Chad's economy is primarily agricultural. Most of the population engages in subsistence farming and animal husbandry, producing food mainly for their own consumption. Chad depends on 3 commodities—cotton, cattle, and gum arabic (a gum from different African trees, used as an emulsifier in pills and candies)—for its export revenues. During the past 30 years, Chad's economy has been seriously damaged by chronic political instability. Its development has also been hindered by high energy and transport costs due in part to its geographic position. The beginning of a major oil project in southern Chad in 2000 offers an opportunity for Chad to diversify its economy and stimulate further growth.
The country's export commodities are subject to fluctuations in production and price levels. Cotton and cattle have been Chad's main exports before independence in 1960, but during the 1990s gum arabic emerged as a third major export commodity, making Chad the world's second biggest exporter after Sudan. Chad's economy has been vulnerable to swings in cotton prices, and when these fell during the 1980s, the economy suffered. Prices recovered during the 1990s, but production levels continue to vary according to the annual rainfall.
Armed conflicts and continuing tensions between ethnic, religious, and regional groups have severely damaged the economy. After independence in 1960, Chad was governed by the authoritarian leader, Francois Tombalbaye, until he was assassinated in 1975. Tombalbaye's death was followed by a decade of turbulence as several armed groups from different regions vied for control. The situation reached a climax in 1979 when a truce broke down between 2 principal armies stationed in N'Djamena, leading to further conflict and increased tensions between Muslim and Christian southerners. By the early 1980s, Hissein Habre, a ruthless northern dictator, managed to consolidate his power. He ruled until 1990, when he was ousted by Idriss Deby, a former deputy. These years of violence and political instability have damaged Chad's infrastructure and seriously impeded its economic development.
Economic progress has also been hindered by several other constraints. Chad is seriously handicapped by its landlocked position; exports and imports must pass through Cameroon where widespread corruption inflates transport costs. Energy prices in Chad are among the highest in the world, and variable rainfall causes frequent deficits in food production. Heavy taxes, corruption, and the lack of an independent judiciary have discouraged foreign investment. These issues continue to limit commercial opportunities in Chad.
Like other poor countries with limited resources, Chad must import many goods and is dependent on foreign aid. Although the country's overall burden of debt is low by the standards of developing nations, the government relies on foreign donors to finance most investment projects. The European Union (EU), notably France, provides the largest share of foreign aid aimed toward health, education, and transport. Multilateral lending agencies, the United Nations (UN), the International Monetary Fund (IMF), and the World Bank also supply assistance to encourage improvements in government management and social services. Chad has a small industrial sector that produces paint, fruit juices, roofing, and a few other products mainly for domestic consumption, and depends on foreign suppliers for fuel and consumer goods .
As in many other developing countries, Chad's economy includes a thriving informal sector . Many entrepreneurs conduct commercial activity without official structure or permits and do not use organized accounting. Informal commerce ranges from individual vendors peddling their wares on the streets of N'Djamena to major business entrepreneurs transporting thousands of tons of gum arabic. Many businesses neglect to register their companies to avoid the high taxes imposed on formal businesses. The informal sector is hard to measure, but many observers estimate that most of Chad's economic activity is conducted by informal businesses.
During the late 1990s, Chad collaborated with the World Bank and the IMF to implement structural adjustment programs aimed at liberalizing the economy and improving government management. These programs have had some success. By 2000, most of Chad's state enterprises had been privatized and opened up to competition. In the rural water supply sector the former state-owned monopoly was converted into a private company and the water supply business opened to other competitors. The government has also managed to limit spending and meet some of its budgetary targets.
Chad's economy will receive a huge boost from the Chad-Cameroon Development project. A consortium (businesses working together) led by Exxon will invest US$3.7 billion in building production facilities, a pipeline, and associated infrastructure to export over 1 billion barrels of crude oil reserves in southern Chad. The World Bank has played a role in providing financing for the governments of Chad and Cameroon to invest in this project. In return for this financing, the World Bank has obtained agreements from the 2 governments that they will closely monitor environmental conditions and revenue management, issues of serious concern in the region. When oil starts flowing in 2004, the project is expected to double Chad's government revenue. More importantly, this project may stimulate investment in food processing and other promising sectors as local businesses satisfy demands created by the project.