand changesin policy or legislation. Significantly,the biggestdeclines occurred in the United Statesand China -- the two countriesholding the largeststocks -- althoughsmaller crops were also reportedin severalimportant producing countries such as Brazil, Australiaand India. Since 1984/85world productionhas shrunkby 20 percent,U.S. productionby 25 percent,and Chineseproduction by 40 percent,

3. This turnaroundhas produceda significantreduction in world stocks: U.S. stocksare estimatedto declineby about 40 percentthis season,and Chinesestocks by 17 percent. The changecan be more fully appreciatedby focusingon the evolutionof "excess"stocks (stocksabove "normal"levels). For the purposeof this illustration,normal is defined as the equivalentof 4.75 months of consumption,except for the United Stateswhere the legislativetarget is a more suitablebase for comparison. It may be arguedin this connectionthat Chinesestocks do not exert the same pressureon the world price as do stocks in the other exporting countriessuch as the U.S. It is, therefore,useful to evaluatethe excess world stockswith and withoutChina (with respectto both consumptionand stocks). The resultsof these calculationsare highlightedbelow.

4. Excessstocks are in the processof being reduceddramatically in 1986/87: by more that 70 percentin the United Statesalone and by - 150 -

Annex 1 Page 2 of 9

40 percentfor the world as a whole (Table1.1). As a result,by July 1987, excessworld stocksshould be equivalentto about 15 percentof world productionincluding China, 4 percentexcluding China -- or significantly

Table 1.1 - World Cotton Situation,1984/85-1986/87 A" (thousandstons)

Cumulative Est. Two-Year 1984/85 1985/86 1986/87 Change (%)

1. World production 19,185 17,183 15,338 -20.1 United States 2,827 2,925 2,132 -24.6 China 6,249 4,137 3,745 -40.1

2. World consumption 15,203 16,233 16,783 +10.4 United States 1,206 1,393 1,526 +26.5 China 3,375 3,810 3,810 +12.9

(Changeover (beg.) (beg.) (beg.) (end.) 1986/87)

3. World stocks 5,439 9,371 10,517 8,933 -15.1 UnitedStates 604 893 2,035 1,193 -41.4 China 1,691 4,301 4,007 3,321 -17.4

World, includingChina Normalstocks 2/ 6,020 6,430 6,650 6,650 Excess stocks -581 2,941 3,867 2,283 -41.0 % of normal -8.7 45.7 58.2 34.3 % of production -3.0 17.1 25.0 14.9

World, excludingChina Normal stocks2/ 4,680 4,916 5,135 5,135 Excess stocks -932 154 1,375 477 -65.3 % of normal -19.9 3.1 26.7 9.3 % of production -12.0 1.2 11.9 4.1

United States Target stocks3/ 870 870 870 870 Excessstocks -266 23 1,165 323 -72.2 % of target -30.6 2.6 133.9 37.1 % of production -9.4 0.8 54.6 15.2

1/ Year beginningon August 1. 2/ Estimatedas 4 3/4 months of consumption. 3/ Currentlegislative. - 151 -

Annex 1 Page 3 of 9 less than the averageannual fluctuationin world output (8.6 percent).55/ In short, one bad crop would be sufficientto wipe out the excessstock. The upturn in price lends credibilityto this argument: priceswould not have risen so fast if stockshad representeda biggercushion in the eyes of traders. Indeed,as noted in ChapterII, price projectionsfor the next two seasonshave been revisedupward by about 20 percent. Even after this revision,the Februaryprice of cotton,US$1.44/kg, is above the level projectedfor 1988 (US$1.41/kg).It is possible,indeed likely, that some of the gain in prices is seasonaland may be lost as the 1987/88crop, which is expectedto be largerthan the 1986/87crop, comes on the market, but there is no questionthat the surplussituation has eased dramatically. This has led the InternationalCotton Advisory Committee (ICAC) to conclude "Providedproduction is not unduly encouragedby the improvementin cotton prices, the way may be clear for a reductionin the surplusmore quickly than was supposedearlier." 56/

5. With respectto China,whose policiesplayed a major role in shapingrecent developments in the cottonmarket, the latestreports are mixed. First,according to the ICAC, "the assessmentof stocksis especiallytenuous and inventoriesmay be lower than carriedin current statistics."57/ Second,under its currentfive-year plan, cotton procurementis frozenthrough 1990 at 4.2 milliontons; this is 12 percent above this year'scrop, but a third less than the 1984/85crop that caused severeproblems for the world cotton economy. Althoughsteps have been reportedlytaken to bring outputto the target level,no increasesabove that level are likely.

6. The latestprice projectionsby the commodityprojection services of the Bank are given in Table I.2 and the underlyinglong-term trends in consumrtion,production and trade are presentedin Tables1.3- 1.6. The projectionsshow that the price recoverywill continuein both nominalapd r,'terms. In ncrw.iw t Iim:,Iy 19C tU.s c(Itcn price will be just 5 percentbelow the 1982-84average -- a periodwhen the marketwas roughly in balanceand stockswere roughlynormal -- and by 1995 they will exceed the same averageby 42 percent. In real terms,the recoveryis expectedto be slower: the price shouldcome within 5 percentof the 1982-84average by 1995.

7. These trendsare relevantto all producingcountries including Chad. The year-to-vearchange depicted by the projections,however, is

55/ Deviationfrom a 5-yearmoving averageover the period 1965-1985.

56/ Statementof the 45th PlenaryMeeting, October 27-November 1, 1986, BuenosAires, p. 4.

57/ Ibid. - 152 -

Annex 1 Page 4 of 9

less meaningfulfor the inquiiryin ChapterIII of this report,which focusesless on annual exportprojections than on the viabilityof cotton productionand the magyittideof COTONTCHADlosses -- questionswhich should not le approachedon the basis of point forecasts. Two adjustmentsto the forecastsseem appropriatein this light. First,the projectionsshow a kink (a jump of 12 percenstin prices in 1990, or twice the increasein the previousyear) due to a projectedannual adjustment in production, followinga projectedupward adjustmentthe year before. The experienceof the last two years hlas shown the difficultyof projectingannual change (as opposed to the trend), especially three years in advance. That kink should be smoothed for the pulpose of the current illustration. Second, again

Table 1.2 - CottonPrice and ExchangeRate Projections

Cottonl Price (US$/k ) Projected Exchan e Rate 2/ Constant Culrrent Range 1 (CFAF/US

1982 154 16( 329

1983 184 185 381

1984 180 70 437

1985 132 132 449

1986 89 106 345

1987 110 132 132-141 320

1988 110 141 132-154 320

1989 115 - 154 141-166 320

1990 128 166 154-180 320

1991 135 180 166-193 320

1992 141 193 180-206 320

1993 149 206 193-221 320

1994 156 221 206-237 320

1995 164 2>37 231-243 320

1/ See paragraph 7.

2/ Projected exchange rate used throughout this report. - 153 -

Annex 1 Page 5 of 9 experienceshows that althoughthe justificationof a forecastmay be sound, the projectionfor a given year may mlaterializea year in advanceor a year later. For that reason,it seems app.,priateto use for each year a range consistingof the projectionsfor the precedingyear and the followingyear. 58/

8. The same type of uncertaintyapplies to the US$/FFexchange rate. The currentprojections show a significantweakening of the US dollar vis-±-visthe Frenchfranc and the CFA franc (whoseparity to the French franc is fixed)until 1989, beforebeginning a recovery(Table f.2). The uncertaintiesabout the rate are too great to rely on a single forecast. This is especiallyso becauseexchange rates can be influencedmore directlyand quicklythan cottonprices through government policies and agreements. We have assumed,as an alternative,that the rate will remain constantat its projected1987-95 average, namely US$1 = CFAF 320. This is slightlybelow the rate of CFAF 330 used in the calculationsfor the EmergencyProgram but higher than the current (April1987) rate of CFAF 300.

58/ This is tantamountto consideringa variationaround the point forecast;but the above method seems more appropriatethan takinga fixed percentagebecause it is more sensitiveto the trend in the series. It allows for an error in time rather than in amount. Table I.3: ..- OroN- PRODUCTIONBY MAIN COUNTRIES AND ECONOMICREGIONS

------__------__------__------ACTUAL PROJECTED GROWTHRATESIA AVERAGES COUNTRIESI ------ECONOMIES 69-71 79-81 84 85 86 87 88 90 2000 61-84 70-84 85-2000 ------__------__------______------(O000 TONS)------(X PER ANNUM)------

INDUSTRIAL 2306 3141 3025 3259 2326 2560 2620 2625 3190 -0.4 0.7 -0.2 UNITED STATES 2225 3004 2827 2947 2130 2300 2350 2350 2800 -0.5 0.4 -0.3

CENTRALLY PLANNED 2150 2745 2354 2612 2450 2670 2665 2785 2980 2.4 1.1 0.9 USSR 2132 2733 2343 2600 2439 2650 2655 2775 2970 2.5 1.1 0.9

DEVELOPING 7765 8517 12813 11155 10224 10470 10510 10915 13240 2.3 2.0 1.1

ASIA 4231 5018 9105 7117 6764 7040 6860 7000 9100 3.3 3.7 1.7 CHINA 2154 2627 5258 4150 3484 4200 4000 4000 6000 5.0 5.7 2.5 INDIA 1088 1314 1250 1615 1611 1490 1500 1530 1850 1.2 0.9 0.9 PAKISTAN 595 730 1020 1150 1309 960 1010 1035 1300 3.0 1.7 0.8

AFRICA 1319 1168 1259 1383 1290 1220 1260 1380 1465 1.2 -0.7 0.4 EGYPT 520 504 400 466 403 440 450 475 500 -0.1 -0.8 0.5 SUDAN 235 116 219 196 170 200 210 250 300 0.0 -3.3 2.9

AMERICA 1622 1646 1699 1859 1450 1540 1680 1770 1800 -0.1 -1.2 -0.2 BRAZIL 684 555 723 926 641 640 725 760 800 0.6 -1.2 -1.0

S. EUROPE 593 685 810 796 720 670 710 765 875 3.4 1.1 0.6 TURKEY 441 488 580 517 491 475 500 540 600 3.3 0.5 1.0

WORLD 12221 14403 18252 17026 15000 15700 15795 16325 19400 1.7 1.7 0.9

MEMO ITEM: INDUSTRIAL & DEVELOPING 10070 11657 15898 14414 12550 13030 13130 13540 16420 1.5 1.8 0.9

------__------__------_____ Al LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-84)t END-POINT FOR PROJECTED PERIODS (1985-2000); 8I ESTIMATE SOURCES: FAO. PRODUCTIONYEARBOOK TAPES (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS 6 PROJECTIONS DEPARTMENT (PROJECTED).

(D X

O 0 D-t Tab l e 1. 4: COTTON - MILL CONSUMPTIONSY MAIN COUNTRIES AND ECONOMICREGIONS …______ACTUAL PROJECTED GROWTH RATESIA

AVERAGES COUNTRIES/ ------ECONOMIES 69-71 79-81 84 8S /B 86 87 88 90 2000 61-84 70-84 85-2000 ------__------__------('000 TONS)------(1---(ZPER ANUW) -- INDUSTRIAL 3824 3029 2945 3080 3246 2960 2960 2845 2570 -1.9 -2.2 -1.2 N. AMERICA 1837 1391 1261 1325 1470 1300 1325 1250 1110 -2.4 -2.9 -1.2 UNITED STATES 1756 1335 * 1206 1225 1300 1250 1275 1200 1060 -2.3 -2.8 -1.0 EEC-10 1110 805 848 910 900 830 815 790 685 -2.9 -2.7 -1.9 JAPAN 751 720 721 690 690 715 710 700 675 0.0 -0.5 -0.1

CEINRALLYPLAIUNED 2361 2568 2635 2645 2765 2785 2700 2735 2915 1.5 0.6 0.7 USSR 1773 1946 1986 1995 2110 2125 2035 2065 2215 1.7 0.6 0.7 E. EUROPE 58S 622 649 630 655 660 665 670 700 0.9 0.6 0.5 DEVELOPING 5658 8574 9594 9955 10194 10455 10700 11335 13915 4.0 3-7 2.3 ASIA 4052 6221 7088 7235 7504 7755 7950 8485 10540 4.1 3.9 2.5 CHINA 1882 3346 3912 3965 4200 4110 4350 4725 5600 5.3 5.4 2.3 INDIA 1160 1301 1471 1560 1600 1570 1590 1625 1800 1.1 1.1 1.0 AFRICA 404 616 648 690 700 715 725 750 915 5.3 3.1 1.9 EGYPT 196 299 274 300 305 310 315 325 380 3.8 2.9 1.6 AMERICA 761 1051 1014 1150 1100 1070 1100 1150 1320 2.6 2.0 0.9 BRAZIL 293 554 560 650 640 595 605 630 760 4.3 5.2 1.0 S. EUROPE 440 685 844 880 890 915 925 950 1140 4.8 4.3 1.7 WORLD 11844 14171 15174 15680 16205 16200 16360 16915 19400 1.8 1.6 1.4 MEMO ITEM: INDUSTRIAL & DEVELOPING 9463 11603 12540 13035 13440 13415 13660 14180 16485 1.8 1.8 1.6 ___------_------__------_ …------_------Al LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-84); END-POINT FOR PROJECTED Pp.RIODS(1985-2000). D/ ESTIMATE SOURCES: INTERNATIONAL COTTON ADVISORY COMMITTEE (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). - Table I.5: COTTON - GROSS EXPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS …------___------__---_------__-----_------__----_---_------ACTUAL PROJECTED GROWTH RATEStA

AVERAGES COUNTRIES/1------70-84 85-2000 ECONOMIES 69-71 79-81 84 85 86 87 88 90 2000 61-84

------('000 TONS)------(Z PER ANNUM)------1.5 INDUSTRIAL 753 1622 1612 1290 1000 1515 1470 1515 1610 2.2 5.4 5.0 2.1 N. AMERICA 719 1540 1497 1097 750 1400 1350 1400 1500 2.0 UNITED STATES 719 1540 1497 1097 750 1400 1350 1400 1500 2.0 5.0 2.1 1.2 CENTRALLY PLANNED 521 866 651 638 650 635 630 610 765 4.3 2.5 1.2 USSR 505 849 642 631 640 625 620 600 755 4.3 2.4 -2.3 1.3 DEVELOPING 2673 1998 2060 2276 2575 2450 2480 2555 2755 -0.8 0.2 2.4 ASIA 487 459 584 828 1291 1245 1240 1235 1185 0.7 CHINA 22 8 218 347 450 490 500 520 500 11.9 4.4 2.5 1.3 PAKISTAN 174 210 98 435 640 450 440 460 525 -0.2 0.9 1.4 AFRICA 914 621 752 653 614 580 600 645 810 -'0.8 -3.1 EGYPT 290 163 170 144 150 140 145 140 120 -3.2 -4.Z -1.2 6.3 SUDAN 214 124 211 100 135 130 135 160 250 -0.5 -4.6 -3.1 -0.4 AMERICA 927 661 487 610 450 425 430 460 575 -2.5 MEXICO 250 189 123 77 40 35 35 40 54 -5.6 -3.7 -2.3 BRAZIL 336 13 33 102 60 50 55 60 40 -12.7 -16.7 -6.0 -2.8 -1.1 S. EUROPE 345 258 237 220 220 200 210 215 185 1.5 TURXEY 265 179 101 125 110 100 105 110 90 0.7 -5.5 -2.2 1.3 WORLD 3948 4487 4323 4204 4225 4600 4580 4680 5130 0.8 0.6

MEMO ITEM: INDUSTRIAL 4365 0.2 0.2 1.4 & DEVELOPING 3426 3621 3672 3566 3575 3965 3950 4070

Al LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-84), END-POINT FOR PROJECTED PERIODS (1985-2000); B/ ESTIMATE SOURCES: FAO, TRADE YEARBOOK TAPES (ACTUAL); WORLD BANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED). 0"0

O

l~~~~~~~~~~~~~~~~~ Table I. 6: COTTON - GROSS IMPORTS BY MAIN COUNTRIES AND ECONOMIC REGIONS

ACTUAL PROJECTED GROWTH RATESIA ______------______-_--____------I- _-__---______-- AVERAGES COUNTRIES/ ------ECONOMIES 69-71 79-81 84 85 86 87 88 90 2000 61-84 70-84 85-2000

------_------(o000 TONS)*------(1 PER ANNUM)------

INDUSTRIAL 1980 1655 1690 1745 1673 1704 1670 1653 1553 -1.5 -1.6 -0.8

N. AMERICA 85 63 59 57 55 54 53 51 48 -3.8 -3.1 -1.1

EEC-10 1059 782 825 898 817 830 813 790 685 -2.6 -2.3 -1.8 GERMANY, F.R. 245 172 212 240 235 237 239 224 180 -2.1 -1.6 -1.9 FRANCE 241 187 165 159 155 157 150 147 120 -2.1 -2.5 -1.9 ITALY 222 225 257 257 253 255 258 263 270 -0.1 1.0 0.3 UNITED KINZDOM 157 72 48 54 50 48 46 42 35 -6.9 -8.9 -2.8

JAPAN 733 718 708 681 701 720 710 700 650 0.0 -0.8 -0.3

CENTRALLY PLANNED 783 700 841 829 800 801 813 815 820 0.2 -0.7 -0.1

USSR 224 52 166 187 150 146 143 140 120 -4.9 -8.9 -2.9

E. EUROPE 559 648 613 637 650 655 670 675 700 1.1 0.6 0.6

DEVELOPIPG 1161 2314 1966 1970 1952 2090 2107 2212 2757 4.3 4.4 2.3

ASIA 826 1881 1388 1351 1343 1460 1462 1530 1855 4.8 4.7 2.1 CHINA 217 958 304 288 20 20 20 20 20 6.9 5.9 -16.3 HONG KONG 157 192 218 199 175 177 179 183 200 2.4 1.3 0.0 KOREA, REP. 110 321 353 357 366 375 384 404 S1S 9.8 10.1 2.5

AFRICA 59 70 133 143 173 179 185 198 280 4.5 3.9 4.6

AMERICA 79 88 118 101 96 100 98 99 107 1.2 1.0 0.4

S. EUROPE 196 275 325 375 340 351 362 385 515 3.3 3.7 2.1

WYRLD 3924 4668 4497 4544 4425 4595 4590 4680 5130 0.8 0.9 0.8

MEMO ITEM: INDUSTRIAL 1.0 & DEVELOPING 3141 3969 3656 3715 3625 3794 3777 3865 4310 0.9 1.2

(C ------^------X Al LEAST SQUARES TREND FOR HISTORICAL PERIODS (1961-84)t END-POINT FOR PROJECTED PERIODS (1985-2000): Bf ESTIMATE SOURCES: FAO. TRADE YEARBOOK TAPES (ACTUAL); 0 WORLD BANK, ECONOMIC ANALYSIS & PROJECTIONS DEPARTMENT (PROJECTED).

t~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. - 158 -

Annex 2 Page 1 of 4

NGO COMMUNITYIN TRANSITION

1. The widespreadfamine of 1984-85which ravagedpopulations in Et"{opiaand Sudan was avertedin Chad on the basis of timelydecisions by the Gov-ernmentand a well-coordinatedresponse on she part of donors, particularlythe internationalcommunity of Non-GovernmentalOrganizations (NGOs). Faced with an imminentcrisis, the Governmentquickly recognized that it lackedboth the manpowerand the means to manage the emergency importationand internaldistribution of massivequantities of food aid. The Governmentand major food donors turnedimmediately to the NGO communityfor logisticalsupport in receivingand moving food shipmentsto designatedregions throughout the country. The NGO responsewas timely, efficientand effective.

