Though Boko Haram, a Nigeria-based Islamic insurgency, has generated fewer recent headlines in the Western press than have militants in nearby Mali or the country's own Niger Delta rebels, they are thought to have killed more than 1,500 people in bomb attacks and drive-by shootings over the past three years. Worryingly, the threat the group poses to Nigeria, home to an economy on track to become Africa's largest next year, may be increasing.

The northeastern state of Borno, the site of a recent Boko Haram assault that claimed more than 180 lives, represents the epicenter of Nigeria's radical Islamist threat. Parts of the majority Muslim region have effectively become a warzone. Though ideology helps fuel these movements, Boko Haram and its al Qaeda-linked offshoot Ansaru are also part of Nigeria's zero-sum regional competition for power and resources, which will continue to pit regional factions within the ruling People's Democratic Party against one another and the government against the country's newly merged opposition coalition. Hotly contested primaries next year and national elections in early 2015 will further polarize the political landscape along regional lines, creating even more fertile ground for Boko Haram and its sponsors.

Boko Haram -- which means "Western education is sacrilege" in Hausa, northern Nigeria's most widely spoken language -- has assassinated key allies of President Goodluck Jonathan's government, including both political proxies and senior clerics, most recently just days after a rare presidential visit to the region. This in turn provoked a wildly aggressive response from Nigeria's military, with enormous collateral damage to civilians. Jonathan reluctantly ordered a policy review last week that could grant amnesty to Boko Haram "moderates" willing to lay down their weapons, but the current surge in violence makes a breakthrough even less likely than before.

Northeastern states will likely remain on the front-lines of the Boko Haram threat. Proximity to porous borders with Niger and Cameroon (and on to sympathetic al Qaeda allies in Mali) provides Boko Haram with rear bases and safe havens just over the border. Though the unrest created by Boko Haram has gotten worse since the French-led intervention in Mali, its impact on Nigeria's economy has so far been contained, at least viewed from the country's economic heartland in the south. Investors generally see an attack on the southern business capital of Lagos or in the oil-rich Niger Delta as a game changer for risk perceptions. A large-scale attack in either place would probably have an immediate market impact -- on the stock exchange, currency value, and bond yields, all of which are performing strongly at the moment. For the moment, this remains a high-impact but low probability risk.

But the political and economic stakes would also rise dramatically if Boko Haram ratchets up attacks on the sectarian, ethnic, and political flashpoints in north central Nigeria, including Abuja, the country's capital, and major flashpoint cities like Jos, where sectarian and ethnic tensions are already on the rise. This is an under-appreciated risk and one that is already developing.

Boko Haram has more than once proven that it can hit Abuja. If it reorients its attention and resources to Abuja and to the ethno-sectarian tinderboxes that lie at the fault line between northern and southern Nigeria, the impacts will reverberate across the entire nation, West Africa more broadly, and the restive Sahel region to Nigeria's north.

Philippe de Pontet is head of Eurasia Group's Africa practice. Willis Sparks is director in the firm's global macro practice.

A generation ago, many wondered how many years would pass before American dominance and, by extension, the clout of Western-led financial institutions like the IMF and World Bank faced a serious challenge. So far, no single rival has proved its staying power. For better and for worse, the IMF and World Bank remain core components of international politics and development. And that's what makes collective action among the BRICS-Brazil, Russia, India, China, and South Africa-so intriguing. The BRICS carry considerable weight as models for the next wave of developing countries-particularly following an American-made financial crisis and ongoing turmoil in the Europe.

It's no surprise then that plans announced last month to create a BRICS development bank have generated so much buzz. In particular, the ability of leading emerging market governments to finance big infrastructure construction projects across the developing world has interesting potential implications.

Yet, for many of the same reasons that the BRICS have so far struggled to institutionalize a working partnership in other areas, this bank will take longer to build than its architects think and will never realize the grand ambitions of its most forceful advocates. 

