Chad - Foreign investment



Under the investment code issued in 1987, the government officially encouraged foreign private investment on two conditions: that the enterprise benefit the local population and that local materials be processed as far as possible. The code offers full foreign ownership to companies in Chad, except in national security or strategic industries. Benefits include preferential export duties and taxes, restrictions on the import of similar competitive products, preference in financial assistance from the Development Bank of Chad, and possible exemption from the sales tax and other fees and taxes for 15 years. The present government took over by coup after years of civil war in 1990 (and subsequently has won two elections in which international observers have charged fraud and intimidation) and political turmoil, compounded by Chad's environmental difficulties, has delayed significant foreign investments.

By far the most ambitious and innovative foreign investment project underway is the $3.7 billion Chad-Cameroon Petroleum Development and Pipeline Project, which entails drilling about 300 oil wells in Chad's Doha fields ($1.7 billion) and constructing a $2.2 billion, 1,070-km (670-mile) pipeline to carry the oil across Cameroon and out into the Atlantic to a floating storage and loading facility for shipment to Europe and the United States.

The Chad-Cameroon pipeline is the largest energy infrastructure project in Africa and has taken decades to bring about. Though the first discovery well in the Doha field was drilled in 1974, it was not until 1994 that Houston-based Exxon (now ExxonMobile) determined that at least one billion barrels of oil could be extracted, making investment profitable. Four years later a complex agreement had been reached between the oil companies (consisting of ExxonMobile (operator with 40% of private equity), ChevronTexaco (25% of private equity), and Petronas of Malaysia (35% of private equity), with Elf and Shell dropping out in 1999), the World Bank and other international financial institutions, and the Chad government.

The World Bank's contribution amounts to only 2.7% (including loans to Chad and Cameroon to finance their government's share in the project), but the sign of its support was essential for the participation of the other investors. The pipeline project has World Bank backing on condition that there not be environmental damage and that the revenue be put into social welfare and development projects.

The government of Chad agreed to give up some of sovereign control by having project management and expenditure overseen by an independent nine-member oversight committee, with four members from outside institutions and five representing Chad's religious, political and community institutions. Revenues will go first to an escrow account in London, then to two commercial banks in Chad where the oversight committee is to see that 80% goes to priority areas (education, health, housing, and rural infrastructure) and 10% to a savings fund for the future, with the rest distributed according to a formula devised by the committee.

For their part, the oil companies have been obliged to make over 60 changes in the proposed pipeline route to accommodate social and environmental concerns and to offer a "Sears catalogue" of items (bicycles, sewing machines, plows, community wells) as compensation to villagers along the route. The Clinton administration put an Export-Import Bank loan guarantee of $158.1 million behind the pipeline and the Bush administration approved OPIC insurance up to $250 million for Houston-based Pride International, which is drilling oil wells for the project. The pipeline was due to begin operations in late 2004. Chad is expected to derive about $100 million a year in revenue from the sale of the oil from the three fields being developed, with a total of $2.5 billion over the estimated 28-year life of the project. Even before revenues began to flow, however, President Idriss Déby, in early 2003, dismissed the head of the oversight committee because the official opposed with the president's plans to use the revenue on such items as prisons and automobiles.

Foreign direct investment (FDI) in Chad in 1995 was only $7 million, or 0.6% of GDP, but from 1997 to 2000, the range was $15 million to $16 million. In 2001, FDI rose to $80 million as construction on the Chad-Cameroon pipeline got underway, eclipsing previous levels of foreign investment. Historically, Chad has depended upon FDI for over 50% of the capital in Chadian enterprises, the majority from France. Other sources of foreign investment include the United Kingdom, South Korea (gold mining), the Netherlands (MSI cellular telephone services), Egypt (Orascom cellular telephone services), Sudan (oil production and refining north of Lake Chad), and Libya (hotels and real estate investments).

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