2. Althoughthe primarygoal of food aid distributionwas the preventionof starvation,the use of food aid as a developmenttool was, from the beginning,an importantelement of NGO droughtrelief programs. SECALEVwas particularlyinnovative in its approachto food distributionin placeswhere, despiLethe effectsof the drought,some productionwas still possible. By providingminimal extension services and materialsupport along with food aid, rural populationswere encouragedto producesome of their own food. This strategywas responsiblefor keepingpeople closer to their originalsettlements during the crisisperiod therebylimiting the emergenceof drought-inducedcamps around the major cities. In additionto SECADEV'sprogram, CARE, AICF and the United NationsOrganizations have been particularlyinnovative in using food-for-workschemes combined with other materialand technicalsupport to help displacedpersons resume productiveactivities in their regionsof origin.

3. With the restorationof relativepolitical stability and the alleviationof the droughtin Chad, the NGO community,like other donors, is making the transitionfrom ad hoc, emergencyrelief operationsto development-orientedprograms. For the NGOs which greatlyexpanded their operationsin responseto the crisis,the transitionto more traditional small and independentinterventions has provendifficult in terms of both the need for staff reductionsand increasedcompetition for non-emergency developmentresources. Severalof the major NGOs have been reluctantto cut back successfulprograms built on externalfood aid distribution, voicinga desire to play it safe in the face of uncertaintiesconcerning the true size of recent crops and the possibilitythat food deficit "pockets"may continueto exist. In the first post-droughtyear of 1985, the three major NGOs involvedin food distribution,CARE, IHAP and LICROSS, shiftedthe focus of their food aid programsto targetedfeeding programs such as nutritionalfeeding (particularlyin schools)and food-for-work schemes (mainlyroad repairand sanitation).While these effortsto use food aid as a developmenttool have been successfulon a temporarybasis, the need for such programsshould be reexaminedin view of recent surpluses in domesticallyproduced food. - 159 -

Annex 2 Page 2 of 4

4. Despitesome vested interestin their successfulfood aid programs,NGOs in Chad are for the most part keenlyaware of the production disincentivesof free food distributionand the only short-termpotential of food-for-workschemes. Regionalfood self-sufficiencyhas accordingly become the primarygoal of their developmentinterventions in the rural sector. In most cases,personnel, infrastructure and transportation equipmentoriginally intended for emergencyrelief operations have been easily convertedto .he types of small, grass-rootsdevelopment interventionstypically associated with NGOs.

5. In view of the Government'slack of projectimplementation capacityand the difficultyinvolved in reachingthe poorestof the poor in Chad's rural areas, the participatoryor people-to-peopleapproach to developmentof NGOs has proven especiallysuccessful in Chal. Aside from encouraginglocal participationin the developmentprocess, the most significantimpact of NGOs in Chad has been their focus on experimentaland innovativeactivities. NGOs (in particularCARE, AFRICARE,SECADEV, and AICF) have been primarilyresponsible for adaptingwater lifting technologies,improving local access to appropriatecereal and vegetable seeds, increasingthe number of growingseasons, expanding plot size and recommendingcropping programs suitable for the varioussoil types in wadis areas. With an eye towardspopularizing these technologicaladvances, NGOs (in particularINADES) are also on the front lines of trainingfor local extensionagents, project managers and governmentcounterpart agents. In additionto effortsin the agriculturalsector, NGOs have mounted innovativeprograms in the areas of education,health and small-scale enterprisedevelopment (see sector chapters). The successof these programsat the grass-rootslevel and the potentialfor larger-scale replicationunderlines the need for increasedcooperation between NGOs, the Governmentand the major donors active in Chad.

6. In additionto the hundredsor traditional,small-scale interventionstypically financed with their own resources,NGOs have become an inexpensiveand efficientsource of administrativeand technicalskills for severalof Chad'smajor donors. By using NGOs as executingagencies for major integrateddevelopment projects in the rural sector,donors such as USAID, the EDF and the Swiss have limitedtheir overheadcosts in Chad and, in most cases,have increasedthe qualityof their interventions.The fundingof NGO projectshas also been, however,a means for donors to circumventgovernment agencies with limitedadministrative and technical capacity,in order tc ensure the greatestpossible impact on project beneficiaries.Until recently,the bypassingof governmentinstitutions has been justifiedby the need to act quicklyand the absenceof qualified Chadianpersonnel in these institutions.Many NGOs now recognizethe need to improvethe Government'sown projectimplementation capacity, and have begun to developtheir own contactswith counterpartagencies in Chad's technicalministries, thereby providing an importantinformal source of informationexchange and skill developmentfor each party. SeveralNGOs (in particularCARE and OXFAM)have begun to extendtraining opportunities to governmentagents. - 160 -

Annex 2 Page 3 of 4

7. The proliferationof donor and NGO activitiesfollowing the war has accentuatedthe need for improvedcommunication and aid coordination betweenall parties involvedin the developmentof Chad. In addition,it is importantfor NGOs to integratetheir activitiesinto the broad orientationsof Governmenteconomic policy. Recognizingthe importantrole that NGOs played duringthe droughtemergency and their potentialas an efficientand inexpensivesource of technicaland managerialexpertise, the Governmentof Chad formalizedits relationshipwith the NGO communityin October1985 with the establishmentof an InterministerialCommittee for the Coordinationof NGO Activitiesand a NGO Secrettwriatto direct the Committee'sactivities. Locatedin the PlanningMinistry, the NGO Secretariat'sfunctions include compiling and maintaininga NGO register, planningassistance interventions in collaborationwith the technical ministries,assuring that NGO projectproposals are in line with Chad's developmentstrategy, and evaluatingthe inpactof NGO interventionson the economy. The Committee,chaired by the Mir.iste^of Planningand made up of delegatesfrom the technicalministries, meets periodicallyto review and approveall new NGO projects. With 41 NGOa currentlyregistered in Chad implementinghundreds of developmentinterventions, the PlanningMinistry's participationin the planningand coordinationof NGO activitieshas become an essentialelement of the Ministry'said coordinationmandate.

8. To date, the functioningof the Committeehas been markedby dissentionbetween the PlanningMinistry and delegatesfrom the technical ministrieswhich has slowed,and in some cases halted,the approvalof new NGO-executedprojects. Althoughthe transferof NGO-executedresources has been momentarilyslowed, the institutionalizeddialogue between the PlanningMinistry and the technicalministries should be seen as a healthy first step towardsdefining broadly accepted sectoral development strategies.While projectsdeveloped by NGOs are often in coope,eationwith the key technicalministries, the NGO Secretariatand the PlanningMinistry have until recentlyhad littleknowledge of projectpreparation until the finishedproject document was presentedto the Committeefor approval. As a key playerin the Ministry'sefforts to institutepublic investment programming,the NGO Secretariatis currentlyexpanding its dialoguewith NGOs and the major donors at the projectidentificatior stage. The birth pains of the Committeeare a naturalconsequence of the PlanningMinistry's effortsto reassertits coordinatingrole on aid flows into Chad, and shouldbe commendedand supportedby the donorsat all levels. A recently approvedWorld Bank-executedUNDP projectin supportof the Planning Ministry (see para. 304) will providetechnical and administrativesupport for the InterministerialCommittee's aid coordinationefforts. At the same time, a small study shouldbe carriedout to evaluateNGO activitiesin Chad,

9. The Governmentof Chad, as well as local populationswelcome the type of grass-rootsdevelopment support that NGOs bring to the country. While the number of NGOs registeredwith the Governmenthas grown each year since the end of hostilities,the total resourcesfor NGO fundinghas declinedwith the need for emergencyassistance. AmericanNGOs which make - 161 -

Annex 2 Page 4 of 4 up one quarterof the NGOs currentlyactive in Chad are also facing potentialcut-backs in their programsas a result of reducedbudget allocationsto USAID and changesin U.S. tax laws which reduce incentives for charitablecontributions. As the major funderof NGOs in Chad, USAID has committed,in the 1984-86period, US$12.8 million in financingfor programsexecuted by CARE, AFRICARE,VITA, and IHAP. With the exceptionof the VITA small-enterprisedevelopment project (see ChapterV), these programshave been mainly integratedrural developmentinterventions focusingon agriculturaldevelopment, water management,agro-forestry, environmentalconservation, health and education. Based on the successof these interventionsand the need to limit their ownioverhead costs in N'Djamena,USAID approveda US$12.7million NGO DevelopmentProject in 1986 which will providecontinued, though in some cases reduced,financing for the above-mentionedNGOs plus one newcomer,ORT. To compensatefor an anticipatedshortfall in future funding,USAID will requireeach organizationto provide25 percentof projectcost from their own sources.

10. The uncertaintyof th ir traditionalfunding base has motivated most of the major NGOs to seek alternativesources of financing, particularlyfrom multilateralorganizations already active in Chad. As a result,the EDF has become the secondlargest funder of NGO-executed activitiesin Chad channellingfunds to BELACD,SECADEV, MSF, AEDES, and CARE. The potentialfor expandedcooperation between NGOs and multilateral donorsshould be a principalobjective of futureaid coordinationeffc .ts on the part of the Government,the major donors and the NGOs themselves. POLICY HAIRIX. 1987-1990

Objectives/Measures 1987 1988 1989-90

I. AGRICULTURE: Cotton

A. Reduction of costs and restoration of profitability to the sector in the medium term

1. Completion of the 1985/86 COTONTCHAD audit. July

2. Completion of management audit. Dec. 31

3. Agreement on tne reform program for COTONTCHAD following the management audit. Mar. 31

4. Review of reform program implementation. June (89) 5. Development of a mechanism, and its implementation schedule, for determining producer prices for the crop year which will take social and economic effects into account. Aug. 31

6. Establishment of a system for adjusting the sale price of cottonseed oil in order to ensure the disposal of oil and unprocessed seed stocks. Aug. 31

7. Establishment of a system for the regular adjustment of the sale price staple cotton to the STT (textile company) in accordance with the world price. July 31

8. Redefinition of the role and objectives of CSPC (Cotton Price Stabilization Fund). Aug. 31

II. AGRICULTURE: Non-cotton

A. Definition and execution of a sectoral strategy

1. Studies of the main sectoral questions, including: (a) diversification and development of agricultural production (b) processing and marketing of livestock products; (c) reforestratIon and preservation of natural resources; and (d) rural credit. Aug. 31

2. Definition of development strategy for the Agricultural sector. Aug. 31

0 POLICY MATRIX. 1987-1990

1987 1988 1989-90

B. Promotlon of food crop production and marketinm

1. Re-examination of the role of the Natior-I Cereals Office, with a view to limiting Dec. 31 or eliminating direct intervention in purchaslng and marketing of local cereals. Dec. 31 2. Formulation of an appropriate food aid policy.

III. LIVESTOCK: Improvement of revenue from the sector

1. Simplification of rules and administrative procedures for marketing and exports. July 31

2. Redefinition of the role of SOTERA, with consideration given to the possibility of abolishing its monopoly on exports. Sept. 31

IV. TRANSPORIT Definition of a medium-term strategy

1. Preparation of a draft medium-term sectoral strategy for discussion at the r*eeting on the transport sector in September 1987, to be finalized in December 1987. Aug. 31

2. Execution of the following sectoral studies: (a) structure and efficiency of the institutions in the sector; (b) recovery of costs of road maintenance; and (c) the transport sector (trucks and barges).

3. Conclusion of a flnal agreement between donors and the Government on the defin5lion of the high-priority road network for rehabilitation and maintenance. Sept. 30

4. Review of the role and objectives of the CTT (truckers' cooperative) and prerwntation of a plan to reorganize it with a view to abolishing its legal monopoly. Dec. 31

5. Presentation of a plan for the rational use of the OPE (UNDP) truck fleet, including partial sale or mothballing if necessary. Sept. 30

Ie, x

0 POLICY MATRIX, 1987-1990

1987 1988 1988-90

V. Human Resources:

A. Enhancement of preparatory training and of teacher training on a large scale

1. Review of existing programs and revision of teacher profile. Dec. 31

2. Definition and preparation of a more extensive and innovative teacher training program. June 30

B. Design of a well-adapted vocational technical training station

1. Review of a vocational/technical training system and of incentives to encourage private sector financing and implementation of vocational/technical training programs. Dec. 31

C. Strengthening management and planning of the educational system

1. Formulation of a short-term program for obtaining study scholarships abroad to meet the the most urgent needs for skilled personnel and staff for the Ministry of National Education. July 31

2. Submission to IDA of training program for staff of Ministry of National Education. July 31

3. Identification of constraints in the sphere of statistical information, and definition of a program to alleviate them. July 31

VI. Government investment program: Creation and implementation of an annual government investment program

1. Preparation of a public investment program for 1988. Nov. 30

2. Preparation of a three-year government investment program for 1988-90. June 30

VTT. Public enterprises and entities: Reduction of size and improvement in efficiency of tile parapublic sector >

3. Preparation of the list of public enterprises and entities for financial and/or management audit, or, where appropriate, introduction of an accounting system and an Lo execution schedule. July 31

as' POLICY MATRIX, 1987-1990

1987 1988 1989-90

2. (a) Completion of seven initial audits or introduction of accounting systems in the entities referred to under 1. July 31

(b) Completion of nine audits or introduction of accounting systems in the entities listed under 1. July 31

(c) Review of the list of public enterprises and entities for financial and/or management audit, or, where appropriate, introduction of an accounting system. Oct. (89)

(d) Completion of audits or int-oduction of accounting systems in all entities referred to under 2 on which action is still pending. June (90)

3. Review of the role and objectives of the following entities: (a) Petroleum Products Intervention Fund; and (b) Sugar Price stabilization Fund. Dec. 31

4. increased resources fox OFNAR (National Highways Office). Sept. 30

5. Adoption by the STEE (National Water and Electricity Company) of a financial restruc- turing plan, including improvements in collection. Sept. 30

6. Review of the implementation of the financial reorganization plan for the STEE. Sept. 30

7. Preparation of a program to re-examine the role and efficiency of the other public enterprises. June 30

8. Completion of an inventory and preparation of a plan to eliminate cross-arrears between the public enterprises and the Government. Sept. 30

VIII. Fiscal Policies: Limitation of the ratio of the central government deficit to GDP to 2.6 percent (excluding externally financed investment expenditure) in 1987-90. ------1987-90------

A. Current budget a. Revenue: Improvement of collections

1. Reduction of exemptions and exonerations, particularly in the case of imports. ------1987-90------

2. Inclusion of more informal sector transactions. ------1987-90 ------

3. Reduction of reliance on specific taxes, adjustment of administrative fees and charges. ------1987-90------___ POLICY MATRIX, 1987-1990

1987 1988 1989-90

b. Expenditure: Limitation of increase in expenditure to a strict minimum while permitting a return to normal operations by government departments.

1. Slight increase in current expenditure other than external debt service in 1987, and limitation of the rate of increase of such expenditure to a level equivalent to the rate of inflation in 1988-90. 1987-90

2. Expenditure controls to be tightened by impToving the system of quarterly ceilings for N'Djamena and semi-annual ceilings for the provinces. 1987-90

3. Strengthening the system for monitoring outlays at the commitment and disbursement stages. Dec. 31

4. (a) Completion of studies on the integration of extrabudgetary operations and special funds into the Treasury's general balance sheet. Dec. 31

(b) Integration of these operations. Jan. 31

5. Completion of civil service census. July 31

6. Limitation of civil service hiring. Establishment of wage bill ceilings under the annual programs. ----- 1987-90------

7. Freezing of real wage and salary scales. 1987

8. New recruitment to remain subject to prior authorization from the Ministry of Finance and Computer Services. ------1987-90------c. Arrears: Avoidance of further arrears and reduction of external and domestic arrears.

1. Strengthening the system for monitoring expenditure. Reduction of domestic and external arrears by cash payments and rescheduling. Provision of sufficient resources to CAA to enable it to meet debt service payments. ------1987-90------

2. Reduction of cross-arrears between Government and public entities. ------1987-90------x 0 3. Establishmentof a timetablefor the reductionof domesticand exteriialarrears. Sept. 30 POLICY MATRIX. 1987-1990

1987 1988 1988-90

B. Government Capital Bud8et

a. Implementation of a capital budget.

1. Promulgation of the Finance Law on the capital budget. July 31

2. Presentation of the draft capital budget for 1988. Nov. 30

C. External debt

1. Introduction of an operational system for monitoring the external debt. All borrowing requires prior approval by the Minister of Finance and the Autonomous Amortization Fund. July 31

2. Completion of bilateral negotiations on rescheduling of external debt. Dec. 31

IX. Banking System: Improvement in the liquidity of the system.

1. Draft of a plan for ending the moratorium. Dec. 31

to indicate the Note: Specific dates indicate the deadline for the entry into effect of the measure(s) in question. The year(s) referred the period during which the measure will be applied.

D>l

oou A COMPLEMENTARYAGENDA

Objectives and Actions Comments

I. AGRICULTURE: COTITON

A. Arrears of COTONTCHAD

1. Implement agreement between COTONICHAD and BEAC regarding downpayment. Depends on flexibility of EEC on the use of STABEX funds.

2. Renegotiate the rescheditlingconditions of BEAC. This should be done earlier, if possible, with the help of an objective assessment of COTONTCHAD's ability to pay. B. Institutions Involved with Cotton Sector

1. Sign "contrat plan" with COTONTCHAD covering a system for deternmning The "contrat plan" system will allow better follow-up of annually the price structures for cotton-related operations. COTONTCHAD's activities and avoid slippage in management.

2. Separate COTONTCHAD's oil and soap accounts from those of its cotton This will permit assessing the profitability of COTONTCHiAD's operations. subsidiaries.

3. Re-examine the ownership structure of COTONTCHAD. The .xternal assistance extended under the Emergency Program has resulted in a disproportionate increase in Government co equity in COTONTCHAD;there is a need to achieve a more even ownership distribution.

