Outlook for 2011-12

Political stability is expected to improve in 2011-12 compared with the previous two years. However, the Economist Intelligence Unit expects outbreaks of unrest, particularly after the upcoming announcement of the results of the legislative election held on February 13th 2011. The incumbent, Idriss Déby, is expected to win the presidential poll due in April 2011. In view of the outlook for buoyant world oil prices and faster economic growth, we now expect the fiscal deficit to be equivalent to 11.7% in 2011 (previously 13.4%) and 12.2% of GDP in 2012 (previously 14.7%). The improved security situation will yield a dividend in terms of economic growth, particularly in public works and the oil sector. Consequently, real GDP is now forecast at 5.5% in 2011 (4.5% previously), accelerating to 6% in 2012 (previously 4%). In view of the latest outlook for global commodity prices inflation is now forecast at 8% in 2011 (previously 5%) and 2% in 2012 (previously 4%). Current-account deficits equivalent to 36.1% and 33.2% of GDP are forecast respectively in 2011 and 2012.

The political scene

After repeated postponements a legislative election was finally held in Chad on February 13th. The results had not been published at the time of writing, but it seems likely that the opposition will not make a significant dent in the crushing parliamentary majority of the ruling party, Mouvement patriotique du salut. In January the president granted an amnesty to all rebel prisoners of war. The Chadian army intervened in the neighbouring Central African Republic in December to suppress a rebel attack on Birao.

Economic policy

The regional banking watchdog, Commission bancaire de l'Afrique centrale (Cobac), outlined measures to strengthen its supervision of banks at its annual meeting held on December 20th.

The domestic economy

The Chadian government is expected to start directly selling some 44,000 barrels/day of crude oil soon, after reportedly striking a deal with the operator of the Doba fields, Exxon-Mobil. A recent report by a global charity, Action Against Hunger, has revealed disturbing levels of malnutrition in western Chad.

Foreign trade and payments

After a meeting in mid-February with the Chinese foreign minister, Yang Jiechi, in the Chadian capital, N'Djamena, Mr Déby, announced that he hoped to boost co-operation between the two countries, particularly in the fields of health, infrastructure, telecommunications and health.

Land area

1,284,000 sq km

Population

11.27m (mid-2009 census result)

Main towns

Population in 2010 (World Gazetteer estimates; '000)

N'Djamena (capital): 792

Moundou: 149

Sarh: 113

Abéché: 82

Climate

Tropical in the south, semi-arid in the Sahelian belt, and desert and semi-desert in the north

Weather in N'Djamena (altitude 295 metres)

Hottest month, April 23-42°C; coolest month, December, 14-33°C; driest months, November-March, 0 mm average rainfall; wettest month, August, 320 mm average rainfall

Languages

French and Chadian Arabic (Tourkou) are the official languages; over 100 local languages, including Sara derivatives, are also widely spoken

Measures

Metric system

Currency

CFA franc

Time

1 hour ahead of GMT

Public holidays

Fixed holidays: January 1st (New Year's Day), May 1st (Labour Day), August 11th (Independence Day), November 1st (All Saints' Day), November 28th (Republic Day), December 1st (Freedom and Democracy Day), December 25th (Christmas)

Moveable holidays (according to Christian and Muslim calendars): Eid al-Adha, El am Hejir (New Year), Mawlid al-Nabi (birth of the Prophet), Eid al-Fitr (end of Ramadan), Easter

Official name

République du Tchad

Form of state

Unitary republic

Legal system

Based on the Napoleonic Code; the 1989 constitution was suspended in December 1990; a new constitution was adopted by referendum in April 1996 and amended in June 2005

National legislature

National Assembly, with 188 members; elected by universal suffrage

National elections

A legislative election was held on February 13th 2011; a presidential election is due on April 3rd 2011

Head of state

President; re-elected by universal suffrage in May 2006

National government

The prime minister and Council of Ministers

Main political parties

Mouvement patriotique du salut (MPS; the ruling party); Fédération action pour la République (FAR); Viva-Rassemblement nationale pour le développement et le progrès (Viva-RNDP); Rassemblement pour la démocratie et le progrès (RDP); Union pour le renouveau et la démocratie (URD); Union nationale pour le développement et le renouveau (UNDR); Union pour la démocratie et la République (UDR); Parti pour la liberté et la développement (PLD); Alliance tchadienne pour la démocratie et le développement (ATD)

