Economy

Chad's primarily agricultural economy is being boosted by major oilfield and pipeline developments that began in 2000. Over 80% of Chad's population continues to rely on subsistence farming and stock raising for its livelihood. Cotton (and in a lesser measure livestock) have until recently provided the bulk of Chad's export earnings, until the country began to export oil in 2003 from three oilfields near Doba. It has been estimated that income from oil increased Chad's per capita GDP by 40% in 2004, and may double it in 2005.

Chad's economy has long been handicapped by its landlocked position, poor internal communications, high energy costs, scarce water resources and a history of instability. Until now, Chad has relied on foreign assistance and foreign capital for most public and private sector investment projects but oil income will transform government finances.

A consortium, led by ExxonMobil, and with the participation of Chevron and Petronas, invested $3.7 billion to develop oil reserves estimated at 1 billion barrels (0.2 cubic km) in southern Chad, and Chad became an oil-producing country in 2003, with the completion of a pipeline (financed in part by the World Bank) linking its southern oilfields to terminals on the Atlantic coast via neighbouring Cameroon. Chad hopes to avoid the waste and corruption experienced in some other African oil-producing countries; as a condition of its assistance, the World Bank has insisted on a new law which requires that 80% of oil revenues will be spent on development projects. However, in January 2006 the World Bank suspended its loan program to Chad, in reaction to the Chadian decision to 'relax' laws governing the spending of oil money. This suspension of loans further exacerbated Chad's financial problems, which have seen multiple strikes by government workers, teachers and doctors, leading to drastically-shortened school years and a shortage of health care in recent years. In an attempt to address the problem, on July 14, 2006, representatives from the World Bank and the Government of Chad signed a memorandum of understanding under which the Government of Chad committed 70 percent of its budget spending to priority poverty reduction programs, and provided for long-term growth and opportunity by creating a stabilisation fund. The government pledged to enhance transparency and accountability with a new pledge of support for the role of the Collège, Chad's independent oil revenue oversight authority.

Provided stability is maintained, the outlook for Chad's economy is now better than it has ever been, although government corruption and continued lack of pay to government-employed fonctionnaires still pose significant obstacles to the country's development. It is known that further reserves of oil exist within the country, in addition to the oilfields that are already being exploited.

On August 26, 2006, Chad ordered Chevron and Petronas, which combined handle over 60% of Chad's oil, out of the country, claiming that they refused to pay their taxes, in the amount of 250 billion CFA Francs (US$450 million). A new Chadian national oil company was set to become a partner in the ExxonMobil-Chevron-Petronas consortium, with ExxonMobil's share at 40%, Petronas at 35%, Chevron at 25% and Chad at 12.5% (as well as taxes). Chad's 12.5% share of its multibillion oil industry compares poorly with the 80% oil proceeds seen by countries such as Nigeria. On August 28, Déby suspended Oil Minister Mahmat Hassan Nasser, Planning Minister Mahmat Ali Hassan and Livestock Minister Mockhtar Moussa for their involvement in negotiating the terms of the agreements with Chevron and Petronas. Earlier in August, Chad broke its ties with Taiwan and established relations with the People's Republic of China, a move considered related to bringing investments from Chinese oil companies to the country.

On September 12, Chevron has agreed to pay an additional tax in order to maintain its presence in Chad's oil industry. On that day, US Deputy Assistant Secretary of State for the Bureau of African Affairs Don Yamamoto met Prime Minister Pascal Yoadimnadji to discuss the oil dispute as well as the escalating Darfur conflict.