Energy in Africa


Adding oil to the flames
David Christianson
Published: 07-JUL-06

There is little of economic interest in Chad outside its oil reserves, first confirmed as recently as 1996. In fact, it seems to be almost a laboratory standard test case for the claims and counterclaims made about the developmental impact of oil wealth. But nothing about national development is predestined. Political choices matter and those currently facing the country�s political leaders are crucial.

Although the exploitation of oil has enabled Chad to put a little distance between itself and the world�s poorest 10 countries, in per capita income terms, any statistical �improvement� is misleading. In 2005 the UN�s Human Development Index (HDI) ranked Chad the 5th least livable country in the world (behind Niger, Sierra Leone, Burkina Faso and Mali). Political chaos � there are at least 8 rebel groups operating in the country at present � has added to the misery. Life expectancy for men is 46 years and the country is ranked 173 out of 177 on the UN�s HDI. Transparency International rates Chad the 2nd most corrupt country in the world behind Bangladesh.

Although Idriss D�by legitimised his presidency through the ballot box in 1996 and again in 2001 �� after initially seizing power through what was virtually the traditional Chadian regime change mechanism of military coup � the political system has continued to be based on patronage and repression. Chad, some analysts observe, has been �in a state of civil war for 30 years�.

There is a regional dimension to Chad�s poverty and instability. In the east, Chad borders on the Darfur region of Sudan where endemic conflict is currently the focus of intense international mediation. Darfur and eastern Chad are in many ways one entity. The international boundary is an arbitrary colonial demarcation and the same ethnic sub-groups live in both countries. The Zagawa clan � to which president D�by belongs � is said to have been one of the three main groups that took on the Sudanese government in the early part of the Darfur conflict.

President D�by has accused Khartoum of backing the rebels and, in December, declared a �state of belligerency� with Sudan. There is quite likely some truth in his claims. But from the Sudanese government�s perspective, support for rebel militias in Chad is simply a case of tit-for-tat. Since the 1990s D�by has, at best, turned a blind eye to the activities of Sudanese rebels based in Chad. So the Sudanese government�s support for anti-government rebels in Chad � especially the United Force for Change (FUC), recruited among ethnic sub-groups with a history of enmity to D�by�s Zagawa � could be regarded as justified retaliation. But the security meltdown in Chad goes a long way beyond �traditional� lines of enmity between groups. D�by has lost the support of many members of his own ruling clique. His nephews are among the rebels.

There are over 200000 refugees from Darfur in Chad. It is clear that a resolution to the Darfur conflict cannot be mediated in isolation from events in Chad. It is clear that international mediators are well aware of this. Richard Cornwell of the Pretoria-based Institute for Security Studies suggests that the international community is now keen to see D�by extend an olive branch to his domestic opponents as an important step towards a regional solution. An opportunity for leverage may have been provided by D�by�s sweeping victory in the early May elections which appear to have consolidated his position and provided his government with what Cornwell calls, �a sense of false legitimacy�.

The great danger of course is that D�by will use his stronger position to attempt a military solution. Announcements at the end of April that the World Bank will be releasing funds � frozen last year when it became clear that D�by intended using them for arms purchases � are based on certain commitments from the Chadian government. The World Bank announced that, �the Chadian authorities agreed to actions to strengthen monitoring transparency and accountability�. It also agreed not to spend the money on military equipment. Other heavy conditionalities apply. The World Bank says it will �drip-feed� the $100mn to Chad in three tranches, implying that it will only do so if D�by�s government behaves itself.

Chad appears to many to epitomise the �resource curse� syndrome. The existence of an oil industry has undoubtedly fueled conflict by raising the stakes and raised massive issues around the distribution of revenues. Given the long-running instability of the country, this was easy to foresee. In 1999, some years before oil production started, Richard Corwell spoke of �fueling the flames� in an unstable and volatile situation. �The handling of the (oil) project � will determine N�Djamena�s relations with its disparate subjects,� he wrote. �It could well revive southern demands for autonomy.�

There is now an enormous literature on the problem of resource rents and development. The term �resource rents� described the revenues from exploitation of natural resources like oil. Oil in particular has been seen to undermine both democracy and development. It tends to generate few jobs but much corruption. With few local economic multipliers, it is an industry that in its very nature fails to directly empower local citizens but rather, by making more revenue available to the political classes, facilitates patronage. In patronage systems, clients tend to be passive recipients of largesse, not active citizens.

Chad�s oil industry is new enough for all these considerations to have been understood at the outset. The industry operators � ChevronTexaco, ExxonMobil and Malaysia�s Petronas � were eager to have the World Bank involved so that its experience and clout could be employed to offset these risks. As Cornwell noted at the time, the oil companies �sought cover against political and environmental critics�.

The oil reserves in the southern Doba region are not particularly large by comparison with the major producing countries. The CIA Factbook suggests possible reserves of 2 billion barrels which compares rather poorly with the Persian Gulf�s proven 674 billion barrels (across Saudi Arabia, Iraq, the UAE, Kuwait, Iran and Quatar). The main export route is the World Bank-funded pipeline through Cameroon, completed in 2003 with a capacity of 225000 barrels/day. At that rate of exploitation, Chad�s reserves will last 20 years.

This was understood to offer a window of opportunity. With a population of only 8 million, even limited oil revenues could make a big difference.

The question was always how the revenues would be utilised. When the oil industry came on stream, Chad�s GDP surged � 40 percent in 2004 and even more last year.

Before funding the Cameroon pipeline, the World Bank secured agreement that oil revenues would be allocated to economic and social development. Ten percent of revenues were to go into a Future Generations Fund for use when oil resources are exhausted. Another 10 percent was to be allocated directly to the government of Chad while the remaining 80 percent was to be spent on �priority poverty programmes�, mostly in health, education and agriculture. A great deal of energy was spent on initiating and designing these programmes. An independent College was established to oversee the allocation and use of oil revenues. The World Bank boasted that its Chad initiative was a model for how �African resources could be made to work for the African people�.

It might be that the World Bank�s scheme was the best possible under the circumstances. Making it work, however, is proving arduous. It is not in the nature of the World Bank to admit mistakes, certainly not in the short term. But the revision made to the agreement in May, increasing the Chad government�s direct take from 10 to 30 percent, suggests some sort of initial miscalculation. And the introduction of an independent institution � the College � to oversee the industry surely undermines Chad�s parliament. The legislature is undoubtedly an inadequate institution measured against international democratic norms and standards. But splitting sovereignty between it and the College doesn�t improve its chances of developing a more effective role. The approach may in fact have leaned too heavily towards circumventing Chad�s weak and flawed institutions, as opposed to the more arduous task of reforming them wholesale.

If D�by does attempt to reconcile with the rebels � which, given international pressure is clearly the rational course of action � and if he does so with genuine and whole-hearted commitment, and if this is matched by his opponents, peace may have a chance. But peace is only the first step of many required if the World Bank�s vision is to be implemented.


Population: 8,6m
GDP (2003 actual): $2�648m
(2004 est.): $2�913
GDP/capita: $250

TI score: 1,7 out of 10
TI ranking: 158/159 (2nd last)

Human development:
UNHdi ranking: 173/177

This article was first published in Business in Africa Magazine, June 2006. To subscribe click here

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