President: Idriss Déby

Prime minister: Emmanuel Nadingar

Key ministers

Agriculture & irrigation: Pahimi Padacké Albert

Civil service & employment: Abdoulaye Abakar

Communications: Kalzeubet Pahimi Deubet

Defence: Bichara Issa Djadallah

Economy & planning: Mahamat Ali Hassan

Education: Assidick Abakar Tchoroma

Environment, water & fisheries: Hassan Térap

Finance & budget: Gata Ngoulou

Foreign affairs: Moussa Faki Mahamat

Health: Toupta Boguéna

Infrastructure & transport: Adoum Younousmi

Interior & territorial administration: Kedallah Younous Hamidi

Justice: Mbaïlaou Naïmbaye Lossimian

Livestock: Ahmat Rakhis Mannay

Microfinance & poverty reduction: Fathime Tchombi

Mines & geology: Maïtine Djoumbé

Oil & energy: Tabé Eugène

Planning & co-operation: Hamit Mahamat Dahalob

Public sanitation & good governance: Ahmadaye Al Hassan

Public security & immigration: Oumar Bukar Kadjallami

Telecommunications & post: Pahimi Padacke Albert

Tourism: Mahamat Allaou Tahar

Trade, industry & crafts: Youssouf Abbassalah

Governor of Banque des Etats de l'Afrique centrale

Lucas Abaga Nchama

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Please see graphic below

Political stability is expected to improve in 2011-12 compared with the previous two years. However, we expect outbreaks of unrest, particularly after the upcoming announcement of the results of the legislative election held on February 13th 2011. The opposition has already voiced allegations about electoral irregularities, which could prompt demonstrations or even rioting in its strongholds. Although the rump of the rebel forces, grouped as the Alliance nationale pour le changement démocratique, has vowed to topple the regime of the president, Idriss Déby, it is unlikely to have much impact given its loss of Sudanese backing. The insurgency is set to be a diminished force, as the non-aggression pact signed between the governments of Chad and Sudan looks likely to hold, thereby depriving the Chadian insurgents of the support and safe haven previously available to them in Sudan. Many of the Chadian rebels repatriating from Sudan are likely to be integrated into the national army, which should improve stability. Both countries' governments seem keen to keep supporting joint military patrols of the common border.

Nonetheless, the east of the country will remain highly insecure, as the joint force is expected to be even less capable of imposing order than the departing UN force (known by its French acronym, MINURCAT). UN-trained local gendarmes in the Détachement de sécurité intégré will take responsibility for security in and around the refugee camps near the eastern border, but there are too few of them for the task. However, the high potential for internal conflict in Sudan in 2011-12 means that joint security efforts in the border region could fall by the wayside. Fighting in Sudan could lead to a further influx of refugees into the east of Chad, as well as armed groups seeking rear bases; both represent a big risk to political stability in Chad. The Central African Republic may also be a source of instability: in addition to the risks posed by its own civil conflict spilling across Chad's southern border, the country reportedly serves as a base for Chadian insurgents.

The president will continue his policy of stifling dissent, handing out patronage to his ethnic kinsmen and concentrating power in the hands of a small number, particularly in the lead-up to the presidential poll due in April 2011. Mr Déby broadly commands the support of the army, but there is a persistent danger of him being toppled in a palace coup. Despite the current weakness of the rebels, further defections of senior members of the president's inner circle to the insurgent camp remain a possibility. The civilian opposition is likely to remain enfeebled, although there could be isolated incidents of unrest in the run-up to the elections. Opposition grievances over the organisation of the polls could lead to protests in towns and cities. Another risk to stability is posed by spikes in consumer price inflation. Domestic agricultural output is expected to be up on the past two years, but extreme climatic events such as drought and flooding could lead to sharp price rises for food. Moreover, in 2011 the Economist Intelligence Unit expects global food prices to rise by a brisk 27%, so household budgets in Chad may be stretched to such a degree that unrest results. There is also potential for inter-ethnic hostilities, particularly if Mr Déby's Zaghawa ethnic group is seen to have preferential access to state services and funds.

After Tunisia and Egypt, could mass protests challenge the Chadian regime?

Much has happened since the 2006 presidential election, when Idriss Déby won a crushing victory after many of his opponents boycotted the vote. His deeply unpopular decision to change the constitution, which allowed him to stand for a fourth term, was a significant factor in the violence affecting the country in the intervening years. Rebels from the east swept into the capital, N'Djamena, in April 2006-the month of the vote. This was followed in February 2008 by a bigger attack on the capital that came close to unseating Mr Déby. Having survived, the president has spent much of the intervening three years entrenching his position.

However, as recent events in Tunisia and Egypt underline, autocratic rulers such as Mr Déby are not invulnerable. In common with both North African countries, allegations of electoral fraud undermine the credibility of elections in Chad, leading to frustration among opponents of the regime. Meanwhile, the Chadian security services stand accused of a series of human-rights abuses, not least for their role in the death of a leading figure of the civilian opposition, Ibni Oumar Mahamat Saleh, during the February 2008 rebel assault on the capital. There are also clear socio-economic similarities, in that high unemployment co-exists with sharp inequalities of wealth-two factors likely to spark rebellion.

