CHAD: INPUT FOR ANNUAL AGOA REPORT

UNCLAS SECTION 01 OF 02 NDJAMENA 000237

SIPDIS

SIPDIS

DEPARTMENT FOR AF/EPS JANET POTASH

E.O. 12958: N/A
TAGS: ETRD AGOA ECON CD
SUBJECT: CHAD: INPUT FOR ANNUAL AGOA REPORT

REF: STATE 022438


1. (U) Summary: Per reftel, Embassy provides the following
input on Chad for the President,s 2007 Report on AGOA. End
Summary

-------------- --------------
Market Economy/Economic Reform/Elimination of Trade Barriers
-------------- --------------


2. (U) According to the UN Conference on Trade and
Development (UNCTAD),flows of foreign direct investment into
Chad ) concentrated almost entirely in the petroleum sector
-- rose to $705 million in 2005, from $478 million in 2004.
Eclipsed by petroleum, Chad,s other major exports are
cotton, cattle, and gum arabic. Chad has a small formal
sector and a large informal import/export sector. Over the
past decade, the Government of Chad (GOC) has made some
progress in privatizing state enterprises, eliminating price
controls and liberalizing the economy. This process is
expected to continue with the long overdue privatization of
the cotton parastatal, CottonTchad. Although Chad continues
to express interest in encouraging foreign direct investment,
foreign and domestic investors alike report that the business
climate could be significantly improved. Additionally,
escalating violence in the East and widespread corruption
discourages foreign investment.

--------------
Trade Liberalization
--------------


3. (U) Chad has 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, but limits investment in
sectors deemed sensitive such as cotton, electricity
production, and telecommunication in order to protect
enterprises. Chad has made little progress in reducing
impediments to investment such as weak infrastructure,
chronic energy shortages, high-energy costs, scarcity of
skilled labor, a high tax burden, and corruption. French
commercial interests are not a serious barrier to U.S.
investors.

-------------- --
Political Pluralism/Rule of Law/Anti-Corruption
-------------- --


4. (U) The Government of Chad continues to have a weak record
on rule of law, political pluralism, and the safeguarding of
due process rights. The May 2006 presidential election was
flawed and the major political opposition groups did not
participate. Corruption is universally acknowledged as one
of most serious problems in Chad. The Ministry of
Moralization was established in 2004 to combat corruption.
It uncovered several cases of fraud and embezzlement in 2006,
but Chad,s weak judicial system has not brought the accused
to justice. Chad is a candidate for U.S. Millennium
Challenge Account assistance.

--------------
Poverty Reduction
--------------


5. (U) Chad has one of the lowest per capita GDPs in the
world. Under an agreement with the World Bank for oil sector
infrastructure financing, 70 percent of government revenue is
to be allocated to health, education, rural development, and
other social services. Chad also committed to work with the
World Bank on preparation of a Poverty Reduction Strategy
Paper in 2007. While the government has ramped up its
infrastructure projects, oil earnings of some $1.3 billion
since project start-up in 2000 have yet to noticeably reduce
poverty. Expenditure on security and defense continues to be
high, reflecting threats from rebel groups based in Sudan.
In early 2007, the International Monetary Fund (IMF) will
begin a review of Chad,s progress to receive debt relief
under the Heavily Indebted Poor Country program. The IMF is
also considering a renewal of Chad,s Poverty Reduction and
Growth Facility, which failed to take place in late 2005,
owing to Chad,s deteriorating fiscal performance.

--------------
Labor/Child Labor:
--------------

NDJAMENA 00000237 002 OF 002




6. (U) Chadian law allows all employees except members of the
armed forces to join or form unions of their choice without
excessive requirements, and the government generally respects
this right. Chad ratified ILO Convention 29 in 1969 and ILO
Convention 105 in 1961. Unions may organize and bargain
collectively; however, the law permits imprisonment with
forced labor for participation in illegal strikes. The
Chadian Government,s efforts to combat the worst forms of
child labor have been centered on laying the legal foundation
to meet its commitments to international labor conventions
aimed at protecting children. Although the labor code
stipulates that the minimum age for employment in the formal
sector is 14, the government does not enforce the law. Few
children have the opportunity for education beyond the
primary level. An estimated 20 percent of children between
the ages of six and 18 work in abusive, exploitive labor
conditions in the urban informal sector as street vendors,
manual laborers, domestic servants and helpers in small
shops. Children throughout the country work in agriculture
and herding. Chad has ratified ILO Convention 182, but a
comprehensive executive decree harmonizing Chad,s legal code
with ILO 182 and 138 submitted to the Council of Ministers in
2005 has yet to be approved.

--------------
Comment
--------------


7. (U) Chad,s eligibility for AGOA trade privileges bears
careful scrutiny in the coming years. In particular
democracy and good governance remain serious concerns. That
said, the Embassy, through its Economic and Commercial
Section and Democracy and Development Section, continues to
assist the Government of Chad and local businesses to benefit
from AGOA opportunities.
TAMLYN