Chad2005 INVESTMENT CLIMATE STATEMENT -- CHAD
Openness To Foreign Investment
The government of Chad actively seeks foreign direct
investment and welcomes U.S. companies interested in
investment. Chad has no limits on foreign ownership and no
discriminatory rules to deter foreign investors. As a member
of CEMAC (the Central African Economic and Monetary Community)
and a signatory to OHADA (the Organization for the
Harmonization of African Business Law), Chad participates in
regional efforts to standardize tax policies and commercial
law. The government restricts private investment in the
cotton, electricity, and telecommunications sectors in order
to protect parastatal enterprises. These sectors, however, are
moving towards liberalization, although privatization efforts
have been uneven. Other parastatals, including those in the
insurance and banking sectors, are already privatized. The
level of U.S. investment in Chad is rising following the onset
of a USD 3.7 billion oil export project led by U.S.-based
ExxonMobil.
The main, and significant, obstacles to investment are not
legal impediments but the characteristics of Chad's commercial
climate and Chad's limited market potential. Specific
constraints include: limited infrastructure, chronic energy
shortages, high energy costs, a scarcity of skilled labor, a
high tax burden, corruption, and political uncertainty. The
government of Chad has made gradual progress in reducing some
of these impediments. U.S. investors have also in the past
been discouraged by the predominance of French commercial
interests, but Chad's business community is increasingly
trying to diversify commercial contacts to include U.S.
partners.
A long-debated Investment Charter would bring Chad's
Investment Code into closer compliance with international
(WTO) and regional (CEMAC) standards. As of January 2005, a
technical working committee had completed its review of the
draft Charter, and the Minister of Commerce had submitted the
document to the Chadian High Council of Ministers. Once
approved by the High Council, National Assembly approval is
required for final ratification. Given the long delays since
the Charter was initially drafted in 2003, it is uncertain
that the Charter will be ratified in 2005. If ratified, the
Charter would provide a clear legal framework for investors
and could promote a favorable investment climate with no
discriminatory provisions.
Export taxes have been largely eliminated, a value-added
tax (VAT) has been adopted throughout the CEMAC region, and
goods are supposed to circulate duty-free between all CEMAC
members. In practice, however, illegal taxes continue to
impede the free flow of goods. While the new Investment
Charter is expected to restore some incentives to meet
regional standards, other clauses of Chad's Investment Code
were suspended during Chad's 1995-1999 IMF Structural
Adjustment Program because they conflicted with fiscal
management objectives, for example by allowing too many tax
exemptions.
There are no explicit screening mechanisms to discriminate
against foreign investors, but companies seeking to invest and
operate in Chad must satisfy several bureaucratic
requirements, including a review and approval by the Ministry
of Commerce. While these procedures can be slow, approvals are
routinely granted without discrimination against foreign
firms. The Investment Charter would establish a 15-day time
limit for the processing of applications.
Foreign firms are welcome to participate in international
tenders for the privatization of parastatal enterprises. Any
tenders are generally announced in local and international
newspapers, and are shared informally through word of mouth in
the government and business communities. The overall
privatization process, which includes several industries, is
being implemented in close collaboration with the IMF and the
World Bank, which monitor the processes to ensure
transparency. Nevertheless, potential still exists for
manipulation of the bidding process.
Conversion And Transfer Policies
There are no restrictions on transferring funds into Chad,
but the Ministry of Finance must approve any transfers out of
Chad exceeding 500,000 CFA (approximately USD 1,000). These
approvals are generally routine, but the Ministry occasionally
restricts capital flows for temporary periods. Businesses can
obtain advance approvals for regular money transfers. Chad is
a member of the Central African CFA (Communaute Financiere
Africaine) zone, and CEMAC guarantees the convertibility of
CFA Francs into Euros at a fixed rate. Since January 2002, the
exchange rate has been 655.99 CFA per Euro.
The exchange rate for the U.S. dollar dropped from an
average of 579 FCFA per dollar in 2003 to 527 in 2004. This
change in the exchange rate is due to the performance of the
dollar against the Euro, to which the FCFA rate is fixed.
