Previous Quarterly Editions
Expropriation Risk: 63 63 64 66 ▲ Political Violence Risk: 66 66 67 68 ▲ Terrorism Risk: 55 55 55 55 ► Exchange Transfer and Trade Sanction Risk: 73 73 73 64 ▼ Sovereign Default Risk: 83 83 83 83 ►
TREND ▼
Chad’s interim President Mahamat Déby has managed to assert his authority in the short space of time following his takeover from his father, who died of his wounds on April 20 in fighting between Chadian forces and rebels of the Front for Alternation and Concord in Chad (FACT) in the Kanem region.
With the endorsement of the African Union and the backing of France, the 37-year-old has been able to resist calls from some opposition and civil leaders to step down and hand over power to a civilian-led government. His official visit to Paris on July 5 for a meeting with French President Emmanuel Macron ended any doubt whether the international community would endorse his regime to lead the country back to democratic rule.
However, there are concerns that the military junta, the Transitional Military Council (CMT), will try to prolong their stay beyond the 18-month transition period. Mahamat reinforced this suspicion when he said in an interview in June that an extension could not be ruled out if Chadians are not reconciled or the country does not raise the funds to finance a national political dialogue and the elections.
Chad’s economy is expected to rebound this year following the resumption of oil production, improved crude prices in the global market and the relaxing of many COVID-19 restrictions. The country has experienced a tough financial period, with the economy contracting in 2020 due to the suspension of oil production and border closures to contain the transmission of COVID-19.
Finance Minister Tahir Hamid Nguilin announced on January 27 a new USD572mn Extended Credit Facility (ECF) economic reform programme from the International Monetary Fund (IMF), which is subject to board approval and the further restructuring of Chad’s debt. The programme has not gained much traction since the military takeover in April. Nonetheless, the military junta renewed in May its commitment to the policies underpinning the January 27 staff-level agreement, according to IMF. This is likely to move forward, albeit cautiously, the implementation of the ECF programme.
TREND ▲
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.
Before the junta, Chad’s Chamber of Commerce, Industry, Agriculture, Mines and Handicrafts published in October 2018 a report on the ease of doing business in the country. The report identified a litany of obstacles to private sector development. The obstacles include 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 delay 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.
Chadian politics remained stagnant under the late Déby. His son’s succession means a continuation of the same political and patronage system. Since taking over power, Mahamat has resisted calls from some opposition and civil leaders to step down and hand over power to a civilian-led government. He has succeeded in asserting his authority as well as placating key opposition figures. In May, Mahamat lifted the night-time curfew and unveiled a cabinet of 40 ministers and deputy ministers led by an experienced figure, Albert Pahimi Padacké, his father’s last Prime Minister (2016-18) and the runner-up of the April 2021 presidential poll.
Mahamat has made a direct appeal to the rebels for “a frank and sincere dialogue” to reach a negotiated settlement. Key rebel groups have welcomed this appeal. However, FACT, which killed his father in April, has 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. So far, attempts at mediation have proved futile. There remains the threat of a rebel incursion and recurring street anti-junta protests in N’Djamena.
TREND ►
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). In August, Boko Haram staged an attack killing 26 Chadian soldiers on the Lake Chad island of Tchoukou Telia. The security situation appears bad in Lac (Lake) Region, in the Lake Chad Basin, where Boko Haram and ISWAP operate.
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. In August, communal clashes in Zohana, Hadjer-Lamis region, left over 22 people dead and several injured. The security situation remains precarious with ongoing intercommunal conflicts, intermittent attacks by jihadists in the Lake Chad region and the presence of rebel groups that could stage surprise incursion at any time.
Chad is a member of the Central African Economic and Monetary Community (CEMAC). The foreign reserves at the bloc’s Bank of Central African States (the French acronym is BEAC) have improved from as low as about USD4.5bn in April 2017, which was less than two months of import cover, to 7.5 of imports cover at the end of 2020, following the introduction of a new foreign currency exchange regulation (beginning on March 1, 2019).
The new CEMAC foreign exchange regulation requires companies to seek authorisation from BEAC before opening offshore current accounts. Additionally, every two years they must renew their permission to maintain foreign currency accounts in the CEMAC region. The new regulation has increased from 30 days to within 150 days the window for repatriating export proceeds that fall above 5 million Central African francs (USD9,203) into a certified commercial bank.
However, resident companies operating in mining and hydrocarbons are exempted from the new regulation -- an initial compliance deadline of December 31, 2020 has been extended to December 31, 2021, given COVID-19’s disruptive effects. The regulation will affect commercial transactions and raises various risks including around onshore bank credit, exchange rates, and currency convertibility and transferability.
The Central African Banking Commission (COBAC) allowed banks to use their capital conservation buffers of 2.5% to absorb COVID-19-related losses, but in July 2020 prevented banks from paying dividends in 2020 and 2021.
Chad’s public debt of 42% of gross domestic product falls well below the 70% ceiling that CEMAC stipulates. The public debt is expected to fall to 37% in 2021, due to the ongoing austerity measures, public finances reform and restructuring of outstanding debt.
IMF plans to offer around USD572mn in new loans will inject much-needed money into public coffers. The junta’s renewal of the government’s commitment to the policies around the January 27 staff-level agreement bodes well for the implementation of the Extended Credit Facility programme. Chad’s government has made a payment of 110bn Central African francs (USD202mn) out of the estimated 1,000bn owed to private companies. Payment delay to suppliers is likely to remain a recurring issue.
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