FACTBOX-Key political risks to watch in Nigeria

LAGOS, June 1 Wed Jun 1, 2011 8:06am EDT

LAGOS, June 1 (Reuters) - Nigeria enters a crucial period as President Goodluck Jonathan assembles his new administration in the coming weeks, a team which could make or break the nation's hopes of forging ahead with reforms over the next four years.

Jonathan, who was sworn in for his first full term on May 29 after winning April elections, has said he will form his cabinet within two weeks of taking office. Ministries in Africa's top oil exporter will be run by civil servants until then.

Nigerians and foreign investors alike are hoping Jonathan, who first came to power last year when his predecessor Umaru Yar'Adua died in office, will surround himself with reformers.

The finance and oil ministries will be particularly closely watched, with some analysts hoping that Finance Minister Olusegun Aganga, who has overseen the establishment of a sovereign wealth fund, will be retained. [ID:nLDE74Q1U2]

Jonathan is the first head of state from the minority Ijaw ethnic group in the oil-producing Niger Delta and the new cabinet will also need to balance out regional interests to ensure other parts of the country retain a political voice.

National security is a growing concern. [nLDE74T1LJ]

Hundreds were killed in rioting in the mostly Muslim north in April after Jonathan, a Christian from the south, won the election. Bomb blasts tore through popular drinking spots in three separate locations hours after he was sworn in on May 29.

NEW ADMINISTRATION

Jonathan made the first appointment of his new team on Monday, naming ex-Senate president Anyim Pius Anyim secretary to the federal government, a powerful position which coordinates between ministries and the presidency. [nLDE74T1V4]

It was not seen as a particularly inspiring start. Anyim, while respected, has no real reformist credentials and some critics said the onus is now on Jonathan to demonstrate his commitment to change with subsequent nominations.

A weak government made up of politically motivated appointments rather than ministers picked for their abilities could undermine the fight against endemic corruption and slow progress of economic reforms.

Jonathan's path to the presidency has not been an easy one and there is a list of regional and political factions who feel he owes them for his victory. Such debts have in the past crimped Nigerian leaders' ability to pursue their reform plans.

He had to convince powerful northern politicians in his own party to back him at the primaries and eschew a tacit agreement that power rotates between north and south every two terms, a deal which would have ruled out his candidacy.

Jonathan emerged with a credible mandate, having won 59 percent of the vote, but the ruling People's Democratic Party (PDP) saw its parliamentary majority weaken and lost control of several powerful state governorships.

The opposition Action Congress of Nigeria (ACN) made strong gains in the southwest, winning two state governorships from the ruling party and gaining parliamentary seats, and Jonathan will need their cooperation for legislation to pass smoothly.

His aides have said Jonathan will form an all-inclusive government. Appointees will need to be approved by the Senate and vetted by the secret service before the cabinet is formed.

What to watch:

-- Choices for key ministries including finance and oil

-- Reformist strength of the new cabinet

NATIONAL SECURITY

The April polls may have been deemed the cleanest for decades but they threw regional rivalries into sharp relief.

Jonathan, a southern Christian, won a sweeping victory in the south but his rival, northern Muslim and ex-military ruler Muhammadu Buhari, won a majority in most of the north, where there is resentment in some areas over the outcome.

Youths rioted in northern towns after Jonathan was announced the poll winner. Mosques, churches, homes and shops were razed in what the government said was orchestrated violence. Human Rights Watch said more than 800 people were killed. [nLDE74F2D6]

Bomb attacks in the north have rapidly replaced militant raids on oil facilities in the southern Niger Delta as the main security threat in Africa's most populous nation.

Investigations have begun into the series of blasts which killed at least 16 people in the hours after Jonathan was sworn in, but no arrests have been made and no public comment has been made on who might have been behind the attacks.

The style of the strikes, targeting popular drinking dens, one of them inside an army barracks, was similar to a car bomb in the capital Abuja on New Year's Eve which killed at least 10 people. The perpetrators of that attack have never been caught.

There is also a longer-term fear that economic and political marginalisation of the north will make it an increasingly fertile recruiting ground for militant Islamists.

Radical sect Boko Haram, which wants sharia (Islamic law) more widely applied across Nigeria, has carried out almost daily killings and fire bombings of police stations and government buildings in recent months in the remote northeast.

It is unclear how many followers the group has but poverty, unemployment and a lack of education have enabled its leaders to build a cult-like local following which is as much violently anti-establishment as fervently religious.

What to watch:

-- Further bomb attacks in the north or the capital

-- Evidence of who was behind the May 29 blasts

POLICY AND REFORM

Jonathan signed an amended 4.485 trillion naira ($29 billion) budget at the end of May, spending which on paper will keep sub-Saharan Africa's second biggest economy just within a 3 percent deficit target. [nLDE74Q1U2]

The final figure was a compromise between parliament, which wanted to spend more, and the government, which wants this year to mark the start of a period of fiscal consolidation.

There have been other positive moves.

Jonathan signed a bill to create a sovereign wealth fund meant to better manage the OPEC member's long-squandered oil savings, although its establishment is only the first step and its success will depend on how efficiently it is managed.

Analysts welcomed the move, saying it was an early sign that Jonathan was bent on better economic management.

Dollar demand remains high, putting continued pressure on the naira currency NGN=D1, which has been trading at around 156-157 to the dollar in recent weeks. Foreign reserves stand at around $33 billion, still down significantly on a year earlier.

The central bank is taking a tougher line to resolve a banking crisis, giving lenders rescued in a 2009 bailout until the end of September to reach deals with new investors or face effective nationalisation or liquidation. [nLDE74U22M]

Disgruntled shareholders in some of the banks have been holding out for better deals, delaying the central bank's efforts to push ahead with reform.

Jonathan also signed a Freedom of Information act at the end of May which is supposed to make government more transparent.

But there is less progress in other areas.

Wide-ranging legislation to overhaul the mainstay oil sector, the Petroleum Industry Bill (PIB), is unlikely to pass until the new parliament sits, a delay which means it may not see the light of day this year.

Billions of dollars of investment by oil firms is on hold until there is clarity over the bill, which will redefine the fiscal and legal framework for projects, dashing Nigeria's hopes of a significant rise in oil output in the coming years.

What to watch:

-- Further pressure on naira, foreign reserves

-- Any last-minute effort to pass PIB

(For more Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ ) (Writing by Nick Tattersall; Editing by Giles Elgood)

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