Tuesday, May 4, 2010

Key political risks to watch in Nigeria


By Nick Tattersall

LAGOS, May 4 (Reuters) - A rift in Nigeria's ruling party ahead of presidential polls, resurgent crime in the Niger Delta oil region and tough financing conditions for businesses and consumers are clouding an otherwise bright investment outlook.

Africa's most populous nation is a compelling frontier market and some foreign investors are slowly returning to its capital markets, but its volatile politics with elections due by early next year means many remain on the sidelines for now.

Following are some of the factors investors are watching.


The ruling People's Democratic Party (PDP) has dominated politics since Nigeria's return to democracy just over a decade ago, with its nominee winning all three presidential races since then and its members holding strong parliamentary majorities.

There is disagreement over who its candidate for the next election should be, raising the prospect of fiercely contested primaries, or even a split in the party which could lead to the presidential election being more than a one-horse race.

President Umaru Yar'Adua, who returned from a Saudi hospital in February, remains too sick to rule and is unlikely to seek a second term.

PDP Chairman Vincent Ogbulafor has said the party nominee should be from Yar'Adua's Muslim north, abiding by the terms of an unwritten agreement in the party that power rotates between north and the mostly Christian south every two terms.

But Acting President Goodluck Jonathan, a southerner, has not ruled himself out of the race and some northerners have said they would support him.

Ogbulafor's position looks precarious after corruption charges were filed against him and a faction of the party, later suspended, launched a rebellion. [ID:nLDE63P1UZ]

Some senior PDP figures have privately warned that a Jonathan candidacy would split the party. Former military ruler Ibrahim Babangida and former Vice President Atiku Abubakar have both said they want the PDP nomination. [ID:nLDE63B0Y9]

What to watch:

-- Elections brought forward. Nationwide polls, including the presidential race, are due by April 2011 but could be brought forward to as early as late this year if reforms before parliament are passed. That could mean the key ruling party primaries taking place as early as August. A smooth early election would end the current uncertainty and allow investors to look forward to the new administration's policy direction.

-- Growing support for a Jonathan candidacy. Jonathan has not ruled out contesting the polls but wants at least three months to see how reforms take hold first. Campaign posters appeared in his support around Abuja, but Jonathan's office said they were not authorised by him. [ID:nLDE63O059]

Should Jonathan make progress on reforms in coming months, investors may welcome the consistency in policy a Jonathan presidency would bring.

-- Yar'Adua dies or is declared incapacitated. If a two thirds majority of Jonathan's new cabinet declares Yar'Adua permanently unfit to rule, and a medical panel supports this view, he ceases to hold office.

This would mean Jonathan being sworn in as substantive president and the appointment of a new vice president, likely to be a northerner who could go on to be the ruling party candidate in the next elections. [ID:nLDE5BF1G3]


Jonathan appointed a new cabinet in April which his supporters say will enable him to move ahead with priorities including electoral reform, maintaining peace in the Niger Delta, tackling corruption and providing more reliable electricity supply. [ID:nLDE63209J]

But critics are concerned the new ministers -- including Finance Minister Olusegun Aganga, a former Goldman Sachs (GS.N) executive, and Diezani Allison-Madueke, Nigeria's first female oil minister -- could take time to get to grips with their new roles, slowing government business down.

With elections due in less than a year, the administration has limited time to accomplish all this.

What to watch:

-- Electoral reforms. Legislation before parliament is supposed to help Nigeria avoid a repeat of the chaotic polls that brought Yar'Adua to power in 2007, marred by widespread ballot-stuffing and voter intimidation.

The widely criticised Independent National Election Commission Chairman, Maurice Iwu, who oversaw the 2007 polls, has been dismissed in a move seen as vital for electoral reform.

-- Petroleum Industry Bill. Wide-ranging overhaul of the energy industry which will redefine Nigeria's relationship with foreign partners. It is touted by government as the solution to everything from funding shortfalls for exploration and production projects to budget-debilitating fuel subsidies, although some in the oil industry fear it will make Nigeria less competitive as an investment destination.

-- Banks reforms. The central bank badly needs a bill before parliament passed to create an asset management company to soak up bad loans, freeing up bank balance sheets so they can start lending again. This would also make rescued banks more attractive to new investors and support market confidence.

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