Nonetheless, several key differences will probably prevent a popular uprising from occurring in Chad, even if Mr Déby is controversially re-elected in April. Although a coup attempt led by a disgruntled general or member of Mr Déby's inner circle should not be discounted as a possibility-many of the rebel leaders are defectors from the president's camp-the armed services appear to remain loyal to the government. Having refused an offer of safe passage from the French when the presidential palace was under attack from rebels in February 2008, Mr Déby is not one to lose his nerve in the face of unrest. Also militating against a popular revolution in the country are its inter-ethnic rivalries and extremely low population density, which reduce the potential for mass protests.

However, although the risk of a popular revolution in Chad is slim in the short term, the government may offer a few sweeteners in the coming weeks. In particular, it may increase subsidies on everyday goods (reflecting the fact that global commodity prices are expected to rise rapidly in 2011). The regime will be aware that rapid food price inflation is more likely than either political oppression or income inequality to spark outbreaks of unrest, which could escalate and take on a political dimension.

Although the legislative elections were imperfect, the fact that they were held peacefully and with the participation of the opposition marks an important step in the country's democratic evolution. However, given the strong concentration of power in the presidency, of much more significance is the presidential poll due in April. The incumbent, Mr Déby, who has been in power since 1990, looks highly likely to win another mandate-a result that could foster unrest in opposition strongholds. No significant threat to Mr Déby currently looks likely to emerge from the ranks of the opposition coalition, Coordination des partis politiques pour la défense de la constitution. A former mines and energy minister, Saleh Kebzabo, who leads the Union nationale pour le développement et le renouveau party, and Lol Mahamat Choua, who was briefly president in 1979, are perhaps the most plausible contenders. However, Mr Kebzabo, who announced his candidacy on February 18th, has attracted criticism for spending long periods of time abroad. Mr Choua, for his part, is already over 70 years old and therefore unlikely to inspire Chad's predominantly young electorate. Meanwhile, Ngarley Yorongar, who came second in the 2001 presidential poll, has been largely out of the country for the past few years, recovering from illness. The only other declared candidate to date for the 2011 presidential election, Wadel Abdelkader Kamougué, is another former minister and septuagenarian. He too is unlikely to pose a threat to Mr Déby, because of both his age and his involvement with the regime of the now exiled former dictator, Hissène Habré (in office 1982-90).

The rapprochement with Sudan is expected to continue in 2011-12, although the risk of domestic conflict in Sudan could destabilise this. Continuing instability in the neighbouring Central African Republic may lead to further inundations of refugees to southern Chad. Following the final departure of MINURCAT, due at the end of 2010, the foreign military presence in Chad may diminish further in view of recent demands from Mr Déby that France pay the cost of having 1,100 French troops garrisoned in the country as part of Opération épervier (Operation Sparrowhawk). The French authorities have not yet responded to the president's demand but they may well decide to redeploy troops to more strategically important areas in Africa or elsewhere. Nonetheless, diplomatic and commercial ties with France will remain important.

The Chadian government will pursue closer relations with Libya, and Libyan investment will be sought to fund infrastructure projects. However, current unrest in Libya could lead to the overthrow of the government. Rumours that Chadian mercenaries were involved in suppressing recent protests there could strain ties with a future Libyan regime. China will remain a leading player in helping to sustain Chad's declining oil sector and other areas of the economy. Both China and Libya (assuming that its government is not overthrown soon) are expected to extend soft loans to finance the fiscal deficit. The stake held by the US in Chad's oil industry and a small counterterrorism programme-which could soon be enlarged if a regional terrorist group, al-Qaida in the Islamic Maghreb, is deemed to be active in the country-will ensure co-operation between the two countries. The US is set to remain by far the largest market for Chadian oil exports.

The most recent Article IV consultations between the IMF and the local authorities, published in July 2010, highlighted the Fund's grave concerns about the direction, efficiency and management of public spending. Disagreements about the level of spending in 2010 have prevented a staff-monitored programme from being approved, sending a strongly negative signal to investors and donors alike. Moreover, the government will not hesitate in 2011-12 to sacrifice fiscal prudence again should the security situation demand it.

Despite the outlook for dwindling oil output, the regime of Mr Déby is expected to maintain the mentality of a rentier state, failing to invest adequately in economic diversification and structural reforms to improve the business environment, which the World Bank recently ranked as the world's most difficult. However, even the government's weak efforts in that direction are likely to have some positive impact-particularly its road-building programme. There are two other small sources of hope. First, the poverty reduction and growth strategy (PRGS) for 2008-11 may make some headway towards economic diversification, rural development and better governance, although the disappointing record of the previous PRGS counsels against optimism. Second, in support of the country's candidacy for the Extractive Industries Transparency Initiative, the authorities should improve governance in the oil sector; the IMF praised the interim petroleum revenue management mechanism as "exemplary".

