Poverty, Inequality and Oil Exploitation in Chad Revised final report Submitted to Partnership for Economic Policy (PEP) By Gadom Djal Gadom Laboratory of Studies and Research in Applied Economics and Management (LAEREAG), University of N’Djamena, Chad (Lead researcher) & Djossou Gbetoton Nadège Adèle Department of Economics and Management, University of Abomey Calavi, Benin Kane Gilles Quentin Department of Economics and Management, University of Yaoundé II, Cameroon Mboutchouang Kountchou Armand Department of Economics and Management, University of Yaoundé II, Cameroon Chad May 2016 1 Acknowledgements This study was carried out with financial and scientific support from the Partnership for Economic Policy (PEP) with funding from the Department for International Development (DFID) of the United Kingdom (or UK Aid), and the Government of Canada through the International Development Research Center (IDRC). The authors are also grateful to Abdelkrim Araar for technical support and guidance, as well as to Manuel Paradis and Luca Tiberti for for the enriching comments and suggestions. 2 Abstract This paper analyses the impact of the emergence of the petroleum sector on household wellbeing in Chad. A special attention is given to determine the main determinants of the distribution of the petroleum rent, and how this latter can be improved in order to be socially more efficient. To monitor the change in wellbeing over time, we estimate a synthetic index of multidimensional wellbeing, and this using two household surveys, collected in 2003 and in 2011. Our results show that the multidimensional inequality has slightly increase between 2003 and 2011 from 0.591 to 0.609. The Growth Incidence Curve indicates that the poorer and richest classes have earned in wealth but for the large middle class, the wealth have decreased. Conditional NIGIC suggest that the progress in Housing and durable goods is well distributed across the income distribution in Chad. But the education progress failed given that the income distributional pattern of improvements in education lies under 0. This implies that the public resources are not effectively allocated and used efficiently in the education project in Chad. In the issue of oil revenue redistribution policy, the Difference-in-Difference panel results show that people living in departments which received greater oil share compare to national levels are better off than others. Oil revenue helps significantly in improving the MD wellbeing but the poorer departments require more attention on the issue of oil revenue investment. Keys words: Poverty, Inequality, Oil exploitation, Chad, Redistribution policy. 3 Executive summary Assessing the pro-poorness of economic events, like growth, governmental intervention or economic shocks, has become a general topic of policy discussion in several new development paradigms. This is especially relevant in the Chadian context characterized by a boom in oil exploitation since 2003, actually main source of growth, a high poverty rate and unequal oil revenue repartition among regions. This study analyzes the effect of oil exploitation on multidimensional wellbeing through oil revenues investment between 2003 and 2011 in Chad. Oil provides a bulk of funding to finance the Chadian development projects (infrastructures, education, health, etc.). It covers 88% of exports on the average since 2004 (PND, 2013). There are different reasons that can justify this form of investigation. First, the petroleum rent may not have an instant monetary impact in the shorter term. Indeed, it is expected that the petroleum rent will be more devoted to improve the non-monetary dimensions of wellbeing, like the provision of education and health services, the improvement in the economic infrastructures, like roads and transportation services etc. To monitor the non-monetary wellbeing over time we start by estimating a synthetized multidimensional index of wellbeing. Based on this, we assess the pro-poorness of growth in non-monetary wellbeing; we evaluate the impact of oil revenues redistribution policy on socioeconomic outcomes. In this study, we use Data from Chad household consumption and informal sector surveys (ECOSIT 2 and ECOSIT 3 conducted in 2003 and 2011 respectively), the first and second General Population and Housing Census (GPHC) carried out in 1993 and 2009 respectively, as well as information about oil activity and distribution of oil revenue in Chad. ECOSITs provide rich information about housing, education, health and durable good used as wellbeing indicators. The main findings from this analysis are: The poorer and richest classes have earned in wealth but for a large middle class, the wealth have decreased. The growth has been pro-poor in Chad between 2003 and 2011 even if the situation of the poor in urban areas requires more attention to improve their access to infrastructure and facilities. 4 Conditional NIGIC suggest that the progress in Housing and durable goods is well distributed across the income distribution in Chad. But the education progress failed given that the income distributional pattern of improvements in education lies under 0. The multidimensional inequality has slightly increased between 2003 and 2011 from 0.591 to 0.609. This depict that redistributive and investment policies implemented in the country since the oil production emergence seems to be inefficient in terms of poverty and inequality reduction Finally the results show that people living in departments which received greater oil share compare to national levels are better off than others. In addition, far the department is from the capital Ndjamena, lower is the average MD well-being. Based on these results, policy implications can be drawn The policies aiming to improve the poor well-being in Chad have to be accompanied by efficient investments in education, environment facilities (lighting type, hygienic garbage vacation, cooking energy, etc.) and to facilitate the household’s access to durable good. Since the multidimensional inequality has increased in Chad, the redistribution policy targeting Housing, Education and Durable Goods have to be improve in order to promote the development of the middle class because, more the middle class emerges in country better is the reduction of inequality. In order to better improve the average MD well-being at national level, oil revenue redistribution policy in Chad have to target more the poorer departments. Government has to invest so in the departments which are far from the capital city. 5 Table of contents 1 Introduction ............................................................................................................................. 7 1.1 Context of the study ......................................................................................................... 7 1.2 Research questions and objectives ........................................ Erreur ! Signet non défini. 2 Literature review........................................................................... Erreur ! Signet non défini. 2.1 Natural resources, growth and redistribution ........................ Erreur ! Signet non défini. 2.2 The pro-poorness of the non-monetary wellbeing ......................................................... 11 2.3 Empirical studies using diff-in-diff approach ............................................................... 12 3 Methodology .......................................................................................................................... 13 3.1 Data ................................................................................................................................ 13 3.2 Empirical strategy .......................................................................................................... 14 3.2.1 Assessing the Multi-Dimensional index of wellbeing .................................................. 14 3.2.2 Non-income Pro-poorness measure .............................................................................. 15 3.2.3 Difference-in-Difference strategy ................................................................................. 16 4 Application and results .......................................................................................................... 19 4.1 Multiple Correspondence Analysis and non-monetary dimensions of well-being ............. 19 4.1.1 Selection of the primary indicators to assess the MDW scores .............................. 19 4.1.2 Description of selected dimension between 2003 and 2011 ................................... 20 4.1.3 Seconde Multiple Correspondence Analysis………………………….…………..21 4.1.4 Multi6dimensional index of inequality..…………………………………………..22 4.2 Pro-poor growth analysis………………………………………………………………….23 4.3 Impact of oil revenue on wellbeing .......................................... Erreur ! Signet non défini.5 5 Conclusion ............................................................................................................................. 26 6 References ............................................................................................................................. 27 6 1. Introduction 1.1 Context of the study Since independence in 1960, chronic unstable security situation in Chad has hindered growth and poverty reduction. The country has been experiencing the oil exploitation in 2003. Since, agriculture and primary services which covered 36.7% and 49.6% of GDP before oil producing have not been sufficiently considered