4. Redefine the fiscal system applied to COTONTCHAD. When COTONTCHAD's profitability is restored, Its contribution to Governmont revenue should resume on the basis of a revised system.

5. Define a system for settling the cross-arrears between COTONTCHAD and the Government.

6. Redefine the interventions of IRCT and ONDR. This redefinition will be needed as soon as the second phase of the cotton program is defined in order to adapt IRCT and ONDR interventions to the policy objectives of that phase.

p.-:xC (D0

_ A COMPLEMENTARYAGENDA

Objectives and Actions Comments

7. Define a policy for increasing animal traction cultivation. The animal traction program was successful before the war; it should be redefined and extended.

8. Define a policy to develop agricultural credit. Concerns food crops as well.

II. ACRICULTURE: OTHER THAN COTTON

A. Research: Define a strategy coherent with the overall sector strategy. Should be designed according to the new orientations cefined for the cotton sector (see point I.B.6 above). B. Marketing

1. Carry out study on possibilities for marketing, particularly for Traditional crops that seem to have guod export prospects. export, gum arabica, jojuba and ni4bd.

4 2. Carry out study on different approaches to organizing security stock. No secur.ty stock policy exists at the present time in Chad.

a' 3. Develop a strategy for food marketing in Chad.

4. Define new institutions or reorganize existing institutions dealing with food trading in accordance with the strategy.

C. Irrigation

1. Complete audits of SUDELAC and OMVSD. Audits of public enterprises are part of the MTPF.

2. Complete study of cost recovery systems for SODELAC, OMVSD, and the Large-scale irrigation has not been efficient up to now in Chad. systems "casiers". The intrcduction of new management and cost recovery seems essential in the existing projects.

>4 cQ D Ph f A COMPLEMENTARY AGENDA

Objectives and Actions Coaments 3. Complete assessment of all irrigated projects undertaken in Chad.

4. Define a strategy and action plan for irrigation.

5. Define a strategy for extension services including institutional This should cover not only irrigation projects but the development, training, entire financing needs, and most suitable agricultural sector. interventions.

D. Fisberies: Define a sub-sector strategy. Fisheries is a very promising sector but very few actions to promote it have been undertaken so far.

E. Desertification in the Sahelian Zone

1. Assess the regions wbere urgent action is needed.

2. Design reforestation policy, including the strengthening of forestry protection.

4. Define an action plat to fight desertification (institutions involved, coordination, financing needs).

F. Soil Protection in tha Sudanian Zone

1. Assess regions where soil degradation is most severe. These actions should be ccordinated with IRCT and the Cotton Program.

2. Define action plan to fight soil degradation.

III. LIVESTOCK

A. Input Supplies

1. Modifcation of MAGAVET's status to abolish its monopoly with Measures would not apply to toxic drugs. regards to importation and distribution of drugs.

2. Prepare plan to strengthen MAGAVET's distribution network and management. 4-

S- A COMPLEMENTARYAGENDA

Objectivesand Actions Coments

3. Define medium-term vaccination program. No such programexists at present.

4. Implementvaccination program. After discussionwith donors in 1989.

5. Introduceusers' fees for vaccinations,specifically for non-epizootic This is Fart of a cost recoverypolicy for inputsupplies under diseases(antract, black leg) with limitedexternalities. the IDA LivestockProject in preparation.

B. Pastoral Water Installation

1. Prepare a national pastoral water policy. The policy should encourage increased user participation ln costs and in management of water points and Involve the private sector in water point maintenance. 2. Evaluation of experience wlth policy.

C. Institutions:

1. Simplify fiscal and administrative regulations. Should be linked to overall fiscal reform.

2. Review land tenure legislation. "a

IV. MININGAND ENERGY

A. MTn

1. Assess the results of exploration work carried out before the Before the civil war, exploration showed evidence of a large civil war. variety of mineral deposits.

2. Design a plan for further exploration.

B. Energy

1. Reassess the energy sector after completion of the feasibility A sector strategy, which is needed for the long-term, has to be study for the refinery. closely linked with the refinery project under preparation, the STEE rehabilitation program, and the forestry strategy. 2. Define an energy strategy Including new tariffs for electricity, prices Preparation of the strategy will probably require a study on for oil products and sub-products from the refinery, and development of petroleum pricing. 4 export capacity. alh A COMPLEMENTARY AGENDA

Objectives and Actions Comments

V. INDUSTRY AND TRADE

A. Industrial Environment

1. Carry out study of diversification possibilities in areas such as A number of small-scale, agro-processing projects have been light manufacturing and agro-processing. started, but there is a need for a fresh, systematic assessment of possibilities in this sector, as well as other diversification options.

2. Define policy for attracting foreign private investment. By 1990, the prospects for attracting such investments should improve significantly.

B. Large-Scale Tndustries

1. Assess long-term viabillty and growth potential of the four largest For those industries which are not viable, same studies should industries (exc. COTONTCHAD): SONASUT, SWT, BdL, and MCT. define plans for reorienting production.

C. Small-Scale Industries

1. Define, in coordination with donors, a strategy to increase Creation of a committee composed of representatives of VITA, availability and use of credit. the two commercial banks, the CCCE, EDF, IDA, OPIT and Ministry of Commerce and Industry may serve to generate ideas.

2. Define a policy for training SME managers. Responsibility could be assigned to OPIT.

3. Carry out survey of all small- and medium-scale enterprises This survey was started but could not be completed because in Chad. of a lack of financial means.

4. Review experience with new Investment Code with respect to The new investment code will have been implemented for four promotion of SMEs. years in 1991.

0 t0 tD A COMPLEMNEiTARYAGENDA

Objectives and Actions Comments

C. External Trade

1. Assehs the consequences of UDEAC membership on external trade By 1990, Chad will have fully harmonized its tariffs with those and public finance. of UDEAC.

2. Conclude commercial agreement with Nigeria, especially with Will depend also on the progress made by Nigeria in implementing a view to diminishing reciprocal administrative barriers and its structural adjustment program. other constraints to trade.

3. Explore markets for Chadian goods (esp. livestock products, beer, This should be done systematically, with the help of t.echnical and cigarettes) in neighboring countries (esp. Sudan, CAR, assistance. Cameroon, and Nigeria).

D. Tourism

1. Define a strategy for developuent of tourism. This strategy will be mainly based on the rehabilltation of the National Parks.

VI. TRANSPORTATION

A. Priority Road Network

1. Establish appropriate standards, by region, as a function of soil conditions and expected traffic.

B. Secondary Road Network

1. Define the network to be rehabilitated. The secondary network should lirk zones where agricultural production is prouising to the priority network.

2. Carry out rehabilitation of network.

Xx .5- 0 A COMPLEMEN!TARYAGENDA

Objectives and Actions Comnents

C. Institutions

1. Create a national laboratory for construction and public works. This is essential, considerint the very difficult technical conditions for road-building in Chad. 2. Prepare a plan for increasing OFNR's resources and the participation of private contractors in highway maintenance.

3. Define a better system for recovering part of maintenance costs.

4. Preoare a plan for the reorganization of the transport sector, Based on the findings of the IDA-financed transport study and including the decontrolling of transport tariffs. with the objective of liberalizing the sector.

5. Carry out a study of the domestic construction industry. This study should aim to define concrete proposals to strengthen this sector, which is essential for the rehabilitation process.

D. Air Transportation

1. Carry out a study of the sub-sector. Could be undertaken in conjunction witb the preparation of a _ planned IDA transport sector credit.

2. Establish a program for cost recovery and maintenance of airports.

VII. EDUCATION

A. EquipMent Buildings and Institutions

1. Define a policy for school construction and school equipment. end-1988 This policy should focus on participation of the private sector (local associations or parents and entreprises) to assume some costs of buildings and equipment.

- 0 A COMPLEMENTARY AGENDA

Objectives and Actions Comments

2. Assess the public institutions in education and define a The Rehabilitation Program will have to define the needs in rehabilitation program for them, personnel and equipment. In particular, a better balance between recurrent costs and personnel costs will have to be achieved at the budgetary level. B. Educational Strategy

1. Elaborate an overall strategy for the education sector. An IDA financed project under preparatic- will belp the Government to define this strategy.

VIII. HEALTH

A. Strategy: Reevaluate and adapt various components of a sector strategy to ensure coherence and compatibility, and to determine an appropriate resource allocation among competing priorities.

B. Coordination: Improve the aid coordination structures at the Health Aid coordination in health has always been a sensitive issue Ministry. because of the large number of donors and NOOs involved in this sector.

C. Training: Develop a program to improve academic and in-service training of medical personnel.

D. Pharmaceutical Supplies: Define an appropriate marketing policy for Should aim at both increased access to drugs and cost recovery. medecines and other pharmaceutical products.

IX. PUBLIC ADMINISTRATION/MANAGEMENT

A. Planning

1. Adopt an approach to planning. The most appr"uriste approach vwov1d be one whicb continues the three-year PIP's but involves the periodic preparation of a 2. Define a work program for preparation of the first document long-term (10 year) perspective framework. desired (see next item) and the institutions responsible for it. D X

3. Prepare a first long-term perspective (1990-2000) framework. A COM4PLEMENTARYAGENDA

Objectives and Actions Comments

4. Continue to "roll over" 3-year PIP's6annually.

B. Statistics

1. Prepare a three-year action plan program to improve the statistical Coild be done with the help of a Comittee that could assume a base. coordination function once implementation starts.

2. Produce an adequate data base and a system for regular updating. T.A. will be provided through the UNDP-financed World Bank-executed project in support of the Ministry of Planning. C. Aid Coordination

1. Continue Round Table process but link it to the advancement of the planning process above.

2. Hold next Round Table meeting.

3. Hold sectoral donor meetings. Such meetings are particularly needed in transportation, education,01 health, livestock, and agricultv.e. D. Fiscal Management

1. Complete a study of the fiscal system. Study will be financed under the IDA Technical Assistance Project in preparation.

2. Define a program to simplify the tax system. In close cooperation with the IMF.

3. Update procurement procedures for government purchases. T.A. being provided under UNDP-financed World Bank-executed project.

4. Assess the feasibility of increasing civil servant salaries, In clcse cooperation with the Bank and thp IMF. and define a timetable for progressively restoring salaries to a level ccnsistent with cost of living and administrative efficiency.

E. Public Enterprise Management

1. Sign "contrat plans" with more enterprises. These measures are closely linked to the program for public | enterprise development defined in the MTPF. X 1.0 A COM5PLEMENTARYAGENDA

Objectives and Actions Comments

2. Extend the system of "contrat plans" to the other enterprises.

3. Implement the recommendations of the management and financial audits concerning enterprise dissolutUon, privatization or reorganization.

-I

x

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Annex 5 Page Iof 4

BIBLIOGRAPHY/BIBLIOGRAPHIE

GelieralEconomic/Economie ggngrale

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_Analse statistiquedes aides extgrieuresau Tchad,Ministare du plan et de la reconstructionnationale 1984.

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______"Statistiquesdu commerce extgrieur", MinistWredu plan et de la reconstruction,Ann6e 1983-1984-1985.

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Recensement de la population, 1968.

World Bank, The Econm of the Republicof Chad, ReportNo. 8F0071, March 1968.

_ The Current Economic Situation and Prospects of Chad, Report No, AW-24a,April 9, 1971,

Chad'sEconomic Development: Constraintsand Potential,Report No. 75a-CD,July 2, 1973.

_____ Reublic of Chad, EconomicMemorandum, Report No. 1340-CD, June 30, 1977. - 179 -

Annex 5 Page 2 of 4

InternationalMonetary Fund, "Chad: Short-TermImprovements in Tax Administration",December 1984.

_ "Chad: Study o' the Budget Systemand TreasuryOperations", March 1, 1985. C.C.EO,"Rapport annuel sur la situation4conomique en Republiquedu Tchad",1984, 1985, 1986.

Banquedes Etats de l'AfriqueCentrale, BEAC Bulletin: Etudes et Statistigues.

Cabot,Jean et ChristianBouquet, Le Tchad, PressesUniversitaires de France, 1978.

Agriculture/Agriculture

Governmentof Chad, Le projet Sud-TchadEtude d'evaluationdes fili6res coton etarachide, Ministerede l'agricultureet de la lutte contre les calamit6snaturelles, Minist6re de la coopgration, octobre 1980.

Projet de developgementrural, zone soudanienne,MinistAre Vdftat chargedu developpementrural, fevrier1982.

Reunionde suivide la table ronde de Gengvede dgcembre1985, - Ministgre llgug A la Pr6sidence de la R6publiquecharge du plan, d6cembre1985.

_ Etude de la fili6recoton. (Deuxiemephase) Comit6 de reflexionsur la filierecoton. PNUD, BIRD, juin 1986.

World Bank, "TowardGreater Food Securityin the Sahel: An Overviewof Issuesand Prospects",AGREP DivisionWorking Paper No. 15, by T. James Goering,March 23, 1978.

, "Chad: AgricultureSector Memorandum", January 1977.

______"Programmed'intervention de la BIRD au Tchad,Secteur Agro- Pastoral",November 1983.

Report and Recommendationof the Presidentof the IDA to the ExecutiveDirectors on a ProposedDevelopment Credit of SDR 12.8 millionto the Republicof Chad for an EmergencyCotton Program,June 1986.

Report and Recommendationof the Presidentof the International DevelopmentAssociation to the ExecutiveDirectors for a ProposedDevelopment Credit of SDR 14.5 million to the Republic of Chad for an AgriculturalRehabilitation Project, March 1987. - 180 -

Annex 5 Page 3 of 4

CILSS, e productlons v6g6tales au Tchad, 1984.

FAO/CP, Projet de d6velopRement du secteur agricole. Mission d'identlfication. Aout 1986.

FAO, Etude pour la definition et l'6laboration d'une politique c6rfltliere au Tchad: Role de l'ONC. October 1986.

USAID, Irrigatio Develoement options and Tnvestment strateg the mid-1980's, University of Rhode Island, October 1985.

USAID/FVA, Evaluation of the A'rican Ema,gency Food Assistance Pro&ram, 1984-85: Chad. July 1986.

SEDES, La commercialisationdes cereales au Tchad, 1985.

Livestock/Fislheries/Elevage/P~ch,es

SEDES, Approvisionnementen viande de I'Afrique Centrale, 1971

"Inventaire qualitatif et quantitatif du cheptel tchadien", septembre 1976.

IEMVT, "Etude sur 161evage des petits ruminants au Tchad',

Government of Chad, "L'6volution du cheptel tchadien et sa production", Ministere du plan et de la reconstruction,juillet 1983.

FAO/CP, National Livestock Project, preparation report, February 1987.

ORSTOM, Le commerce du poisson au Tchad, 1968.

Other Sectors/Autres secteurs

World Bank, Report and Recommendation of the President of the International Development Association to the Executive Directors for a Proposed Development Credit of SDR 17.1 million to the Republic of Chad for a Highway Maintenance Project, June 1986.

USAID, Sectoral Analysis of Small to Medium-scale Industries and Development Opportunities in Chad, November 27, 1984.

PVO DevelopmentInitiatives, June 1985.

BEICIP, Etude de Prg-faisabilit6d'un Projet Pgtrolier au Tchad, janvier 1986. - 181 -

Annex 5 Page 4 of 4

African Development Bank, Health Services Development in the Republic of Chad, April ]986.

Government of Chad, Etude pr6liminaires des problemes de la sante au Chad, Ministere de la Sant6 Publique, 1986.

Dodge, Anne-Laurence and .lohnSimmons, Chad: C. Survey of the Primary Education Sector (prepared for the World Bank), December 30, 1986.

Whyche, Oren E. Chad: An Assessment of the Private Sector (prepared for the World Bank), January 1987. - 182 -

STATISTICAL APPENDIX

Table Title Page No.

1 Gross DomesticProduct by Sector, 1977-1986...... ****** 184

2 Change in Gross Domestic Product by Sector, 1977-1986...... ,.... .185

3 Rainfall, 1970-1985 ...... 186

4 AgriculturalProduction, 1983/84 to 1986/87...... 0*000*0000 187

5 CerealsProduction Per Capita,by Region,1984-1986...... 188

6 Cotton Production,1950/51 to 1986/87....,,.,....***...... ,,.*..,189

7 Tobacco, Sugar Cane, and Groundnut Production 1983/84to 1986/87.... 190

8 Livestock Herd, 1945-1985... ****. ,., .,..*. 191

9 Operationsof Major Industries,1983-1987.,.,...... 192

10 Industrial Production, Volume, Indices and Annual Percentage Change, 1975 and 1983-1986...... 194

11 Operationsin the CottonIndustry, 1982/83 to 1986/87... .,..... 195

12 Merchandise Trade, 1982-1986.... ,...... e.... 196

13 Composition of Merchandise Imports, 1982-1986....00....#.... 197

14 Trade in Services,1982-1986 ...... 198

15 Balanceof Payments,1977 and 1982-1986,in CFAF Francsn...... 199

16 Balanceof Payments,1977 and 1982-1986,in US Dollars...... 200

17 External Debt, Debt Service, and Accumulated Arrears,

1985 and 198...... # 9 86009090.**#00*000b*#000090000 201

18 Commitments and Disbursements of External Assistance Based on Donor Surveys, By Sector, Amounts 1985-1987...... 202

19 Commitments and Disbursements of External Assistance Based on Donor Surveys, Percentage by Sector, 1985-1987...... 203

20 Estimated 1987 Disbursements of Project Assistance by Type of Assistance...... 204e......

21 Estimated 1987 Disbursements of Project Assistance by Geographic Location...... o .... O.o...... , 205 - 183 -

Table Title Page No.

