Economic development in Africa in 2009 will be affected by three major factors. First, outsiders will only be interested in basic exploration — new project development will have to wait for another day. Second, the only two states that can engage in any noticeable development efforts are Angola — which, as a new oil producer, has a fat wallet — and South Africa, which has some indigenous economic sectors more advanced than simple commodity production. Finally, Nigeria will have a particularly violent year. Ruling Nigeria in the best of times requires a continual network of bribery channels. Since Nigeria does not have the funds to pay off various clashing interests without crude oil revenue, and that revenue is drying up, 2009 will see a torrent of kidnapping, bunkering, theft and violence in the Niger Delta. However, direct attacks against the region’s oil infrastructure will be less frequent, as militants and their political patrons do not for the time being want oil production — or the money that it generates — interrupted.

Regional Trend: Angola Arrives

In our 2008 annual forecast, we explained how South Africa’s preoccupation with its leadership transition and the influx of petrodollars into Angola would make Angola a new regional power on the continent. Despite the economic downturn, Angola remains capital-rich — the money earned from ever-increasing oil production flowed in so fast (complementing revenue from Angola’s significant diamond mining sector) that the country did not have enough time to develop mechanisms to spend it. Furthermore, South Africa will remain distracted for the first half of 2009, cementing Angola’s arrival as a major power on par with both South Africa and Nigeria. The core of Angola’s power is not population (like Nigeria) or industrial strength (like South Africa) but a combination of cash and a battle-hardened population finally free of a decades-long civil war.

Since Angola does not know its own strength, and it does not face any existential domestic or foreign threats at present, 2009 will be a year for testing the waters.

Angola’s primary playground will be in the Democratic Republic of the Congo, where a long-simmering war in the North Kivu province continues to attract other African states’ interest and involvement. But Angola has a broader goal: roll back South Africa’s heretofore dominant position in Southern Africa.

Before South Africa can begin to recognize, much less respond to, Angola’s arrival it must complete its leadership transition from former President Thabo Mbeki to Jacob Zuma (via caretaker President Kgalema Motlanthe). That will not happen until the second half of 2009, and that assumes that the transition goes completely as planned. More likely, political infighting in South Africa will force Zuma to take the rest of the year to consolidate his power at home, which gives Angola ample time to stretch its wings.

Invited  by the Congolese government, we furthermore also expect Rwandan troops  to soon take up positions across eastern DR Congo to help  flush out the Hutu militia there.

Al Qaeda in Yemen

We expect a resurgence of  al Qaeda  in Yemen (now under the leadership of Nasir al-Wuhayshi) where it is much easier environment for militants to operate in than either Egypt or Libya. There are many Salafists employed in the Yemeni security and intelligence apparatus who are sympathetic to the jihadist cause. These men are holdovers from the Yemeni civil war, when  the Yemeni President Ali Abdullah Saleh formed an alliance with Salafists and recruited jihadists to fight Marxist forces in South Yemen. This alliance continues today, with Saleh deriving significant political support from radical Islamists. Many of the state’s key institutions (including the military) employ Salafists, making any major crackdown on militant Islamists in the country politically difficult. This sentiment among the security forces also helps explain the many jihadists who have escaped from Yemeni prisons — such as al-Wuhayshi.

Yemen has also long been at the crossroads of a number of jihadist theaters, including Afghanistan/Pakistan, Iraq, Saudi Arabia, the Levant, Egypt and Somalia. Yemen also is a country with a thriving arms market, a desert warrior tradition and a tribal culture that often bridles against government authority and that makes it difficult for the government to assert control over large swaths of the country. Yemeni tribesmen also tend to be religiously conservative and susceptible to the influence of jihadist theology.

In spite of this favorable environment, the Yemeni al Qaeda franchise has largely floundered since 9/11. Much of this is due to U.S. and Yemeni efforts to decapitate the group, such as the strike by a U.S. unmanned aerial vehicle on then-leader of al Qaeda in Yemen, Abu Ali al-Harithi, in late 2002 and the subsequent arrest of his replacement, Mohammed Hamdi al-Ahdal, in late 2003. The combination of these operations in such a short period helped cripple al Qaeda in Yemen’s operational capability.

Already during the previous spring , al Qaeda militants in Yemen have become more active and more effective under the leadership of al-Wuhayshi, an ethnic Yemeni who spent time in Afghanistan as a lieutenant under bin Laden. After his time with bin Laden, Iranian authorities arrested al-Wuhayshi, later returning him to Yemen in 2003 via an Iranian-Yemeni extradition deal. He subsequently escaped from a high-security prison outside the Yemeni capital, Sanaa, in February 2006 along with Jamal al-Badawi (the leader of the cell that carried out the suicide bombing of the USS Cole).

