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Financial Times: Business left uncertain ahead of Nigeria’s presidential elections

By Dino Mahtani in Lagos
Published: June 2 2006 03:00 | Last updated: June 2 2006 03:00

With elections due in Nigeria next year, politicians and analysts are already talking about whether business and oil exploration deals will be reviewed or perhaps even revoked.
The nervousness surrounding the business climate in Africa’s biggest oil producer, where political connections often guarantee economic success, is tightly wound around the race to succeed President Olusegun Obasanjo, who is due to step down after the elections.

Analysts say the succession race may lead to a turbulent and even violent election period in Nigeria, a country of an estimated 130m people divided equally between Christians and Muslims and split by three main ethnic groups. But it has also accelerated a scramble for resources marking a classic fin de regime scenario.

In particular, an oil licensing round in May which allocated acreage to interests close to state governments and a company managed on behalf of militants in the oil producing delta region has raised eyebrows.

The main bidders, which included Indian and Chinese companies, were also given preferential rights in return for promises of multibillion dollar investment projects.

Nigeria is perceived as the sixth most corrupt country in the world, according to Transparency International. The exercise of discretion in allocating contracts and waivers was standard practice under military rule but has persisted in some areas in spite of an economic reform programme launched three years ago.

For businesses, the rewards for supporting the winning candidate can far outweigh the short-term costs. Government construction contracts, oil acreage and lifting rights, state assets marked for privatisation and duty exemptions are some of the prizes that could be on offer. Privatisations and oil licences could be affected by a new order.

“Any contracts done in the last six months and from now until after elections are going to be affected by politics,” said Bismarck Rewane, an investment banker in Lagos. “The first thing that is going to happen in any new administration is the setting up of committees to review them.”

Typifying the nature of business and politics in Nigeria has been the relationship between Mr Obasanjo and his estranged deputy, Atiku Abubakar. Both men have their favoured friends in the private sector, and have promoted them in a bid to outmanoeuvre each other politically.

Whoever succeeds Mr Obasanjo, business interests will need to adapt in a new political climate, especially in the case of one Nigerian conglomerate. Transcorp, which has raised $130m (£94.8m) through private placements and hopes to raise over $300m in an initial public offering, was incorporated with the backing of Mr Obasanjo in 2004.

The company was founded by industrialists, bankers and the director of Nigeria’s stock exchange. But Transcorp’s image has been tarnished by its association with Mr Obasanjo and his failed bid to alter the constitution to stay in power for a third term. Transcorp’s detractors have called for a boycott against the individual companies of its directors.

Nevertheless, the company’s board members, who have seen their fortunes skyrocket during the Obasanjo administration, are keen to maintain their influence whoever becomes president.

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