It's no secret that Brazil, Russia, India, China, and South Africa are home to quite different political and economic systems and face different sorts of challenges. Less well understood is the diversity of their interests in creating a bank. Questions of seed money, oversight, purpose, and where the bank might be headquartered are certain to arouse controversy.

But the larger problem is that all the BRICS except China are grappling with sharper-than-expected economic slowdowns-and Brazil, India, South Africa, and Russia are all looking to spend their revenue on infrastructure projects at home to help bolster growth. For the moment, none of them can afford to invest substantial sums to build someone else's roads, bridges, and ports.

These governments face a choice. They can contribute to a BRICS bank funded in equal (modest) parts by each member and lacks the capital to accomplish much. Or they can lend their names to a much-better funded institution that is thoroughly dominated by China.

Yes, Brazil's government is interested in promoting a South-South development strategy, but the Dilma Rousseff administration is now focused mainly on reviving domestic growth following a significant slowdown last year. Its strategy rests in part on using state development bank BNDES to fund ambitious infrastructure projects inside Brazil. If the BRICS bank can be used to finance projects outside Brazil to which BNDES is already committed, it might be useful, but don't expect the Rousseff administration to offer significant new cash commitments toward these projects.

Russia's government, also faced with sluggish growth, will talk up the need for a counterweight to U.S.- and European-dominated institutions, but tepid pledges of support for the bank from Russia's finance minister and the recent tragicomedy in Cyprus make clear that Moscow is not ready to finance its bid for greater international prestige with substantial sums of cash.

Political officials in India, where national elections loom next year, are too preoccupied with a steady stream of domestic troubles to devote much capital to a BRICS development bank, and the government remains deeply ambivalent about its often troubled relations with fast-expanding China. That's in part why India's finance minister has said that the BRICS bank will complement, not challenge, existing international lending institutions.

Then there is South Africa, a country with a growing middle class but chronic high unemployment and an economy the size of China's sixth largest province. The ruling African National Congress sees obvious value in deepening trade and investment relations with China, but its greatest near-term contribution to a BRICS development bank will probably be limited mainly to providing its headquarters a home.

Finally, the bank faces obstacles even within China, the one country than can afford to give it heft. China already has a development bank. It's the most powerful financial institution in the country, one that answers only to the State Council, giving it the status almost of a government ministry. In fact, though the China Development Bank and the China Export-Import Bank may lack the perceived legitimacy of multinational institutions, they don't lack for borrowers. Together, they already lend more to developing countries and companies -- more than $100 billion per year -- than the IMF and World Bank do, extending China's strategic influence throughout Africa and Latin America, in particular.

Why share credit and benefit for these efforts with the other BRICS, especially when the rest have so much less to contribute? And why give others a say in where Chinese funds are invested? 

All five of these governments have an interest in choreographed displays of unity and rhetorical challenges to U.S. power. But like so many other aspects of BRICS cooperation, there is less to this bank than meets the eye.

Willis Sparks is director in Eurasia Group's global macro practice.

Note: Today is the tenth in a series of posts that detail Eurasia Group's Top Risks for 2013.

Jacob Zuma's reelection as ANC president will hasten the decline of South Africa's dominant political party and increase social pressures on the continent's most advanced economy. As elections loom in 2014, critical reforms will fall victim to more populist policies.

On the surface, the ANC's December 2012 national conference at Mangaung struck a surprisingly market-friendly tone: Zuma and his allies defeated his most populist challengers, elected labor-leader-turned-tycoon Cyril Ramaphosa as deputy president, dropped any mention of nationalization from the party's platform, and rammed through an endorsement of the pragmatic National Development Plan (NDP). But beneath the surface, worrying trends have become apparent.

The ruling party's policy of strategic state ownership introduced further policy uncertainty to the mining sector (especially on taxes) and paved the way for a heavier state presence in industries like energy and steel. The government is now more likely to use the threat of new taxes to try to secure cheaper inputs for state-run energy and infrastructure projects.

