Previous Quarterly Editions
Expropriation Risk: 64 65 66 65 ▼ Political Violence Risk: 67 67 68 68 ► Terrorism Risk: 55 55 55 57 ▲ Exchange Transfer and Trade Sanction Risk: 73 64 64 64 ► Sovereign Default Risk: 83 83 83 75 ▼
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Chad contributes about 0.21% of global greenhouse gas (GHG) emissions, according to the 2018 World Resources Institute Climate Analysis Indicators Tool. In October 2021, Chad was among several African countries to have submitted the updated version of its Nationally Determined Contribution (NDC) first published in 2015. The current NDC aims to reduce GHG emissions by 19.3% by 2030 with the reduction target categorised as 0.5% unconditional and 18.8% conditional target.
The current NDC saw a dramatic drop in the country’s previous high target of 71% by 2030 with the unconditional reduction target set at 18.2%. The dramatic reduction can be interpreted as either the current military government being realistic about its capacity and resources to meet its target, or that cutting GHG emissions is not a key priority for the current administration. The investment needed to implement the NDC mitigation actions is estimated at USD6.7 billion, with 75% of this amount to be provided by international partners.
Chad is one of world’s poorest countries and is particularly susceptible to the impact of climate change. The country has the tenth-largest oil reserves in Africa and relies largely on the oil sector for revenue. The majority of Chad’s existing energy capacity comes from diesel, natural gas and heavy fuel oil generation. Benefitting from the Power Africa initiative, a U.S. government-led partnership, Chad is investing gradually in renewable energy with the construction of the 42-megawatt Djermaya Solar project, one of the largest in the Sahel region.
The solar project, which is due to come online in 2023, will contribute to reducing GHG emissions by partially replacing heavy fuel thermal generation in the country. The success of Djermaya solar project is likely to spur on the government to embark on similar projects to boost electricity supply in the country incrementally, while reducing heavy reliance on fossil fuel.
The current military government’s ‘commitment on climate’ is modest, as the transitional administration is likely to give priority to the exploration and exploitation of crude oil to generate revenue. Mitigating the impact of climate change will be largely left in the hands of international humanitarian organisations and development partners who will likely provide the funds and expertise.
Expropriation risks are elevated in Chad under the new military administration. However, confiscation of private and business assets is likely to be politically motivated, targeting those opposed to the government. In principle, businesses are protected from nationalisation and expropriation by law. Given the suspension of the constitution and the military ruling by decree, the junta has the power to nationalise and expropriate at will. Nonetheless, the junta is unlikely to target international companies, as the military seeks international recognition and legitimacy.
Since the publication of a report on the ease of doing business in Chad in 2018 by the Chamber of Commerce, Industry, Agriculture, Mines and Handicrafts, the country’s operating environment has not significantly improved. The 2018 report identified a litany of obstacles to private sector development, which includes the common practice of awarding public contracts without competitive bidding, lack of equality before the courts, breach of contracts, a lax approach to combatting corruption, insufficient skills, and severe delay or non-settlement of domestic debt.
The heavy bureaucracy around public procurement often leads to severe delays to implementation of projects and payments to contractors. One example of bureaucratic hindrance is a provision in the national public procurement code that requires the office of president to give its approval for any expenditure exceeding about USD16,000.
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April 2022 sees Chad’s interim President Mahamat Déby mark his first anniversary in office since he took power following the sudden death of his father Idriss Déby at the hands of rebels. The 18-month transition period, which is more than halfway through, is almost certain to be extended to allow the military government to complete the ongoing national dialogue and reconciliation with the rebel groups and opposition leaders.
Déby made a direct appeal to the rebels for “a frank and sincere dialogue” to reach a negotiated settlement. Key rebel groups welcomed this appeal. However, FACT, which killed his father in April, put forward some conditions for their participation. These include general amnesty for all rebel groups and opponents in exile and the release of their supporters.
In November 2021, Mahamat responded to one of the group’s key demands by offering a general amnesty to all rebel groups including FACT, to encourage their participation in a national dialogue in the capital N'Djamena . Déby’s commitment to a national dialogue has reduced the threat of a rebel incursion in the country. Nevertheless, sporadic anti-junta protests are likely to continue as pro-democracy civil groups maintain their demand for a return to democratic rule.
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Chad’s security and humanitarian situations are under pressure as the military battles the escalating jihadist violence in the Sahel and the Lake Chad Basin region. Chad has had many attacks from the Nigeria-based jihadist groups Boko Haram and its offshoot Islamic State of West Africa Province (ISWAP).
Moreover, the security situation in Lake Chad is showing no sign of abating, despite the death of two prominent jihadist leaders, Abubakar Shekau of Boko Haram in May 2021 and Abu Musab Al-Barnawi and Malam Bako of ISWAP in September and October 2021 respectively, as well as the defection of hundreds of jihadist fighters to the Nigerian army. The violence is worsening amid the internecine fighting between Boko Haram and ISWAP over territorial control in the Lake Chad region.
In addition to jihadist attacks, the country faces communal and interethnic tensions, with recurring clashes taking place. These tensions are largely common in Chad’s central, southern and northern regions. Intercommunal violence is increasingly over water and land resources. The devastating effects of climate change are likely to exacerbate intercommunal disputes as water resources and arable lands deplete.
The risk of trade sanctions on Chad is low as the military government has the full backing of France, the country’s former colonial power. Also, as a member of the Central African Economic and Monetary Community (CEMAC), Chad’s foreign reserves are regulated by the bloc’s Bank of Central African States (the French acronym is BEAC). Consequently, exchange transfer risk largely emanates from the monetary policy of BEAC. The new CEMAC foreign exchange regulation took effect for extractive companies on January 1 2022, after the initial compliance deadline was twice extended until December 3, 2021 due to COVID-19’s disruptive effects. After lengthy negotiations, the Central Bank has made significant concessions to the extractive sector by allowing operators to maintain foreign currency accounts both in and outside the CEMAC region without seeking authorisation from BEAC.
Another concession for extractive companies is the permission to transfer the salaries of expatriate workers from onshore foreign currency accounts to territories abroad, while payment can be made in foreign currency to subcontractors operating in the CEMAC zone. These concessions significantly reduce the risk of capital control and exchange transfer for the extractive industry, a major revenue earner for CEMAC countries.
Chad is facing intense pressure from the International Monetary Fund (IMF) to finalise a debt restructuring plan with public and private creditors by the end of March 2022 to restore the country’s debt sustainability and promote economic growth. Notwithstanding the pending restructuring plan, in December 2021, Chad signed a new USD573 million three-year loan from IMF to support the country’s economic recovery. The country’s real gross domestic product in 2020 and 2021 is estimated to have contracted by 0.6% and 1.1% respectively, due to the COVID-19 outbreak and a reduction in oil production, according to IMF.
In January 2022, Chad became the first country to officially request debt restructuring under the debt reduction programme, established by the G20 group of major economies known as the Common Framework. Chad was one of the countries to have benefited from the G20’s Debt Service Suspension Initiative, which froze debt repayments until December 2021. The country’s external debt rose to USD3.6 billion in 2020, which is over one third of its gross national income, according to World Bank data.
A United Nations agency is currently implementing a project to help Chad upgrade its debt management system and improve its capacity to record, monitor and report on public finances. The increase in the global crude oil price, partly relating to the crisis between Russia and Ukraine as of February 2022, will bode well for public revenue, lowering the risk of a sovereign default.
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