President Goodluck Jonathan’s grip on power has reduced uncertainty since he took office a month ago, but with fiercely contested elections just around the corner, this could be the calm before the storm. Some foreign investors have started returning to the capital markets, drawn by attractive valuations and improving liquidity conditions, but many more remain on the sidelines, waiting to see how the political landscape will shape up. Following are some of the factors investors are watching:
Election race The upcoming elections look set to be the most hotly contested since the end of military rule a decade ago. The ruling People’s Democratic Party (PDP) has won all three presidential races since then, turning Africa’s most populous nation into a virtual one-party state. But there is disagreement over who its candidate for the next election should be, with the field wide open for the primaries and the risk of a split in the party which could lead to the presidential election being more than a one-horse race.
An unwritten agreement in the party dictates that power should rotate between the mainly Muslim north and the mostly Christian south every two four-year terms, meaning the next president should be a northerner. But Jonathan, a southerner, has not ruled himself out of the race and some northerners have said they would support him. Some senior PDP figures have privately warned that a Jonathan candidacy would split the party. Former military ruler Ibrahim Babangida and former Vice President Atiku Abubakar have both said they want the PDP nomination. National Security Adviser Aliyu Gusau, a northerner, who was the main contender alongside late President Umaru Yar’Adua to be PDP nominee in the 2007 polls, is also widely expected to stand. Previous Nigerian polls have been marred by voter intimidation and ballot-stuffing, and with the stakes so high there is a risk of flare-ups during campaigning in the usual flashpoints — the oil-producing Niger Delta, the volatile “Middle Belt” in central Nigeria, and parts of the north.
What to watch: Elections brought forward: Nationwide polls, including the presidential race, are due by April 2011 but could be brought forward to as early as January if reforms before parliament are passed. That could mean the key ruling party primaries taking place as early as August. A smooth early election could end uncertainty and allow investors to look forward to the new administration’s policy direction. But it could also raise the stakes, heightening the chance of localised unrest in the run-up to polling day.
Growing support for a Jonathan candidacy: Jonathan has not ruled out contesting the polls but wants to see how reforms take hold first. Should Jonathan make progress on reforms in coming months, investors may welcome the consistency in policy a Jonathan presidency would bring. But by ending the rotation principle, it could leave some factions feeling disenfranchised. Confirmation that a strong northern candidate such, as Aliyu Gusau, will run: Such a figure could become a challenger to Jonathan and the preferred nominee among those in the PDP wishing to maintain the rotation principle.
Government spending Nigeria’s financial markets have largely shrugged off political uncertainty with the naira currency stable and the stock market rallying so far this year. But a lack of credit availability in the country remains a concern. Successive monetary policy committee (MPC) meetings have sought to address this, lowering deposits rates, injecting subsidised credit into the economy and offering loan guarantees, but they have met with only limited success. Liquidity is a concern. Government is the biggest spender and a stand-off between the powerful state governors and the government over the distribution of oil revenues led to a long delay in disbursals for April and first quarter arrears. The resulting liquidity squeeze triggered a spike in bond yields and money market rates.
What to watch: — Liquidity. Government spending is likely to increase in the run-up to the elections but there could be further stand-offs over the disbursal of oil revenues, leading to a repeat of last month’s liquidity squeeze. — Further measures to restore credit. The MPC is due to meet again in July and has said it might consider tightening monetary policy.
Policy momentum Jonathan appointed a new cabinet in April, which his supporters say will enable him to move ahead with priorities including electoral reform, maintaining peace in the Niger Delta, tackling corruption and providing more reliable electricity supply. But critics are concerned the new ministers — including finance minister Olusegun Aganga, a former Goldman Sachs executive, and Diezani Allison-Madueke, Nigeria’s first female oil minister — could take time to get to grips with their new roles, slowing government business down. With elections due in less than a year, the administration has limited time to accomplish all this.
What to watch: — Electoral reforms. Legislation before parliament is supposed to help Nigeria avoid a repeat of the chaotic polls that brought Yar’Adua to power in 2007, marred by widespread ballot-stuffing and voter intimidation. The widely criticised Independent National Electoral Commission (INEC) chairman, Maurice Iwu, who oversaw the 2007 polls, has been dismissed in a move seen as vital for electoral reform. A replacement has not yet been named.
— Petroleum Industry Bill: Wide-ranging overhaul of the energy industry which will redefine Nigeria’s relationship with foreign partners. It is touted by government as the solution to everything from funding shortfalls for exploration and production projects to budget-debilitating fuel subsidies, although some in the oil industry fear it will make Nigeria less competitive as an investment destination. — Bank reforms. The central bank badly needs a bill before parliament passed to create an asset management company to soak up bad loans, freeing up bank balance sheets so they can start lending again. This would also make rescued banks more attractive to new investors and support market confidence.
Niger Delta An amnesty programme brokered last year 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 the 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. Industry sources say there has been a sharp rise in bunkering — the theft of industrial quantities of crude oil — and illegal refining, as militants who took part in the amnesty but have not been re-trained seek other sources of income.
Kidnapping for ransom has also risen, including in Abia State on the fringe of the Niger Delta, where two Germans were kidnapped in April but released days later. Such insecurity costs foreign firms — including oil majors like Royal Dutch Shell, Chevron, ExxonMobil, Total, and Agip — millions of dollars a year in security measures.
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. —Attacks on oil services companies. Firms including Shell, Chevron, ExxonMobil, Total and Agip have borne the brunt of past attacks but MEND has warned any new unrest could also target suppliers and contractors. This might impact global oil markets.
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. The region is seen in some ways 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 worst of the violence this year was in January and March and a curfew on Plateau State has been lifted, but sporadic killings have continued. The unrest has had no major economic impact.
What to watch: — Further outbreaks of violence. Many Nigerians believe such clashes are engineered by politicians and fear more unrest as the country enters the campaign period for elections. — Bolstered military presence. The government has come under criticism for failing to address the root causes of the unrest — poverty and discrimination — and to prevent violence continuing despite the deployment of the military in January.