Expropriation And Compensation
There has been no known government expropriation of
foreign-owned private property in recent years. During the
period of civil unrest (1966-1975) some land was expropriated
under the Public Use Clause (Clause d'Utilisation Publique),
but there are no indications that such actions will be taken
again. The Investment Code states that property can be
confiscated after five years if it is not used or developed,
but this clause is rarely if ever applied. In rural areas,
powerful individuals sometimes force locals to sell their land
and, in rare cases, take the land illegally.
Dispute Settlement
In theory, Chad has a legal framework and court system
capable of handling investment disputes, but this system
inspires little confidence and it is rarely used. There is a
widespread perception that the courts should be avoided at all
costs, so most disputes are settled privately. U.S. companies
have experienced several high profile disputes with the
government, with most resolutions settled out of court.
Disputes overseen by the judicial system have taken longer,
and foreign investors have reported frustration with the lack
of consistency within the system. Any monetary judgments by
the courts are usually awarded in local currency, but they can
be awarded in dollars when the dispute concerns a transaction
initially made in dollars.
Chad's legal system is based on a mixture of the French
civil law system and Chadian traditional law. As an OHADA
signatory, Chad is subject to several uniform acts covering
securities, establishment of commercial companies, general
commercial law, recovery procedures, arbitration procedures
and bankruptcy procedures. The OHADA acts are generally
consistent with French commercial law, although there are some
differences. These acts have improved the clarity and
consistency of commercial law in the 16 signatory countries.
Chad has officially established commercial courts to both
share information on Chadian law and oversee the resolution of
business disputes, but these courts have not yet begun
operations. CEMAC established a regional court based in
N'Djamena with authority to hear commercial disputes. This
court began functioning in 2001 and is not widely used. OHADA
also established a regional court in Abidjan, Ivory Coast,
designed to interpret the OHADA Acts and serve as a regional
appeals court.
The Executive Branch frequently and easily influences
Chad's judiciary. Magistrates are appointed by presidential
decree with no legislative oversight. Despite some clauses of
the Constitution guaranteeing the independence of the
judiciary, some observers believe it is more accurate to say
that the judiciary has a certain authority but not independent
judicial power.
Contracts and investment agreements can stipulate
arbitration procedures and jurisdictions for the settlement of
disputes. If both parties are in agreement and the provisions
are not contrary to public order, Chadian courts will respect
the jurisdiction of U.S. or foreign courts. In the absence of
such specification, the accepted principle is that
jurisdiction belongs in the country where the agreement was
drafted. The same principles apply to disputes between
companies and the Chadian government. The government will
accept international arbitration if it is stipulated in
advance.
Judicial cooperation exists between Chad and certain
nations. On December 7, 1970, Chad signed the Tananarive
Convention with eleven other former French colonies: Benin,
Burkina Faso, Cameroon, Central African Republic,
Congo/Brazzaville, Gabon, Ivory Coast, Madagascar, Mauritania,
Niger, and Senegal. This agreement covers areas such as the
discharge of judicial decisions as well as the forwarding and
the serving of legal documents. Chad has since reached similar
agreements with France, Nigeria, and Sudan, all based on the
principles of the Tananarive Convention. Chad treats legal
commercial matters with other countries on a case-by-case
basis. Chad is a member of the International Center for the
Settlement of Investment Disputes (ICSID), also known as the
Washington Convention.
The OHADA Acts establish clear procedures for bankruptcies
and spell out rights for approved creditors in various
categories (i.e., the treasury, wage earners, etc.).
Performance Requirements And Incentives
Investment incentives can be negotiated, but regional
(CEMAC) agreements limit the government's flexibility.
Nevertheless, the government may offer temporary tax
exemptions and other incentives for some projects, such as low
license fees and rent. Incentives tend to increase with the
size of the investment and the likely job creation. Benefits
such as tax holidays can last up to ten years. Special tax
regimes have been established, for example, for the oil export
project and occasionally for public procurement contracts. The
draft Investment Charter defines and codifies these kinds of
incentives. Until its ratification, investors should address
inquiries regarding incentives for specific projects to the
Ministry of Commerce.
Performance requirements are generally not imposed on
foreign investors. The law requires foreign firms to employ
local workers for 98 percent of their staff, although in
practice this law is not applied due to the scarcity of
skilled labor. Firms can formally apply for permission from
the Labor Promotion Office (ONAPE) to employ a greater
percentage of non-Chadians, but must demonstrate that skilled
local workers are not available. Fees for renewals of these
permits can sometimes be higher than the initial work permit
fees. Foreign firms are permitted to participate in research
and development programs, but the Chadian government largely
lacks funds for such programs. As a result, foreign donors
fund most research programs.
