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LAGOS, Aug 17 (Reuters) - Nigeria is battling an Islamist insurgency in its largely Muslim north and faces growing theft of its oil by armed gangs in the southeastern Niger Delta region.
A spate of corruption scandals have damaged confidence in President Goodluck Jonathan's pledge to reform Africa's second biggest economy, which still suffers instability, lawlessness and crippling power shortages, although moves on power privatisation have raised hopes of slow progress.
A military crackdown appears to have weakened Islamist sect Boko Haram in its northeastern heartland, although it has also pushed it into new areas that used to be free of the insurgency, which is seeking to carve an Islamic state out of Nigeria.
Security sources say the sect has linked up with al Qaeda's north African wing, although it remains mainly motivated by domestic factors: hostility to the Nigerian establishment and to the country's Christians, whose churches it regularly bombs.
What to watch:
- More Boko Haram attacks, especially on churches
- A Western target, like last August's U.N. bombing
- Military pressure, arrests of key Boko Haram fighters
- Attempts to initiate dialogue with the sect
Corruption scandals, particularly involving the administration of Nigeria's costly domestic fuel subsidy, have dogged the Jonathan government. A flagship policy to get rid of the subsidy was axed in January, after a public outcry, which means that an overspend on a $30.8 billion 2013 budget drafted by Finance Minister Ngozi Okonjo-Iweala looks likely.
Jonathan promised to transform Africa's second-largest economy. Oil sector reforms are being debated in parliament, while a power privatisation scheme is moving slowly - a new round of bidding for some assets began last month.
What to watch:
- Parliament inflating the budget, as it often does
- Movement on selling off power assets
- International oil price drops, fuel subsidy overspend
Parliament has received a copy of the long awaited Petroleum Industry Bill, which aims to overhaul everything from fiscal terms to the state oil firm. They will debate when they are back from recess next month in a big test for Jonathan's presidency.
Since an amnesty for militants in 2009 attacks on oil facilities have become less destructive, yet somehow, oil companies say, theft is more rampant than it was before. Even with a fiscally draining amnesty programme, the delta remains volatile and attacks on pipelines, kidnappings and piracy are a costly headache.
What to watch:
- Arrests of oil thieves/pirates by the military
- Debate on parliament on the Petroleum Industry Bill
- Any agreement to pay for a Delta crude clean up
- A resurgence of militant attacks on oil facilities
Central Bank measures to restrict the money supply have boosted the naira to around a 3 month high against the dollar, though it is not clear how the momentum will last, and stocks have responded positively to improved banking earnings.
Nigeria's consumer inflation eased marginally in July, statistics showed on Friday, surprising many analysts. The rate of 12.8 percent is still high and central bank governor Lamido Sanusi is seen as an inflation hawk. The bank has held rates at 12 percent since last October.
What to watch
- More favourable banking results lifting stocks
- Naira dipping lower again, more central bank intervention (Writing by Joe Brock)