The NDP will probably provide too little, too late. The plan's most critical reforms -- more flexible labor laws, education reform, and rationalizing local government -- will probably be scuttled by vested interests and weak governance, and its 20-year plan for expanding employment and reducing inequality is too broad and too long term to offer much-needed near-term help. As a result, the plan's more populist elements -- including boosting public-sector employment and social spending -- will be implemented first, further limiting government's ability to find longer-term, structural fixes. Ramaphosa's business experience and negotiating skills will help the NDP's cause. But the plan lost its primary champion when former finance minister Trevor Manuel resigned from the ANC's National Executive Committee.

Zuma's demonstrated ability to survive internal challenges will relieve some of the factional pressures within the ANC leadership: All top six party executives are now Zuma allies, and the president's most vocal challengers were uniformly eliminated from the 80-member NEC. Yet this winner-take-all outcome will also reduce the ANC's so-called broad church of leaders and supporters, further undermining the party's monopoly on political legitimacy among black South Africans and increasing the risk of social unrest.

Despite its electoral dominance -- the ANC won 65.9 percent of ballots cast in 2009 -- growing voter apathy and discontent with the pace of economic change has substantially reduced turnout, meaning the ANC now has the support of just 50 percent of registered voters. Anger over inequality has also driven a rise in violent protests, including frequent demonstrations against poor service delivery and last year's wildcat strikes in mining and farm communities. In general, these actions have been instigated by disgruntled or former ANC-affiliated leaders trying to exert influence from the outside.

These trends will continue in 2013. The new ANC leadership will alienate leaders and constituencies from the same areas where protests and strikes are most common, and government efforts to exert tighter control over provincial resources will exacerbate local tensions. Cutbacks and shutdowns by gold and platinum miners in the first half of 2013 -- as well as the June expiration of wage agreements in the gold and coal sectors -- will almost certainly spark another bout of labor unrest in the mining sector, especially given the weakened position of the government-aligned National Union of Mineworkers and the rise of more militant bodies such as the Association of Mineworkers and Construction Union. Combative stances are also likely from the Congress of South African Trade Unions.

The bottom up pressures will weigh on the ANC in advance of the 2014 elections, as will the scandal-plagued leadership of Zuma himself. Though Ramaphosa's respectability provides the party with badly needed cover, the ANC government will still have to focus on short-term spending and patronage to shore up support. Looser monetary policy is also a real possibility, as is a more aggressive (though still tempered) approach to land reform. Without these steps, continued bouts of social unrest may well shake investor confidence more than unwelcome policies.

Bottom line: Zuma is not Nelson Mandela, and the ANC no longer has enough credibility with poor South Africans to (once again) ask for patience in achieving a better life.

Next, we'll profile our "red herring" risks for 2013.

Eurasia Group's weekly selection of essential reading for the political risk junkie -- presented in no particular order. As always, feel free to give us your feedback or selections @EurasiaGroup or @IanBremmer.

Must-Reads

1. "Freshmen From Kennedy to Double Amputee Join Polarized Congress"
Steve Walsh, Bloomberg

An interesting glimpse at some of the new personalities in the 113^th Congress, a group of representatives that runs the gamut of conceivable paths to Washington -- and the new Congress breaks records, with 81 women in the House and 20 women in the Senate (both all-time highs).

2. "Discordant Development and Insecurity in Africa"
Richard Joseph, allAfrica.com

How to reconcile the similar economic growth we've seen in Mali and Ghana with their starkly different development trajectories? There's no simple answer, but this piece is a good primer on many of the variables involved. 

3. "The Art of Snore"
John Arquilla, Foreign Policy

On US defense spending, are there more than budget cuts to fear?  Is there an innovation deficit? Arquilla outlines what he perceives as shortcomings in the current military spending approach -- as well as some interesting solutions.  

