| LAGOS, April 6
LAGOS, April 6 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.
Acting President Goodluck Jonathan is expected to swear in
and assign portfolios to 38 new ministers on Tuesday, a month
after dissolving the cabinet in a bid to assert his authority.
Jonathan assumed executive powers two months ago in the
absence of President Umaru Yar'Adua, who remains too sick to
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 the new cabinet members.
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 oil 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,
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.
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 the 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 has 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
-- 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.
(For full Reuters Africa coverage and to have your say on the
top issues, visit: af.reuters.com/ )
(Writing by Nick Tattersall; editing by Giles Elgood/Peter