The budget for 2011 assumes total revenue of CFAfr1.17trn (US$2.2bn), up by 13% on the revised 2010 budget, and total spending of CFAfr1.26trn, equivalent to a 5% increase on 2010. The 2011 budget therefore envisions a deficit of CFAfr94bn (US$180m), compared with CFAfr169bn in 2010. Oil receipts are expected to account for just under two-thirds of domestic revenue. However, this is based on an optimistic official forecast that Chadian oil will sell for US$87/barrel; by contrast, we expect the country's crude to fetch around US$76/b (a significant discount on the US$90/b average expected for Brent blend). However, new oil supply from the Bongor basin is due to come on stream by the end of 2011, while reasonably rapid economic growth should support non-oil revenue. Spending will prioritise defence and infrastructure. Public-sector salaries are budgeted to stagnate in 2011 but we nonetheless expect the state wage bill to rise through ad hoc bonuses, given that it is an election year. Furthermore, sharp rises in global commodity prices in 2011, particularly for food and fuel, mean that the government is likely to increase spending on subsidies for staples.

In 2012 we expect non-oil revenue growth to remain strong, although this will be offset by dwindling oil production from the increasingly marginal Doba fields. Spending growth is expected to slow, in line with the improving security situation and the fact that the government will be spared election-related expenses-for both the organisation of the polls and pre-election spending-that year. Fiscal management is expected to remain opaque and erratic in 2011-12, with overspending and revised budgets likely in both years. In view of the outlook for buoyant world oil prices in 2011, we now expect the fiscal deficit to be equivalent to 11.7% in 2011 (previously 13.4%), before widening slightly, to 12.2% of GDP in 2012 (previously 14.7%). The government is likely to turn to China and domestic borrowing to cover the deficits.

Monetary policy is determined by the regional central bank, Banque des Etats de l'Afrique centrale (BEAC), which prioritises the control of inflation and the maintenance of the CFA franc's peg to the euro. As a result, the regional central bank broadly tracks movements in the policy of the European Central Bank (ECB). However, in July 2010 the BEAC cut its main policy rate, taux des appels d'offres (the auction rate), by 25 basis points to 4%, thereby slightly narrowing the differential with ECB policy rates, which are currently at record lows. We expect the ECB to keep its rates on hold until at least mid-2012, after which we forecast a small rise in rates.

Whether or not the BEAC tightens its own policy will depend on movements in consumer price inflation and the rates of credit and money-supply growth in its member countries. As we have revised our global commodity price forecasts upwards, inflation is likely to be faster than previously expected, so a rise in the bank's policy rates before mid-2012 has become more probable. For the moment the BEAC appears to be sanguine about inflationary pressures and still plans to increase access to credit. This stance indicates that further loosening of the auction rate is possible. However, money supply in BEAC member countries increased by a rapid 11% year on year in the first half of 2010. As this trend is set to continue into 2011-12, in tandem with faster imported inflation, we expect a slight rise in policy rates, of around 50 basis points, by early 2012.

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Significant rainfall in Chad at the start of the 2010 wet season (July-October) has boosted the outlook for agriculture in 2011. This sector contributed nearly 12% of GDP in 2007, according to the IMF, but has suffered greatly of late from drought and the continued civil conflict. Improved crop and livestock production is expected to more than offset the damage caused by localised flooding. Furthermore, record high global cotton prices will stimulate production of this cash crop.

Government spending on infrastructure will continue to rise quickly in 2011-12, boosting the contribution of construction to growth. Despite picking up slightly in the first half of 2010 to 120,000 barrels/day (b/d), oil production from the Doba fields is expected to dwindle in 2011-12, as the operator, EssoChad, has found it increasingly difficult to extract oil, given the country's challenging geology. Meanwhile, the Chinese National Petroleum Corporation (CNPC) continues its exploration and construction programme in the Ronier field in the Bongor Basin, north of Doba, which is expected to yield 60,000 b/d once completed. CNPC has continued to insist that oil will come on stream by 2011, although delays are possible and it will take some time to reach full output. It is also unclear how the extra oil output is to be exported. Nonetheless, we have provisionally raised our forecast for the country's total oil output to 125,000 b/d in 2011 and 130,000 b/d in 2012.

Apart from the oil sector, the contribution to economic growth of industry-which comprises the manufacture of basic goods such as soap, cigarettes, sugar and some textiles-will remain small, at around 7% of GDP. However, a Chinese cement factory and various new Indian-financed ventures, including a vehicle assembly plant and a textile factory, may stabilise the industrial contribution to growth in 2011-12. Constraints to larger-scale industrialisation, including small market size, low credit availability and the lack of skilled labour and infrastructure, will persist in the forecast period. Infrastructural improvements are a priority area for government spending, and extensive road-building will boost growth in both the short and long terms.