4a."Myanmar Launches Airstrikes on Kachin Rebels"
Simon Roughneen, Christian Science Monitor

4b."Burma's Military Follows Own Course in War against Kachin Rebels"
Jonathan Manthorpe, The Vancouver Sun

When Barack Obama and Hillary Clinton visited Myanmar in November, it was an historic occurrence -- the first-ever US presidential visit to the country, and a firm endorsement of the recent reforms that have taken place. But while national hero and opposition leader Aung San Suu Kyi warmly greeted the visitors, she also admonished that "we have to be very careful that we are not lured by a mirage of success." Fighting between the military and Kachin rebels in the north has clouded reform efforts. And, as Jonathan Manthorpe explains, Myanmar's relations with China -- and water security issues -- underpin much of the issue. These are two sources of conflict that are only trending upward throughout the region as a whole. 

Longer Reads

5. "Better Than Human"
Kevin Kelly, Wired

At Eurasia Group, we've devoted a lot of attention to the long-term labor force impact that the advent of robotics and 3D printing will have, particularly on emerging markets like China, where the country's greatest resource -- cheap labor -- could very well become one of its biggest obstacles as its citizens are displaced from manufacturing jobs following technological advances. Kelly looks on the bright side of a robotic future, outlining the opportunities for innovation and productivity that come with a mechanized work force. His vision is a bit rosy, but it's a useful counterweight to the much-discussed downside risks.  

By Mark Rosenberg

South African politics is broiling. The exceptional violence surrounding the wildcat strike at Lonmin's Marikana platinum mine -- where police killed 34 strikers and 10 people died in an inter-union clash -- reflects poorly on the leadership of President Jacob Zuma, who is up for re-election as head of the ruling African National Congress (ANC). By weakening Zuma's allies and strengthening his foes, the Marikana incident and its aftermath make Zuma's hold on the ANC presidency-and thus the presidency of South Africa-extremely tenuous.

The most immediate political victim of Marikana is the National Union of Mineworkers (NUM), the largest affiliate of the powerful Congress of South African Trade Unions (COSATU). The violence at Marikana began with clashes between members of the NUM and the splinter Association of Mineworkers and Construction Union (AMCU), which has exploited discontent over NUM-negotiated wages and its perceived coziness with management to make significant inroads into the NUM's membership rolls throughout the platinum industry. Meanwhile, the NUM has faced similar criticisms from COSATU's acerbic Secretary General Zwelinzima Vavi, who has accused the union of favoring management and higher-skilled workers over its rank-and-file. The NUM, for its part, has accused Vavi of sowing dissension in its ranks, and its leaders have been at the forefront of a politically-driven effort to replace Vavi at COSATU's upcoming elective conference in September. Given Marikana -- where the NUM was utterly unable to contain the situation -- Vavi's criticisms will reverberate within COSATU, whose leaders are freshly focused on preventing the kind of union splintering which has struck the NUM. As a result, the NUM's influence in the federation -- and thus its challenge to Vavi's leadership -- will be weakened.

This damages Zuma, who is close to the NUM and has actively pushed for Vavi -- a former ally and now vocal Zuma critic -- to be replaced. Vavi's likely re-election will probably deprive Zuma of COSATU's endorsement heading into the ANC's December elective conference in Mangaung. COSATU is in a "governing alliance" with the ANC, and many of its 1.8 million members are also members of the ruling party: Its rejection of Zuma (whom the labor federation forcefully endorsed in 2007) will not only cost the incumbent votes, but it will also highlight Zuma's weakness among his erstwhile base. Indeed, the COSATU conference may well spur anti-Zuma factions to push Deputy President Kgalema Motlanthe into a more explicit challenge to the party's leadership. Motlanthe -- who is closer to Vavi and favored by the ANC's more statist elements -- is Zuma's most viable challenger, though he has thus far been reluctant to take on Zuma directly.

Zuma's hold on the ANC presidency is also threatened by direct political fallout from Marikana. The fact that Zuma ordered police to bring the Lonmin strike under control has exposed him to accusations of being aligned with (mostly white-owned) mining companies and of complicity in the miners' deaths. Leading the anti-Zuma charge is Julius Malema, the expelled ANC Youth League leader and populist demagogue. While Malema has no official influence in the ANC election, he is still viewed sympathetically by the party's "nationalist" faction and its youth wing. More broadly, the incident reinforces the impression that Zuma is a leader who is not in control of his government or his party. His consensus style of leadership is not suitable for containing ANC factionalism or the rise in popular discontent among many of the ANC's core supporters, opening a window to potential challengers such as Motlanthe at Manguang in December. 

