Chad

Excerpt from Africa Housing Finance Yearbook 2015

Overview

Chad, a predominantly rural, land-locked country, is recovering from four decades of continual conflict. Its 1 284 million km2 are bordered by Libya to the north; Sudan to the east; Central African Republic (CAR) to the south; and Cameroon, Niger and Nigeria to the west. Chad holds substantial oil reserves, which have been exploited since 2000 through a US$4.2 billion World Bank-financed pipeline. Government’s finances have increased drastically due to the oil revenue. However, the increase in public spending has been predominantly on its military, in violation of the requirement by the World Bank that the oil revenue should be directed towards poverty reduction efforts. This led to the IMF and World Bank severing its relationship with the government in 2010. Chad’s relations with these institutions have recently been restored, and the country was provided, in May 2015, with debt relief to the value of US$1.1 billion.

Throughout 2015, new oil fields are coming into production; the output of established, ageing fields’ production have gradually decreased. Chad’s dependency on oil makes the economy vulnerable

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Excerpt from Africa Housing Finance Yearbook 2015

Overview

Chad, a predominantly rural, land-locked country, is recovering from four decades of continual conflict. Its 1 284 million km2 are bordered by Libya to the north; Sudan to the east; Central African Republic (CAR) to the south; and Cameroon, Niger and Nigeria to the west. Chad holds substantial oil reserves, which have been exploited since 2000 through a US$4.2 billion World Bank-financed pipeline. Government’s finances have increased drastically due to the oil revenue. However, the increase in public spending has been predominantly on its military, in violation of the requirement by the World Bank that the oil revenue should be directed towards poverty reduction efforts. This led to the IMF and World Bank severing its relationship with the government in 2010. Chad’s relations with these institutions have recently been restored, and the country was provided, in May 2015, with debt relief to the value of US$1.1 billion.

Throughout 2015, new oil fields are coming into production; the output of established, ageing fields’ production have gradually decreased. Chad’s dependency on oil makes the economy vulnerable to fluctuation in oil prices, which are expected to remain at the current low levels for the foreseeable future. This resulted in an economic growth rate that has varied between zero and 40 percent since 2004. Last year, largely because of increased oil output, economic growth was at 7.2 percent, resulting in a GDP per capita of US$1 053. Despite the considerable economic growth, inflation has remained low, consistently below four percent.

Even with the newfound oil wealth, the majority of Chadians support themselves through agriculture. The agricultural sector—predominantly based in the southwest, with the main produce being cotton and livestock—is vulnerable to variations in rainfall. The continued shrinking of Lake Chad and lower than typical rainfall—a trend that is expected to continue because of climate change—has steadily decreased the availability of water over the last past decade, resulting in food shortages in 2011.

Investors, donors and the government would be encouraged by the reduced threat of internal conflict, largely the result of the stabilisation of relations with Sudan. The region, though, continues to threaten Chad’s stability, with numerous conflicts in bordering countries. Libya and CAR have been engulfed by civil wars, Mali has struggled with a recent insurgency, and Boko Harem has established a devastating presence along its shared border with Nigeria, Niger and Cameroon. Chad has deployed troops into Cameroonian and Nigerian territory to combat Boko Haram (the area in which Boko Haram operates forms part of Chad’s most significant trade corridor.) Overall, Chad has recently made an effort to improve its governance and has acknowledged the reforms that the country requires, while attempting to protect its economic interests by combating Boko Haram and trying to increase its regional importance by involving itself in the conflicts in CAR and Mali.

Access to Finance

Chad is a member of Central African Economic and Monetary Community (CEMAC), which has a regional central bank—the Bank of Central African States (BEAC). All banks in Chad are subject to oversight by the Central Africa Banking Commission (COBAC), which is part of BEAC. As of October 2014, eight banks were authorised by BEAC to operate within Chad. All eight banks have, to varying degrees, some form of foreign ownership. Five of the banks— BSIC, Ecobank, Orabank, Société Générale and United Bank for Africa—are subsidiaries of multinational banks. The eight banks vary in size, and with a share capital of between CFAF 6 billion (US$20 million) and CFAF 12 billion (US$40 million). According to Making Finance Work for Africa (MFW4A), despite the foreign linkages, these banks are not well integrated into global financial markets, inhibiting the development of the financial sector while providing protection from global financial market fluctuations.

