# **II. Macroeconomic Background and Recent Development**

Despite the onset of oil and rising revenues since 2004, Chad remains among the poorest countries in SSA. 80 percent of labor force is working in the primary sector and still using rudimentary equipment. The agricultural sector stills the most important source of revenues for the rural poor. After almost thirty years of civil war and relative political stability beginning in the early 1990s, the last two years have seen increased insecurity and political tensions with constant armed attacks from across the Sudanese border in 2005 and 2006 and several coup attempts. However, President Deby won in the election organized on May 3, 2006 and sworn in for the third term on August 8, 2006.

Repeated periods of armed conflict since Chad’s independence in 1960, together with weak institutions and a lack of infrastructure have hindered economic development in Chad. Despite some progress in macroeconomic stabilization and reform under Fundsupported programs during the 1990s, Chad's indicators on business climate, governance, and socio-economic conditions remain among the lowest in the world (IMF 2007a). The oil sector accounts for about half of GDP, and has led to high growth rates during 200104; yet, the vast majority of the population still heavily depending on cotton, livestock, and small-scale agriculture for their living. Poverty remains widespread and social indicators are well below the average for Sub-Saharan Africa. Chad is ranked 173 among the 177 countries surveyed in the 2006 UNDP Human Development Report.

The incidence of poverty (defined as the proportion of households with annual spending below what is necessary to meet minimal needs) is estimated at 55 percent according to a 2003 household survey; an estimated four-fifths of the population of about 8.8 million is living on less than a dollar a day<sup>3</sup> . Of the population over 15 years old, more than 73 percent (and 76 percent of women) are illiterate. Access to potable water has improved over past years, but is still limited to one out of three people in 2005. Less than two percent of the population has access to electricity and only 1021 kilometers of roads has been paved on a surface area of over 1.2 million square kilometers.

As already mentioned, Chad has recently become oil producing country; however, the economy remains largely agricultural and pastoral. About 80 percent of the country’s population lives in rural areas and continue to make their living<sup>4</sup> from agriculture and livestock. Cotton is the principal cash crop, employing about 300,000 families. Apart from the petroleum sector, Chad’s industry’s includes the processing of cotton, meat products, salt, and the production of bottled beer, soap, cigarettes, construction materials, and cereal<sup>5</sup> . The scarcity of human and physical capital reduces labor productivity. The emerging petroleum sector has not had much impact on employment given its capital intensive nature.

> 3 Line poverty was estimated by the Institut National de la Statistique et des Etudes Economiques et Demographiques (INSEED) and the World Bank team using World Bank methodology

> 4 In fact, almost 80 percent of Chad population is located in rural area, without basics infrastructures (lack of potable water supply and adequate health structures) - 80 percent of illiteracy and therefore very poor productivity.

> 5 The production of cereals though mostly supports domestic consumption.

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