Al-Wuhayshi’s established ties with al Qaeda prime and bin Laden in particular not only provide him legitimacy in the eyes of other jihadists, in more practical terms, they may have provided him the opportunity to learn the tradecraft necessary to successfully lead a militant group and conduct operations. His close ties to influential veterans of al Qaeda in Yemen like al-Badawi also may have helped him infuse new energy into the struggle in Yemen in 2008.

While the group had been on a rising trajectory in 2008, things had been eerily quiet in Yemen since the Sept. 17, 2008, attack against the U.S. Embassy in Sanaa and the resulting campaign against the group. The recent flurry of statements has broken the quiet, followed by a Warden Message on Jan. 26 warning of a possible threat against the compound of the U.S. Embassy in Yemen and a firefight at a security checkpoint near the embassy hours later.

At this point, it appears the shooting incident may not be related to the threat warning and may instead have been the result of jumpy nerves. Reports suggest the police may have fired at a speeding car before the occupants, who were armed tribesmen, fired back. Although there have been efforts to crack down on the carrying of weapons in Sanaa, virtually every Yemeni male owns an AK-variant assault rifle of some sort; like the ceremonial jambiya dagger, such a rifle is considered a must-have accessory in most parts of the country. Not surprisingly, incidents involving gunfire are not uncommon in Yemen.

Either way, we will continue to keep a close eye on Yemen and al-Qaeda in the Arabian Peninsula.

The Economic Crises in Nigeria

Its currency, the naira, has declined 20 percent relative to the U.S. dollar since December 2008, and its stock market in Lagos has reached an almost two-and-a-half year low, down 12 percent so far in 2009 after having fallen 46 percent in 2008. Investment is not likely to resume in the short term, with a broad global recession resulting in major global players downgrading, delaying or simply abandoning projects proposed prior to the economic crisis.

Emerging-market capital flight and a devaluing currency are not Nigeria’s primary concerns, however. The bigger problems are twofold. One is the falling global price of crude oil, the Delta region so as to safeguard oil production — the country’s only meaningful economic resource — which underwrites the national economy.

Keeping cash on hand is therefore Nigeria’s fundamental problem. Nigeria requires a steady flow of cash to manage competing interests that together comprise Africa’s most populous country. The majority of Nigerian government revenues, and 95 percent of its export revenues, are generated by crude oil production that is largely found in the Niger Delta, a geography of rivers and mangroves that makes up the country’s South-South geopolitical zone. While Nigerian oil production is hovering at around 2 million barrels per day (bpd), the price of crude has fallen considerably, from its high of $147 per barrel in July 2008 to about $40 per barrel currently. The decline in revenues leaves the Nigerian government (and the country’s five other geopolitical zones, plus Abuja, the Federal Capital Territory) much less room to maneuver amid clashing demands for scarce cash resources.

The cash crunch is constraining the Nigerian government’s ability to maintain peace in the oil-producing Niger Delta region. Not spending money risks triggering reprisals in the Niger Delta, with militants largely composed of gangs of unemployed youths likely to turn to violence — including kidnappings, bunkering (oil theft) and other theft — to compensate for their reduction in income. The central government really has no choice but to spend cash reserves to try to maintain crude production levels after having seen oil production in the region fall from about 2.55 million bpd at the beginning of 2006 to its current level of about 2.1 million bpd as a result of militant attacks. Led by the Movement for the Emancipation of the Niger Delta (MEND), militants have attacked oil infrastructure targets, including pipelines and loading platforms, and have kidnapped industry personnel. This has shuttered about a quarter of Nigeria’s oil output. With no other option should it want to maintain — let alone expand — its crude production, Nigeria will dip into its rainy-day reserves to keep political players in the Niger Delta happy in a bid to keep militant attacks from disrupting oil production. (Meanwhile, Abuja will turn a blind eye toward indirect militant attacks against oil industry targets.)

The Delta Militants

MEND began its campaign of attacks against oil infrastructure targets in the Niger Delta at the beginning of 2006. It emerged out of earlier militant groups, led by the Niger Delta People’s Volunteer Force, which agitated for greater control of the region’s oil resources to compensate for decades of socio-economic neglect by the Nigerian government. Battling for control over the Niger Delta is not a recent phenomenon, either: From 1967 to 1970, the region fought a war for independence. The Biafran civil war was ultimately defeated by the then-northerner-dominated Nigerian government, though not before more than a million casualties occurred on both sides of the conflict.

