TOUGH TIMES FOR CHADIAN EXPORTERS

UNCLAS NDJAMENA 000886

SIPDIS


DEPARTMENT FOR AF, AF/C, EB, LONDON AND PARIS FOR
AFRICAWATCHER, DAKAR FOR CYNTHIA

E.O. 12958: N/A
TAGS: ECON ENRG EPET CD
SUBJECT: TOUGH TIMES FOR CHADIAN EXPORTERS



1. (SBU) Summary: Oil is spurring international
investment interest in Chad and the interest of Chadian
businesses in exporting overseas. However, Chadian
businesses in non-oil sectors are facing a number of
difficulties. Language barriers, infrastructure problems,
and high operating costs are restricting the ability of many
companies to break into U.S. markets and take advantage of
tariff-reduction benefits from AGOA. End Summary.

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BACKGROUND
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2. (U) The Esso-led oil consortium has brought significant
benefits for Chadian companies operating as sub-contractors.
The number of Chadian companies working with Esso on
production activities is growing, and the number of local
employees being hired by the consortium has also increased.
Large oil exports have also meant that Chad is becoming one
of the largest exporters to the U.S. under AGOA, as Chad's
exports to the United States are expected to be approximately
241 million USD in the first three months of 2005. However,
trade in other sectors between the two countries has seen
little improvement. Discounting oil, total trade between
Chad and the U.S. is projected to be only 2 million USD for
next year for products such as gum arabic and sesame.


3. (SBU) Econoff used meetings with the Ministry of
Commerce, the International Financial Corporation, and local
businesses, to uncover a number of variables that restrict
Chadian companies from exporting products to the U.S. These
include language issues, high operating costs, and lack of
confidence in public institutions.

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LANGUAGE PROBLEMS
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4. (SBU) Chadian businesses are extremely interested in
dealing with American partners, but they find that the lack
of knowledge of the English language hinders their ability to
engage with counterparts in the States. A number of
businessmen have noted that while their trips to
International Buyer Programs proved initially successful, the
language barrier prevented further dialogue between partners.
The language problem forces many companies to turn to
business partners in France. Many companies have welcomed
any potential opportunity to take English language courses
that focus on business vocabulary and etiquette. However, no
such courses exist in the country.

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HIGH OPERATING COSTS
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5. (SBU) High operating costs are clearly taking their toll
on the capacity of Chadian companies to internationalize
their operations. A primary concern for many Chadian
businesses is the high transportation cost to export goods to
trade hubs in Cameroon and Nigeria (the two intermediary
points for Chadian businesses to deliver their goods). While
road conditions within the country are deplorable, the local
business community complains about the lack of vehicles to
transport products. Most large trucks needed for carrying
finished products are currently used by Esso for oil
production and international relief organizations to deliver
humanitarian supplies to camps in eastern Chad. Chadian
businesses must wait weeks, or even months, before receiving
trucks. In addition, they must also pay extremely high
overhead fees for using the vehicles due to the high demand.
Complicating matters is the lack of a transportation company
that has the capacity to satisfy the demands of local
businesses.


6. (SBU) The business community also notes the high costs of
raw materials necessary to construct and operate facilities.
They particularly note the high cost of cement and
electricity. Currently, Chad lacks a local cement company
that can provide the material to local companies. Most of
the cement is actually imported from Nigeria, at a value that
is more than two times the cost of cement in the United
States. The Secretary General for the Ministry of Commerce

noted on May 25 that the Ministry conducted a study in 2000
to assess the feasibility of creating and operating a local
cement plant in eastern Chad, but the study concluded that a
local parastatal would encounter too many financial problems
to be viable.


7. (SBU) High electricity costs add to the difficulties for
Chadian companies. Chef Kante, business development
consultant for the IFC, explained that structural problems
with the current, and highly out-dated, electricity grid
result in a constant loss of electricity, which force the
government to increase overall energy prices to cover their
costs. While the IFC has provided technical advisors to
explore ways to revamp the current system, the overhauling of
the electricity grid in the country would involve the
utilization of resources that the Chadian government does not
have. All of these costs force these companies to think
twice before considering exporting overseas, particularly to
a country as far-removed geographically such as the United
States.

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LACK OF CONFIDENCE IN PUBLIC INSTITUTIONS
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8. (SBU) Chad lacks public institutions that can promote
trade capacity and protect investment. Local business
leaders point to a general lack of concern by the government
in the area of promoting business activity and trade
capacity. Case in point is the rigorous process required to
register a local business. Business leaders have complained
that the process wastes resources that businesses could use
to invest in their own development. Kante noted an IFC
program to help the GOC to create a one-stop shop for
business registration, but stated that such an endeavor is
far from being complete. The lack of such initiatives are
causing many businesses to question the commitment of the
government to business promotion and trade development.


9. (SBU) Many also note their concern over the presence of
corruption, fraud and the lack of enforcement mechanisms in
the judicial system. Kante pointed out that some Chadian
businessmen complain that the costs associated with bribing
officials to obtain simple procedural documents place
significant strains on their operations. While the Ministry
of Commerce admitted the presence of corrupt bureaucrats who
take advantage of local businesses, he noted that the
government lacks the capacity to crack down on corruption.


10. (SBU) A strong Chamber of Commerce would normally help
to initiate dialogue between the public and private sector,
and chart out plans of action to address problems faced by
local businesses. Unfortunately, the Chadian Chamber of
Commerce is plagued by weak and ineffectual leadership, the
lack of adequate infrastructure (internet, phones, basic
office supplies),and a very limited understanding of
international commerce, particularly in the area of AGOA and
trade with the United States. Without a vibrant Chamber of
Commerce, Chadian businesses also lose a potential advocate
for improvements in the national business climate and export
capacity.

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COMMENT
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11. (SBU) Chad is currently benefiting from oil production,
but needs to diversify its economy to ensure long-term
growth. We will seek ways to overcome the language barriers
encountered by Chadian businesses and find support for
programs that will bolster the Chamber of Commerce's ability
to become an effective advocate. In addition, we will
continue to work with both government leaders and the private
sector to identify obstacles and find solutions to enable
Chadian businesses to increase trade with the U.S.
WALL


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