Nigeria is fighting a radical Islamist sect in the north and oil thieves in the south, while a host of reforms to its energy, power, and finance sectors are either delayed or in dispute.
President Goodluck Jonathan has promised to transform Africa’s second-largest economy, but the mainstay oil and gas industry has stalled because much-needed reforms are locked in parliament, while corruption is rife.
His controversial plans to remove fuel import subsidies risk stirring further unrest in Africa’s most populous nation.
SECURITY
Boko Haram, a sect seeking to overthrow parts of the government and impose stricter Islamic law, claimed a suicide bombing in Nigeria on Aug. 26, when a car packed with explosives rammed into the side of the U.N. headquarters in Abuja, killing 24 people.
The sect has carried out almost daily shootings or bombings in its home region in the far northeast, where Nigeria borders Chad, Cameroon and Niger.
An increased security presence in its stronghold of Maiduguri is pushing the group’s attacks further afield. At least 65 people were killed in the capital of neighbouring Yobe state after sect members bombed churches, mosques and police stations.
A former spokesman for the group was sentenced to three years in prison for intimidation this month, while a Senator has pleaded not guilty to terrorism charges for his alleged involvement with the sect.
Religious and ethnic tensions flared up between Christian and Muslims in Nigeria’s “Middle Belt” this month when two bomb blasts left one dead and eleven injured. Violence in the region, where the largely-Christian south meets the mostly-Muslim north, have killed hundreds this year.
Local and federal government have been accused of neglecting the underlying grievances of unemployment, poverty and an inequality of wealth.
What to watch:
– Another bombing of an international target
– Efforts to negotiate with Boko Haram
– Court decision on charges against Senator
OIL & GAS
Since an amnesty for militants in 2009, attacks on oil facilities have become much rarer and less destructive, although attacks on pipelines to steal the oil in lucrative bunkering operations remain a costly headache.
Piracy off the coast of Nigeria is on the increase. Three hijack attacks took place last month on oil vessels and several workers were abducted but later released.
An investigation ordered by parliament is examining who owns the illegal bunkering vessels in Nigerian waters and why is it difficult to stop them, what happens to the seized crude oil and who buys it internationally. Part of the problem is some collusion by the military and politicians.
The Petroleum Industry Bill, a vast piece of legislation aimed at changing everything from fiscal terms to an overhaul of the state oil company, has been under negotiation for more than four years but shows no sign of being passed soon.
While that is on hold, Nigeria has held no significant new licensing rounds, and Africa’s largest exporter is likely to see a plateau and then a fall in oil output over the next five years.
The government has ambitious plans to unlock its gas reserves, the seventh-largest in the world, but will not get investment until the PIB is passed.
Shell and the state-owned oil firm NNPC have come under fire for the environmental damage caused onshore in the Niger Delta, a vast wetlands region where thousands of kilometres of creeks and waterways run through poverty-stricken communities.
A U.N. report accused Shell and NNPC of polluting Ogoniland, a region of the delta that needs the world’s biggest oil clean-up, costing an initial $1 billion and taking up to 30 years.
Any agreement to pay costs would set a precedent for the rest of the oil region, while ignoring the report is likely to stir unrest among communities and prompt more sabotage attacks.
What to watch:
– Lawmakers comments on PIB passage
– Any agreement to pay for Delta clean up
– A resurgence of sabotage attacks in the Niger Delta
– Further piracy, hijacking incidents
POLITICS & POLICY
Nigeria’s Jonathan is determined to start phasing out in January petrol import subsidies, which cost the West African nation $7 billion a year. But the Nigerian public see cheap fuel as the only benefit they get from living in an oil-rich country. Strikes and protests have been threatened.
Finance Minister Ngozi Okonjo-Iweala is trying to implement the country’s first Sovereign Wealth Fund (SWF), aimed at better managing Nigerian oil revenues. State governors are resisting it because they believe it would mean less money for them.
She has also pledged to cut government spending and keeping Nigeria within a 3 percent budget deficit target but if the national assembly oppose subsidy removal plans then the budget deficit goal might become unrealistic.
The government removed $2 billion from its dwindling oil savings last month, despite prices at above $110 a barrel. Any oil price shock will leave Nigeria in a precarious position, and heavier borrowing will be needed to balance the books.
What to watch:
– Public protests over fuel subsidy removal
– Further progress on SWF, opposition to the plan
– Progress towards meeting budget deficit goal
– International oil prices
MARKETS
Nigeria’s local naira currency remains under pressure from high dollar demand as the global economic crisis persists and investors look to limit exposure to riskier frontier markets.
The central bank devalued the naira last month by shifting its target trading band for the currency to between 150-160 naira/$ but the local currency has been trading outside the weaker end of this boundary on the interbank market.
The CBN supports the naira by pumping dollars into the system but this dips into Nigeria’s foreign reserves, which are built up through the sale of its crude oil. Foreign reserves stood at around $33 billion on Dec. 8, around $1 billion lower than a year earlier despite high oil prices.
For a graphic: link.reuters.com/buq45s
The Nigerian stock market is hovering near 8-year lows and although analysts say many valuations are cheap, risk aversion is keeping investors away.
What to watch
– Further pressure on the naira, cbank reaction
– Dip in foreign exchange reserves
– Further sell-off on the stock market