Services, which account for around 40% of economic output (including government services), will experience some growth in 2011-12, led by telecommunications and banking, which will continue to attract foreign investment, particularly from Nigeria. Transport, which is a priority sector for improvement under the PRGS for 2008-11, will receive a boost from the government's road-building programme. In view of these trends-and particularly extra activity in the oil sector and public works-we now forecast that real GDP will grow by 5.5% in 2011 (4.5% previously), accelerating to 6% in 2012 (4% previously).

Improved agricultural production in Chad should exert downward pressure on food prices in 2011-12, although we now expect global food prices to rise by a rapid 27% in 2011, so imports will become dearer (before dropping in price in 2012). However, the government is expected to shield consumers from the full effect of price rises through subsidies on staple foods. General imported inflation should accelerate in 2011-12, as the local currency is expected to weaken in line with the euro, to which it is pegged. Public works spending by the government will be high, in view of the draft 2011 budget. Consequently, the inflationary impact of this spending on higher household earnings and increased demand will be significant. In 2011 inflation will also be boosted by the low base of comparison in 2010, when prices are now estimated to have declined on average by 1%. Given these trends, average annual inflation is now forecast at 8% in 2011 (previously 5%) and 2% in 2012 (previously 4%), when global commodity prices are expected to ease.

The CFA franc is likely to remain pegged to the euro at a rate of CFAfr655.96:EUR1 during the forecast period, and will therefore fluctuate against the US dollar in line with the exchange rate between the dollar and the euro. We forecast a weaker euro in 2011 and in the medium term, amid persistent concerns about debt default and a break-up of the euro area. Concerns about euro-zone debt sustainability are likely to be the dominant factor in movements in the euro:dollar rate. Overall, we forecast that the CFA franc will average CFAfr519:US$1 in 2011 and CFAfr547:US$1 in 2012.

Trends in oil prices and production will remain crucial for the current account during the forecast period. The contribution of cotton to exports should increase, as global prices for the commodity are set to remain high, particularly in 2011, when they are set to average 126 US cents/lb. Livestock exports are set to decline in 2011 as pastoralists struggle to rebuild flocks after the droughts in 2009-10, but should pick up in 2012. In 2011 goods exports are forecast to total US$3.9bn and imports US$3.4bn, leading to a trade surplus of US$503m. Assuming that extra oil production comes on stream as planned, in 2012 we expect total exports of US$4.1bn and imports of US$3.3bn, in line with easing commodity prices, leading to a surplus of US$774m.

The services deficit will widen gently in 2011-12, averaging US$2.7bn, as a result of the very small domestic services sector and in combination with increasing oil-sector service imports. We now expect the income deficit, caused mainly by profit repatriation by oil companies, to move in line with oil prices to US$1.2bn in 2011 and US$908m in 2012. The current-transfers surplus will increase slightly to an average of US$281m during the forecast period, following movements in remittances from workers in both Western and neighbouring countries. Overall, we forecast a current-account deficit of US$2.8bn in 2011 and US$2.5bn in 2012, equivalent to 36.1% and 33.2% of GDP respectively. The deficit will be funded largely by donor funds and the foreign parent companies of local oil firms.

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After repeated postponements a legislative election was finally held in Chad on February 13th. The poll was the cornerstone of the August 2007 political accord, which was supposed to bring about political reconciliation, and as such received significant financial and logistical assistance from the EU. Members of the opposition complained about the poll's organisation up to the final stages, calling for yet another postponement, although in the event there was no repeat of the widespread opposition boycott seen in the last election, in 2006. There were reports of administrative shortcomings hampering the vote in several constituencies, and the preliminary estimate of turnout was a fairly disappointing 40%. However, voting was generally calm, which is no small achievement in a country ravaged by recent civil conflict and with little democratic tradition. Moreover, independent election observers, both local and foreign, declared themselves broadly satisfied with the poll's conduct.

The results had not been published at the time of writing, but it seems likely that the opposition will not make a significant dent in the crushing parliamentary majority of the ruling Mouvement patriotique du salut (MPS), which held 112 of 155 seats in the outgoing National Assembly, nearly three-quarters of the total. (The new legislature will be expanded to 188 seats.) There are around 100 tiny opposition parties-often comprising just a handful of members and representing narrow clan interests-vying for seats. However, the biggest opposition parties are grouped in a coalition, Coordination des partis politiques pour la défense de la constitution (CPDC), which was one of the signatories of the 2007 deal. The CPDC is set to contest the validity of the ballot, claiming that the number of irregularities in the lead-up to voting was greater than in previous polls. Two days after the elections the opposition coalition announced that it would make formal complaints about their conduct, which include allegations of bribery, multiple voting and the tampering with ballot boxes to favour the ruling party. Moreover, in the run-up to the ballot there were widespread reports of state resources being commandeered to help the ruling party's campaign. Whatever the truth of the CPDC's claims, the coalition must shoulder a large part of the blame for its expected poor performance, as it failed to mount an effective challenge to the MPS.