Mark Rosenberg is an analyst in Eurasia Group’s Africa practice.

By Scott Seaman, Shaun Levine, and Divya Reddy

Major resource-producing countries are shifting economic levers in their favor, taking advantage of consumer countries' thirst for commodities. Producer countries are increasingly restricting exports of raw commodities so they can be processed at home, creating jobs and moving domestic industry up the value chain. For countries that import natural resources, export restrictions can translate into higher costs that industries, labor forces, and consumers find difficult to swallow.

Moreover, when facing off against developing countries whose economies are growing quickly and becoming more sophisticated, developed countries may find that threats or offers of traditional development aid and tit-for-tat trade actions are less effective tools to apply pressure. This will be especially true as the gains from implementing new export restrictions expand, adjusting the cost-benefit calculation in favor of new restrictions even in the face of potential trade conflicts.

A case in point is the row between Indonesia and Japan over Indonesia's imposition in May of a 20 percent export duty on unprocessed mineral ores, as well as Indonesia's plans to implement a total ban on such exports in 2014. Unsurprisingly, these restrictions have made post-Fukushima Japan even more skittish about the security of its commodity supplies, and are fueling a lively exchange: Japan has made references to potential WTO action and allegedly threatened to ban Indonesian imports of photocopy paper, while Indonesia has indicated it could retaliate by restricting LNG exports to Japan. 

While a trade war is not likely, these tensions highlight a growing trend that countries like Japan will inevitably face. Recent efforts by countries such as Brazil and India to limit iron ore exports to promote domestic steel production, and by a local government in the Democratic Republic of the Congo to force domestic copper processing, pose worrisome precedents from Japan's perspective.

Not only is there a risk that Japanese smelters will be squeezed out of the market by these changes, but associated job and revenue losses will pose challenges for the government. For example, Japanese firms and the government will face domestic backlash if they invest in smelting facilities abroad while cutting jobs at home, especially at a time when the economy is fragile and the "hollowing out" of industry there has become such a hot-button issue.

At the end of the day, Japan and other countries dependent on raw materials imports will have little recourse to counteract producer countries looking to take a greater share of the value-added processing market. That said, many of these producer countries (including Indonesia) will take time to build up their domestic smelting capacity and may not prove to be cost-competitive in areas such as labor and electricity supply.

So Japan may be able to buy some time and avoid the immediate economic and political consequences of a shifting resource landscape. But the overall trajectory probably won't reverse course. At some point down the road, Japan and other countries accustomed to having more leverage will have to make painful adjustments.

Scott Seaman and Shaun Levine are analysts in Eurasia Group’s Asia practice. Divya Reddy is an analyst in the firm’s Global Energy & Natural Resources practice.

By Patrick Cullen

The international shipping industry and the governments that are ostensibly supposed to protect it have begun to radically rethink their long-held aversion to private armed protection at sea. The shift illustrates the inability and/or unwillingness of states to provide security, and presages potential ethical and legal controversy as the lines between commerce and state authority become increasingly blurred.

For decades, both the international shipping industry and the governing bodies that oversee it have been critical of the concept of putting armed guards on commercial vessels in order to protect them from violence -- and piracy in particular -- at sea. From the perspective of private industry, hiring armed guards has traditionally been viewed as a costly and risky move that creates more liabilities (financial, legal, and reputational) than it resolves. Furthermore, the shipping industry has also balked at the idea of paying for a service that it expects the world's navies to provide for them free of charge.

As recently as June 2010, a host of public and commercial maritime industry stakeholders -- including major shipping organizations -- explicitly stated that "the use of armed guards is not recommended" in a Best Management Practices maritime security document designed to offer shippers advice to mitigate the threat from Somali piracy.

