LAGOS, July 1 Nigeria is approaching what could be its most fiercely contested elections since the end of military rule, with the risk of a split in the ruling party and the field of potential candidates wide open.
President Goodluck Jonathan has consolidated power since taking office two months ago but critics say his lustre is beginning to fade -- plenty of committees have been set up but tangible progress on key issues is slow.
The stock market .NGSEINDEX has fared well, rising almost 25 percent so far this year, and banking reforms are gradually sanitising a sector that was long a major concern for investors in sub-Saharan Africa's second-biggest economy.
But there is uncertainty over reforms to the electoral system and the mainstay oil industry. There are fears that an amnesty in the Niger Delta oil region and a fragile calm on the faultline between Muslim north and Christian south could unravel as election fever takes hold.
Following are some of the factors investors are watching.
The ruling People's Democratic Party (PDP) has won all three presidential races since the end of military rule a decade ago, making the outcome of past elections a foregone conclusion and turning Nigeria into a virtual one-party state.
But disagreement over who the candidate should be in the next polls, due by April 2011, and feuding within the party risk splitting it and throwing the race wide open.
An unwritten agreement within the PDP dictates that power should rotate between north and south every two terms, meaning the next president should be a northerner.
But Jonathan, a southerner who came to power after the death of northern President Umaru Yar'Adua in May, has not ruled himself out of the race and appears to have growing support, even from some northern factions. [ID:nLDE65J0HP]
Other northern groups have said they would oppose a Jonathan candidacy and could put pressure on northern ministers to resign if he were to declare his intention to run. But a decision by Jonathan not to run could upset his native Niger Delta.
What to watch:
- Jonathan declares he will stand. This could appease his supporters in his native Niger Delta but leave some northern factions feeling disenfranchised. Investors might welcome the consistency a Jonathan presidency would bring if he makes progress on reforms in the coming months.
- The emergence of a strong northern candidate, who would be a challenger to Jonathan and the preferred nominee for PDP members wishing to maintain the rotation principle.
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 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 new head of the electoral commission has said establishing accurate voter lists is a key first step, although the European Union has said translating determination into action in the short time left will be a challenge.
- Petroleum Industry Bill. Wide-ranging overhaul of the energy industry, which will redefine Nigeria's relationship with foreign partners. Government is still consulting with the oil industry, where some fear it will make Nigeria less competitive as an investment destination.
But a lack of credit availability in sub-Saharan Africa's second biggest economy remains a concern.
Successive monetary policy committee (MPC) meetings have sought to address this, lowering deposit rates, injecting subsidised credit into the economy and offering loan guarantees, but they have had only limited success.
Liquidity is a concern. Government is the biggest spender and a stand-off between the powerful state governors and the government over the distribution of oil revenues led to a long delay in disbursements for April and first quarter arrears.
The resulting liquidity squeeze triggered a spike in bond yields and money market rates. [ID:nLDE64J1V9]
What to watch:
- Liquidity. An amended budget is set to increase government spending in the run-up to the elections but there could be further stand-offs over the disbursal of oil revenues, leading to a repeat of last month's liquidity squeeze.
- Further measures to restore credit. The MPC is due to meet again in July and has said it might consider tightening monetary policy. The benchmark rate has been at 6 percent for a year.
Africa's biggest oil and gas industry has gone a year without a significant militant attack, the result of last year's amnesty programme in which thousands of gunmen laid down arms.
But some ex-militants are complaining the post-amnesty programme has stalled, with promises of stipends and retraining unfulfilled. Jonathan has made pledges but progress is slow.
Industry sources say there has been a sharp rise in bunkering -- the theft of industrial quantities of crude oil -- and illegal refining, as militants who took part in the amnesty but have not been re-trained seek other sources of income.
Kidnapping for ransom has also risen in some areas.
Such insecurity costs foreign firms -- including oil majors like Royal Dutch Shell (RDSa.L), Chevron (CVX.N), ExxonMobil (XOM.N), Total (TOTF.PA) and Agip (ENI.MI) -- millions of dollars a year in security measures.
What to watch:
- Peace talks. Jonathan has made reviving the amnesty a priority and decisive action could encourage militants to formally reinstate a ceasefire.
- Attacks on oil services companies. Firms including Shell, Chevron, ExxonMobil, Total and Agip have borne the brunt of past attacks but MEND has warned any new unrest could also target suppliers and contractors. This might impact global oil markets. (For more Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Editing by Giles Elgood)