LAGOS Dec 1 Nigeria's presidential race is wide
open with four months to go until polling day, government
spending is on the rise, and the threat of unrest hangs over its
its economic heartland, the oil-producing Niger Delta.
The ruling People's Democratic Party (PDP), which has seen
its candidate comfortably win every leadership contest since the
end of military rule more than decade ago, is divided over its
nominee for the April polls. [ID:nLDE6AL1JI]
Nigeria's political system, driven largely by patronage, has
always favoured the incumbent. But President Goodluck Jonathan
-- a southerner -- faces concerted opposition from factions in
the north and his nomination is far from given.
The outcome of the elections could have far-reaching
consequences, from security in the Niger Delta to the passage of
legislation to overhaul the oil industry, as well as
multi-billion dollar plans to privatise the power sector.
Public borrowing is growing rapidly and foreign reserves
have been falling as spending is ramped up ahead of the polls,
leading to concern about fiscal discipline in sub-Saharan
Africa's second-biggest economy. [ID:nLDE6AM1P0]
But the banking sector and capital markets remain relative
bright spots, with reforms continuing apace despite the
near-term political uncertainty.
Following are some of the factors to watch:
The electoral commission has set presidential elections for
April 9, 2011, with parliamentary polls a week before and state
governorship elections a week after. The timetable means party
primaries must be held by mid-January. [ID:nLDE6AM2BY]
In the immediate term, all eyes are on the PDP primaries.
Jonathan's candidacy is controversial because of a ruling
party pact that power should rotate every two terms between the
largely Muslim north and mostly Christian south. [ID:nLDE66Q1EY]
Jonathan is a southerner who inherited the presidency this
year after the death of Umaru Yar'Adua, a northerner who died
part way through his first term. Jonathan's supporters say he
was elected on a joint ticket and has the right to contest.
A group of influential northern politicians has picked
former Vice President Atiku Abubakar as a "consensus candidate"
to challenge Jonathan at the primaries, but it is unclear how
wide his support base is outside the clique that selected him.
Key to who wins will be the state governors, who form a
powerful caucus within the PDP and wield significant influence
over the delegates who vote at the primaries.
Two states in the country's southwest -- Ekiti and Osun --
have seen their PDP governors removed by the court challenges in
recent weeks, eroding the ruling party's grip on the region
around the commercial capital Lagos. [ID:nLDE6AP1AW]
Not only could this weaken Jonathan's hand in the primaries,
it could also mean a tougher battle for the eventual ruling
party candidate because it will be more difficult for the PDP to
win votes in the presidential race in non-PDP states.
Ask three Nigerians how the polls will end and the response
is at least three equally well-argued scenarios. History has
always favoured the incumbent but possible outcomes include:
-- The governors align behind either Jonathan or Abubakar,
who wins the primaries and goes on to take the election.
-- Jonathan wins the primaries by a narrow margin and the
PDP remains divided. Northern factions in the PDP break away to
challenge him in the election, a scenario which could favour
opposition figures such as ex-military ruler Muhammadu Buhari.
-- The PDP resolves its divisions by picking neither
Jonathan nor Abubakar, uniting instead behind a third candidate.
POLICY AND SPENDING
Analysts expect government spending to rise in the run-up to
elections. Government borrowing has increased 50 percent since
the start of the year, dwarfing private sector credit growth of
just 3 percent, according to the central bank. [ID:nLDE6AM1P0]
Foreign exchange reserves fell 20 percent year-on-year to
$34 billion by mid-November, although that was a marginal
increase on the previous month and Finance Minister Olusegun
Aganga has said the depletion has now stopped. [ID:nLDE6AN21A]
The excess crude account, into which Nigeria saves windfall
oil income, has dropped below $1 billion from $20 billion at the
start of the presidential term in 2007. Parliament is debating a
bill to create a sovereign wealth fund to replace it.
The political uncertainty also means major pieces of policy
-- and the multi-billion dollar investment decisions that hinge
on them -- are likely to be on hold until after the elections.
Arguably the biggest is the Petroleum Industry Bill, which
will re-write Nigeria's decades-old relationship with foreign
oil firms and redefine the fiscal and legal framework governing
investment, including in its key offshore fields, expected to
yield most of its future production growth.
Officials have said the bill will pass before the elections,
but a Senate committee which has been reviewing it for the past
year has only just finished work and lawyers advising the
government have said that timeframe is unlikely. [ID:nLDE6AI0IM]
Failure to pass the bill ahead of the elections could mean
it has to return to a first reading before a new parliament,
potentially setting it back by months or years.
Until it passes, foreign oil firms will keep multi-billion
dollar investments on hold. The projects have timeframes of
several years, meaning lack of investment now could see
Nigeria's oil output stagnate 5-8 years down the line.
Potential investors in the planned privatisation of the
domestic power sector, one of the cornerstones of President
Jonathan's policy, are also unlikely to go beyond statements of
interest until the elections are over. [ID:nLDE69D0OX]
But banking reforms continue apace and the 5-year tenure of
Central Bank Governor Lamido Sanusi means even a change in
president is unlikely to derail them. Some analysts are worried
about the inflationary impact of a new "bad bank" set up to
absorb non-performing loans from lenders rescued last year.
What to watch:
-- Further depletion of foreign exchange reserves
-- Passage, or not, of oil reforms before elections
The military appears to have the upper hand in the Niger
Delta, taking over a number of militant camps in recent weeks
and releasing 19 hostages in an operation carried out with the
help of former militant leaders who accepted amnesty last year.
But the Movement for the Emancipation of the Niger Delta
(MEND) has threatened more attacks, and associates of Henry Okah
-- one of MEND's masterminds who is in detention in South Africa
-- appear to have established links with new field commanders to
replace those who took amnesty. [ID:nLDE6AJ01Z]
Security sources say the next few weeks will be key and that
the military needs to continue to move against newly emerging
leaders if MEND is to be prevented from realising its threat.
Oil infrastructure in the delta, a network of shallow creeks
opening into the Gulf of Guinea, is extremely exposed, with
thousands of kilometres (miles) of pipeline passing through
remote and thickly forested terrain.
Disputes between local communities and oil firms are common,
and attacking a pipeline and shutting down production requires
little more than simple home-made explosives.
Saboteurs attacked a pipeline to the 110,000 barrels per day
(bpd) Kaduna refinery in late November, forcing it to shut down,
and Royal Dutch Shell (RDSa.L) has declared force majeure on
some of its exports after pipeline damage. [ID:nLDE6AO1AE]
Fears of localised violence in the run-up to the elections
-- particularly in flashpoints including the Niger Delta, the
remote northeast and the Middle Belt region between the north
and south -- have been heightened by two weapons seizures.
The destination of the first, shipped from Iran, was unknown
but some diplomatic sources have said it may have been meant to
destabilise the country around elections. [ID:nLDE6AO1WT]
Nigeria is a generally peaceful nation but ethnic and
religious rivalries bubble under the surface and could be
exploited by politicians, particularly with the north-south
debate such a key factor in the presidential race.
What to watch:
-- Further attacks in the Niger Delta
-- Ethnic or religious rhetoric during campaigning
(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)