20. There are no discriminatory requirements for visas,
residence permits, or work permits which would inhibit foreign
investors. As a member of CEMAC, Chad is trying to streamline
and simplify its customs system in accordance with regional
customs standards.
Right To Private Ownership And Establishment
Chadian law guarantees the rights of foreign and domestic
entities to establish and operate business enterprises and to
engage in all remunerative activities. The government
restricts foreign investment in sectors run by government
parastatal enterprises, including in the energy,
telecommunications, and cotton sectors. Plans to privatize
these enterprises continue, although slowly, but foreign
participation in any privatization tenders is likely to be
encouraged. Once the privatization processes are completed,
each sector should be open to all competitors, foreign and
domestic.
Protection Of Property Rights
The Chadian Civil Code protects property rights, including
intellectual property rights. The 1998 OHADA Acts also
established a clearer legal framework for property rights
consistent with French commercial law. For example, mortgages
were previously enforced without a clear legal framework;
OHADA laws now fill this role. The office of "Direction de
Domaine et Enregistrement" in the Ministry of Finance records
property deeds and mortgages. In practice, this office only
covers urban areas, while traditional leaders manage rural
property titles. The Courts frequently encounter cases of
multiple deeds to the same property, indicating that serious
problems exist with the title registration system. In such
cases, the earliest title has precedence. Fraud is common in
the area of property transactions, so investors should
exercise caution before commencing such transactions.
Chad is a party to the 1958 Paris Convention and the 1977
Bangui Agreement, which group together 12 other Francophone
African nations in the African Intellectual Property Rights
Organization (OAPI). Chad adheres to OAPI rules within the
abilities of its limited administrative capacity. The Ministry
of Trade and Industry has established an office to register
copyrights and a branch office of OAPI to process patent
applications, which are valid in all OAPI states. In 2000,
Chad ratified a law governing intellectual property rights to
bring Chad into compliance with the WTO TRIPS agreement. This
law specifies protections for software, literary works, sound
recordings, and industrial patents.
Although prohibited, counterfeit watches, sports clothing,
footwear, jeans, audio materials, cosmetics, perfumes, and
other goods are readily available on the Chadian market. These
products are not produced locally but are imported, often
informally, from Asia and neighboring countries. Chad has a
limited capacity to protect intellectual property rights.
Transparency Of The Regulatory System
The current investment code does not impose any
discriminatory provisions that discourage foreign investment.
The business registration process is usually routine, but red
tape can be a problem. There are approximately 15 steps
required to open a business in Chad, involving visits to
several agencies and ministries. While government policies
themselves do not hinder approval, bureaucratic procedures are
often cumbersome or slow. Clear rules exist on paper but they
are not always followed. A heavy tax burden on formal sector
businesses discourages investment and puts informal sector
competitors at an advantage. Restrictive labor laws also
discourage investment.
The Chadian government is working with the World Bank and
other multilateral institutions to foster a more transparent
and competitive system. Efforts are underway to simplify tax
laws and streamline government procedures. The World Bank is
also helping computerize and generally modernize Chad's
customs service. This includes the establishment of an up-to-
date statistics database.
Efficiency Of Capital Markets And Portfolio Investment
Chad's financial system is generally sound and unhindered
by restrictive regulation, but it is quite limited in size and
in the variety of services available. There is no capital or
money market in Chad, and no sophisticated financial products
are available. A limited number of financial instruments are
available to the private sector including letters of credit,
short- and medium-term loans, foreign exchange operations and
some long-term savings instruments. Total 2003 assets in
Chad's banking system were estimated at 46.1 billion CFA
(approximately 79 million USD). The percentage of non-
performing assets is unknown. The International Finance
Corporation is prepared to infuse additional funds through
existing banks if demand develops. The International Monetary
Fund and the government were unable to reach an agreement for
2004 budget support due to the government's failure to meet
key financial reform indicators. A new program is expected as
of January 2005.
