LAGOS, April 1 Uncertainty over the shape of Nigeria's new cabinet, how a presidential succession will play out and the threat of unrest in two of its most turbulent regions are clouding an otherwise bright investment outlook.
Africa's most populous nation remains a compelling frontier market for foreign investors but its volatile political climate, which poses risks to everything from oil production to banking reforms, means many remain on the sidelines for now.
Following are some of the factors investors are watching.
The Senate has confirmed 38 new ministers proposed by Acting President Goodluck Jonathan, including the country's former junior oil minister and a senior Goldman Sachs (GS.N) executive, but portfolios have not yet been assigned. [ID:nLDE62U1PW]
The move came two weeks after Jonathan sacked the cabinet in a bid to assert his authority a month after assuming executive powers in the absence of ailing President Umaru Yar'Adua, who remains too sick to govern.
Former Minister of State for Petroleum Odein Ajumogobia, tipped as a possible oil minister, and Olusegun Aganga, a London-based executive at Goldman Sachs seen as a contender for a finance ministry post, were among those confirmed.
Jonathan's backers hope the installation of his own team will enable him to accelerate priorities including electoral reform, reviving an amnesty in the oil-producing Niger Delta and providing more reliable power supply in the 14 months left of this presidential term.
But new names in key ministries could also slow business down as newcomers get to grips with their roles, analysts say.
What to watch:
-- the new oil minister. Outgoing oil minister Rilwanu Lukman was the architect of wide-ranging reform plans for Nigeria's energy industry. A newcomer may want to make further adjustments to the legislation.
-- the new finance ministry. Goldman Sachs banker Aganga, former junior finance minister Remi Babalola, and a former finance minister, Shamsuddeen Usman, are among the nominees.
Aganga's appointment would come as Nigeria seeks to woo foreign investors into its capital markets and pushes ahead with bank reforms, but some have questioned whether a stellar private sector career is preparation enough for political office.
President Umaru Yar'Adua returned from three months in a Saudi clinic on Feb. 24 but remains too sick to govern.
Jonathan has moved fast to assert his authority, appointing respected ex-military general Theophilus Danjuma as a top adviser and Aliyu Gusau as national security adviser, another retired general seen as a potential presidential candidate in elections due by April next year. [ID:nLDE6272CK]
Jonathan is a southerner, meaning he is unlikely to stand in the elections because of an unwritten agreement in the ruling party (PDP) that power rotates between north and south every two terms. Under the system, the next leader should be a northerner.
What to watch:
-- Yar'Adua dies or is declared incapacitated. If a two thirds majority of Jonathan's new cabinet declares Yar'Adua permanently unfit to rule, 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 will be the ruling party candidate in the next elections. [ID:nLDE5BF1G3]
-- Elections brought forward. Nationwide polls, including the presidential race, are due by April 2011 but could be brought forward to as early as the end of this year if reforms before parliament are passed. That could mean the key ruling party primaries taking place as early as August.
An amnesty programme brokered last year by Yar'Adua led thousands of gunmen to lay down weapons, the most concerted effort yet to win peace, bringing more than six months without significant attacks on Africa's biggest oil and gas industry.
But the programme stalled in Yar'Adua's absence and while Jonathan has made getting it back on track one of his top priorities, the peace has started to fray around the edges.
The main militant group MEND has said it is still waiting to assess progress by Jonathan before deciding whether to reinstate a ceasefire. But it detonated two car bombs outside amnesty talks earlier this month as a warning. [ID:nLDE62E0WH]
A splinter faction claimed two attacks on Shell (RDSa.L) and Agip (ENI.MI) in early March. [ID:nLDE6231CC]
Nigeria's light crude is popular with U.S. and European refiners as it is easily processed into fuel products, meaning disruption to supplies can have a quick market impact. Attacks on the country's energy infrastructure helped lift global oil prices to record highs near $150 a barrel in 2008.
What to watch:
-- Peace talks. Jonathan has made reviving the amnesty a priority and officials have said he will meet with key militant leaders. Decisive action by government could encourage MEND to reinstate its ceasefire.
-- Sidelining Jonathan. Any perception that Jonathan is being undermined by Yar'Adua loyalists could trigger a reaction in the delta in the form of a warning strike against an oil installation, security experts say.
-- Attacks on oil services companies. Firms including Shell (RDSa.L), Chevron (CVX.N), ExxonMobil (XOM.N), Total (TOTF.PA) and Agip have born the brunt of past attacks but MEND has warned any new unrest could also target suppliers and contractors.
ETHNIC OR RELIGIOUS UNREST
Clashes between Christian and Muslim gangs in central Nigeria, the country's main ethnic and religious fault line, have killed hundreds of people since the start of the year. [ID:nLDE6281QO]
The violence is rooted in decades of resentment between Christian villagers and Muslim settlers from the north, who compete fiercely for control of fertile farmlands as well as economic and political power.
But the region is seen as a microcosm of the wider country, highlighting how sensitive it is to shifts in the balance of power between its main ethnic and religious groups.
The government has come under criticism for failing to address the root causes of the unrest -- poverty and discrimination -- and for failing to prevent violence from continuing despite the deployment of the military in January.
What to watch:
-- Further outbreaks of violence. Many Nigerians believe that such clashes are engineered by politicians. The last thing Jonathan needs as he steers government through a difficult period is further bloodshed at the heart of the nation.
-- Increased use of military. As much as three quarters of the rank-and-file in the Nigerian army are from the "Middle Belt", the border region between Muslim north and Christian south, and deployments in the region are highly sensitive, with the potential to expose the military's internal divisions.
POLICY AND MARKETS
Nigeria's financial markets have so far largely shrugged off political uncertainty but there is a risk of key reform bills, including the Petroleum Industry Bill needed to overhaul the mainstay energy sector, being delayed.
Parliament last week passed a 4.6 trillion naira ($31 billion) 2010 budget alleviating fears about government paralysis, but raising questions about whether the expansionary plans will translate into efficient spending, particularly with the electoral campaign period approaching.
Jonathan has approved the disbursal of $3 billion from the country's windfall oil savings since assuming executive powers, limiting the country's ability to insulate itself from volatility in world oil prices. [ID:nLDE62B22Q]
But the naira currency NGN=D1 remains broadly stable against the dollar and analysts say equity valuations look attractive. Tax breaks on corporate and sub-national bond issues have also stoked interest in the debt market. [ID:nLDE62L10Q]
What to watch:
-- Passage of the Asset Management Company (AMC) legislation. The AMC would soak up bad bank loans, key to making those rescued in a $4 billion bailout last year saleable and restoring lending.
-- Credit flows. The central bank has made getting credit flowing to the real economy again its top priority but so far the impact has been muted, with lenders still reluctant to extend credit, keeping a lid on private sector spending.
-- Earnings season. Strong financial reports from the country's top banks could do much to restore confidence in the wider economy and support a continued equities rally.