African Markets Managing Natural Resources a Report from the Economist Intelligence Unit

African Markets Managing natural resources A report from The Economist Intelligence Unit

Chad

Commissioned by: March 2013 African Capacity Building Foundation

www.eiu.com African Markets Managing natural resources

Country Profile: Chad

Politics and institutions

Chad has a presidential system of government, based on the French system, with the president having the power to appoint the prime minister. Although the country is currently mostly at peace, it has lived through decades of civil war and internal conflict since it became independent from France in 1960. The current president, Idris Deby, himself came to power in a violent coup and struggle in 1990. Since then he has concentrated power in his hands and has successfully ensured his own re-election as president every five years since 1996. In 2006 and 2008 Chadian rebels attacked the capital, N’djamena, and on the latter occasion came close to toppling the government. With a population of around 11.8m, Chad is the fifth-largest country in Africa, with more than one- half of its 1,284,000 sq km area lying in the Saharan and Sahelian zone, while the southern part of the country is tropical. The northern half of the country is very sparsely populated. Poverty and under- development affect most of the country and population: in a UN index of human development in 2011, Chad was ranked 183rd out of 187 countries. The country has not yet suffered from the kind of inter- religious violence that has plagued northern Nigeria. There are, however, acute ethnic and regional divisions, most notably between “northern” Muslims and “southern” Christians. Indeed, the picture is complex. Divisions run along many lines, between nomadic, semi-nomadic and sedentary groups; between cattle herders, traders and agriculturists; and between Saharans, Sahelians and southerners. Muslims represent just over 50% of the population. Notwithstanding, religious difference—between Christians and Muslims—is sometimes a focus of resentment. Furthermore, in recent years concern has grown that militant groups—such as Nigeria’s Boko Haram—may spread into northern Cameroon and neighbouring parts of Chad, or that their example may encourage copycat violence in Chad. Political parties Under Mr Deby, the ruling party, the Mouvement patriotique du salut (MPS), has dominated politics and government in Chad since the early 1990s. The secretary-general of the party, Haroun Kabadi, is also the leader of the National Assembly. Opposition parties include the Fédération action pour la République (FAR), the Rassemblement national pour la démocratie au Tchad (RNDT)—le Réveil, the Rassemblement pour la démocratie et le progrès (RDP), Action pour le renouveau et la démocratie (ARD), the Union pour la démocratie et la République (UDR), the Parti pour la liberté et le développement (PLD) and the Alliance tchadienne pour la démocratie et le développement (ATD). The MPS has a well-developed network of bureaux and organisations across the country, and a large membership. At the last parliamentary elections, in 2011, the party made alliances and shared candidate lists with 103 of the roughly 130 opposition parties that notionally exist in Chad. The government has used co-option and sometimes force to weaken opposition. After a rebel attack on N’djamena in 2008, security forces arrested and detained a number of opposition figures. The most prominent of these, Ibni Oumar Mahamat Saleh, the leader of the PLD, has never been seen again.

Institutions Chad’s present constitution was introduced in 1996 and was amended in 2005, in order to remove the presidential term limit, thereby enabling Mr Deby to run for president again. The next presidential election is due in 2016, and Mr Deby has shown no sign of wanting to give up his position. Elections for the 188-member National Assembly are meant to take place every five years, on the same cycle as the presidential election. In January 2013 the National Assembly approved a set of proposed amendments to the constitution which, among other things, stand to strengthen the government’s powers over the judiciary. The proposed changes prompted a walkout by nearly 20 opposition members of the Assembly and were described by some Chadian human rights and civil society organisations as an attempt to set up a dictatorship. In the absence of an effective opposition, one of the few powerful institutions outside government is the Union des syndicats du Tchad (UST, Chad’s main public sector workers’ union), which has taken a firm position in negotiations with the government over public-sector pay. Natural resources