States and international organizations such as the U.N. International Maritime Organization (IMO) and the International Maritime Bureau have long underscored the importance of maintaining the classic division between the state and the market, with the former maintaining a monopoly of the legitimate use of force, and the latter enjoying the privileges granted by this state protection.

The shift toward the acceptance of armed private security on ships has been recent and dramatic. In an unprecedented announcement last May, the IMO issued guidance to governments and shippers on how to engage with "privately contracted armed security personnel," and many states have followed in the IMO's wake, issuing similar policy announcements outlining their acceptance of armed private security teams operating onboard commercial vessels. And only weeks ago, on March 28^th, BIMCO, the world's largest international shipping organization, issued a standardized guard contract (GUARDCON) intended to help shipping companies responsibly select and manage teams of armed guards provided by specialized maritime private security companies. The same maritime industry players that were traditionally averse to the idea of placing armed guards on commercial vessels have now positioned themselves as key players involved in legitimizing this practice. This includes maritime insurance brokers and Protection and Indemnity insurance clubs that have begun to accept, and even endorse, the use of private armed security at sea.

So what has changed? Somali piracy has shifted from a small-scale and purely regional risk to a mature threat from professionalized piracy syndicates extending beyond Somali waters into the Indian Ocean and beyond. And recognizing that the current multinational and unilateral naval efforts to curb Somali piracy are falling short, governmental actors have sought to harness and regulate this emerging practice rather than ban it outright.

However, due to the novelty of the armed maritime private security, as well as the transnational and multi-jurisdictional nature of the global shipping industry, navigating this legal environment remains difficult at best. Placing armed guards on board ships has proven to be an effective method of deterring pirate hijackings -- to date, no ship with an armed escort has been hijacked -- but the use of armed guards poses its own set of serious risks. Last month, two armed Italian sailors on board an Italian flagged commercial vessel were caught and charged with murder by the government of India after allegedly shooting innocent fishermen within India's exclusive economic zone. Many commentators point out that it may only be a matter of time before a similar incident occurs with a private security team.

The shift in attitudes among shippers and states is just another illustration of how the management of risk is evolving from the reactive to the proactive, and how the responsibility for providing security is becoming increasingly fragmented between states and the market.  

Patrick Cullen is an analyst in Eurasia Group's Comparative Analytics practice. Patrick is an expert in maritime private security, and is the editor of "Maritime Private Security: Market responses to piracy, terrorism and waterborne security risks in the 21^st century."

Today, we turn to risk #9 in our series of posts on Eurasia Group's Top Risks for 2012 and answer the most common questions we've gotten about it.

Here's a summary:

South Africa-ANC discord. In South Africa, a bitter struggle for leadership and the policy direction of the ruling African National Congress (ANC) will undermine governance this year in a country trying to prove it belongs among the top tier of emerging markets. Populist pressures and elite infighting have intensified to a level not seen since the end of apartheid in 1994, President Jacob Zuma will likely win reelection as ANC leader and another term as South Africa's president, but disillusion among former allies will fuel political discord, preventing the country from making much-needed economic strides. 

Q- What is driving the strife within the ANC?

A- During his tenure as South Africa's president (1999-2008), Thabo Mbeki held to a conservative macroeconomic approach that pleased investors but disappointed many within the ANC who hoped for a more aggressive spending approach to the country's social and economic problems. When Zuma succeeded him as ANC leader in December 2007, supporters hailed him as a unifying force who would offer a more inclusive leadership style than his predecessor. Zuma then became South Africa's president in 2009. But after less than three years in office, Zuma has maintained Mbeki's spending discipline, feeding a perception that he is at best indecisive and at worst more interested in enriching his friends than in addressing the country's needs. Opposition to Zuma is personified by firebrand ANC Youth League leader Julius Malema, who has called for the nationalization of mines, among other populist policies. Malema has been suspended by the party for indiscipline, but opposition to Zuma extends far beyond the Youth League.

Q- To see where the country is going, what are the events to watch this year?