The quarter under review has been largely peaceful. As Chad has enjoyed the first extended period of peace in five years, several large-scale construction projects, such as hospitals, have begun. In a sign of the president's growing confidence in his position, in January-during celebrations to mark 50 years of independence from France-he granted an amnesty to all rebel prisoners of war. He also repealed the sentences to death or life in prison given (either following capture or in absentia) to several prominent rebel leaders. Four of the leaders, Taher Guinassou, Taher Wodji, Moita Ahmat Djibrine Azene and Djougourou Hemichi, were members of a rebel coalition, Union des forces pour la démocratie et le développement (UFDD), which led attacks on the capital, N'Djamena, in February 2008 and on Am Dam in May 2009 (March 2008 and June 2009, The political scene). A fifth rebel leader, Djibrine Dassert, who had destabilised the south of Chad for several years before his arrest in January, was also granted clemency.

The Chadian army intervened in the affairs of the neighbouring Central African Republic (CAR) in December, when a CAR rebel group known as the Convention des patriotes pour la justice et la paix, attacked the town of Birao in the far north-east of the country, near the border with Chad. Birao has been the scene of several similar attacks in the past, which caused people caught up in the crossfire to flee, sometimes into Chad. The Chadian army assisted the CAR government troops in repelling the rebel takeover of the town on the grounds that rebels fighting against the Chadian government were also based there. The claim is plausible: the rump of Chad's rebels are known to operate in the little-policed land around the borders of the CAR, Sudan and Chad. However, it may be that the CAR government claimed that Chadian rebels were involved in the Birao assault in order to draw in Chad's armed forces on its side. Whatever the truth about the alleged involvement of Chadian rebels, the co-operation between the two countries' armed forces should strengthen bilateral ties.

In the past quarter efforts to bring to justice Hissène Habré-the Chadian dictator toppled by the president, Idriss Déby, in a coup in 1990-for alleged human rights abuses have been set back yet again. Mr Habré, who has been living in exile in Senegal since 2000, is accused of crimes against humanity and torture during his eight years in power. Although no figure has ever been independently verified, campaigners allege that he is responsible for the deaths of up to 40,000 people while in power. Following a decision in November by the court of justice of the Economic Community of West African States (ECOWAS) that the Senegalese judicial system still did not have the capacity to conduct such a trial, in February the Senegalese president, Abdoulaye Wade, announced definitively that the former dictator would not be tried in Senegal. This marks an about-turn from his decision in 2006 to allow the trial of Mr Habré to go ahead in Senegal "in the name of Africa". Mr Wade also put paid to attempts to try Mr Habré in Belgium, where courts assert universal jurisdiction in human rights matters, by stating that he would refuse to extradite him there, although extradition to another member country of the African Union remains a possibility.

Mr Wade's intransigence is a blow for the relatives of Mr Habré's alleged victims seeking justice. It also undermines efforts, both within Africa and beyond, to hold trials of the continent's leaders suspected of wrongdoing in Africa, which, it is argued, would give the processes greater legitimacy. The Senegalese president's decision may be an attempt to call the bluff of the foreign powers keen to see a trial, which, despite pledging millions of dollars for the process, have refused to accede fully to his extravagant demands for funding. However, a different political calculation may mean that his announcement that a trial will not take place was made in earnest. Mr Habré is believed to receive protection from Senegal's powerful Muslim Brotherhoods, upon whose political support Mr Wade depends.

The Economist Intelligence Unit's 2010 Democracy index ranks Chad 166th out of 167 countries, the same position as in 2008, putting it second-from-bottom globally and firmly among the 51 countries considered to be governed by authoritarian regimes. This designation includes the states of Côte d'Ivoire, Niger, Togo and the Central African Republic (CAR).

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A dismal performance, although there is hope for improvement

Chad ranks so low as a result of several factors. The country's score in the electoral process category is zero, alongside countries such as the CAR, Equatorial Guinea and Eritrea, owing to the lack of free and fair elections in the period under consideration. This score may rise in the next edition of the index as a result of a legislative poll finally being held in February 2011 and the expected presidential election in April. However, although electoral observers commended the conduct of the February poll, the Chadian opposition has denounced it as a sham. Despite recent improvements in security as the rebels have been put on the back foot by government forces, the country was highly insecure for most of 2009-10.