22 CurrentOperations of the CentralGovernment, 1977 and 1983-1987...... * * * * LLLL*L... 0 *...... *...... 206

23 BudgetaryRevenues of the CentralGovernment, 1983-1987...... 207

24 BudgetaryExpenditures of the CentralGovernment, 1983-1987.....O. 208

25 Revenuesof the AutonomousAmortization Fund, 1983-1986...... 209

26 List of PublicSector Establishments...,...... ,...,...... * e210

27 Monetaryand Credit Situation,1982-1986..,01040..*..*.,... Oo.... 212

28 BEAC (N'Djamena)Balance Sheet, 1982-19862..... 213

29 CommercialBanks' Consolidated Balance Sheet, 1982-1986...... 0,..214

30 Active and FrozenCredits and Depositsin the BankingSystem, 1982-1986 ...... 215

31 Distributionof Credit to the Economy,1981-1986 ...... ,.,...... 216

32 OutstandingDebt of Major Industriesto the Domestic Banking System,End-1985 and Mid-1986...... 217

33 ProjectedGross DomesticProduct By Sector,1987-1995...... 218

34 NationalAccounts Projections, 1987-1995,...... 219

35 MerchandiseTrade Projections,1987-1995.*...... ,...... 220

36 Balanceof PaymentsProjections, 1987-1995...... 4* * * 221

37 Civil ServicePersonnel and Wagebill,1985-1986...... 06 223

38 RegionalDistribution of Civil Servants,1986 ...... 224

39 Number of PrimarySchools, by Type and District,1985/86o...... 225

40 Number of PrimarySchool Enrollments, Teachers and Classrooms, by School District, 1985/86.Lb ...... V****0*0** 226

41 Teacher Training Enrollments, 1984/85 to 1986/87 ...... ,..b..... 227

42 Evolution of Primary School Enrollments, 1567/68 to 1985/86 L...... Lb L ..... 228

43 Administered Consumer Prices,1986..L ...... L...... 0 229 TABLE 1: GROSS DOMESTIC PRODUCT BY SECTOR, 1977-1986

(constant 1977 prices) l value-adde4 in millions of CFAF 1977 1978 1979 1980 1981 1982 1983 1984 1985 1988 ------

IPRIMARY 86,990 87,813 80,908 83,416 b8,414 69,266 62,208 48,714 74,252 73,046 1 Agriculture 44,883 45,198 37,784 39,784 32,298 34,650 37,846 28,074 54,207 62,620 1 food crops 40,194 40,073 34,368 38,577 29,823 30,829 31,914 24,392 50,483 48,965 I I cotton 4,889 6,125 3,418 3,207 2,673 3,822 5,932 3,682 3,724 3,6555 Livestock 22,107 22,616 23,124 23,632 24,119 24,605 24,362 18,640 20,046 20,s26

ISECONDARY 29,240 28,030 17,670 14,050 18,880 20,880 23,430 29,481 29,840 28,245 I I Manufacturing industries 26,280 24,940 16,530 13,300 18,090 19,930 22,150 27,638 27,450 25,638 I of which: cotton ginning 6,670 5,526 6,097 4,027 3,797 3,186 4,845 7,288 5,030 6,030 1 I Construction and public works 1,700 1,740 290 280 270 300 S00 830 1,391 1,869 I Mining industries 350 360 6u 60 80 60 100 170 140 147 1 I Electricity and water distribution 910 990 690 410 440 690 680 843 859 893 -

1TERTIARY 64,250 63,860 47,220 41,040 44,280 45,750 47,110 48,T86 57,306 S6,297 1 Trade, transport, A communications 52,680 52,530 39,170 32,780 36,750 37,980 42,010 42,486 61,006 49,871 Government and other services 11,670 11,320 8,060 8,280 8.S30 7,790 5,100 6,300 6,800 6,428 I

[GDP at factor cost 160,480 159,693 125,898 118,508 219,564 126,885 132,748 124,981 lel398 137,588

indirect taxes 1,280 1,330 800 380 S20 570 760 847 926 933 1 jGDP at 1977 market price l18,760 161,023 126,498 118,888 120,074 128,455 133,508 125,828 162,323 158,621 I I IGOP deflator 100.0 108.8 118.4 128.8 140.1 152.5 166.9 178.2 184.0 178.5

IGDP at current market price 161,760 175,193 149,741 153,116 188,264 192,789 221,452 224,225 298,674 282,980 l I IGDP in millions of current USS 868.4 776.2 704.0 724.8 619.3 586.7 681.1 S13.1 684.8 820.2 I I IExchange rate CFAF/USS 246.7 226.7 212.7 211.3 271.7 328.6 381.1 437.0 449.3 346.0

SOURCE: IMF and IBRD estimates TABLE 2: CHANGE IN GROSS DOMESTIC PRODUCT BY SECTOR, 1977-1986

(annual percentage growth rates)

1978 1979 1980 1981 1982 1983 1984 198S 1986

I . IPRIMARY 1.2 -10.2 4.1 -11.0 5.0 5.0 -24.9 69.0 -1.6 I Agriculture 0.7 -18.4 5.3 -18.8 7.3 9.2 -25.8 93.1 -3.1 I food crops -0.3 -14.2 6.4 -19.0 4.1 3.6 -23.8 107.0 -3.0 cotton 9.3 -33.3 -6 .2 -18.7 43.0 55.2 -37.9 1.1 -4.5 i Livestock 2.3 2.3 2.2 2.1 2.0 -1.0 -23.5 7.5 2.4 i

ISECONDARY -4.1 -37.3 -20.0 34.2 10.7 12.2 25.8 1.2 -6.3 Manufacturing industries -6.1 -33.7 -19.6 38.0 10.2 11.1 24.8 -0.7 -7.0 I of which: cotton ginning -16.9 10.3 -33.9 -5.7 -18.1 45.8 58.9 -31.0 0.0 1 I Construction and public works 2.4 -83.3 -3.4 -3.6 11.1 68.7 68.0 67.8 20.0 1 Mining industries 2.9 -83.3 0.0 0.0 0.0 66.7 70.0 -17.8 6.0 I Electricity and water distribution 8.8 -30.3 -40.6 7.3 34.1 15.3 24.0 1.9 4.0 I-n I I ITERTIARY -0.8 -26.0 -13.1 7.9 3.3 3.0 3.6 17.5 -1.8 Trade, transport, A cownunications -0.1 -25.4 -18.4 9.1 8.2 10.7 1.1 20.1 -2.2 I Government and other services -3.0 -28.9 2.9 3.0 -8.7 -34.5 23.6 0.0 2.0

IGOP at factor cost -0.6 -21.3 -5.7 0.9 6.3 5.5 -5.9 29.1 -2.4 1

Indirect taxes 3.9 -39.8 -52.6 36.8 9.8 33.3 11.4 9.2 0.9 I I I &GDP at 1977 market price -0.6 -21.4 -6.0 1.0 6.3 6.8 -5.8 29.0 -2.3 j

IGDP deflator 8.8 8.8 8.8 8.8 8.8 8.8 7.4 3.3 -3.0

IGDP at current market price 8.3 -14.5 2.3 9.9 14.8 14.9 1.3 33.2 -6.3 1 I I IGOP in millions of current US$ 17.9 -9.3 2.9 -14.5 -5.3 -1.0 -11.7 29.Ef 23.4 1

8 ==8__= SO -URCE:_IMFan-IBR…= es- -timate_--s-… ---- SOURCE: IMF and IBRG estimates - 186 -

TABLE3: RAINFALL, 1970-1985

(mm per annum)

Sahellanzone Sudanlanzone Year (av. 7 posts) (av. 2 posts)

1970 786 1167 1971 592 1031 1972 623 1060 1973 575 1071 1974 760 1055 1975 819 1192 1976 687 994 1977 537 889 1978 600 1036 1979 715 866 1980 999 940 1981 806 n.a. 1982 511 1151 1983 583 990 1984 512 813 1985 l/ 372 637

1/ 1985 figuresare from ONDR and are based on 37 posts In the Sahellanzone and 100 posts In the Sudanlanzone.

SOURCE:Minlstry of Agricultureand Rural Development - 187 -

TABLE 4: AGRICULTURALPRODUCTION 1983/84TO 1986/87

(In Metric Tons and Hectares) I.inminininininmmminminini_inininini_flininininmininininininininininmininm w== -wi 1983/84 1984/85 1985/86 1986/871/

:Cotton 2/ t Production 158,492 98,418 99,469 89,469 I Area 175,761 141,937 147,368 125,486

ICereals 3/ I Productlon 453,040 345,968 738,926 726,069 I Area 1,009,795 958,721 1,218,699 1,181,174 * I 1OIIseeds 3/ I Production 4/ 84,685 87,948 123,021 117,561 I Area 155,000 160,040 182,632 181,977

!SugarCane 2/ I Production 227,328 207,717 239,004 237,000 1 I Area 3,287 3,327 3,373 3,360 * I 'Tobacco 5/ t Production 45 30 53 150 I Area 98 43 40 115 1/ 1986/87figures are provisional. 2/ Crop year runs November-October. 3/ Crop year runs July-June. 4/ ProductionIn 1983/84and 1984/85 Includesonly the Sudanianzone. 5/ The crop year runs March-February.

SOURCE:ONDR, COTONTCHAD,SONASUT and MCT TABLE S: CEREALS PRODUCTION PER CAPITA, BY REGION, 1984-1988

(000 inhabitants and 000 metric tons)

I Region I 1984 21985 1 1986 I I - ……………______…- ______--______-_- ______| I Est. Cereals Per Cap. Variation Est. Cereals Per Cap. Variation I Est. Cereals Per Cop. Variation I Pop. Prod. Prod. from Mean Pop. Prod. Prod, from Mean I Pop. Prod. Prod, from Mean

------# I 1 I I I ISeheran Zone i 94 n.a. n.a. n.a. I 8e n.e n.2 n.s I 98 n.a n.a n.e I I BET 94 n.e. n.a. n.e. I 98 n.a n.o n. 98 n.a n.0 n.o I II I I ISshelian Zoneo 2,465 41 17 -53 1 2,515 290 11S -31 2,675 258 100 -40 I Bathe 3689 n.. n.a. n.a. 378 62 137 -10 1 387 23 69 -81 j Ouaddal I 366 n.. n.. n.a. 1 374 32 84 -82 383 3e 94 -48 1 1 188 n.a. n.a. n.s. 190 21 108 -38 2l95 13 67 -73 i Kanem 210 n.a. n.e. n.a. 216 18 81 -86 1 220 8 29 -1112 Lac A SODELAC 1/ 1 140 n.a. n.e. n.. 1 143 54 375 229 I 146 39 284 123 I Cuer-a 221 n.a. n.. n.e. 226 41 180 34 1 231 82 268 128 I I Selemat 114 n.e. n.s. n.. | 117 28 237 91 1 120 10 83 -67 1 I Chari-Bsguirmi I 8S2 n".. n.. n.a. 872 47 54 -92 I 893 69 77 -63

ISudenien Zone I 2,393 306 127 57 1 2,450 449 183 37 1 2,509 469 187 47 1 Logone Occidental 344 34 100 30 362 47 133 -13 1 360 4S 12S -16 1 I A I Polder C 2/ I 341 77 226 1s5e 349 B8 247 101 1 357 73 204 64 1 I Layo-Kebbi a I Polders A & 8 2/ I 774 88 111 41 I 793 125 158 12 I 812 127 1se 16 I I Moyon-Chari 698 es 108 38 | 810 118 193 47 I 825 119 190 5O I I Tand;ile I OMVSD I 338 43 126 58 1 348 74 212 88 1 364 10 296 15S I III I I ITOTAL I 4,942 348 70 0 1 6,061 739 146 0 I 6,182 728 140 0 I I I i I

1/ 1984 production figures do not inctude SODELAC. 1988 production figures are provisional, and do not include the Lac region. 2/ 1984 and 1986 production figures do not include Polders. 3/ 1984 production figures do not include OMVSD.

SOURCE: ONDR Annual Report 1984/85 and ONOR staff. - 189 -

TABLE 6: COTTONPRODUCTION, 1950/51 to 1986/87 ------

High-yleld Average Producer: Production Area Area Yield Price Year (metric tons) (hectares) (hectaros) (Kg./Ha) (CFAF/Kg.)

5 a 1950/51 40,898 n.a. n.a. n.a. n.a. 1951/52 60,363 n.a. n.a. n.a. n.a. 1952/53 56,429 n.a. n.a. n.a. n.a. 1953/54 58,006 n.a. n.a. n.a. n.a. 1954/55 71,473 n.a. n.a. n.a. n.a. 1955/56 69,653 231,000 n.a. 302 n.a. 1956/57 63,561 231,000 n.a. 275 n.a. 1957/58 80,394 230,000 n.a. 350 n.a. 1958/59 66,015 238,00C n,a. 277 n.a. 1959/60 39,669 260,000 n.a. 153 n.a. 1960/61 97,981 288,000 n.a. 340 26 1961/62 46,732 300,000 n.a. 156 26 I 1962/63 90,775 329,760 4,357 275 26 1 1963/64 99,532 276,465 5,370 360 26 1 1964/65 95,679 277,389 6,308 345 26 1 1965/66 83,097 275,978 13,216 301 26 1966/67 122,856 299,487 19,666 410 26 1 1967/68 101,623 298,388 26,116 341 26 1 1968/69 148,496 295,435 34,449 503 26 1 1969/70 116,748 291,162 44,115 401 26 1970/71 94,684 301,575 40,602 314 26 1971/72 108,482 301,906 41,957 359 28 1 1972/73 104,037 275,576 44,723 378 29 1973/74 114,394 269,026 54,852 425 31 1974/75 143,640 272,156 74,976 528 43 1975/76 174,062 336,492 127,459 517 45 i 1976/77 147,384 318,781 131,462 462 45 1977/78 125,279 283,978 120,360 441 50 1 1978/79 136,856 267,300 137,100 512 50 1979/80 91,297 179,821 100,270 508 50 1 1980/81 85,716 166,485 70,940 515 50 1 1981/82 71,391 133,899 56,255 533 60 1982/83 102,118 137,734 75,986 741 70 1 :1983/84 158,492 175,761 97,607 902 80 * 1984/85 98,416 141,938 77,836 693 100 1985/86 99,469 147,368 94,487 675 100 1 1986/87 1/ 89,469 125,486 67,747 713 100 1 __ -…--__ ------…___ ------1/ Includes area and production In the Sahellan zone.

SOURCE: ONDR, ONDR Annual Reports, USAID "Baslc Agricultural Information for Chad", 1985. - 190 -

TABLE 7: TOBACCO, SUGAR CANE, AND GROUNDNUT PRODUCTION 1983/84 to 1986/87

1983/84 1984/85 1985/86 1986/87 1/ I

!Tobacco 5- a 5 5 Production (MT) 1) 45 30 53 150 Production area (Ha) 98 43 40 115 Average yield (Kg/Ha) 459 698 1325 1304 Number of planters 1208 450 450 1700 5 Producer price (CFAF/Kg) 2) a first quality 150 200 200 200 5 second quallty 115 145 145 145 third quality 60 75 75 755 5 5 !Sugar Cane

1 a Production (MT) 3) 227328 207717 239004 237000 1 Production area (Ha) 4) 3287 3327 3373 3360 5 Average yield (UT/Ha) 69 62 71 711 1 5 -Groundnuts

5 1 a Production (MT) 5) 76798 76684 111506 106361 a Production area (Ha) n.a. 125040 146378 145927 5 I Average yield (Kg/Ha) n.a. 613 762 729 1 a Producer price (CFAF/Kg) 6) 5 whole n.a. 70 70 n.a. 5 5 shelled n.a. 90 90 n.a. I a a 1) Tcbacco crop year runs March-February. 2) Price paid by MCT. 3) Sugar cane crop year runs November-October. 4) All sugar cane le grown on SONASUT plantations, using wage laborers. 5) Groundnut crop year runs July-June. 6) Price paid by COTONTCHAD. SOURCE: MCT, SONASUT and ONDR. - 191 -

TABLE 8: LIVESTOCK HERD, 1945-1985 ------(000 head)

Year Cattle Sheep/Goats Camels Donkeys Horses I Total

1945 1,104 987 92 330 150 1 2,663 1950 1,399 1,473 110 330 150 3,462 1955 1,374 1,371 134 330 150 1 3,359 1 1960 2,019 1,375 210 330 150 0 4,084 0 1965 3,482 3,004 291 330 150 i 7,257 1 0 1970 4,500 4,300 370 343 153 1 9,666 1 1 1971 4,690 5,200 560 343 153 10,946 1 1972 4,690 5,200 550 300 150 i 10,890 I 1 1973 2,970 4,900 545 300 150 l 8,865 1974 3,250 4,650 518 300 140 X 8,858 1975 3,600 4,800 305 300 145 9,150 1976 3,650 4,848 310 300 145 9,253 5 1977 3,954 4,460 400 271 154 1 9,239 1 1978 4,012 4,508 405 271 154 1 9,350 0 1979 4,070 4,556 410 271 154 1 9,461 1980 4,233 4,624 426 300 160 1 9,743 1 1981 4,402 4,694 443 300 166 1 10,005 1982 4,578 4,764 461 300 170 10,273 1983 4,672 4,826 476 293 172 0 10,439 0 1984 3,750 3,952 459 221 175 l 8,567 l 1985 3,900 4,300 470 250 175 1 9,095

… ------…-----……-…------SOURCE: 1984-1985 figures from the Ministry of Livestock and Rural Water Supply. 1945-1983 figures from USAID, "Basic Agricultural Information for Chad", 1985. - 192 -

TABLE 9- OPERATIONS OF MAJOR INDUSTRIES, 1983-1987

1983 1984 1985 1986 1/ 1987 2/1 jMCT (cigarettes) I.------!ProductIon (000 packs) 7,532 14,913 14,781 11,637 9,984 !Capacity Utilization (%) 34 68 67 53 ,r1iportedFinal Product (000 packs) n.a. 2,298 2,538 4,158 2,600 1 !Sales of Local Product (000 packs) 7,554 14,551 14,735 11,298 'Turnover (millions of CFAF) 1,519 1,706 1,880 1,916 local productlon n.a. 1,269 1,302 1,116 Imports n.a. 437 578 800 1Operating surplus/deficit (mil. CFAF) n.a. n.a. -3 -103 -50 'Wage Bill (millions of CFAF) 130 164 197 212 ,Number of Employees 130 112 118 118 125

ISONASUT (sugar) i…------Productlon (MT) 3/ 22,200 27,960 25,341 23,880 23,700 sugar cubes n.a. 13,148 11,693 8,780 sugar cones n.a. 14,812 13,648 15,100 !Capacity Utilization (%) n.a. 100 91 85 85 1 !Sales (MT) 4/ sugar cubes n.a. 14,000 12,000 10,000 sugar cones n.a. 13,000 13,000 13,000 'Turnover (millions of CFAF) 6,100 10,872 10,965 11,600 11,600 1 !Operating surplus/deficit (mil. CFAF) n.a. n.a. -1,868 101 'Wage Bill (millions of CFAF) 982 1,026 n.a. n.a. 'Number of Employees 1,179 3,092 2,823 2,897 S S IBrasserle de Logone (beer)

IProductlon (hectollters) 3/ 120,761 135,000 151,813 123,858 121,300 ,Capacity Utilization (%) 67 75 84 69 67 Sales (hectollters) !Turnover (millions of CFAF) 2,587 3,044 3,936 3,980 2,940 1 !Operating surplus/deficit (mli. CFAF) n.a. n.a. 130 334 100 1 'Wage Bill (millions of CFAF) 215 251 350 324 454 Number of Employees 161 225 236 248 220 1

1STT (textiles)

Productlon (000 meters) 12,800 14,200 15,600 14,800 16,070 t ICapacity Utilization (%) 56 62 68 64 70 t lExport Sales (000 meters) 5/ 2,800 3,000 3,000 3,500 3-4,000 !Local Sales (000 meters) 5/ 10,000 11,200 12,600 11,300 11-12,000 !Turnover (millions of CFAF) 4,244 5,894 7,006 6,800 !Operating surplus/deficit (mul. CFAF) -370 -499 150 -200 -400-0 1 IWage Bill (millions of CFAF) 700 670 850 850 953 1 iNumber of Employees 425 445 600 635 640 ------…------…------…-… - - 1 93 -

TABLE 9: OPERATIONS OF MAJOR INDUSTRIES, 10831987

(continued)

5 - 1983 1984 1985 1986 1/ 1987 2/t

5 a COTONTCHAD (fiber, oil, soap) i------Productlon 6/ cotton fiber (MT) 38,130 59,875 35,663 38,693 34,750 oll (hectolIters) 78,660 87,900 112,460 77,?30 66,940 soap (MT) 2 2,665 n.a. 344 3,000 1 'Capacity Utilization (%) n.a. n.a. n.a. n.a. n.a. 5 :Sales of Cotton Flber (MT) 7/ 5 exports 37,600 56,300 34,000 37,086 33,200 local sale 1,000 1,500 1,500 1,500 1,500 5 ,Turnover (millions of CFAF) 25,703 42,473 31,710 17,220 12,721 1Operating surplus/deficit (mul. CFAF) 269 1,776 -18,137 -23,261 -22,200? 'Wage Bill (millions of CFAF) 3,000 3,800 4,700 3,800 1,992 1 -Number of Employees 1,929 1,935 2,514 2,036 1,208 1

BGT (carbonated beverages) 8/ ------______!Production (hectoliters) 26,000 26-32,000 I !Capacity Utilization (X) 43 !Sales (hectoliters) 24,000 24-30,000 5 .Turnover (millions of CFAF) 780-840 !Operating surplus/defIcit (mil. CFAF) -10 5 'Wage Bill (millilonsof CFAF) 100 .Number of Employees 60 * a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

1/ 1986 figures are provisional. 2/ 1987 figures are projected. 3/ Fiscal year runs October-September, although the Brasserie switched to calendar year In 1987. Here, FY 1983/84 Is listed as 1984 and so on. 4/ Sales figures are rough estimates made by SONASUT. 5/ Sales figures are estimates made by STT. 6/ Fiscal year runs November-October. Here, 1982/83 Is listed as 1983 and so on. 7/ EstImated local sales. 8/ Boissons et Glacieres du Tchad (BGT) was reopened In 1985 after a six-year hiatus and began operations In 1986.