Chad, like all countries in CEMAC, utilises the CFA franc, a currency which is pegged to the Euro. BEAC has an interest rate of 2.95 percent, down from four percent in 2013. This rate has averaged 3.78 percent from 2009 until 2015, with a high of 4.25 percent in July of 2009 and a low of 2.95 percent in July of 2014. The IMF, in 2014, claims that lending rates by banks can be as high as 13 percent in some CEMAC countries. Most of BEAC’s lending is to CEMAC governments, creating a situation where the Chadian government does not need to issue treasury bonds. The bond market is also not an option for private developers who wish to raise capital for developments.

Financial inclusion is low in Chad, even among the wealthy. Only 12 percent of the population has formal bank accounts, just 30 percent of the richest 20 percent. According to Findex 2014, only two percent of the adult population borrowed from a formal institution in 2014, as the majority of Chadians who have borrowed money do so from a relative or friend. This is a the trend across the region, as the low rate of financial inclusion across CEMAC represents the shallowness of the banking sector— the IMF report states that banks hold excess reserves (200 percent of reserve requirements) and lack the sophistication to adequately assess risk.

Even with the low rate of financial inclusion, there were consistently, between 2000 and 2012, well over 100 microfinance institutions in operation in Chad—the second highest number in CEMAC. Currently, according to MFW4A, there are over 200 microfinance institutions in operation, though most are primarily involved in agriculture. The IMF predicts that the microfinance sector will continue to grow, increasing financial inclusiveness in the country. Microfinance institutions, like banks, are subject to regulatory oversight by COBAC.

According to Findex 2011, 7.3 percent of adults had an outstanding loan to purchase a house. Data from Findex 2014 shows that 4.5 percent of adults have an outstanding mortgage (note that these numbers are not directly comparable). At 5.4 percent, a greater percentage of adults in rural areas had a mortgage than those in urban areas. Some of the banks do provide mortgages. Orabank offer a mortgage for a loan repayment term between five and 10 years, at an average rate of nine percent to those who are formally employed, or to private companies or multinationals. BSIC also offers property loans. Though it is unclear whether the other formal banks offer mortgages, data suggests that rates offered on mortgages may be between 14 and 15 percent. The availability and accessibility of housing finance is limited in Chad, due to both the affordability and supply of housing.

Affordability

With over 90 percent of its urban inhabitants living in informal settlements, according to UN Habitat, Chad suffers from a severe shortage in the provision of affordable housing. Chad aimed, under its 2013 – 2015 National Development Plan, to increase access to decent housing to 32 percent, from 28 percent in 2011. The World Bank claims that the inadequate and informal nature of housing is because of the extremely high cost of building materials, stating that this is the reason that the rental market is predominantly informal. In contrast, typical of low income countries with dominant oil sectors, N’Djamena is ranked as the tenth most expensive city to live in for expatriates by Mercer’s Cost of Living Survey, in its worldwide assessment of 211 cities in 2015, down from second position in 2014.

According to Numbeo, the rental cost of a formal one-bedroom apartment in urban Chad is US$580 a month. In contrast, the average annual general expenditure per capita, in 2011, was CFAF 231 190 (US$394), ranging from CFAF 66 321 (US$113) for the poorest households to CFAF 617 292 (US$1 060) for the wealthiest. Taking into consideration Chad’s GDP per capita (US$1 053, which includes the significant contribution to the economy by the oil sector) and its poverty rate (46.7 percent), the rental figures collected in Numbeo highlights how unaffordable formal housing is.

While there have been initiatives to decrease the cost of imports, such as road paving funded by the World Bank, the remoteness of N’Djamena and the lack of initiatives to provide affordable housing—marked by the fact that none of the loans provided by international donors have been for housing—means that the high cost of formal housing is likely to remain. For the resale market, the World Bank’s Doing Business 2015 report states that the standard price of property was CFAF 24 793 141 (US$43 000). There is little data available on the cost of constructing a house but what there is suggests that it continues to be high. An example of this is demonstrated by Chad having the most expensive cost per a classroom in Africa: the average construction costs for a classroom, according to the World Bank, was US$57,229 in 2009, compared to a continental average of US$6,740. At this cost, US$741 per m2 , a 40 m2 house would cost US$30 000 to build, though it is likely cheaper to build a classroom than a house. In terms of developments, 405 houses were constructed by Lutheran World Federation (LWF) for refugees at a cost of US$45 500 a house in 2013; in 2014, LWF report that it was able to build more houses at a cost of US$25 000. The lack of supply of adequate and affordable housing means that data on the cost of construction is scarce.