MEND stood apart from merely criminal groups operating in the region as it was armed and motivated by political patrons among the dominant Ijaw tribe of the Niger Delta. Those political patrons saw in MEND a tool and opportunity to forcefully create a place for themselves in the upper echelons of Nigerian politics at a time of uncertainty in the Nigerian capital. In early 2006, former President Olusegun Obasanjo had sought to amend the Nigerian Constitution to permit himself a third term (Obasanjo was first elected president in 1999, and re-elected in 2003), but the Nigerian Senate blocked his bid in May of the same year.

With Obasanjo out of the running for the April 2007 presidential elections, the race opened up for a number of competitors. There was no question that the ruling People’s Democratic Party (PDP) would win national elections. Its arming and financing gangs of unemployed youths, as well as the advantage of incumbency — which translates into control of state resources — would ensure a PDP victory. The big question thus became who would emerge to become the PDP’s candidate to succeed Obasanjo.

Obasanjo intervened, however, and during the PDP primaries of November 2007 brokered a deal under which the presidency would rotate back to a northerner. (Obasanjo, a Yoruba, hailed from the country’s southwest). Ijaw pressure earned them a vice presidency, the highest political office the Niger Delta has ever held. In the background of the scramble for national-level office was the fight within the Niger Delta for control of highly-lucrative state government portfolios.

To stake out the Niger Delta’s claim, Ijaw political patrons deployed MEND factions in the three main oil-producing states that make up the Niger Delta. Bayelsa, Delta, and Rivers states combine to contribute about 90 percent of Nigeria’s total crude output. The Ijaw strategy involved being prepared to destroy the oil sector to force political shifts — attacking more to establish control of future income streams rather than for an instant payoff. MEND tactics included the kidnapping of expatriate oil workers (thereby denying specialized skills necessary to lift and load crude) and blowing up oil pipelines, flow stations and loading platforms. These tactics had been used before in the Niger Delta, but criminal gangs who carried out such attacks never intended to destroy the entire energy sector should their demands be ignored.

With little fresh investment forthcoming, due to the global financial crisis as well as the deterrent effect of militant actions, Nigeria is finding its revenue streams drying up. Nigeria is not about to collapse, however, as it possesses funds for use during times of budget shortfalls.

Apart from current cash revenues, Nigeria has three sources of cash available to it:

·         A domestic excess crude savings account (denominated in the naira), holding the equivalent of approximately $3 billion.

·         A foreign excess crude savings account (denominated in U.S. dollars), holding approximately $15 billion.

·         Nigerian central bank foreign currency reserves, holding approximately $34 billion.

The rainy-day funds were accrued when revenues from crude oil proceeds exceeded what was budgeted. When the price of crude was rising, as occurred in 2007 and especially during the first half 2008, the rainy-day funds thus grew. (These monies have been tapped before to make up for losses in income when pipeline attacks shuttered oil production.)

Nigeria’s 2009 budget calls for spending 2.87 trillion naira (about US$24 billion). The budget assumes oil production of 2.3 million bpd, and a price of oil of $45 per barrel. Those budget assumptions are above, but within range of, current production levels and prices. Assuming that oil prices stay in mid-$40s, Abuja should be able to manage its budget constraints. But should production facilities face further militant attacks, or the price of crude drop again, that budget will collapse.

To safeguard production level, and the revenues Nigeria’s federal and state governments have come to rely on, Abuja must spend the money it has saved. This will allow the Nigerian government to manage volatility in the Niger Delta such that violence that could disrupt oil production is kept to a minimum. This requires tapping the rainy-day accounts to maintain the revenue levels the Bayelsa, Delta, and Rivers state governments expect. With minimal accountability or oversight, control of Niger Delta state governorships is very powerful as well as lucrative; the Rivers state averages between $80 million and $200 million in monthly income.

Disbursements from the rainy-day fund should buy the loyalty of Ijaw political patrons. Dealing with the street-level combatants is another matter, however. Political patrons do not necessarily transfer funds they receive to their gangs — instead expecting militants to fend for themselves financially — when there is no political motive to be achieved. Scarcer resources will inevitably lead to an increase in criminally-motivated kidnapping, bunkering and other theft. But as long as Ijaw political patrons are paid, and their stake in Abuja is assured, widespread militancy directly targeting oil infrastructure in the Niger Delta will be restrained.

With foreign capital drying up and commodity prices falling, Nigeria finds itself at a crisis point. Abuja will be spending its cash reserves to buy protection at its energy production sites, while trying to reassure foreign oil companies that the country is safe for investment. But investment will not be forthcoming in the short term because of the global economic crisis, and investment in the long term will depend on how Abuja manages what will prove a violent year.