The banking sector has improved in recent years after
Chad's banks underwent internal reforms in 1990 to improve
lending practices and reduce the volume of bad debt. The
sector was further aided by the privatization of the three
largest banks: BIAT, SGTB (formerly BTCD) and CBT (formerly
BDT). Credit is available from commercial banks on market
terms, which are expensive (usually 16 to 25 percent for
short-term loans). Medium-term loans are difficult to obtain,
as lending criteria are rigid. Many large businesses maintain
accounts with foreign banks. Oil revenues could have a large
impact on the banking system in the coming years.
Regulations and financial policies generally do not impede
competition in the financial sector. Legal, regulatory and
accounting systems appear transparent and consistent with
international norms. Several internationally renowned
accounting firms have established themselves in Chad. Chad
began using the new OHADA accounting system in early 2002,
bringing its standards into harmony with accounting systems
throughout the region. The banking sector is regulated by
COBAC (Commission Bancaire de l'Afrique Centrale), a regional
banking agency. There is no effective regulatory system
established to encourage and facilitate portfolio investments.
In some industries, there appear to be "cross-
shareholding" and "stable shareholder" arrangements used by
private French firms and agencies to restrict foreign
investment and acquisition. Through privileged positions and
dealing from behind the scenes, these entities can erect
protection schemes to restrict competition in key industries.
These practices are facilitated by the fact that there is no
stock market for trading shares. The best known cases involve
French participation in the energy and cotton parastatals. The
French Development Agency (AFD) has maintained interests in
recently privatized enterprises through its investment
partner, PROPARCO. Examples include the Societe Generale
Tchadienne de Banque (SGTB, formerly BTCD) and STEE (energy
parastatal), in which AFD currently holds an 18 percent stake.
Political Violence
In recent years, Chad has experienced very few incidents
of political violence affecting commercial activities. Student
demonstrations and strikes occur periodically, but are usually
directed against the government and have little effect on
commercial affairs. Political violence occasionally affects
agricultural production, and particularly the cotton sector,
as rebels and government troops have prevented farmers from
working their fields in some regions.
More than 200,000 Sudanese refugees have moved into
eastern Chad as the result of the ongoing crisis in Darfur.
Their presence has put significant pressure on the area's
fragile environment. Competition for scarce resources, such as
grazing land and firewood, is creating tensions between the
refugees and local host populations. Prices for local goods
have increased due to the influx of humanitarian workers.
Cross-border attacks, bandit activity, and Chadian rebel
activity along the eastern border is adding to the
Government's concerns about insecurity. In addition, efforts
to amend the Constitution to remove presidential term limits
are causing some political uncertainty. The resulting
stresses on Chad's resources and political stability have not
yet negatively affected commercial activities and growth, but
the potential exists for problems in the future. Chad enjoys
good relations with its other neighbors, and has recently
launched an effort to expand commercial relations with Libya.
Corruption
Corruption is a persistent and widespread problem in Chad,
but difficult to detect or verify. As in other developing
countries, the low and frequently unpaid salaries of most
civil servants and judicial employees, as well as a tolerance
for bribery, contribute to corruption. Some U.S. firms cite
corruption as a deterrent to foreign investment, although it
is probably less important than other constraints.
Corruption exists in all levels of government. It is most
pervasive in the customs and tax enforcement services, the
judiciary, and the government procurement office. Judicial
authorities are widely assumed to be subject to influence and
legal clerks often obstruct procedures to elicit bribes.
Multilateral organizations and other donors often finance
government procurement and stipulate conditions to ensure
transparency, but there remains potential for manipulating the
process. In some cases, tax and customs authorities may
faciltate tax evasion only to return later to pursue the
infractions they facilitated.
Chad is nota signatory of the OECD anti-bribery
convention,but a Febuary 2000 anti-corruption law stipulates
penalties for corruption. The perception remains however,
that most corruption goes unpunished evn when exposed.
Bribery,for example, is included in the law as a crime, but
there is no known case of anyone having been prosecuted since
the law's passage. In addition, bribery is far more accepted
than embezzlement, and is more difficult to detect and
prosecute.
Bilateral Investment Agreements
The U.S. has neither an investment treaty nor a tax code
treaty with Chad. Chad has signed bilateral investment
treaties with approximately a dozen other countries, most of
them in Africa. The government does not share the list of
countries or details of the treaties, but the Ministry of
Commerce indicates that the treaties establish general
mechanisms for governments to facilitate dispute resolution.