Housing Supply

Supply of housing in Chad is predominantly provided informally. Its remote, land-locked location drastically increases the price of imported building materials, while local manufacturing in the local economy is limited. Chadians tend to construct incrementally, accessing financing through family and informal sources, both in urban and rural areas, predominantly with traditional building materials.

There is little information available on the supply of housing in Chad. Improvements in housing have been slow: 77.5 percent of urban housing was inadequate in 2003, decreasing to 73.1 percent in 2011. The oil boom has increased demand for formal housing at the top of the market but has done little to increase the supply in the affordable market. Most new formal construction happens at the high-end of the market, with the government constructing 60 deluxe houses for an African Union summit in 2015. The Chadian government announced the construction of 14 000 social housing units at the beginning of 2014, to be constructed by Morocco, but it is not clear what progress has been made with this initiative. And the government foresees the construction of 125 000 new housing units by 2025.

77.66 percent of households (just over 2 million) are rural, with only 9.17 percent (just under a quarter of a million) living in major urban areas. According to UN Habitat, Chad’s average household size has consistently been around eight for the past two decades, though it is gradually decreasing, and is expected to be 7.5 in 2025. Urban households bring down this average, with an average size just above five.

Property Markets

Chad has a small and limited property market. Most housing is informal, and sales take place on the informal market. The formal market serves the elite, with little turnover. This may be changing, as the World Bank, in 2011, stated that a ‘booming urban economy is driving improvements … in housing quality,’ with notable increases in the rate of asset ownership and adequate flooring.

The World Bank’s Doing Business Index 2015 reveals some of factors that inhibit the development of Chad’s property markets: registering property involves 7 procedures, taking 44 days and at a cost of 15.2 percent—down from 15.4 percent from 2014—of the price of the property. This means that Chad is ranked as the 166th country in the world in terms of ease of registering a property. Though it takes less time to register a property than in an average sub-Saharan African country, the process costs six percentage points more than the regional average.

Chad does have property taxes. According to Monkam, property taxes are only implemented in N’Djamena, and even then it is unevenly and poorly enforced. The tax rate on properties is 12 percent in N’djamena and 11 percent in other municipalities, though rates increase to 21 percent if the land is undeveloped. The tax is calculated according to the annual or rental value of a property. Property tax collection is hampered by non-compliance and corruption, impeding local governments’ ability to provide services yet reducing the tax burden on property owners. Beyond property tax, developers would be subject to a corporate tax rate of up to 40 percent, while the highest personal tax rate is 60 percent.

Policy and Regulation

Chad has a National Housing Strategy (SNL), which is implemented through the Ministry of Urban Development and Housing and was adopted in 1998/1999. The most recent policy document for housing is the 2013 – 2015 National Development Plan (PND), which states that, as ‘an emerging regional power by 2025, supported by diversified and sustainable sources of growth that create added value and employment and assure every Chadian adequate access to basic social services [and] decent housing.’ As part of the PND, Chad has allocated CFAF 12.05 billion (US$20 million) to housing and provided the Ministry of Urban Development and Housing with a budget CFAF 6.29 billion (US$5 million), for the period 2013 – 2015.

The government has undertaken the following initiatives: it intends to clarify the laws governing property and land ownership, modernise the land-registry services, and launch property surveys in N’Djamena. Additionally, according to the World Bank, ‘in N’Djamena and a few other cities and towns, 4 082 lots have been established by subdividing land.’ A Land and Real Estate Promotion Corporation (SOPROFIM) was recently established, and the Corporation intends to set up the Housing Mortgage Bank. However, it seems that the Bank will largely be concerned with the upper-end of the market.

Chad’s land legislation has not been updated since 1967, even though the government recognises its inadequacy. As with many African countries, the state holds all private and public land. This means that all land that is considered vacant or unoccupied is the property of the state. Land that is occupied falls under a number of different legal regimes. Islamic law, present in northern and central Chad, provides for ownership. Formal law allows for freehold rights, providing for the occupation and transfer of land. Leaseholds are recognised under formal law, though the extent to which it is formally present is uncertain. Communities are mandated to provide occupancy rights.

