2009 Index of Economic Freedom

Quick Facts

Population:

• 10.5 million

GDP (PPP):

• $15.5 billion
• 0.2% growth
• 12.4% 5-year compound annual growth
• $1478 per capita

Unemployment:

Inflation (CPI):

• -8.8%

FDI Inflow:

• $700.0 million

Chad's economic freedom score is 47.5, making its economy the 161st freest in the 2009 Index. Its overall score is 0.4 point lower than last year as a result of worsened scores in government spending and freedom from corruption. Chad is ranked 38th out of 46 countries in the Sub-Saharan Africa region, and its overall score is lower than the regional average.

Chad scores better than the world average only in terms of monetary freedom and government size. However, the low level of government spending in this case is a sign of government weakness, not efficiency. Monetary stability remains under control, but the government intervenes in the prices of certain goods. Sound fiscal governance is vital to stabilizing an economy that is strained by security expenditures and overly reliant on oil revenues.

Chad scores very poorly on other key institutional factors such as the business and investment climate, labor market flexibility, and taxation. Individual income tax rates are as high as 60 percent. Starting a business takes over two months, and both licensing and closing a business are time-consuming and costly. The weak rule of law, coupled with rampant corruption, remains a serious impediment to developing a more dynamic and vibrant private sector.

Background Back to the top

Chad is thinly populated, landlocked, politically unstable, and impoverished, with over 80 percent of the population engaged in subsistence agriculture, herding, and fishing. Development of the oil sector since 2000 has encouraged economic growth. President Idriss Deby has ruled continuously since seizing power in 1990, surviving a number of coup attempts and ongoing political violence. Conflict between the government and rebels in eastern Chad and unrest in Sudan's Darfur region have resulted in hundreds of thousands of Chadian and Sudanese refugees, and each country has accused the other of supporting rebels in its territory.

Business Freedom 35.7 Back to the top

The overall freedom to start, operate, and close a business is seriously limited under Chad's national regulatory environment. Starting a business takes almost twice the world average of 38 days, and the administrative cost of establishing a business remains quite high.

Trade Freedom 58.4 Back to the top

Chad's weighted average tariff rate was 13.3 percent in 2005. Numerous import fees, inappropriate customs valuation for some products, a non-transparent customs code, weak enforcement of intellectual property rights, non-transparent government procurement procedures, corruption, and inefficient customs administration add to the cost of trade. Fifteen points were deducted from Chad's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 50.5 Back to the top

Chad has very high tax rates. The top income tax rate is 60 percent, and the top corporate tax rate is 40 percent. Other taxes include a value-added tax (VAT), a property tax, and an apprenticeship tax. In the most recent year, overall tax revenue as a percentage of GDP was 4.2 percent.

Government Size 90.8 Back to the top

Total government expenditures, including consumption and transfer payments, are low. In the most recent year, government spending equaled 17.5 percent of GDP. Most state-owned enterprises have been privatized, but the energy and telecommunications sectors remain under state control.

Monetary Freedom78.6 Back to the top

Inflation is declining, averaging 3.2 percent between 2005 and 2007. Most prices are determined in the market, but the government influences prices through state-owned enterprises and regulation of such key goods and services as cotton, telecommunications, water, road transportation, and energy. Ten points were deducted from Chad's monetary freedom score to adjust for measures that distort domestic prices.

Investment Freedom40.0 Back to the top

Chad does not limit foreign ownership and provides equal treatment to foreign investors, subject to certain bureaucratic requirements. There are some sectors in which foreign investment is restricted. Investment is inhibited by inadequate infrastructure and technical expertise, burdensome taxes, weak dispute mechanisms, and corruption. Bureaucracy is burdensome and non-transparent and can be arbitrary. Both residents and non-residents may hold foreign exchange accounts with government approval. Capital transactions, payments, and transfers to certain countries are not subject to restrictions; when made to other countries, they are subject to controls.

Financial Freedom40.0 Back to the top

Chad's small financial sector is underdeveloped and hindered by inadequate management and political instability. Chad and the five other countries in the Central African Economic and Monetary Community share a common central bank and a common currency pegged to the euro. Significant banking privatization was completed in the 1990s, and there are now five commercial banks. However, informal financial services are common, and supervision and regulation are insufficient. The government has encouraged lending to CotonTchad to finance restructuring of the cotton sector. The small insurance sector is dominated by the formerly state-owned Star Nationale. There is no capital or money market, and sophisticated financial instruments are unavailable.

Property Rights20.0 Back to the top

Protection of private property is weak. It is widely felt that the courts should be avoided at all costs, and most disputes are settled privately. The constitution guarantees judicial independence, but most key judicial officials are named by the president and influenced by the executive branch. Judicial authorities are widely assumed to be subject to political influence, and legal clerks often obstruct procedures to elicit bribes.

Freedom From Corruption18.0 Back to the top

Corruption is perceived as rampant. Chad ranks 172nd out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Corruption exists at all levels of government. It may be most pervasive in the customs and tax enforcement services, but it is notable in the judiciary and the government procurement office as well.

Labor Freedom42.6 Back to the top

Burdensome employment regulations hinder job creation and productivity growth. The non-salary cost of employing a worker is high, and dismissing a redundant employee is relatively costly. Restrictive labor laws and legal uncertainty discourage entrepreneurial activity.