Similarly, corruption levels remained high despite a few high-profile graft prosecutions in early 2010, so the country's functioning of government score remains at zero. The political culture and civil liberties categories score much better, in view of the country's developed culture of opposition movements and a relatively free press, including newspapers that are openly critical of the government, such as N'Djamena Bi-Hebdo. However, brutal slum clearances in the capital, N'Djamena, in mid-2010 and reports that the ruling party, Mouvement patriotique du salut, abused state resources to campaign in the run-up to the February 2011 poll indicate that there are serious shortcomings even in these categories. The political participation category scores zero, in view of the repeated delays to elections originally due to take place in 2009-10.

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Democracy index 2010: Democracy in retreat, a free white paper containing the full index and detailed methodology, can be downloaded from www.eiu.com/DemocracyIndex2010.

Note on methodology

There is no consensus on how to measure democracy and definitions of democracy are contested. Having free and fair competitive elections, and satisfying related aspects of political freedom, is the sine qua non of all definitions. However, our index is based on the view that measures of democracy that reflect the state of political freedom and civil liberties are not "thick" enough: they do not encompass sufficiently some crucial features that determine the quality and substance of democracy. Thus, the index also includes measures of political participation, political culture and functioning of government, which are, at best, marginalised by other measures.

Our index of democracy covers 167 countries and territories. The index, on a 0 to 10 scale, is based on the ratings for 60 indicators grouped in five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. The five categories are inter-related and form a coherent conceptual whole. Each category has a rating on a 0 to 10 scale, and the overall index of democracy is the simple average of the five category indexes.

The category indexes are based on the sum of the indicator scores in the category, converted to a 0 to 10 scale. Adjustments to the category scores are made if countries fall short in the following critical areas for democracy:

• whether national elections are free and fair;
• the security of voters;
• the influence of foreign powers on government; and
• the capability of the civil service to implement policies.

The index values are used to place countries within one of four types of regime:

• full democracies-scores of 8 to 10;
• flawed democracies-scores of 6 to 7.9;
• hybrid regimes-scores of 4 to 5.9;
• authoritarian regimes-scores below 4.

The regional banking watchdog, Commission bancaire de l'Afrique centrale (Cobac), held its annual meeting in Douala, Cameroon, on December 20th. Lucas Abaga Nchama-the EquatoGuinean president of Cobac and governor of the regional central bank, Banque des Etats de l'Afrique Centrale-presented a paper on ways to improve Cobac's ability to support failing banks. The banking watchdog currently has little ability to intervene to prevent insolvent institutions from going bankrupt. Current regulations, dating from 1992, grant Cobac the authority to dismiss the managers of failing banks in an effort to turn them around, or failing that to put them into administration. However, these powers are largely reactive, often to difficulties that are terminal. They have therefore done little to prevent lenders from going under.

This issue has gained particular urgency in recent years following a spate of bank closures in the region, particularly in the biggest economy, Cameroon. In one high-profile instance Cobac took control of the ailing Commercial Bank of Cameroon-the local affiliate of which is Commercial Bank Tchad-in November 2009 and appointed a new provisional administration to run it. However, a year later the bank still lacked a credible restructuring plan, which had been delayed by legal wrangling over its ownership. The bank's future is far from clear.

The proposed reform package seeks to bring supervision of the banking sector closer to international standards. It will empower Cobac to intervene earlier in failing financial institutions, when clear criteria have been met on capital adequacy ratios, liquidity levels and anomalies thrown up by audits. Furthermore, temporary administrators will have the power to stop lending to clients deemed not to be creditworthy. There are currently 43 banks operating in the six-country regional grouping, Communauté économique et monétaire de l'Afrique centrale (CEMAC). In aggregate they are in sound financial health. According to Mr Nchama, at the end of September 2010 amounts of deposits, credit and reserves had all improved to sound levels.

The encouraging overall picture hides acute difficulties faced by several of the region's banks, particularly the smaller ones. Although Cobac has not named the offenders, the watchdog concedes that a number of institutions have not met Cobac's modest minimum-capital requirements. Several banks failed to meet a deadline of June 2010 to hold at least CFAfr5bn (around US$10m) of capital, due to rise to CFAfr10bn by June 2014. This indicates that there are a large number of financial institutions whose lack of capital makes them unviable.

The measures to sharpen Cobac's currently blunt teeth and to bring banking supervision closer to international norms are welcome. However, they will be far from a panacea for the region's banks. Although in generally sound health, CEMAC member countries' banking sectors have shortcomings in common. These include a lack of competition: although 43 is a decent number of banks to be operating across six small countries, typically just three or four larger institutions in each country account for the overwhelming majority of deposits and loans. A related problem is the reluctance of banks to lend to small businesses and individuals-low levels of competition mean that the market leaders can afford to focus on the less risky corporate market.