Chad updated its investment legislation in 2007, adopting the National Investment Charter Act, in accordance with the regulations of BEAC. The government has also passed a law establishing the National Investment and Export Promotion Agency. It is unclear how this has impacted investors, though in 2009 the African Development Bank criticised the business environment of the country. The National Investment Charter Act included provisions that called for the enactment of a land law consistent with the legislation on contracts and strengthening of commercial courts.

Opportunities

With a relatively stable economy, the government is seemingly intent on improving its standing with international lenders, and the possibility of new oil production and mineral exploitation, Chad’s fortune can improve. Its membership to BEAC provides a stable monetary framework, while political instability is less of a threat to the government than it has been in the past. Chad offers an interesting market to work in, and one desperately in need of affordable housing developments. The high cost of formal construction provides developers with the opportunity to gain substantial market share by innovating in the affordable segment of the market.

 

 

Sources

IFC. (2009). Enterprise surveys: Chad: Country Profile 2009, World Bank Group. Retrieved from http://www.enterprisesurveys.org/~/media/GIAWB/EnterpriseSurveys/Documents/Profiles/English/Chad-2009.pdf.

IMF. (2014). Central African Economic and Monetary Community (CEMAC): IMF country report No. 14/305, International Monetary Fund Publication Services: Washington.

IMF. (2015). Chad — IMF executive board completes first review under the ECF arrangement, approves augmentation and us$27.7 million disbursement, International Monetrat Fund press release. Retrieved from https://www.imf.org/external/np/sec/pr/2015/pr15181.htm.

IMF. (2015). Poverty reduction strategy paper—Joint staff advisory note on the 2013 monitoring report of the National Development Plan 2013-15. Retrieved from

Irish, J. (2014). Chad to double oil output by 2016, develop minerals -minister, Reuters. Retrieved from http://www.reuters.com/article/2014/10/07/chad-economy-idUSL6N0S21K620141007.

Monkam, N. (2010). Mobilising tax revenue to finance development: The case for property taxation in Francophone Africa, Working paper 195, University of Pretoria. Retrieved from http://www.up.ac.za/media/shared/61/WP/wp195.zp39411.pdf.

N’Kodia, C. (2014). Chad, African Economic Outlook. Retrieved from http://www.africaneconomicoutlook.org/en/countries/central-africa/chad/.

Polgreen, L. (2008). World Bank ends effort to help Chad ease poverty, New York Times. Retrieved from http://www.nytimes.com/2008/09/11/world/africa/11chad.html?_r=0.

Steffen, S. (2015). Chad: The role of economic interests in Chad’s fight against Boko Haram, Deutsche Welle . Retrieved from http://www.dw.de/the-role-of-economic-interests-in-chads-fight-against-boko-haram/a-18234847.

UNHABITAT. (2014). The state of African cities 2014: Re-imagining sustainable urban transitions, United Nations Human Settlements Programme: Nairobi.

USAID. (2010). USAID country profile: Property rights and resource governance: Chad, USAID. Retrieved from http://usaidlandtenure.net/sites/default/files/country-profiles/full-reports/USAID_Land_Tenure_Chad_Profile.pdf.

World Bank. (2011). Republic of Chad public expenditure review update: Using public resources for economic growth and poverty reduction, Poverty Reduction and Economic Management 3: Africa Region. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/2821/576540ESW00P110IC0disclosed02070120.pdf?sequence=1.

World Bank. (2013). Republic of Chad poverty notes: Dynamics of poverty and inequality following the rise of the oil sector, Poverty Reduction and Economic Management 4: Africa Region. Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/19322/809350ESW0P1270Gray0cover00PUBLICTD.pdf?sequence=1.

World Bank. (2015). The Republic of Chad joint staff advisory note on the

2013 monitoring report of the National Development Plan 2013-2015: Report No. 95505-TD, World Bank. Retrieved from http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/04/15/000442464_20150415110358/Rendered/PDF/955050PRSP0IDA0Disclosed04013020150.pdf.

 

 

Websites

www.africareport.com

www.allafrica.com

www.beac.int

www.cia.gov/library/publications/resources/the-world-factbook

www.data.imf.org

www.doingbusiness.org

www.mfw4a.org

www.mixmarket.org

www.tradingeconomics.com

http://mirror.unhabitat.org/content.asp?cid=664&catid=186&typeid=13