SOURCE: IBRD mission, based on Information from Industry sources and the BEAC. - 194 -

AULILE1t): INDUSTRIAL PRODUCTION,VOLUME INDICES AND ANNUAL PERCENTAGECHANGE, 1975 and 1983-86

19/5 1983 1984 1985 1986 1/i

Producet ion Cotton tille,r (MI) 52,910 38,130 59,875 35,663 38,693 Edible a oI .k (ie tWII iof s) 840 78,660 87,900 112,460 77,230 Soap (MT) -- 2 2,665 0 344 Sugar (MT) 17,600 22,200 27,960 25,341 23,880 ' I Beer (hec:lilters) 135,210 120,761 135,000 151,813 123,858 Teoytlles (000 meter s) n.a. 12,800 14,200 15,600 14,800 1 I Cigarettes (000 packs) n.a. 7,532 14,913 14,781 11,637 1 Beverages (lhectolftels) n.a. 0 0 0 26,000

I ProductIon Indices (1U83-100) Cotton fibel 139 400 157 94 101 Edible oils 1 100 112 143 98 I Soap -- 100 133,250 0 17,200 I Sugar 79 100 126 114 108 I Beer 112 100 112 126 103 t Textiles n.a. 100 111 122 116 I Cigarettes n.a. 100 198 196 155 0 I Beverages n.a. ------a a a a Annual Percentage Cl=hange Cotton fiber 57 -40 8 Edible oils 12 28 -31 Soap 133,150 -100 -- Sugar 26 -9 -61 5 Beer 12 12 -18t Textiles 11 10 -5 Cigarettes 98 -1 -21 Beverages - _, ------I------a______*_ ___ _a 1/ 1986 figures are provisional.

SOURCE: IBRD mission, based on Information from Industry sources and the BEAC. - 195 -

TABLE 11: OPERATIONSIN THE COTTON INDUSTRY, 1982/83 to 1980/87

1982/83 1983/84 1984/85 1985/86 1986/871/l

COTTONFIBER

iProduction2/ seed cotton (MT) 102,118 158,400 98,416 99,469 89,200 cotton fiber (UT) 3 130 89,875 35,663 38,693 34,750 ginning yield (%) 37 38 36 39 39 iSales exports (MT) 37,400 45,933 47,701 37,086 33,250 export price, CIF (CFAF/Kg) 3/ 698 008 573 417 355 local sales to STT (MT) 781 1,054 1,228 1,456 1,500 STT sales price (CFAF/Kg) 290 377 622 387 300

I Turnover (millionsof CFAF) 22,855 37,514 27,951 16,028 12,254 1 exports 22,434 37,117 27,311 15,465 11,804 1 local sales 221 397 840 563 450 1 I a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I OIL & SOAP

I Production ogroundnut oll (000 liters) 2,278 1,720 3,920 405 1,060 1 I cotton oil (000 liters) 5,690 7,070 7,328 7,318 5,634 soap (UT) 2 2,685 n.a. 344 3,000 1

I Sales groundnutofl (000 liters) n.a. I n.a. n.a. 210 n.a. I cotton oil (000 liters) n.e. n.e. n.a. 1,454 n.a. soap (MT) n.a. n.a. n.a. -- n.a.

Turnover (millionsof CFAF) 2,676 4,086 3,144 1,192 3,001 1 oll and ollcake 2,091 3,202 2,807 n.a. n.a. soap 585 884 337 n.a. n.a. I a TOTAL PRODUCTION t Turnover (millionsof CFAF) 4/ 26,703 42,473 31,710 17,220 15,255 ' Not Results (mililonsof CFAF) 289 1,778 -18,137 -23,261 -22,200 1 Wage Bili (millionsof CFAF) 3,000 3,800 4,700 3,800 1,992 1 Number of Employees 1,929 1,036 2,514 2,036 1,208

I a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ 1/ 1986/87figures are provlslonalestimates. 2/ COTONTCHADfiscal year runs November-October. 3/ Averageannual export price, calculatedfrom sales volume and turnover. 4/ Total turnover Is greater than the sum of cotton fiber and oil/soap turnovers due to miscellaneoussales and servicesrendered.

SOURCE:COTONTCHAD. 196 - TABLE 12: MERCHANDISE TRADE, 1982-1986

(millions of current CFA)

EXPORTS OF GOODS 1982 1983 1984 1985 1986

* a Cotton fiber 10,050 22,485 42,364 19,985 14,691 a I a a Cattle n.a. 11,700 8,800 11,600 12,000 a I Textlles n.a. 2,443 2,290 2,358 1,641

,aeer ln.a. 67 .32 67 48

Other goods 6,960 n.a. n.a. 932 807

BEAC Banknotes 1/ n.a. 2,490 3,146 3,795 4,20I £ a Exchange record 2/ n.a. 639 652 644 757 * a Total exports, FOB 17,010 39,824 57,384 39,381 34,145

IMPORTS OF GOODS a * __ v a

Industrial products 5,020 15,630 22,597 24,269 14,329

I Petroleum products 974 3,699 8,606 8,625 9,105 I

Capital project Imports 1,290 5,809 10,750 20,730 27,804 '

Food aid Imports n.a 4,060 8,496 23,898 6,163

Exchange record 2/ n.a 4,109 7,866 9,669 9,127

UnclasslfIed Imports 3/ 4,500 15,433 6,384 9,997 13,309

Subtotal: Imports of goods, CIF 4/ 11,784 48,740 64,699 97,188 79,837 1 t Subtotal Imports of goods, FOB 7,895 32,656 43,348 65,116 53,491I

I BEAC Banknotes 5/ 19,590 13,892 16,773 17,879 17,896 1 a t Total Imports, FOB 27,485 46,548 60,121 82,995 71,387 ------__ - - ___------_ ------t 1/ Banknotes from other BEAC countries which have flowed Into Chad. Eighty percent of total banknotes are assumed to be payment for goods; twenty percent for services. 2/ Record of banklng transactions for merchandise trade not Included In other categories mentlonned here. 3/ Includes unrecorded consumer goods arlsIng from livestock exports as well as certaIn milltary Imports. 4/ CIF expenses assumed to be 33 percent of the total value of Imports. 5/ Chadlan banknotes collected In other BEAC countries. Eighty percent are assumed to be for the purchase of goods; twenty percent for services.

SOURCE: BEAC - 197 -

TABLE 13: COMPOSITION OF MERCHANDISE IMPORTS, 1982-1986

(millIons of current CFAF)

1982 1983 1984 1985 1986 lndustrlal 5,994 19,329 31,203 32,894 23,434 Cotontchad n.a. 4,564 6,208 6,890 4,108 Sonasut n.a. 4,500 5,786 6,599 2,063 STT n.a. 4,523 7,413 7,013 3,780 Petroleum products 974 3,699 8,606 8,625 9,105 Mobil n.a. 2,895 3,389 3,355 3,150 Shell n.a. 804 740 983 1,275 Total n.a. 0 4,477 4,287 4,680 MMCT n.a. 910 742 948 1,752 BDL n.a. 1,133 1,030 1,127 1,050 Esso n.a. 0 1,420 1,239 51in SHO n.a. n.a. n.a. 453 167 t BGT n.a. n.a. n.a. n.a. 110 NSCKL n.a. n.a. n.a. n.a. 115 I ASECNA n.a. n.a. n.a. n.a. 8 SETA n.a. n.a. n.a. n.a. 666

IFood aid 0 4,060 8,496 23,898 6,163 5 t !Capital project Imports 1,290 5,809 10,750 20,730 27,804 1 t through Grants: n.a. 5,246 9,728 15,444 22,017 : France n.a. 1,592 3,974 n.a. 5,608 t FED n.a. 1,546 1,422 n.a. 3,853 t I USAID n.a. 518 1,262 n.a. 1,932 UNDP n.a. 900 1,168 n.a. 5,196 Other n.a. 690 1,902 n.a. 5,428 1 t through Loans: n.a. 563 1,022 5,286 5,787 1 t t lUnclassifledgoods 1/ 4,500 15,433 6,384 9,997 13,309 1

:Exchang,Record 2/ n.a. 4,109 7,866 9,669 9,127

!Total Import of goods, CIF 11,784 48,740 64,699 97,188 79,837 a a 1CIF expenses 3/ 3,889 16,084 21,351 32,072 26,346 a a tTotal Imports of goods, FOB 7,895 32,656 43,348 65,116 53,491 t t tBanknotes 19,590 13,892 -1,773 17,879 17,8968 a I !Total Imports, FOB 27,485 46,548 60,121 82,995 71,387 a a

1/ Includesunrecorded consumer goods arising from livestockexports, as well as certain milltary Imports. 2/ Record of banking transactionsfor merchandise trade not Included In other categories mentlonned here. 3/ CIF expenses assumed to be 33 percent of the total value of Imports.

SOURCE: BEAC. - 198 -

TABLE 14: TRADE IN SERVICES, 1982-1988

(millionsof CFAF)

1982 1983 1984 1985 1986 1

* I )Non-factorServices -8,869 -18,846 -23,667 -57,118 -44,950 1

I Receipts 780 12,282 15,011 15,906 15,149 1 I0 Insurance n.a. n.a. n.a. 169 165 1 Is Transport 0 3,445, 3,445 1,865 693 0 Travel 770 3,870 3,506 3,060 1,719 1 Other Private 10 450 939 2,480 2,220 1 Foreign Government 0 4,517 7,121 8,332 10,352 0

I Payments 9,649 31,128 38,678 73,024 60,099 ImportFrelght 3,889 16,084 21,351 32,072 27,805 1 Insurance n.a. n.a. n.a. 634 796 1 Transport n.a. 1,278 2,150 2,240 3,303 1 Travel 3,390 6,448 7,339 8,835 10,672 1 Other Private 2,250 4,679 6,890 28,390 16,573 0 of which: ESSO 0 0 1.290 20,352 7,986 1 NationalGovernment 120 2,639 948 853 950

-FactorServices -699 -2,390 -3,585 -2,448 -3,179 1

Receipts 630 445 581 1,008 1,227 1 BEAC Profit 0 445 581 1,008 641 1 a Earningson Deposits 630 n.s. n.a. n.a. 586 1

O Payments 1,329 2,835 4,166 3,456 4,406 1 I1 Total Interest 1,329 1,780 1,619 1,372 1,256 1 t Other 0 1,055 2,547 2,084 3,150 1 a a ITotal Services -9,568 -21,238 -27,252 -59,568 -48,129 0

* I O Recelpts 1,410 12,727 15,592 16,914 16,376 1 I Payments 10,978 33,963 42,844 76,480 64,505 1 S s SOURCE: IMF and IBRD staff estimates. - 199 -

TABLE-16: BALANCE OF PAYMENTS, 1977 and 1982-1986, IN GFA FRANCS

(millilonsof CFAF)

1977 1982 1983 1984z 1985 1986

------I...... ------I

!Trade Balance -8,759 -10,475 -6,742 -2,737 -43,61b -37,242 1 Exports 26,177 17,010 39,824 57,384 39,381 34,145 of which: cotton ffber n.a. 10,050 22,485 4?,364 19,985 14,691 Imports 34,936 27,485 46,548 60,121 82,995 71,387

!Non-factorServices -21,246 -8,869 -18,846 -23,667 -57,118 -44,950 Receipts 9,716 780 12,282 15,01f 15,906 15,149 1 Payments 30,962 9,649 31,128 38,C78 73,024 60,099

'Factor Services -913 -699 -2,390 -3,585 -2,448 -3,179 1 Recelpts 403 630 445 581 1,008 1,227 I Payments 1,316 1,329 2,835 4,166i 3,456 4,406 of which: Interest n.a. 1,329 1,780 1,619 1,372 1,256

!Transfers 8,002 11,790 21,338 21,418 42,290 23,949 5 Private (net) 1,183 1,701 -2,553 -1,016 3,075 -2,652 Pubilc (net) 6,819 10,089 23,891 22,434 39,215 26,601 I food aid n.a. 0 4,510 9,440 26,553 5,941 I budget support n.a. 600 3,723 6,706 5,641 7,072 I other n.a. 9,489 15,658 6,288 7,021 13,588

ICurrentAccount Balance -22,916 -8,253 -6,622 -8,571 -60,890 -61,422

-- -- .- - (excludingpublic transfers) -29,735 -18,342 -30,513 -31,005 -100,105 -88,023 S I !OfficialCapital Grants 15,909 8,340 11,873 12,076 20,927 42,877

!Direct Investment 5,197 0 -432 3,172 24,103 11,541 ESSO n.a. n.a. 0 3,226 24,103 12,301 Other n.a. n.a. -432 --54 0 -760

I I Medium- and Long-term Lending (net) 2,933 -1,088 -697 -450 6,328 6,170 1 Disbursement 4,196 160 938 1,704 8,a810 8,267 Amortization 1,263 1,248 1,635 2,154 2,482 2,097 S I :Short-termLending (net), Errors, and Omisslons -2,250 1,580 -2,102 lu8 -2,605 -6,363

'ExchangeRate Guarantee 0 1,125 1,223 2,107 1,234 0

!Change In Net Reserves -1,127 1,704 3,243 8,522 --10,903 -7,197

Change In Arrears (+ - Increase) n.a 1,768 2,503 1,723 1,090 1,019 Interest n.a 520 1,003 370 -267 165 prlncipal n.a 1,248 1,500 i,M53 1,357 854

Central Bank Financing n.a -3,472 -5,746 -10,245 9,813 6,178 I

------…--.--...--...-----…..-.------SOURCE: BEAC. - 200 - TABLE 16: BALANCEOF PAYMENTS, 1977 and 1982-1986, IN US DOLLARS

(millions of US$)

1977 1982 1983 1984 1985 1986 1

I I_ ITrade Balanco -35.7 -31.9 -17.6 -6.3 -97.1 -107.5 Exports 106.5 51.8 104.5 131.3 87.7 98.6 of which: cotton fiber 0.0 30.6 59.0 97.0 44.5 42.4 Imports 142.2 83.6 122.2 137.6 184.7 206.1

INon-factorServlces -86.5 -27.0 -49.5 -54.2 -127.1 -129.8 Receipts 39.5 2.4 32.2 34.4 35.4 43.7 Payments 126.0 29.4 81.7 88.5 162.5 173.5

I t PFactorServices -3.7 -2.1 -6.3 -8.2 -5.4 -9.2 I Recelpts 1.6 1.9 1.2 1.3 2.2 3.5 I Payments 5-4 4.0 7.4 9.5 7.7 12.7 of which: Interest 0.0 4.0 4.7 3.7 3.1 3.6

*I Transfers 32.6 35.9 56.0 49.0 94.1 69.2 Private (net) 4.8 5.2 -6.7 -2.3 6.8 -7.7 Pubilc (net) 27.8 30.7 62.7 51.3 87.3 76.8 0 food aid 0.0 0.0 11.8 21.6 59.1 17,2 budget support 0.0 1.8 9.8 15.3 12.6 20.4 other 0.0 28.9 41.1 14.4 15.6 39.2

ICurrentAccount Balance -93.3 -25.1 -17.4 -19.6 -135.5 -177.4 - - (excluding public trans-ers) -121.0 -55.8 -80.1 -71.0 -222.8 -254.2

:Official Capital Grants 64.8 25.4 31.2 27.6 46.6 123.8 1

MDirect Investment 21.2 0.0 -1.1 7.3 53.7 33.3 i ESSO 0.0 n.a. 0.0 7.4 53.7 35.5 5 Other n.a. n.a. -1.1 -0.1 0.0 -2.2

!Medium- and Long-term Lending (net) 11.9 -3.3 -1.8 -1.0 14.1 17.8 1 Disbursement 17.1 0.5 2.5 3.9 19.6 23.9 I Amortization 5.1 3.8 4.3 4.9 5.5 6.1 I I Short-terrqLending (net), Errors, and Omissions -9.2 4.8 -5.5 0.4 -5.8 -18.4 0

!Exchange Rate Guarantee 0.0 3.4 3.2 4.8 2.7 0.0 t

IChange In Net Reserves -4.6 5.2 8.5 19.5 -24.3 -20.8

I Change In Arrears I (..+ - Increase) n.a. 5.4 6.6 3.9 2.4 2.9 1 Interest n.a. .6 2.6 0.8 -0.6 0.5 principal n.a. 3.8 3.9 3.1 3.0 2.5