Chad has significant natural resources and, with its relatively small population, ought to be richer and more developed than it is. The fact that it is not, is a result of decades of neglect, misgovernance and conflict—exemplified by successive bouts of civil war from the 1960s through to 1990 and crises in the 2000s. Landlocked and surrounded by the hinterland of mostly poor neighbouring countries, Chad has been poorly positioned for attracting investment in natural resources. Agriculture Agriculture in Chad mostly consists of small-scale or subsistence farming, rather than large mechanised farms. Harvest levels fluctuate significantly, owing mainly to fluctuations in rainfall, but also sometimes because of locusts or crop diseases, or insecurity and violence affecting rural populations. Even in good harvest years, Chad is a net importer of staple grains. A combination of factors stand in the way of increasing agricultural output, including poor transport infrastructure, the small number of Chadian agricultural companies and the difficult business environment for foreign investment. Food insecurity (meaning inadequate and unreliable food supply) is therefore a persistent problem in Chad. In 2012 the UN estimated that around 1.6m Chadians were affected by food insecurity and needed assistance. In 2013 the World Food Programme (WFP) plans to provide nearly 118,000 tonnes of grain to address the food deficit. Scarcity of water and grazing land is sometimes an issue in arid parts of the country, and the country is vulnerable to both droughts and flooding. That it does not cope better with these perennial problems is a reflection of how little the government has done to reduce the impact of natural disasters. Changes in weather patterns caused by climate change may lead to more frequent or more severe crises affecting agriculture. The only agricultural sector that has attracted significant investment recently is sugar cane. In mid-2012 a French company, JL Vilgrain, announced plans to spend €320m (US$413m) building a new sugar factory in southern Chad, to be operated by the Compagnie Sucrière du Tchad (CST), the Chadian

2 © The Economist Intelligence Unit Limited 2013 African Markets Managing natural resources

subsidiary of SOMDIAA, an agro-industrial firm owned by JL Vilgrain. CST’s existing sugar factory in Banda, south-eastern Chad, has a production capacity of 40,000 tonnes/year. Oil Since 2003 Chad has been producing oil from the Doba oil fields in the south-west of the country. In 2011 average output from seven fields in Doba was 115,000 barrels/day (b/d), down from an average of 122,500 b/d in 2010. Most of the oil is exported via the 1,070 km Chad-Cameroon underground pipeline, which has a capacity of 225,000 b/d. A US oil company, ExxonMobil, holds a 40% share in the consortium operating the Doba fields, while Petronas (Malaysia) has a 35% share and Chevron (US) a 25% share. Output from the Doba oil fields is expected to decline further over the coming years. However, the decline is likely to be exceeded by production from new oil fields. The China National Petroleum Corporation (CNPC) is exploring the Ronier field in the Bongor basin, north of Doba, and has forecast that this will produce 60,000 b/d when output comes fully on stream.

Oil output ('000 b/d)

200 200

180 180

160 160

140 140

120 120

100 100

80 80

60 60

40 40

20 20

0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012(a) (a) Economist Intelligence Unit estimate. Sources: US Energy Information Administration; The Economist Intelligence Unit.

Three small oil companies are exploring other prospects. Griffiths Energy, a Canadian company, is developing the DOB Mangara and DOI Badila blocks, which it has forecast will produce around 10,000 b/d between them. Griffiths plans to build a 120 km pipeline connecting the DOB and DOI fields to the Chad-Cameroon export pipeline. The company also has exploration rights in the Borogop and Doseo blocks in southern Chad. In December 2012 a Swiss headquartered commodities company, Glencore, announced that it would invest US$300m in Griffiths’ venture in Chad. Another company, Simba Energy of Canada, has the rights to three blocks, Chari Sud I and II in the south (on the border with the Central African Republic) and Erdis III, in the far north-east. A third company, ERHC Energy (US), has exploration rights to Chari-Ouest III (north-west of Doba), BDS 2008 (north-east of Doba), and the Manga block in north-eastern Chad, on the border with Niger. In mid-2012 Niger agreed with the Chadian authorities to build an oil export pipeline from oil fields being developed in south-east

Chad concession blocks Niger through to Chad. This pipeline would benefit the Manga block, if commercially viable Simba blocks United hydrocarbon quantities of oil are discovered there. Griffiths energy international Other ownership Other minerals Open blocks Despite considerable speculation, mining in Chad is still underdeveloped. The Ministry of NIGER Mines and Geology has tried to stir interest in the potential for mining gold, uranium and other precious metals. At present there is a small amount of (mostly artisanal) gold C HAD mining, but there may be potential for mining bauxite, columbium (niobium), tantalum, tin, tungsten and uranium. In 2008 a Gibraltar- SUDAN based firm said that it would develop a mine NIGERIA N'Djamena on the Madagzang concession, in the Mayo Kebbi region in south-western Chad. The plan appears to have been dropped, although according to a 2009 survey of Chad by the

