* Jonathan faces challenge within his own party
* Cenbank spots suspected money laundering ahead of 2015
* Treasury bleeds from oil theft, competition for resources
By Tim Cocks and Joe Brock
LAGOS/ABUJA, Oct 2 In Nigeria, as elsewhere,
foreign exchange markets can be a barometer of internal strife,
so when central bank governor Lamido Sanusi noticed a surge in
dollar demand at forex bureaux in July, he feared something was
The bank found tens of billions of naira was traded for
dollars in cash, much more than importers needed to buy goods or
investors to repatriate funds, and there was no trace of where
the money came from or where it was going.
"Obviously this was some form of money laundering to cover
all the trails," Sanusi told Reuters. "And with interest rates
as high as they are, the only people who can take that much
naira and buy dollars are people who are not borrowing their
The prime suspects, he says, are politicians jockeying for
position ahead of what look likely to be bitterly divisive 2015
polls in Africa's second-biggest economy.
He blames "dollarisation of the economy by political elites"
for continued weakness of the naira, despite central bank moves
to prop it up with dollar sales that have depleted its reserves
to an eight-month low.
Some economists dispute that explanation of the currency's
troubles, but it highlights the economic risks of Nigeria's
costly and often violent pre-electoral politics.
Nigeria's growth rate of more than 6.5 percent and its huge
consumer market are a draw for foreign investors, but they worry
about stability and the country's tendency to squander its
windfall as Africa's biggest oil producer.
"OPEN AND DESTRUCTIVE"
Nigerian elections always cost the country billions of
dollars and, often, many hundreds of lives, especially when they
ignite ethnic rivalries or regional tensions between the largely
Muslim north and mostly Christian south. This cycle could be
especially costly, in terms of blood and treasure.
A feud is bubbling between President Goodluck Jonathan and
rivals in his ruling People's Democratic Party (PDP) over his
assumed intention to run for another term, which is distracting
from vital economic reforms. A bill to reform the oil industry,
which feeds 80 percent of government revenue, is stuck in
parliament and unlikely to pass before the elections.
Thanks largely to the feud, unofficial campaigning has begun
almost two years early, so politicians will need to sustain
spending on patronage for longer.
Such spending can come from politicians' private interests,
but there are other ways, including state money for projects
that benefit constituents, and government contracts for allies.
"The need of politicians to spend money now will be a big
drag on the economy," said Bismarck Rewane, CEO of Lagos-based
consultancy Financial Derivatives. "If it comes from the
treasury, the fiscal deficit will widen, you'll get more
inflation, the naira will weaken."
There is also widespread concern that some politicians
profit from criminal gangs that make money from kidnapping,
extortion or the theft of oil from the Niger Delta.
Seven ruling party governors and a former presidential
candidate have formed a PDP splinter group determined to stop
Jonathan from running again, though as recently as Sunday he
declined to say whether he would.
All but one are northerners who feel another spell in office
would break an unwritten rule that the presidency should rotate
between north and south every two terms, or are disappointed
with his record on tackling security challenges like an Islamist
insurgency in the north.
The president last month sacked nine ministers he suspected
"The crisis in the PDP is very deep, and I don't see them
resolving these issues ... It's such an open and destructive
fight," said Jibrin Ibrahim, director of the Centre for
Democracy and Development, an Abuja-based think-tank.
"The northern political class feels it needs to get back
into power, and the president will do all he can to stay in."
It may not be such a bad thing for democracy, he says, if
the dominant PDP ends up breaking up into two or three parties.
But it would damage public finances if state money is used
to shore up wavering loyalties, and all three tiers of
government - local, state and federal - will need to fight
"The more contentious the election ... the more funds will
be utilised to fight it, both at federal and state levels," said
Kayode Akindele, partner at Lagos-based advisory 46-Parallels.
Nigeria's cash position always plummets ahead of election
time, but this time oil theft is proving an unprecedented drain,
dragging official output to a four-year low, nearly a fifth
below its 2.5 million barrels per day (bpd) capacity.
"Oil theft tends to shoot up in periods of heightened
political instability and competition," London's Chatham House
wrote in a report this month. "Nigeria's upcoming ... elections
scheduled for 2015, are a particular wild card."
Rampant theft has also left the government with less money,
despite high oil prices, just when governors and legislators are
clamouring for it.
Nigeria's oil savings account had around $9 billion in it in
December. By March it had fallen to $5.8 billion, after several
withdrawals, including two distributions of $1 billion to
governors for constituency projects. It has not recovered.
Finance Minister Ngozi Okonjo-Iweala has crafted a tighter
budget plan for 2014 - 4.5 trillion naira ($28 billion), against
5 trillion in 2013 - mindful that parliament often inflates
But the savings were made largely by slashing capital
spending needed to address chronic infrastructure bottlenecks.
Though the budget is conservative in its oil price
assumption, it assumes production of 2.39 million barrels a day
(bpd), which analysts say may be optimistic, given the thefts.
Output is currently around 2.11 million bpd.
"Nigeria is facing a very serious situation with ... oil
output," Standard Chartered's Razia Khan said. "The test is: are
the politics going to allow for keeping spending under control?"