Central Bank Financing n.a. -10.6 -15.1 -23.4 21.8 17.8 1

!E4change rate CFAF/US$ 245.68 328.61 381.06 436.96 419.26 346.30 1

t……------SOURCE:BEAC. TABLE 17: EXTERNALDEBT, DEST SERVICE AND ACCUMULATED ARREARS, 1936 and 1986 I/

------___---- (eillions of CFAF)

Crtedtors by Debt Outstanding Debt Service, 1986 Debt Service, 1988 Arrears, end-198S Arrears, end-IOSS Sottle- I Category End 1985 End 1986 ------x. t Disb. Undisb. Disb. Und;sb. Prin. Int. Total Prin. Int. Total Prin. Int. Total Prin. Int. Total 18 f

I 1. imultilateral 42,367 17,293 44,114 28,180 1,407 290 1,897 282 284 568 895 312 1,207 871 180 1,031 813 1 1 of which:World Bank 14,953 6,169 16,967 13,337 87 183 250 129 96 225 ------__ __ _- of which: IMF Trust I Fund 2/ 4,524 -- 4,194 -- 1,099 87 1,188 ------__ -

183lateral l,392 14,648 16,797 11,314 29 118 145 37 158 193 6,572 2,374 8,946 6,081 2,184 8,285 -- DAC countries 5,298 2,354 8,275 1,627 29 116 145 37 158 193 ------12 4 -- -- I OPEC countries 7,607 2,080 8,659 1,816 ------4,711 1,761 6,472 4,976 1,942 8,917 -- I Other countries 3,587 10,212 2,963 7,971 ------1,881 613 2,474 1,094 238 1,332 -- O I _ iFinancial Institutions 6,971 -- 5,908 -- ______- 6,489 3,100 9,689 6,819 3,137 9,956 -- I I iSuppli;rs' Credits 1,782 -- 2,161 ------1,341 697 2,038 1,876 857 2,333 35 I

1Other 3/ 3,184 -- 3,184 -- 3,S84 -- 3,584 3,184 -- 3,184 --

I…------…------ITOTAL 69,686 31,939 71,162 39,604 1,438 408 1,842 319 440 759 18,881 6,483 25,384 18,631 6,138 24,769 848 lof which: Pub' ic Debt 4/ 56,237 28,916 s5,326 37,297 850 261 1,111 282 258 640 14,082 4,713 18,795 13,676 4,307 17,883 n.n. | lof which: Public Enter- I prise Debt 14,449 3,023 16,827 2,207 586 145 731 37 182 219 4,799 1,770 8,569 5,058 1,830 6,886 n.a. I

I------_--_-_--_-_-_-_----_-_ ------_-_ ------……------1/ Information provided by the Caisse Autonomed'Amortissement; it differs from ORS data due to time lags, definitional differences, and exchange rate adjustments. 2/ In additionto these CM payments, the BEACmade direct paymentson other IMF accounts totalling CFAF1.100 billion in 1985 end an estimatoe CFAF 1.008billion in 1988. S/ Includes Chad's postal debt. 4/ Public Debt is serviced by the CAA, whereas Public EnterpriseDebt Is guaranteed by the Government, but serviced directly by the enterprise.

SOURCE: CAA. - 202 -

TABLE 18: COMMITMENTSAND DISBURSEMENTSOF EXTERNALASSISTANCE BASED ON DONOR SURVEYS AMOUNTS BY SECTOR, 1985-1987 1/

(millionsof CFAF)

Commitments Disbursements 1985 1986 1987 1985 1986 1987

a ~ ~~I I 5DevelopmentAssistance

Agricultureand rural dev. 5,602 12,519 14,473 1 5,042 10,022 15,508 Livestock 61 2,302 256 187 1,342 1,419 Fishing -- 22 -- I 14 8 I Forestry 2/ ------48 163 165i Industry,energy, and mining 2,294 21,616 15,078 2,180 6,163 14,598 I Infrastructure3/ 20,051 25,335 1,318 5,496 14,301 20,758 I Services 4/ -- 405 810 1 1,523 938 1,362 I Administratlon 2,131 2,070 612 1,087 2,958 1,338 Health 2,318 4,129 4,430 1 2,016 5,081 4,731 Education 1,491 1,380 6,318 , 1,621 3,238 5,000 Social Affairs -- 279 172 1 175 302 364I

I Subtotal:development assist. 33,948 70,057 43,467 1 19,375 44,522 65,251

I~~~~~~~~~~~ a IBudgetSupport n.a. n.a. n.a. t 5,641 7,072 9,050

* I IFoodAld 5/ n.a. n.a. n.a. 1 26,553 5,941 2,545

I TOTAL: external assistance n.a. n.a. n.a. 51,569 57,535 76,846

1) The 1985 and 1986 disbursementfigures, based on donor surveys,are somewhat lower than the offIclal fIguresused In the balanceof payments (Table 15). 2) Excludingforestry components of rural developmentprojects. 3) PredominantlyInvestments In water supply and road network. 4) Includlngtelecommunicatlons, postal service, and bankIng. 5) The value of food aid arrivals In 1985 and 1986 was calculatedbased on World Food Program tonnage recordsand 1984 off lcal commodityprices, adjusted for Inflatlon. Volumes Includecereals, olls, mlIk products,and other food Items,and totalled176,000 MT In 1985 and 53,000 MT In 1986. Expected volume In 1987 Is estimatedat 30,000 MT.

SOURCE: IBRD misslon,based on donor surveys. - 203 -

TABLE 19: COMMITMENTSAND DISBURSEMENTSOF EXTERNALASSISTANCE BASED ON DONOR SURVEYS PERCENTAGEBY SECTOR, 1985-1987

(as percentageof total)

ICommitmonts Disbursements 1985 1986 1987 1 1985 1986 -987 I

------

I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ I ODevelopmentAssistance

Agricultureand rural dev. 18.5 17.9 33.3 1 26.0 22.5 23.8 Livestock 0.2 3.3 0.6 1 1.0 3.0 2.2 FlshIng 0.0 0.0 0.0 1 0.0 0.0 0.0 I Forestry 0.0 0.0 0.0 0.2 0.4 0.3 I Industry,energy, and mInIng 6.8 30.9 34.7 11.3 13.8 22.4 Infrastructure 59.1 36.2 3.0 1 28.4 32.1 31.8 Services 0.0 0.6 1.9 1 7.9 2.1 2.1 Administration 6.3 3.0 1.4 1 5.6 6.6 2.1 - Health 6.8 5.9 10.2 1 10.4 11.4 7.3 Education 4.4 2.0 14.5 1 8.4 7.3 7.7 Soclal Affairs 0.0 0.4 0.4 0.9 0.7 0.6 1

Subtotal:developmant assIst. 100.0 100.0 100.0 1 100.0 100.0 100.0

DevelopmentAssistance n.a. n.a. n.a. 37.6 77.4 84.9 I I I !BudgetSupport n.a. n.a. n.a. t 10.9 12.3 11.8 I I 'Food Aid n.a. n.a. n.a. 1 51.5 10.3 3.3

TOTAL: externalassistance n.a. n.a. n.a. 1 100.0 100.0 100.0 * I SOURCE: TAB8---- SOURCE:TABLE 18 - 204 -

TABLE 20: ESTIMATED1987 DISBURSEMENTSOF PROJECTASSISTANCE BY TYPE OF ASSISTANCE

(In mllilons of CFAF)

NEW REHABILI- SUPPORT SECTORS CAPACITY EXPANSION TATION ACTIONS TOTAL

Agriculture1/ 2,703 1,227 3,262 8,481 15,673 % of sector 17.2 7.8 20.8 54.1 100.0

Llvestock 2/ 501 -- 619 307 1,427 5 % of sector 35.1 43.4 21.5 100.0

Industry& Energy 2,804 1,355 10,226 213 14,598 a % of sector 19.2 9.3 70.1 1.5 100.0

Infrastructure 1,172 3,079 16,508 -- 20,758 % of sector 5.6 14.8 79.5 100.0 a a Education 1,216 -- 1,227 2,558 5,000 I X of sector 24.3 24.5 51.2 100.0

* Health 382 959 2,002 1,388 4,731 % of sector 8.1 20.3 42.3 29.3 100.0

SocialAffairs 33 15 158 157 364 % of sector 9.1 4.1 43.6 43.3 100.0 1

Services -- 990 372 1,362 % of sector 72.7 27.3 100.0

AdmInIstratlon 103 -- 792 444 1,338 % of sector 7.7 59.1 33.2 100.0 a a TOTAL 8,912 6,634 35,785 13,920 65,251 1 % OF TOTAL 13.7 10.2 54.8 21.3 100.0 …------1/ Includesforestry projects. 2/ Includesfisheries projects.

SOURCE: IBRD mission,based on donor surveys. - 205 -

TABLE 21: ESTIMATED1987 DISBURSEMENTSOF PROJECTASSISTANCE BY GEOGRAPHICLOCATION

(In CFAF MILLIONS)

SAHELIAN SUDANIAN a SECTORS NATIONAL N'DJAMENA ZONE ZONE TOTAL

t Agriculture 1/ 5.194 -- 5.763 4.712 15.673 i of Sector 33,1 36,8 30,1 100,0

LIvestock 2/ 1.013 166 240 8 1.427 a % of Sector 71,0 11,6 16,8 0,6 100,0 1 a a Indusrty & Energy 3.123 915 333 10.227 14.598 % of Sector 21,4 6,3 2,3 70,1 100,0 a a a a Infrastructure 7.552 4.742 6.560 1.905 20.758 %of Sector 36,4 22,8 31,6 9,2 100,0 ! a EducatIon 1.844 2.180 654 322 5.000 X of Sector 36,9 43,6 13,1 6,4 100,0 i a Health 4.002 705 24 -- 4.731 % of Sector 84,6 14,9 0,5 100,0 a AdministratIon 579 657 103 -- 1.338 a a % of Sector 43,3 49,1 7,7 100,0 a a * ServIces 218 1.079 -- 65 1.362 a a g of Sector 16,0 79,2 4,7 100,0 a

I Social Affairs 244 103 -- 17 364 % of Sector 67,2 28,2 4,5 100,0

I TOTAL 23.769 10.547 13.681 17.255 65.251 i I OF TOTAL 36,4 16,2 21,0 26,4 100,0 a

1) Includes forestry projects. 2) Includes fIsherIes projects.

SOURCE: IBRO mission, based on donor surveys. - 206 -

TABLE 22: CURRENT OPERATIONSOF THE CENTRALGOVERNMENT, 1977 and 1983-1987 1/ ____ ------_ -- _ -_ -_-______-_ -- ______(mililonsof CFAF)

1977 1983 1984 1985 1988 1986 1987 …I…budget prov. budget 2/: ------t o 1~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ :TotalRevenues 14,880 8,495 18,286 21,341 20,554 16,836 20,550 Tax revenue 14,620 6,465 14,814 17,224 19,431 14,246 18,180 Budgetary 14.620 6,089 13.076 15,916 17,026 12,675 14,280 of which: exports 1,460 281 2,739 3,365 2,733 106 300 CAA 0 378 1,738 1,308 2,405 1,571 3,900 t Nontax revenue 260 2,030 3,452 4,117 1,123 2,590 2,370 iTotalExpenditures 18,220 13,197 23,875 25,187 25,468 24,345 27,687 Salaries (civilian) n.a. 8,599 6,294 8,238 n.a. 9,482 10,160 1 Goods and Services n.a. 3,322 2,418 4,750 n.&. 2,747 5,160 Military n.a. 2,050 9,000 9,397 n.a. 8,400 9,000 I Translers 3/ n.a. 1,024 1,033 1,971 n.a. 1,120 1,490 Interestdue n.a. 1,279 1,185 1,123 n.a. 1,388 1,467 I Non-debt CAM expenditures n.e. 19 28 30 n.a. 47 60 I Other current expenditures n.a. -1,098 3,917 -342 n.a. 1,161 350 t IDeficiton a commitment basis (-) -3,340 -4,702 -5,609 -3,826 -4,912 -7,509 -7,137 1 5 S !Change In arrears I (+ - Increase) 10 802 518 691 0 700 -2,200 t Domestic n.a. 202 107 1,008 0 535 -2,040 Treasury n.a. 202 107 1,008 0 535 0 * other n.a. 0 0 0 0 0 0O External n.a. 800 411 -317 0 165 -160 1 !Debt rellef 0 0 0 0 0 0 4941 !Deficiton a cash -3,330 -3,900 -5,091 -3,135 -4,912 -6,809 -8,843 | ' basis (-) 1FInancing 3,330 3,900 5,091 3,135 6,809 5,591 j I External (net) 1,970 3,723 4,246 5,242 5,838 6,791 1 Grants ... 3,723 4,381 5,641 7,072 8,933 1 Amortizationpald 0 -135 -399 -1,234 -2,142 1 Domestic (not) 1,360 177 845 -2,107 971 -1,200 , Banking system n.a. -1,176 1,200 -2,018 1,631 -1,200 ' Central Bank n.e. -1,143 1,359 -2,042 1,592 -1,200 IMF (net) n.e. 468 -1,015 1,185 -509 0 X ExceptionalSMR advance n.a. 0 2.003 -1,118 -691 -200 1 * Advance under credit aceling n.a. -955 1,981 -2,186 2,238 0 1 * Deposits n.a. -856 -1,610 77 554 -1,000 1 Commercialbanks n.a. -33 -159 26 39 0 1 Nonbankingsector n.a. 1,353 -356 -91 -660 0 1 IFinancingneed 0 0 0 0 4,912 0 3,252 1 ----~~~~~~~~~~~~~~------1/ Includesrevenues and expendituresof the Caless Autonomed'Amortissement (CAA). 2/ 1987 budget estimatedby IMF and IBRD staff. 3/ Includescontrlbutions to internatlonalorganizations made by the CAA. SOURCE: The Treasury. - 207 - TABLE 23: BUDGETARY REVENUES OF THE CENTRAL GOVERNMENT, 1983-1987 1/ (millions of CFAF) 1983 1984 1985 1986 1986 1987 budget projected! t I ITOTAL REVENUES 8,119 16,528 20,033 18,149 15,265 16,650

TAX REVENUES 6,089 13,076 15,916 17,026 12,675 14,280

ITaxes on Income and profits 658 1,360 3,050 2,715 3,021 2,600 Personal taxes 609 1,195 2,088 2,050 2,087 1,700 Income tax 442 918 1,620 1,500 1,177 1,200 other 167 277 468 550 910 500 Corporate taxes 49 165 962 665 934 9oo profit tax 2 79 104 50 340 250 minimum fiscal contribution 47 86 858 815 594 650

IFiat tax 139 310 538 453 391 400 ITaxes on goods and services 2,195 3,118 3,707 3,855 3,124 3,410 Domestic turnover tax 142 5'/3 1,342 720 997 1,000 I Unitary tax 1,440 1,379 1,402 2,050 976 1,200 Other taxes and duties 613 1,168 983 1,085 1,151 1,210 livestock sales 1 89 208 100 100 240 vehicles 64 70 92 90 97 100 i apprenticeship tax 0 56 5 77 51 30 property tax 0 0 9 83 76 80 I fish 0 0 10 50 2 101 Insurance policles 38 57 135 130 152 150 patents and licenses 4 403 35 70 79 70 I registratlon fees 209 183 168 130 224 180 I stamp tax 144 152 243 150 205 230 other 153 156 58 205 165 120 ICivic tax 0 0 0 1,200 703 1,000 lInternationaltrade 3,412 7,865 8,905 8,803 5,863 6,870 I Import dutles 3,131 5,126 5,540 6,070 5,757 6,570 Export duties 281 2,739 3,365 2,733 106 300 ' iOther tax revenues -315 423 -282 0 -427 0

i NON-TAX REVENUES 2,030 3,452 4,117 1,123 2,590 2,370

5 - … IProperty rents 137 125 241 155 171 200 5 1 lAdministrativefees 0 0 107 132 147 220 1 INon-industrialsales 180 407 629 602 591 770 1 I iFlnes 5 27 56 54 33 401

IWIndfall revenues 0 172 317 0 0 0 j 1BEAC profits 445 581 1,008 0 641 540 1 I !Exchange guarantee 1,223 2,107 1,247 0 0 0 ,UDEAC membership fund 0 0 140 0 0 0 1 !Other non-tax revenues 40 33 372 180 1,007 600 i

-…______------…-- 1/ Not Includingthe extrabudgetary revenues of the Calsse Autonome d'Amortissement. SOURCE: The Treasury. - 208 -

TABLE 24: BUDGETARY EXPENDITURES OF THE CENTRAL GOVERNMENT, 1983-1987 1/

(millions of CFAF) * N usw aS""""S""= D w eunu^""teReU mu I-X^"a=cw=_= t1983 1984 1985 1986 1987 prov. projected! a I - - 'CURRENT EXPENDITURES 2/ ERR 22,601 23,543 22,910 26,160

'Salarles (civilian) 6,599 6,294 8,238 9,482 10,160 Central administratlon 6,180 5,756 6,572 7,936 9,720 1 Foreign service 147 160 385 404 400 General staff expenses 272 378 688 507 40 Counterpart funds 3/ 0 0 593 635 0

,Goods and Services 3,322 2,418 4,750 2,747 5,160 1 Central administration 1,184 767 1,511 477 2,440 I Embassies 220 272 577 549 550 General supplies 392 656 1,176 783 470 I BulIldIngmaintenance 321 89 309 75 200 Emergency actlon fund 53 21 115 444 500 j Conference expenses e.g. UDEAC 0 0 0 0 500 Miscellaneous expenses 1,152 613 1,062 419 500 I

-,Ml1itary 2,050 9,000 9,397 8,400 9,000 t t iTransfers 980 972 1,500 1,120 1,490 Social transfers 61 122 247 361 370 Contributions to organIzations 210 303 924 759 1,090 I Penslons 683 268 329 0 0 Other transfers 26 279 0 0 30 *. a !interest on domestic public debt 0 0 0 0 0 a ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~I WOther expenditures -1,096 3,917 -342 1,161 350

iNet lending 0 0 0 0 O

------i/ All capital expenditures In the 1983-1987 period have been externally fInanced. Budgetary expenditures do not Include expenditures by the Calsse Autonome d'Amortissement. 2/ Figures provided by the Ministry of Finance differ slightly from the flgures provided by the Treasury In Table 22. 3/ Counterpart funds of U.S. budget support, used to pay salarles.