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The inability of the courts to enforce contracts, combined with a lack of credit-scoring systems and client collateral, also acts to deter lending more widely. However, the focus on large companies is not without its own risks, as many of them are failing parastatals. Some CEMAC governments have put pressure on lenders to prop up sclerotic state-owned entities with credit, to the detriment of the banks. Nonetheless, the trend of recent years in CEMAC countries, including in Chad, has been positive, with both competition and credit to consumers and small firms increasing. In September 2010 (the latest month for which data are available) Chadian banks' lending to the private sector was up by nearly 20% year on year. Nonetheless, the absolute level of outstanding credit, totalling less than CFAfr200bn (just over US$400m), is small given that nominal GDP in 2010 is estimated at nearly US$7bn. In the latest edition of the World Bank's annual survey of the global business environment, Doing Business 2011, Chad was ranked a poor 152nd out of 183 countries and territories surveyed for access to credit. The country scored particularly poorly on the availability of credit information and the enforceability of contracts.

A recent report by the charity Action Against Hunger (AAH) has revealed disturbing levels of malnutrition in western Chad. Malnutrition has long been present in this area, but the situation has become acute in recent years because of poor rainy seasons in 2008 and 2009 (in both cases the rains arrived late and were fitful). At one point more than 2m people were at risk of hunger in Chad, but a good rainy season in 2010, as well as timely interventions from aid agencies, seem to have staved off the worst effects of the latest drought.

The AAH report conducted long-term research into pastoralist communities in western Chad (Kanem region) and found that large numbers no longer make a livelihood from herding animals. The report estimates that around 30% of the region's livestock herds were decimated in the last harsh dry season. In many cases where pastoralism has been abandoned in favour of sedentary agriculture, this has not been as successful as it could have been owing to problems such as a lack of irrigation, grain storage facilities, roads, electricity supply and labour (this last factor being the result of rural-urban migration and displacement as a result of the civil conflict).

Although conditions for pastoralists, based mainly in the north of the country, have remained challenging, and arable farming remains well below potential, a strong performance is expected from cereals. A US government aid agency, Famine Early Warning Systems Network (FEWSNet), expects total cereal output of 2.6m tonnes in for the 2010/11 harvest, a 10-year record. However, FEWSNet warned in a recent bulletin that food security was nonetheless set to decline in the run-up to the rainy season harvest, which begins in September-October.

Chad is expected to start directly selling a proportion of its crude oil, after reportedly striking a deal with Exxon-Mobil. Although this was due to get underway at the start of 2011 it is not yet clear that any direct sale has taken place. The deal should see the state-owned oil company, Société des Hydrocarbures du Tchad (SHT), selling around 44,000 barrels per day (b/d) of the estimated 120,000 b/d currently produced on average. Exxon-Mobil will continue to sell the remainder.

It is believed that the money will be managed by the long-standing director of the SHT, Khazali Acyl Ahmat, who is related by marriage to the country's president, Idriss Deby. The World Bank accused the Chadian state of diverting oil revenue intended for social spending to expenditure on defence, leading to the break-down of co-operation between the two parties in 2008 (December 2008, Foreign trade and payments). However, the great improvement in the security situation since then means that military spending may no longer be such a priority. Consequently, the SHT's new revenue stream is likely to be used in large part for the government's priority areas of infrastructure, health and education.

Following a meeting with the Chinese minister of foreign affairs, Yang Jiechi, in the Chadian capital, N'Djamena, in mid-February the president, Idriss Déby, announced that he hoped to boost co-operation between the two countries, particularly in the fields of health, infrastructure, telecommunications and health. Although the term "co-operation" is in fact a euphemism for Chinese aid in exchange for access to Chad's hydrocarbons reserves, that in no way detracts from the large and growing importance of China to Chad as a source of imports and investment. Symbolic of this increasingly important relationship, in mid-February Mr Déby and Mr Jiechi jointly laid the foundation stone of a new parliament building in the Chadian capital, which will be paid for by China.

However, the relationship has not always been easy. In September the Chinese government warned contractors to be extra vigilant while working in Chad following the kidnap of a Chinese businessman in the company by "bandits". Equally, much as the Chadian population appreciates the benefits of infrastructure projects completed with Chinese money, there is increasing resentment at the lack of local jobs that these generate. For example, construction of an oil refinery north of N'Djamena is being undertaken almost entirely by Chinese workers. The majority shareholder in the project, China National Petroleum Corporation (CNPC), argues that this is inevitable given the lack of skilled local workers, but has pledged to train more Chadians in the future. Located at Djermaya, just north of N'Djamena, on the route to Massaguet, the small refinery (with initial processing capacity of 20,000 barrels/day) is scheduled to be operational by 2011. The refinery will be supplied with crude oil piped from the Koudalwa field, 300 km away in the Chari-Baguirmi region. The refinery underscores another growing local concern about Chinese investment in Chad: the environmental impact. Environmentalists have noted that the refinery will be barely 15 km from the Chari River, which feeds Lake Chad, the country's primary source of water, and which is already being rapidly depleted.