A- The release of the national budget on February 22, the ANC's policy conference in June, and the December party elective conference. The Treasury faces a difficult balancing act: There is pressure to spend on social programs and improvements to South Africa's poor infrastructure, while foreign investors hope to see continued fiscal discipline. Complicating matters is South Africa's exposure to the volatility in the eurozone, which has placed pressure on the rand and threatens trade flows to South Africa's largest trade partner. At the June policy conference, the ANC will emphasize economic transformation and a statist approach to the economy, and the proposal to nationalize mines will be debated. The conference is unlikely to endorse outright nationalization, but clear consensus exists on the need for broader redistribution of the wealth that the country's natural resources generate. That's why we'll probably see more state involvement in the mining sector and tighter regulation. Finally, the December elective conference, the ANC's highest decision-making organ, will endorse the party's June policy resolutions and will essentially determine whether Zuma will preside over South Africa for the next several years, or whether a challenger -- most likely Vice President Kgalema Motlanthe -- will get the nod.

Q- What will be the impact of the ANC discord?

A- Generally speaking, there will be policy paralysis. The ANC is increasingly unable to conclusively reject radical policy proposals such as nationalization, and it will fail to endorse necessary microeconomic reforms, such as a liberalization of labor markets. Opposition to Zuma will encourage the government to use the intelligence apparatus and corruption charges against rivals to bolster his authority. This could help Zuma eliminate potential rivals, but we could also see corruption charges against the president himself. Conspiratorial politics will be pervasive, undermining the government's ability to concentrate time and resources on efforts to reduce high unemployment and improve competitiveness. Poor governance will damage South Africa's appeal as an investment destination.

Despite the country's much vaunted inclusion among the BRICS group of emerging market powerhouses, and at a time when politics in many developing states is maturing, South Africa's political system is in danger of becoming a hindrance to the growth needed to lift so many South Africans from poverty.  

Next up, a lose-lose election in Venezuela.

As protests in Tunisia, Egypt, and Libya captured international attention, riots swept Algeria earlier this year. But as unrest elsewhere reached a crescendo, the turmoil in Algeria went quiet. Since then, Algeria has escaped the world's attention, but long-term damage has been done. Local anger at its government is high, and President Abdelaziz Bouteflika's reform program -- aimed at improving political representation and official transparency -- is unlikely to change that. Without a surge of fundamental political reform, Algeria could quickly become unstable, and the concentration of resources in a few hands, the resulting corruption, and weak governing institutions make successful reform highly unlikely. The regime is not on the verge, but widespread social unrest, regime infighting, and a looming presidential transition will only add to the risk of political instability over the next three years.

Algeria's oil and gas exports leave its government flush with cash. In fact, the country's central bank governor noted in September that foreign currency reserves had topped $170 billion. The Algerian government avoided the fate of President Hosni Mubarak in Egypt in part by using some of this cash on subsidies -- to reduce consumer prices and raise public sector salaries, for example.

But money alone can't buy good governance. The state continues to provide Algerians with lousy social services and all that wealth isn't creating nearly enough jobs. Rampant corruption at the highest levels and a near total lack of accountability exacerbate public anger. Events like major electricity outages and the exposure of corrupt public housing programs continue to spark unrest. Labor activism is on the rise.

Even as the regime's popular legitimacy erodes, its ageing leaders resist making plans for what will come next. Infighting between civilian and military power centers triggers dueling corruption investigations and abrupt leadership changes at key ministries and state-owned companies like oil and gas giant Sonatrach. President Abdelaziz Bouteflika is still widely credited as the man who brought a decade-long civil war to a close, but age is catching up with him, and he's been ill for years. His term isn't set to expire until 2014, but his sudden death or incapacitation would leave the transition in the hands of senior military leaders, some of whom carry the taint of atrocities committed during the fighting. An internal power struggle among civilian and military leaders -- or within the armed forces itself -- might well spill into the open and provoke a broader conflict. Even in the best-case scenario -- Bouteflika serves out his term and a managed transition begins in 2014-there is little reason for optimism that serious unrest can be avoided.