SOURCE: Ministry of Finance, Direction of the Budget. - 209 -

TABLE 25: REVENUES OF THE AUTONOMOUS AMORTIZATION FUND, 1983-1986

------__-- (millions of CFAF)

Source 1983 1984 1985 1986

I I 'Export duty 231 340 200 --

'Loan guarantee commission -- -- 225 --

'Tax on edible oils -- -- 88 53 JTax on soap -- -- 27 27 :Unitary tax on beer 97 105 360 678 'Unitary tax on cigarettes 36 75 95 78 5Tax on sugar -- -- 34 93 [Tax on lending 12 58 124 213 "Mlscellaneous taxes -- -- 59 91 'Recovery of arrears -- 1,159 96 71

I I 5Introduced in October 1986

ISuppiemental tax on beer ------50 i !Supplemental tax on soft drinks - - 14 i 'Turnover tax on CTT transport - 22 'Livestock export tax I1

IFuel Import tax ------111i

Beverage Import tax ------38 . 31

TOTAL 376 1,737 1,308 1,571

SOURCE: CAA. - 210 -

Table 26 - List of Public Sector Establishments

A. Mixed Ownership

1. Air Tchad 2. Centrale Pharmaceutique du Tchad (PHARMAT) 3. Societe Tchadienne d'Assurances et de Reassurances (STAR) 4. Societe Textile du Tchad (STT) 5. Societe des VilecommunicationsInternationales du Tchad (TIT) 6. Societe Cotonnilre du Tchad (COTONTCHAD) 7. Societe Tchadienne d'Exploitation des Ressources Animales (SOTERA) 8. Socifte Tchadienne pour l'Eau et l'Electricite (STEE) 9. Societe Nationale Sucriere du Tchad (SONASUT) 10. Manufacture des Cigarettes du Tchad (MCT) 11. Laboratoire de Farcha 12. Socifte Industrielle de Materiel Agricole (SIMAT) 13. Societe H-otelieredu Tchad (SHT) 14. Socift6 Tchadienne d'Exploitation H8teliere (SOTEXHO)

B. Banks

1. Banque de Developpement du Tchad (BDT) 2. Banque Tchadienne de Credits et de DMpSts (BTCD) 3. Banque Internationale de l'Afrique au Tchad (BIAT)

C. 100 Percent State-Owned

1. Abattoir Frigorifique de Farcha 2. Societe Nationale de Production Animale (SONAPA) 3. Societe de Developpement de la Region du Lac Tchad (SODELAC)

D. Public Establishments and Funds

1. Caisse de Stabilisation des Prix du Coton (Caisse Coton) 2. Caisse Nationale de Prevoyance sociale (CNPS) 3. Caisse de Regularisation des Prix du Sucre (Caisse Sucre) 4. Caisse Autonome d'Amortissement (CAA) 5. Fonds d'Intervention des Produits Petroliers (Fonds Petroliers) 6. Fonds d'Intervention Rural (FIR) 7. Centre National d'Enseignement Artisanal et des Arts Appliques (CNEAAP) 8. Office de Mise en Valeur de Sategui-Deressia (OMVSD) 9. Office National de la Main d'Oeuvre (ONMO) 10. Office National des Cereales (ONC) 11. Office National des Routes (OFNAR) 12. Office des Anciens Combattants et Victimes de Guerre 13. Office National de l'Hydraulique Pastorale et Villageoise - 211 -

14. Office Nationaldu DeveloppementRural (ONDR) 15. Magasin Generald'Approvisionnement en Produitset Matgriels Vft6rinaires(MA.GA.VET.) 16. Office de la PromotionIndustrielle du Tchad (OPI) 17. Office Nationalde Developpementde l'Horticulture(ONDH) 18. OfficeNational des Postes et Thlcommunications(ONPT) 19. Officedes Carrieres(OFCAR) TABLE 27: MONETARY AND CREDIT SITUATION, 1982-1988

------(millions of CFAF)

1982 1983 1984 1986 1986 1985 1985 1986 1988 198e 1988 l Dec. Dec. Dec. Mar. Juno Sept. Dec. Mar. June Sept. Dec. 1/1

INot foreign assets 2,622 9,478 24,939 24,730 24,032 24,702 17,088 5,682 6,166 3,646 4,290 I Central bank 3,037 10,087 20,312 21,476 18,780 17,9S7 10,499 (787) (2,989) 831 2,617 I Commercial banks 2,297 2,221 7,430 6,081 9,057 9,648 9,372 9,172 10,947 6,618 4,476 Postal debt -2,812 -2,812 -2,803 -2,808 -2,806 -2,80. -2,803 -2,803 -2,803 -2,803 -2,803 1 I i IDon'stic credit 41,824 43,391 58,428 87,791 84,804 69,873 68,423 79,408 80,934 81,190 82,085 t l Credit to government (not) 11,833 10,938 10,498 9,382 8,910 8,271 3,473 7,184 7,258 8,566 7,061 Centtal bank 9,633 8,648 9,889 8,924 9,785 8,612 6,804 8,706 8,608 8,830 7,908 I Commarcial banks -714 -724 -2,175 -2,570 -5,882 -5,546 -6,338 -4,647 -4,253 -3,191 -3,981 1 i Postal debt 3,014 3,014 3,005 3,008 3,007 3,006 3,005 3,005 3,005 3,116 3,134 1 Credit to the economy 29,991 32,46S 46,930 68,429 67,894 53,802 84,9s0 72,244 73,678 72,636 76,004 of which: COTONTCHAD 18,035 27,032 25,532 21,682 29,563 39,882 40,788 40,788 42,788 I t IMoney and quasi-money 34,649 42,389 67.759 80,699 78,878 71,139 71,898 72,271 74,681 72,163 72,918 Currency hold outside banks 23,809 29,196 44,925 48,161 49,209 47,684 47,354 47,438 48,073 44,982 48,88s Demr,d deposits 9,664 11,657 20,200 29,423 24,361 20,008 20,980 20,820 22,133 23,206 22,876 j Term deposits 1,488 1,838 2,634 3,015 3,318 3,687 3,654 4,013 4,476 3,978 3,578

IMedium and long-term foreign I liabilities 2,377 2,633 2,298 2,037 2,029 1,878 1,828 1,381 1,398 1,153 1,140 1 lothoritems (net) 7,320 7,845 11,312 9,886 9,929 11,768 11,965 11,338 10,051 11,421 12,290

1/ End-1988 figures are provisional.

SOURCE: Tables 28 and 29. TABLE 28: BEAC (N'DJAMENA) BALANCE SHEET, 1982-1986

(millions of CFAF)

1982 1983 1984 1985 1985 1986 1986 1988 1988 1988 1988 1 Dec. Dec. Dec. Mar. Juno Sept. Dec. Mar. June Sept. Dec. 11

------_

IASSETS

IForeign assets 5,847 13,458 22,828 23,352 20,438 21,967 14,023 2,681 2,490 4,109 6,539 of which: foreign exchange 2,198 9,632 20,884 21,478 18,688 18,212 11,080 224 1SO 1,884 4,385 of which: French Treasury account 2,002 9,126 20,841 20,970 18,121 17,431 10,742 0 0 1,833 3,919 1

IC1aims on Government 9,962 9,721 12,363 11,000 11,044 11,867 9,S68 10,418 11,202 10,834 10,116

ICIaims on Banks 17,806 17,805 22,381 24,410 26,911 27,640 38,679 46,341 47,877 41,718 42,932 1 Short-term 12,423 12,422 18,978 19,027 21,836 22,417 31,783 41,414 42,948 36,862 38,072 1 Med;um-term 6,383 6,383 6,383 6,383 6,276 6,123 4,898 4,927 4,929 4,888 4,860 1

------_

ILIABILITIES | lBonk reserves 1,033 988 1,434 952 653 680 439 477 1,726 8S0 670 1 iCurrency held outside banks 23,609 29,198 44,926 48,161 49,209 47,664 47,364 47,438 48,073 44,982 46,8656 II IGovernment deposits 419 1,075 2,885 2,078 1,259 3,046 2,782 1,712 2,698 2,204 2,208 1

IForeign libilit;es 2,810 3,391 2,516 1,877 1,656 4,010 3,524 3,448 5,479 3,278 3,922 1 of which: French Treasury account 0 0 0 0 0 0 0 395 1,417 0 0

IMedium- and long-term foreign borrowing 1,999 2,255 1,918 1,859 1,861 1,300 1,260 1,003 1,020 775 762 1

IOther (not) 3,735 4,081 4,084 4,037 4,063 4,885 4,939 6,342 2,818 4,673 6,351 1 ------1/ End-1986 figures are provisional.

SOURCE: BEAC (N'djamena),BEAC Bulletin TABLE 29: COMMERCIAL BANXS' CONSOLIDATED BALANCE SHEET, 1982-1986

------__--- (millions of CFAF)

|=-=-= -- ==G====_=-=-=I=-=- ===2-== - __=== - _=_=====--=.__--======-==-2======… I 1982 1983 1984 198S 1986 198S 1986 198e 1916 1986 1988 1 I Dec. Dec. Dec. Mar. June Sept. Dec. Mar. June Sept. Dec. 1/1

------_

lASSETS

IForeign assets 3,109 3,033 8,353 6,878 8,885 10,427 10,203 9,990 11,759 6,480 5,443 1 I I IBank reserves 1,033 98S 1,434 962 553 560 439 477 1,726 850 670

IClsics on Covernment 179 179 179 179 179 179 179 212 179 179 177 I 1 9 iCIclms on the private sector 29,991 32,465 45,930 58,429 67,894 53,802 64,950 72,244 73,8678 72,636 75,004 9 Short-tern' 21,180 23,537 3e,872 48,938 48,776 44,744 68,208 63,493 64,812 83,302 65,378 1 MMedium-term 8,269 8,376 8,718 8,949 8,678 8,318 8,200 8,209 8,322 8,791 9,034 1 Long-term 642 542 542 642 642 642 642 642 S42 S42 S42 9

I I [LIABILITIES w I I ______I

oDemanddeposits 9,352 11,3SS 19,998 29,221 24,149 19,806 20,788 20,618 21,931 22,892 22,344

ITerm and savings deposits 1,488 1,838 2,834 3,01S 3,318 3,S67 3,54 4,013 4,475 3,976 3,576

COovernment deposito 893 903 2,354 2,749 8,061 6,726 6,616 4,769 4,432 3,370 4,1S9

IBEAC credit 17,808 17,805 22,381 24,410 28,911 27,540 36,679 46,341 47,877 41,718 42,932

IFore;gn liabilities 812 812 923 817 828 879 831 818 812 982 9a7 I iMed. and long-term foreign borrowing 378 378 378 378 378 378 378 378 378 378 378 I I lOther (net) 3,585 3,764 7,248 6,848 6,888 8,873 7,028 S,998 7,435 6,848 6,939 ------1/ End-1988 figures ar. provisional.

SOURCE: BEAC (N'djamena), BEAC Bulletin - 215 -

TABLE 30: ACTIVE AND FROZEN CREDITS AND DEPOSITS IN THE BANKING SYSTEM, 1982-1986 - -______--______--______-…______- _-- _____- _____ (millions of CFAF)

1982 1983 1984 1985 1986 1/, |______-__--_------…------ITotal credits to private sector 29,991 32,455 45,930 64,950 75,004 Frozen 32,833 32,833 32,849 30,458 29,547 Active 2/ -2,842 -378 13,081 34,492 45,457 I I :Total deposits of public and private sectors 11,731 13,894 24,986 30,857 30,078 Frozen 13,209 13,209 12,981 13,185 12,958 Active 2/ -1,478 685 12,005 17,672 17,120 1 !BY MATURITY 3/

5 t Total credits to private sector 0 32,455 45,930 64,950 75,004 Frozen n.a. 27,173 27,187 24,204 29,547 Short-term n.a. 18,942 18,924 18,496 21,287 Medium-term n.a. 7,689 7,721 5,166 7,718 Long-term n.a. 542 542 542 542 5 Active n.a. 5,282 18,743 40,746 45,457 1 Short-term n.a. 4,595 17,748 37,712 44,091 1 Medium-term n.a. 687 995 3,034 1,366 Long-term n.a. 0 0 0 O I I !Total deposits of private sector 0 12,991 22,632 24,342 25,920 1 I Frozen n.a. 12,984 12,674 12,271 11,121 Demand n.a. 11,353 11,043 10,640 9,611 Term and savings n.a. 1,631 1,631 1,631 1,510 Active n.a. 7 9,958 12,071 14,799 Demand n.a. 2 8,955 10,148 12,733 Term and savings n.a. 5 1,003 1,923 2,066 !Total deposits of public sector 893 903 2,354 6,515 4,158 1 Frozen 891 891 891 891 891 Demand 348 348 348 348 348 Term and savings 543 543 543 543 543 I I a s Active 2 12 1,463 5,624 3,267 Demand n.a. n.a. n.a. n.a. n.a. I Term and savings n.a. n.a. n.a. n.a. n.a. I

!Frozen/total credits (%) 109 101 72 47 39 !Frozen/total deposits (%) 113 95 52 43 43 1/ 1986 figures are provisional. 2/ Negative values for active credits and deposits result from unexplained Inaccuracies In the data for total and frozen values. 3/ The sum of credits or deposIts by maturity differs from the total values above due to unexplained Inaccuracies In the data.

SOURCE: BEAC (N'dJamena), BEAC Bulletin, BTCD, BIAT, and BTD. - 216 -

TABLE 31: DISTRIBUTIONOF CREDIT TO THE ECONOMY, 1981-86

(millons of CFAF)

1981 1982 1983 1984 1985 1986 1/11986:% lot total

!Agriculture 558 559 559 589 515 151 1 0.2

'Mining 0 6 6 6 6 8 0.0

Manufacturing 6,697 6,814 7,153 8,910 9,874 10,009 14.5 I Food 5,022 5,033 5,055 6,749 7,397 6,980 1 10.1 Textiles 761 872 1,222 1,198 1,718 2,105 3.1 I Other 914 909 876 963 759 924 1 1.3

'Utilities 31 38 38 42 49 29 0.0

!Pubiicworks & construction 465 466 504 484 573 777 1.1

ICommerce: retail & wholesale 6,196 6,201 6,508 8,246 9,572 7,785 11.3 General 4,039 4,122 4,193 5,145 5,912 5,081 7.4 1 I Food products 83 80 80 229 286 363 0.5 Raw materials& hardware 137 140 155 218 191 264 1 0.4 1 I Machines& vehlv:Ies 816 569 777 843 723 227 0.3 1 Import& distrlb.of fuels 718 899 949 1,438 2,059 1,567 2.3 I Textiles & apparel 83 81 57 79 86 128 0.2 1 Other 320 310 297 294 315 155 ' 0.2

!Commerce:exports 16,557 15,646 15,614 18,151 37,771 44,841 65.1 1 I Cotton 16,521 15,610 15,578 18,115 37,735 44,488 5 64.6 Other 36 36 36 36 36 353 0.5S * aI !Services 1,272 1,175 1,290 1,016 1,265 3,275 1 4.8 1 Transport 737 715 796 708 794 980 1 1.4 1 Transit & storage 94 90 89 109 160 238 1 0.3 1 I Hotels & restaurants 307 306 308 41 54 75 1 0.1 I Other 134 64 97 158 257 1,982 1 2.9 llndividuals 364 413 494 552 663 921 1 1.3 1 lUnallocated 33 0 0 498 191 1,098 1 1.6 1

I I a

:TOTAL:credit to economy 2/ 32,173 31,318 32,166 33,494 60,479 68,892 1 100.0 1

1/ 1986 figures Inclucbshort-term credit as of end-1986and medium- and long-termcredit as of end-April,1986. 1/ Data from the BEAC Bulletinon total credit differ slightlyfrom the totals providedby BEAC (N'djamena)and used In Table 27: Monetary and Credit Sltuation.

SOURCE: BEAC BulletIn. - 217 -

TABLE 32: OUTSTANDING DEBT OF MAJOR INDUSTRIES TO THE DOMESTIC BANKING SYSTEM, END-1985 AND MID-1986 ------(millions of CFAF) O ------December 31, 1985 I'l June 30, 1986

ST 1/ MLT I ST MLT a sr 3r ls ;Unz=C a a: :rm¢==ata nr:as-umam=XXsm=3C __- a- COTONTCHAD 37,408 1,519 1 43,594 278

SONASUT 1,320 500 11 1,312 375 t

STT 1,520 191 H 1,394 218 a a~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. a Brasserle de Logone 355 1,038 1 355 1,356

MCT 110 54 , 71 380 t ______I: ______I~~~~~~~~~~~~~~~~~~~~~~~~a All major Industrles 40,713 3,302 01 46,726 2,265 1

Total credIt to the economy 54,399 6,080 1 60,387 7,687 1 ______--__------t ------I-----

I COTONTCHAD/total (%) 69 25 , 72 4 1

O Major Industries/total(%) 75 54 0 77 29 ------a------a___------ST + MLT H ST + MLT a