Due to the absence of a treaty on double taxation, some
U.S. firms complain about the excessive tax burden they face
on some projects, particularly short-term consulting contracts
that do not justify the establishment of a local office.
OPIC And Other Investment Insurance Programs
Chad's Insurance Code stipulates that any political risk
insurance can only be issued in conjunction with a local
provider. As a result, an investor seeking foreign insurance
must work with a local provider willing to provide a 100
percent fronting service on any foreign investment insurance.
OPIC has previously provided political risk insurance, and the
U.S. Export-Import Bank guaranteed over 300 million USD in
U.S. exports for activities by the oil companies and
contractors.
Chad is part of the Multilateral Investment Guarantee
Agency (MIGA). The draft Investment Charter includes
provisions to establish an Investment Guarantee Fund. The
French investment guarantee agency, COFACE, has also
guaranteed a number of investments in Chad.
Labor
Chad has a shortage of skilled labor in most if not all
categories, but there is a growing pool of university
graduates able to fulfill many entry-level management and
administrative functions. Educated workers are increasingly
turning to the private sector in search of employment. These
skilled workers are nevertheless a very small percentage of
the total labor pool. About 80 percent of the labor force is
engaged in subsistence activities such as fishing, farming and
herding. Unskilled and day laborers are readily available. Low
wage levels reduce the incentive for investments in labor-
saving technology. Very few workers speak any English,
although a small but increasing number of university graduates
and business professionals have some English skills.
Acceptable translators and interpreters are available.
Chadian labor law derives from French law and tends to be
far more protective of worker rights than U.S. law. Labor
courts are sympathetic to workers, so it is important for
companies to follow rigorously the legal requirements for
hiring and especially for firing of workers. Labor unions
exist and they operate independently from the government. The
main labor federation is the "Union des Syndicats Tchadiens"
(UST), to which most individual unions belong. Most small
Chadian businesses operate in the informal economy where labor
laws are widely ignored.
Foreign Trade Zones / Free Trade Zones
There is a small duty-free zone at the N'Djamena airport,
but unused. No other duty-free areas exist.
Foreign Direct Investment Statistics
Oil export is dramatically increasing the level of foreign
direct investment in Chad, in particular the participation of
U.S. firms. French firms, however, still dominate most
sectors. Detailed foreign direct investment (FDI) statistics
by country of origin and sector of destination are not
available, but the Bank of Central African States (BEAC)
estimates that Chad's total private sector investment varied
from 73 billion to 103 billion CFA (from 100 to 135 million
USD) per year between 1996 and 1999. In 2001, the oil export
development project boosted private sector investment by over
100 percent, from 130 billion to 280 billion FCFA (from 170 to
365 million USD) per year. The Central Bank and IMF estimate
2004 inflows of private sector investment at 283 billion CFA,
or 12.5 percent of GDP. Of the 283 billion FCFA, 267 billion
was invested in the oil sector. The overall level of
investment represents an increase in terms of U.S. dollars
(537 million) due the declining value of the dollar since
2003.
French firms have historically been the biggest foreign
investors in Chad, with interests in cotton, sugar,
electricity, water, construction, transportation, and other
small industries. French investors include CFDT (Compagnie
Francaise de Developpement des Fibres Textiles), shareholder
of a minority stake in CotonTchad, and SOMDIAA (the
proprietors of the Chadian sugar company CST, formerly
SONASUT). The Bollore group has invested in Chad's two largest
transportation companies, SDV and STAT. CFAO owns the two main
automobile distributors, Tchami Toyota and SOCOA. Maestria
holds a minority stake in Tchadipeint, a paint manufacturer.
Bouygues and Cegelex partner with U.S.-based Halliburton to
provide construction services for the ExxonMobil-led oil
export project. Several other French companies have invested
in the construction and banking sectors.
Other sources of foreign investment include the United
Kingdom, South Korea, Holland, Egypt, Sudan, Libya, and
Taiwan. A Swiss company, Cliveden, is investing in oil
exploration with a Canadian partner, EnCana. A South Korean
company, AFKO, has invested in a gold mining venture in
southern Chad. A Dutch company, MSI, and a Swedish Company,
Millicom International Cellular (MIC), have invested in
cellular telephone services. Libyan companies have increased
their investments in Chad over the past several years,
particularly in hotels and real estate.
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