CENTRAL AFRICAN French Bureau de Recherches Geologiques CAMEROON REPUBLIC et Minière (BRGM), Mayo Kebbi is the most 0 km 200 promising region in Chad for uranium, and there is some potential in the Logone, Biltine and Tibesti regions. Speculation regarding uranium deposits in the Aozou strip, on the border with Libya, added colour to the Libya-Chad conflict between 1978 and 1987, but appears to have been unfounded. In 2009 a training workshop on uranium mining was held in Bakara, near N’djamena, with the aim of improving knowledge among Chadian non-governmental organisations (NGOs). In 2012 a Russian bank established a subsidiary, GPB Chad

Chad-Cameroon oil export pipeline

l 1,070 km underground pipeline, with three pump l Oil exploration in Chad suspended in 1981 stations, exporting oil from Chad’s Doba basin to an because of conflict; exploration licences renewed offshore marine terminal on Cameroon’s coast. in 1988; feasibility studies for the pipeline began in l Built between 2000 and 2003 by oil companies 1993. ExxonMobil (US), Petronas (Malaysia) and Chevron (US) at a cost of US$2.2bn (excluding upstream l Pipeline entered service in 2003; operated field system); Elf Aquitaine (France) and Royal by two joint venture companies—the Chad Oil Dutch Shell (Britain/Netherlands) withdrew from Transportation Company and the Cameroon Oil the project, owing to concerns over the commercial, Transportation Company—formed by the oil environmental and political aspects of the project. companies and the governments.

Minerals, with the aim of launching a gold project near Ganboke, in Mayo-Kebbi Ouest. The main areas of potential for gold mining are Mayo Kebbi, Wadai and Biltine. Economy, policy and business environment

Since the development of its oil sector, Chad has experienced some of the common drawbacks associated with oil. In particular, the industry has provided little employment relative to its share of the economy, and oil revenue has disproportionately benefited elites and the armed forces. If oil has not actually worsened patterns of corruption and patronage, it has certainly increased the stakes. Policy Mr Deby and his government have benefited handsomely from the growth of the oil industry over the past decade. This has encouraged the government to try to attract further investment in the oil sector, but has not led to a concerted national strategy to develop the country’s natural resources and improve how they are managed. For the oil sector, the government has not organised competitive licensing rounds, but has instead signed exploration and production sharing agreements based on ad hoc negotiations with individual companies. Under the terms of the mining law (Law no. 11 of 1995), the government can issue separate licences for exploration and exploitation. In 1999 the government passed a law on petroleum revenue management (Law no. 1 of 1999), designed to satisfy the conditions set by the World Bank for it to provide US$300m in loans towards the cost of building the Chad-Cameroon export pipeline. In 2005 the government revised the law, removing the constraints it had imposed on how the government used oil revenue. The following year the government established a national oil company, the Société des hydrocarbures du Tchad (SHT). The company has taken a stake in the Doba oil fields and in the exploration projects of the CNPC and other companies. SHT is also a partner in the Djermaya oil refinery near N’djamena, which opened in 2011 and is operated by the CNPC. Management of natural resources The government divides natural resource management in a conventional manner, at present between four ministries—for oil and energy; mines and geology; agriculture and irrigation; and environment, water and fisheries. In principle ministers may be nominated or appointed by the prime minister, but in practice it is the president who decides ministerial appointments. Senior appointments below the ministerial levels are also made by the office of the president. One prominent black mark against the Chadian government’s reputation for natural resource management is its record on using oil revenue. The World Bank helped to fund construction of the Chad-Cameroon export pipeline, on the condition that the Chadian government would adhere to an agreed programme for managing the oil revenue—under which fixed shares of revenue were reserved for spending on education, health, infrastructure and other social areas, while 10% of revenue was to go into a Future Generations Fund. Over the following years the Chadian government gradually broke the terms of the agreement and eventually, in 2006, passed a new law, cancelling the Future Generations Fund and freeing the government to spend revenue on security and current government