COTONTCHAD/total (%) 64 64

* ~~~~~~~~~~~~~~~~~.. ) I Major IndustrIes/totai(%) 73 72

1/ ST refers to short-term deDt and MLT to medIum- and long-term debt.

SOURCE: BEAC, Centrale Recapitulatlve du Tchad, Decembre 1985 and June 1986. TABLE 33: PROJECTED GROSS DOMESTIC PRODUCT BY SECTOR, 1987-1995 ------_------__-- (constant 1977 prices)

value-added in millions of CFAF 1S87 f 1988 1989 1990 1991 1992 1993 1994 1995

I .I 1PRIMARY 74,028 75,620 77,043 78,859 80,986 83,173 86,741 88,392 91,431 I I Agriculture 53,502 64,601 55,520 66,819 58,417 60,063 62,076 64,169 66,817 I food crops 49,947 60,948 51,965 53,264 54,862 65,608 58,486 60,533 62,954 cotton 3,565 3,555 3,S55 3,6SS 3,sss 3,655 3,591 3,828 3,883 I Livestock 20,528 21,019 21,623 22,040 22,589 23,110 23,665 24,233 24,814

ISECONDARY 28,277 29,s52 30,057 30,700 31,394 32,143 41,870 42,898 43,818 I Manufacturing industries 26,178 26,261 28,540 26,938 27,369 27,834 28,391 29,044 29,770 of which: cotton ginning 4,703 6,018 5,018 6,018 1,018 S,018 5,068 5,119 5,170 Construction and public works 2,003 2,163 2,338 2,535 2,760 2,984 3,237 3,629 3,864 I Mining/petroleum 176 191 206 222 240 269 8,938 8,979 8,986 1 I Electricity *nd water distribution 920 947 978 1,005 1,036 1,068 1,104 1,148 1,1f9 1 s I I o~ ITERTIARY 67,124 68,268 59,432 60,798 62,318 64,001 85,921 e8,228 70,967 t I Trade, transport, A communications 60,659 51,681 62,812 53,822 56,168 58,857 68,367 80,400 82,818 1 Government and other services 6,566 6,686 8,819 6,976 7,151 7,344 7,584 7,829 8,142 1

IGDP at factor cost 159,430 183,338 1e8,632 170,357 174,698 179,318 193,332 199,319 206,207

I Xndirect taxes 981 1,019 1,06S 1,079 1,106 1,152 1,241 1,298 1,341

I¢DP at 1977 market price 180,411 164,367 167,587 171,436 176,804 180,470 194,673 200,817 207,648 I I I IQOP deflator 182 191 201 211 221 232 244 268 2689

OGDPat current market price 291,787 313,922 338,012 360,873 388,704 418,870 474,196 613,359 667,e40 II lODPin millions of current US: 912 981 1,050 1,128 1,215 1,309 1,482 1,604 1,743 1 I I

------F------lExchange rate CFAF/USS 320 v 320 320 320 320 320 320 320 320 | ------…------TABLE 34: NATIONAL ACCOUNTS PROJECTIONS, 1987-1996

(constant 1977 prices)

I 1 1992 1993 1994 19"S I(MIMiens of CfAf) 1987 1998 1989 1990 1991

180,470 194,673 200,617 207,548 I ljroas domestic product 160,411 184,367 167,687 171,436 175,804 -1,837 -1,761 -1,314 -876 I Terms of trad, adjustment -3,249 -8,823 -8,3so -2,536 -2,114 178,633 192,812 199,308 206,672 1 lOreos domstic Income 157,162 180,734 164,237 168,900 173,690 1 - - 1 64,476 68,938 67,369 70,017 72,481 INst Imports 65,063 65,490 57,607 62,765 109,316 113,603 117,710 1 IIportsof 6NFS 1/ 90,313 89,491 92,680 100,686 103,920 109,906 39,444 40,988 41,947 43,486 46,229 1 I Exports of ONFS 2/ 34,260 34,001 34,993 37,921 247,571 260,181 269,320 279,153 i Rosoturcesavailable 213,215 218,224 221,804 231,866 238,166 31,510 32,499 33,626 34,589 1 tInvostment 25,318 28,484 27,748 29,104 30,560 227,882 236,795 244,5684 Iconsumption 187,899 189,740 194,058 202,581 207,816 218,061 28,867 27,729 28,621 29,668 I I Government consumption 22,840 23,644 24,380 26,260 26,170 199,953 207,174 216,006 1 I Private consumption 166,099 188,198 189,876 177,301 181,448 189,204

-33,926 -37,428 -34,870 -36,492 -37,892 1 1Gross domestic savings -30,731 -29,006 -29,819 -33,661 -2,025 -2,0S7 -2,081 -2,239 1 I Not factor service income -1,iS60 -1,422 -1,613 -1,718 -1,868 8,698 6,934 7,409 7,893 1 Net current transfers 7,238 6,895 6,940 7,199 6,671 -32,866 -29,99. -31,164 -32,238 1 C0ro-snotional savings -26,059 -23,633 -24,392 -28,180 -29,113 178,445 192,168 198,536 206,309 1 1Croas national product 16B,851 162,935 168,074 169,718 173,946 176e,60 190,755 197,222 204,433 1 C0roasnational Incom 156,602 169,312 162,724 167,182 171,832

I/ Imports of goods and non-factor services. 2/ Exports of goods and non-factor services adjusted for the terms of trade. TABLE 35: MERCHANDISE TRADE PROJECTIONS, 1987-1995 ------(millions of USS)

_5=-==__ _===_======____======_======_===C======3==_===____ I 1987 1988 1989 1990 1991 1992 1993 1994 1995 I _ ------

IEXPORTS 113.8 123.3 132.4 142.3 152.4 162.9 173.2 184.3 197.6 I

I____ I iCotton fiber 63.1 58.1 62.6 87.9 72.8 77.8 82.1 87.1 V3.0 I

{Livestock 39.4 42.3 45.3 48.3 51.7 65.4 59.3 83.3 68.1 I I ITextiles 4.3 4.7 5.0 5.3 5.7 8.1 8.3 6.6 6.8 I I IBeer 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0 lOther exports 16.8 18.0 19.3 20.6 22.0 23.8 25.3 27.2 29.3 I

I I------

IIMPORTS 264.8 273.7 294.9 317.2 333.9 385.7 363.3 381.8 403.6 I

iConsumer goods 82.4 66.8 71.4 78.4 78.4 87.6 86.3 101.3 107.4 I

IFood 22.8 22.8 22.9 22.2 19.4 18.4 17.7 18.1 18.8 I II IPetroleum 31.2 33.3 35.7 38.2 40.8 43.7 9.3 10.2 11.3 1 I llndustrial 41.0 43.8 46.9 50.2 63.7 67.5 72.8 75.6 78.9 I I lAid-financed 82.9 91.2 100.4 110.8 122.3 135.2 141.6 148.3 156.0 1 II 1Other imports 14.5 16.0 17.8 19.4 21.3 23.4 26.8 28.4 31.3 I I I I…------TABLE 38: B.A.LANCEOF PAYMENTS PROJECTIONS, 1987-1995

------(millions of USS)

I 1987 1988- 1989 1990 1991 1992 1993 1994 1996

I I~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ )Trade Balance -140.9 -150.5 -182.8 -174.9 -181.5 -202.8 -190.0 -197.5 -20S.9 I Exports. 113.8 123.3 132.4 142.2 162.5 183.0 173.3 184.3 197.6 1 I of which: cotton fiber 63.1 58.1 82.6 87.9 72.8 77.8 82.1 87.1 93.0 1 Imports 254.7 273.7 296.0 317.1 334.0 *i65.8 3e3.3 381.8 403.4 i

|Non-factor Services -126.6 -138.8 -147.8 -158.2 -170.6 -184.0 -199.8 -210.7 -234.3 1 Receipts 46.2 49.7 53.2 58.8 80.7 85.0 68.0 71.3 76.6 Payments 172.8 l8.s 200.8 214.8 231.3 249.0 267.8 288.0 309.9 1 I I IFactor Services -10.6 -10.3 -11.3 -12.4 -13.8 -1S.4 -15.9 -1S.6 -18.2 1 Receipts 3.4 3.8 4.3 4.8 5.3 6.0 8.8 7.8 8.8 1 Payments 13.9 14.1 16.8 17.2 19.1 21.4 22.7 24.1 26.8 1 I of which: interest 4.6 4.1 4.9 6.9 7.0 8.4 8.8 9.3 11.0 1

[Transfers 48.7 49.8 51.8 52.2 49.8 50.0 53.8 58.8 64.0 1 I Private (not) -16.9 -18.1 -19.3 -20.7 -22.1 -23.7 -25.4 -27.4 -29.7 I I Public (net) 66.6 67.9 71.1 72.9 71.7 73.7 79.2 86.0 93.7 food old 17.2 15.5 14.4 11.6 6.2 1.7 1.0 1.0 1.0 I budget support 28.3 30.3 32.4 34.8 37.1 39.7 42.8 45.9 49.7 j I other 20.1 22.1. 24.3 28.7 29.4 32.3 36.8 39.1 43.0

ICurrent Account Balance -229.3 -247.8 -269.8 -293.3 -318.3 -362.2 -361.7 -372.1 -394.4

I (excluding public transfers) -294.9 -316.7 -340.9 -386.2 -388.0 -425.9 -430.9 -458.1 -488.1 )

------_ TA8LE 36: BALANCE OF PAYMENTS PROJECTIONS, 1987-199S (continued)

(millions of USS)

|e==== = - -=__= __2==_C=-=e======e- _____c=_=-____= = =-_ = I 1987 1998 1989 1990 1991 1992 1993 1984 19596 I ------_-I lOfficial Capital Grants 141.4 161.3 181.9 173.2 186.4 198.3 212.2 227.1 243.0 1

IDirect Invstment 3.S 3.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1 I I IMedium- and Long-term I I Lending (net) 72.4 88.4 99.7 115.0 132.7 146.4 159.6 176.2 193.9 1 Disbursement 78.2 89.9 103.4 118.9 136.7 160.6 166.5 182.0 200.2 Amortization 6.8 3.6 3.7 3.9 4.0 4.1 5.9 5.8 6.3

jShort-tormLending (not), Errors, I and Omissions 0.0 0.0 0.0 0.0 0.0 0.0 0.0 O0.0 0.0 I I iChange in Net Res rves I (-=Increaes) 11.9 6.4 8.2 5.1 -1.8 7.S -20.1 -31.2 -42.6 I

Not IMF Resources 7.8 6.2 5.2 0 0 0 0 0 01 I I Change In Oth.r Reerves I (-nincrease) -3.4 -4.0 -4.8 -5.8 -6.8 -7.8 -20.1 -31.2 -42.6

jfinsaclng Cap 7.5 5.2 7.8 10.7 4.8 15.3 0.0 0.0 0.0 1 I It…_____------I TABLE 37: CIVIL SERVICE PERSONNELAND WAGEBILL, 1985-1986

(wages In *;iI7onsof CFAF)

I , .. ... I 1198 1 198B 1 1987 1

OffIc/MinaIstry ……------…------…------…------…------l------…I ------I January I Juno 3 January I June I January I May I I warm staff I wage staff I wages stff I wSe staff waes staff I Wag staff

-- - …------……-- -- -…… ------… - …-- … - … - … … ……--- … I .I IPresidency 124.1 740 168.3 858 221.0 988 228.4 1,044 227.7 1,055 249.6 1,114 t IPlanning and Reconstruction 6.7 89 7.1 106 6.1 93 4.7 91 6.4 106 6.8 111 1 ITrad.and Industry 5.6 89 5.6 73 4.8 99 5.1 85 5.8 103 8.1 15S II.O.C.E.(Control. d'Etat) 8.2 77 8.4 99 8.4 148 9.2 119 7.2 112 8.3 i108 'SecretaryCeneral a National Printshop 4.3 76 6.3 84 2.9 63 5.8 104 6.4 113 8.8 127 ITransport 2.9 34 2.7 36 2.1 31 2.3 34 2.6 39 2.7 40 1 INational Defense (civilien personnel) 8.3 268 8.7 261 6.4 246 404.3 249 804.2 241 604.4 241 1 iFinance and Computer Services 20.6 671 2656 1,09S 39.0 1,236 39.8 1,287 44.3 1,368 45.1 1,378 iPublicHealth 17.8 976 47.2 2,808 64.0 2,310 44.2 2,300 47.7 2,392 48.5 2,405 3 IFor;ign Affairs 8.7 139 6.8 146 7.0 141 8.8 126 6.7 126 7.7 135 I IPublic Woeks 10.9 471 12.3 585 14.4 698 14.4 672 11.7 496 18.8 495 I IJustice 6.4 172 12.3 618 14.1 619 11.7 617 13.8 828 13.7 6i8 1 INational Advisory Coiittee 8.2 40 7.7 44 10.1 46 9.2 43 11.1 46 10.0 45 1 llnterior and Administrative Reform 59.3 1,173 71.4 4,428 119.6 4,641 114.5 4,386 112.5 4,288 110.3 4,224 I IC;il Service 3.3 73 3.0 77 3.3 77 3.6 80 3.9 93 3.8 84 1 ISocialWelfare and Prmotion of Women 6.0 139 9.1 252 8.8 263 7.6 278 6.9 252 7.8 294 3 ILaborand Employment 1.9 27 1.4 37 2.4 43 2.4 46 2.4 44 2.6 43 3 llnformation 10.7 214 10.2 258 12.8 265 13.8 283 14.3 271 10.1 286 ITour;sm end the Environmnt 8.4 60w 13.1 1,120 20.9 1,279 18.1 1,083 18.2 1,123 16.6 1,138 IPost and Telecomunications 1.6 10 1.8 19 1.6 10 1.7 17 1.7 17 1.6 1i lAgriculture 10.6 378 29.6 1,214 36.6 1,292 29.0 1,151 30.4 1,130 31.6 1,173 IFood Security 3.1 67 4.2 74 8.3 76 2.4 72 3.1 a6 2.7 6s 3 ILivestock 9.8 348 25.9 1,187 21.8 701 20.9 774 20.7 813 21.3 815 1 3National Education 68.2 1,811 150.1 7,20a 156.9 6,940 176.6 5,331 147.3 5,483 168.8 S,919 3 jUining and Energy 1) 3.2 es 3.3 76 ICulture,Youth, Sport. 2) 6.3 134 8.7 211 I Outside N'djamns 3) 412.0 13,965

I TOTAL 811.0 22,510 827.7 22,676 774.1 21,092 1,172.2 20,091 1,383.4 20,568 1395.8 21,266 I ------… ------…-…------… ------I 1) Prior to 1987, part of the Ministry of Public Works. 2) Prior to 1987, part of the Ministry of National Education. 3) Figures on wages and staff located outside N'djamne are not available by ministry for January, 1986. Total includes a December, 1984 aggregate figurefor public servants posted outside N'djasena. SOURCE:Ministry of Finance and Computer Services. a1 e ,4' n'7 . §

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'4, ~~ ~ ~ ~ ~ ~ ~ ~ ~ z TABLE 39: UMIBEROF PRIMARYSCHOOLS, BY TYPE AND BY DISTRICT, 1985/88

------

Schools with Full 5 School Public Private 'Spontaneous* Total 8-year Cycle I District Schools Schools Schools Schools

__-----____------26 21 Chari-Baguirmi (urban) 28 0 0 112 20 Chari-Baguirmi (rural) 69 6 37 91 6 Kanam 91 0 0 20 6 Lae 20 0 0 a 0 B.E.T. 8 0 0 16 16 Cheri 18 0 0 64 35 1 Bahr-Koh 84 0 0 63 28 -Bahr-Sara 52 1 0 S5 33 Mandoul 54 1 0 0 31 3 I Salamat 31 0 S0 33 Logone Occidental 50 0 0 35 28 5 Ngour-Kossou Zs 0 0 0 89 45 U Pend- 89 1 25 15 I Nye-Pende 26 0 0 31 22 1 La Lim 31 0 0 38 23 IMayo-KobbiEast 35 1 0 63 33 1 Mayo-Kobbi West 48 1 4 72 38 5 Zah-Soo 82 0 10 87 35 5 -Illy e8 0 19 0 45 32 1 I Tandj11 46 0 42 25 Tchire 41 1 0 24 9 I Ouaddal 24 0 0 6 1 IBltine 20 0 0 20 19 3 19 0 0 130 9 1 Guera 84 0 68 30 29 5 Privat, schools 0 30 0

------1244 544 5 5 TOTAL 1068 42 136 I-…------SOURCE: Ministry of Education TABLE 40: NUMBER OF PRIMARY SCHOOL ENROLLMENTS, TEACHERS AND CLASSROOMS, BY SCHOOL DISTRICT, 1985/88

…======-======__======_====-======Pupil/classroom I Sehool I Enrollments I Number of Number of Pupil/teacher Ratio Ratio | District I Girls Boys Total I Teachers Classrooms …I. 305 72 io0 I Chari-Beauirmi (urban) 12,117 20,029 32,146 444 88 80 j Chari-Baguirmi (rural) 8,070 15,461 21,531 245 270 126 91 85 I Kanem 2,959 7,7-'0 10,899 117 67 62 SO 64 i Lac 1,OO0 2,326 3,378 25 20 51 84 I B.E.T. 404 875 1,279 165 43 Se 1 Chari 3,984 5,329 9,313 215 154 71 86 Behr-Koh 3,084 10,077 13,141 186 125 64 88 i Bahr-Sara 2,477 6,083 8,680 134 99 IMandoul 4,876 11,939 18,614 188 188 89 e8 81 89 97 I Sa lamat 1,588 4,338 5,904 301 66 72 Logone Occidental 6,384 16,198 21,682 329 161 76 78 I Ngour-Kossou 2,989 8,839 11,828 1S7 63 82 I Pend- 6,290 17,441 23,731 378 291 103 45 el I Nya-Pende 1,818 4,887 6,305 139 108 68 78 La Lim 1,863 6,549 8,402 127 144 87 6e Mayc-Kebbi East 2,222 7,309 9,631 143 221 61 74 1 lMayo-K.bbi West 4,209 12,102 18,311 287 239 87 70 Zah-Soo 4,934 11,708 18,842 249 101 79 I Kabbia-Illy 3,573 18,410 21,983 218 279 180 144 81 90 Tandjile 2,817 10,195 13,012 lOS 93 Tchire 2,508 10,220 12,728 121 137 80 44 71 1 Ouaddal 1,248 4,454 5,702 130 6e Bl;Itir"e 1,099 3,044 4,143 64 63 es 57 80 81 Batha 1,384 3,233 4,817 77 97 93 Cuera 6,902 16,507 22,409 230 240 75 79 Private schools 6,927 9,202 18,129 214 203

72 so I I TOTAL 95,323 242,293 337,818 4,886 4,217 ------…------SOURCE: Ministry of Education - 227 -

TABLE 41: TEACHER TRAINING ENROLLMENTS, 1984/85 to 1986/87 ------

1984/85 1985/86 1986/87

------

'Teacher trainees 581 762 878

I Flrst year 295 387 375 Second year 174 252 364 Third year 112 123 139

'Professors 30 35 35

!Tralnees/professors 19 22 25

SOURCE: Ministry of Education - 228 -

TABLE 42: EVOLUTION OF PRIMARY SCHOOL ENROLLMENTS, 1967/68 to 1985/86

1-"^--s"- -s,------""t -"--_-_----..- ....-.- ="

I 1 Academic Year Enrollments I

l l

I

1967/68 157,257 1968/69 159,424 1 1969/70 147,926 1970/71 167,917 1971/72 169,588 1972/73 188,439 1973/74 198,030 t 1974/75 192,725 1975/76 202,180 1976/77 216,768 1977/78 219,191 1978/79 n.a. 1979/80 n.a. 1980/81 n.a. 1981/82 261,259 1982/83 282,398 1983/84 273,188 1984/85 319,191 1985/86 337,616 l l

SOURCE: Ministry of Education - 229 -

TABLE 43: ADMINISTERED CONSUMER PRICES, 1986 1/

t nmmmmmmm m------Price Date of Product Unit (CFAF) last revlew!

a Gala beer one 65 cl. bottle 360 10/17/86 t I t I Sugar 1kg cubes 480 4/5/85

Cigarettes one pack Bastos 175 10/17/86 t I one pack Slat Selection 175 a O pack eoneSprint 225 t pack Slat Longue 250 Sone

Carbonated drinks one 12 oz. bott;e 110 10/17/86 t Fuel one liter Super 290 9/3/84 one liter Gazoll 270 1 t ~~~~~oneliter Petrols 245 t I Electricity first 30 kwh./month 90/kwh 10/9/84 t I I Water first 15 m3/month 105/m3 10/9/84

Bread 200 gram baguette 60 5/27/86 1

CCotton oll (refined) one liter bottle 545 4/19/86 a a Soap one bar 195 4/10/86 1

Transport Prices vary by region and distance 6/16/84 1 a I t a 1/ All prices are retail ceiling prices for N'Djamena.

Source: IBRD mission.