Development Gone Awry in Chad

Stephen DeAngelis

February 15, 2007

Lisa Margonelli, an Irvine Fellow at the New America Foundation writing in a blog published by the New York Times, provides an update of what, a few years ago, was billed a model oil development program in Chad [“The Short, Sad History of Chad’s ‘Model’ Oil Project,” 12 February 2007]. The update reveals why getting development right is so difficult. It is not just a matter of process. Development demands security, competent and clean governance, public/private partnerships, and diversification as well as the right approach. Margonelli writes:

“Since the arrival of the oil money, life in Chad, a country three times the size of California with only a few hundred miles of paved roads, has gotten worse: the conflict in Darfur has spread from Sudan into Chad; the country’s government, already weak and corrupt, has become weaker and more corrupt; and bandits have become rebels. All of this in a country of 9 million people, 80 percent of whom live on less than a dollar a day.”

What might have worked in a “good neighborhood” didn’t really have a chance in one of the world’s worst neighborhoods. The international community’s inability to deal with the genocide in Darfur certainly contributed to the failure of the oil program in Chad.

“Only four years ago World Bank officials called Chad a ‘model’ for oil and development projects in other countries. The World Bank’s support had been crucial in making the project possible. Commercial banks had already looked at Chad’s history of civil war and thought it too risky to develop the country’s oil resources. The World Bank stepped into the mix as a key guarantor, getting Chad’s president to agree to distribute some of the oil revenue to development projects, and allow a panel of citizens to oversee the spending. They also persuaded Exxon Mobil to adhere to high social and environmental standards. In 2003, the project was considered state of the art — with safeguards for the environment and transparency — though critics said these structures were too weak. American taxpayers backed $293 million in World Bank loans, as well as $200 million in loans from the United States Export-Import Bank for the project. Money in hand, Exxon Mobil, as leader of a consortium that included ChevronTexaco and the Malaysian company Petronas, invested $4.2 billion dollars in developing oil fields in Chad and building a pipeline to an export terminal on the coast of Cameroon. It was the largest investment ever in Africa, and Exxon Mobil followed through on its commitment to hold thousands of community meetings. But the project had barely gotten started when word got out that Chad’s president Idriss Deby had spent $4.5 million in bonus money paid by the oil companies on weapons to fight rebels within his own borders. World Bank officials quickly made the president return the money to the oil program, but Deby continued to push his way around the much-lauded safeguards. Meanwhile, Chad became a key player in the war on terrorists in the Sahel region of Africa, and the United States began offering antiterrorism training to Chad’s military. Last year Deby demanded oil money for his army, and in April of 2006, World Bank president Paul Wolfowitz agreed to change the agreement to allow Deby to buy weapons with money earmarked for development on the condition that 70 percent of Chad’s overall budget be spent on development.”

Exxon Mobil seems to have entered this agreement in good faith and the Chad government probably did as well. After all, this was the largest single investment ever made in Africa. Good intentions, however, cannot trump a lack of security, which appears to be the most prominent factor in the demise of the project. Not only does instability and conflict draw money away from development projects, it requires manpower that is no longer available to support development projects or contribute to economic growth. One other factor that was missing in Chad was diversification. No country that relies almost entirely on a single resource for its economic health has ever successfully raised its people out of poverty.

“Statistically, it’s not a surprise that oil money has destabilized Chad. Many academic studies show that underdeveloped countries that are highly dependent on money from natural resources tend to be poorer, less democratic and more unstable than similar countries without resource revenues. What’s surprising is how quickly Chad has deteriorated. Things haven’t gone well for the oil companies either. Last summer, Deby tore a page from Hugo Chavez’s playbook and started talking about nationalizing Chad’s resources. In August he ordered ChevronTexaco and Petronas to leave the project in Chad, claiming they owed $500 million in unpaid taxes. Now there are rumors that Chad would like to replace Exxon Mobil with a Chinese oil firm to get a bigger share of profits and work on a new development program with the help of the Chinese government.”

When I talk about our Development-in-a-Box™ approach, I always stress that development must be addressed holistically. Development has a security dimension, an infrastructure dimension, a process dimension, a governance dimension, a rule of law dimension, and a public/private partnership (or community of practice) dimension in addition to the many economic development aspects that provide the diversity I’ve been discussing. Most of these factors are missing in Chad.

“‘The shorthand of what went wrong in Chad is that the revenue-management law was based on the expectation that a law could fix something in a country without the rule of law,’ Ian Gary, a policy advisor for the relief agency Oxfam, who has been studying the project since its inception, told me. ‘Chad has no independent judiciary, no history of peaceful transfer of power and no locally elected officials. All the power is located in the presidency, and it’s only grown more concentrated over time. The [World Bank] characterized the project as “High risk. High reward.” If it went well the bank would have looked good, but all the risk was born by the people of Chad.'”

Tom Barnett has often discussed the “big bang” theory that led Bush to overthrow Saddam Hussein in Iraq. The idea being that success there would have generated a sea change of democracy throughout the Middle East. Something similar was hoped for from a successful oil development project in Chad.

“The Chad model was important to the United States, if only because its success would have meant that similar programs might have a chance of working in Kazakhstan, Sao Tome or even Iraq — places that might become friendly oil producers. As the power struggles in Chad continue, the United States is losing much more than a single potential friend and oil supplier; the area around Chad — including Darfur and Libya — is becoming involved in conflict. ‘The oil project didn’t create the problems in Chad,’ observed a researcher who has followed Chad closely and who spoke with me on the condition that he remain anonymous. ‘But it’s made peacemaking more difficult because the huge amounts of cash coming into the country represent a prize. Rebels now attack the government and get paid off with oil money — there’s sort of an economy of peacemaking developing.’ The crisis in Darfur, he says, requires a large coordinated regional solution — one that is nearly impossible with the oil-fueled conflict next door.”

Because things have gone bad, I fear people will learn the wrong lesson. The oil project started out right, but it didn’t take into account all of the factors that could derail it. Such approaches still hold promise, but only if undertaken within a broader process that builds capacity and diversity within the developing state. Lasting development begins with good governance and that is in very short supply in much of the world.