costs. This pushed the World Bank to suspend its co-operation with Chad on the pipeline in 2008, obliging it to repay the loans early. In 2009 Chad submitted its first report to the Extractive Industries Transparency Initiative (EITI), and in 2010 it was formally accepted as a “candidate” country for full membership of the initiative. In October 2012 Chad published a new report under the initiative, covering the years 2007-09. The report should also have covered 2009-11, but the committee responsible for preparing the report blamed the omission on “administrative delays”. Chad is due to submit its next report to EITI by late May 2013. The report is unlikely to bring any major improvement in transparency, as this is not required at the present stage of the EITI membership process, and there is little momentum to increase transparency in government more widely. Several Chadian civil society organisations have tried to address issues about the development and management of Chad’s oil industry and revenues. Organisations were particularly active in the early period of the sector’s development, campaigning about the rights of people affected by the construction of the oil fields and export pipeline and the use of revenues. Since the demise of the agreement with the World Bank on revenue allocation, conditions for such civil society organisations have deteriorated. Nonetheless, several organisations remain active, notably the Groupe de Recherches Alternatives et de Monitoring du Projet Pétrole Tchad-Cameroun (GRAMPTC) and the Commission Permanente Pétrole de N’djamena. The former organisation publishes a newsletter monitoring public financial management. Economic growth The influx of oil investment and oil revenue has not delivered as much as was hoped in terms of creating jobs and increasing government spending on basic services and infrastructure. Nonetheless, it has helped the overall economy to grow. Real GDP growth has fluctuated considerably, but years of high growth (13.0% in 2010 for example) have outweighed years of minimal growth or slight contraction (-0.4% in 2009 and -1.6% in 2010). Non-oil GDP growth has helped to counterbalance stagnation in oil GDP growth in some years. Agriculture (including cotton) and livestock are the largest elements of the non-oil economy. Business environment Chad scores very poorly in terms of its environment for doing business. In the international Doing Business 2013 survey prepared by the International Finance Corporation (IFC) and the World Bank, Chad ranked 184th out of 185 economies for ease of doing business. Chad also scores very poorly in terms of corruption, ranking 165th out of 174 countries in the 2012 global Corruption Perceptions Index produced by Transparency International. There are few private Chadian companies active in the natural resources sector, a fact that increases pressure on foreign companies. Owing to the weakness of the media and the power of the state, within the country there is very little critical reporting and scrutiny of how the government manages the oil industry and natural resources more generally. Chadian non- governmental organisations such as the GRAMPTC have focused their energies recently on reporting on the national budget and, through international channels, seeking compensation from oil companies for communities affected by the oil fields and pipeline.

Two recent incidents provide a glimpse into the hazards of doing business in Chad. Following an investigation in Canada, in February 2013 Griffiths Energy pleaded guilty to bribing the wife of the Chadian ambassador for business in Chad, in breach of Canadian anti-corruption law. The bribery occurred under the former management team at Griffiths, between 2009 and 2011. News of the case and the US$10.4m fine imposed on Griffiths has had no impact in Chad itself, where the government is intolerant of criticism regarding its management of the oil industry. In October 2012 the authorities expelled a foreign Catholic bishop from Doba, after he publicly criticised the government’s management of oil revenue. Foreign companies and oil infrastructure have not yet been physically attacked. However, public resentment about the government, unemployment and unequal development may lead to hostility in the future. In neighbouring Cameroon, the export pipeline has caused some resentment, as transit fees were set at a time when oil prices were much lower than they are at present, and communities that gave up land for the pipeline feel that they have received few benefits. There is a possibility that some of these grievances may be eased by the outcome of a process of voluntary dispute resolution begun in late 2012 between Esso Chad, ExxonMobil’s Chadian subsidiary, and some local communities.

Chad Economic data Demographic and social data 2011a 2004-11 (av) latest available Real GDP (PPP US$ bn at 2005 prices) 15.4b 13.6 Population (m) 11.5 Nominal GDP (US$ bn at PPP) 17.5b 14.7 Area (sq km) 1,284,000 GDP (% real change pa) 3.1b 8.2 Under 5 mortality rate (per 1,000 live births) 169.0 GDP per head (US$ at PPP) 1,520.0b 1,400.4 HIV/AIDS (% of people aged 15-49) 3.1 Budget balance (% of GDP) 0.6b -1.7 Human Development Index ranking (out of 186) 184 Public debt (% of GDP) 43.1b 45.3 Money market interest rate (%) 4.0 4.9 Consumer prices (% change pa; av) -4.9b 1.9 Current-account balance (% of GDP) -24.2b -14.5 Foreign-exchange reserves (US$ bn) 1.0 0.7 Exchange rate LCU:US$ (av) 471.9 493.1 a Actual. b Economist Intelligence Unit estimates. Sources: The Economist Intelligence Unit; UN Statistics Division; UNDP; World Bank.

© The Economist Intelligence Unit Limited 2013 7 While every effort has been taken to verify the accuracy of this information, The Economist Intelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this report or any of the information, opinions or conclusions set out in this report.

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