But the tipping point into violence could come much sooner. Legislative elections are scheduled for 2012. With expectations raised by the sweeping changes across North Africa and the Middle East this year, this could be all Algeria needs for a true test of the regime's willingness to tolerate dissent -- and of the people's tolerance for more of the same.

James Fallon is an associate with Eurasia Group's Middle East practice.

By Philippe de Pontet

The Aug. 26 car bombing of a U.N. building in the Nigerian capital of Abuja, which killed more than twenty people and wounded dozens more, suggests that the Islamist militant group Boko Haram may be in cahoots with al Qaeda in the Islamic Maghreb (AQIM). This sobering development constitutes President Goodluck Jonathan's most acute political and security challenge yet. If he responds decisively, he could further alienate northerners who resent his rule and would consider a poorly managed crackdown a provocation targeting Muslim communities. If he proceeds too cautiously, he risks frustrating his southern, largely Christian political base while reinforcing his image as an indecisive "accidental president." Either way, Jonathan's unlikely to come out a winner.

While headquartered in Nigeria's economically depressed northeast, Boko Haram (whose Hausa name translates roughly to "Western education is sinful") has steadily expanded its geographical reach, targets, and tactics since 2009. After the group's founder, Mohammed Yusuf, was killed by Nigerian forces that July, Boko Haram got busy establishing mosques, schools, and other institutions throughout the north while stepping up its attacks on government targets. When Jonathan, a Christian from the southern Niger Delta, assumed the presidency, the group's ambitions became national in scope. And the latest attack indicates that the militants' struggle has become somewhat international, with all the hallmarks of an al Qaeda connection.

So far, the Jonathan administration has responded cautiously to the car bombing. For days it delayed confirming Boko Haram's role, even after the group claimed responsibility for the attack both online and in a press briefing. The government's tactic may prove shrewd, given that Nigeria's electorate is divided along highly charged regional lines and many northern community leaders, politicians, and imams are worried that innocent Muslim civilians could suffer from a heavy-handed government response.

On the other hand, the administration's response could be the product of paralysis and indecision. And those who see it that way -- particularly southern Christians who consider the Islamist movement a growing national menace -- are calling for retribution and a show of force. A handful of prominent northern leaders, including presidential runner-up Muhamadu Buhari, have also called for a swift response.

Caught in the middle as he is, Jonathan will likely try to strike a balance between hawkish military and police action aimed at weakening Boko Haram's base and increased funding for compliant northern governors. The first prong of his approach will be to beef up security in Abuja, Kano, and other urban centers and launch targeted military offensives on suspected militant hideouts. If bungled, such a campaign could spark a backlash against Jonathan, and possibly a recruiting bonanza for Boko Haram. The second prong of the approach will likely be to funnel funding through northern governors to help ameliorate underlying grievances such as grinding poverty and high youth unemployment. But this won't be possible without a prolonged period of legislative debate, which could further calcify the country's regional fault lines. And unlike the rebels of the Movement for the Emancipation of the Niger Delta (MEND), Boko Haram's absolutist ambitions may not be amenable to political negotiation or payoffs.

Philippe de Pontet is director of Eurasia Group's Africa practice.

Africa is changing. Across the continent, robust urbanization, strong population growth, and sound economic policies are contributing to the development of an indigenous middle class. While this trend clearly interests multinational corporations hoping to tap into a new and growing market, the improving economic situation, changing consumer preferences, and the rise of a middle class may also deepen democracy in the region, albeit unevenly across the continent.

A decade of sustained economic growth (averaging between 4 percent and 7 percent annually in sub-Saharan Africa) is translating into higher per capita GDP and rising discretionary incomes that is helping build a middle class. The IMF forecasts 5.5 percent growth this year and nearly 6 percent next year for the region. In 2015, the average GDP per capita in 22 sub-Saharan African countries will exceed $2,000, according to the IMF. That level is an important threshold, representing the point at which people begin to demand basic consumer items, in addition to satisfying their basic needs.

The emergence of a middle class has important political implications. It has the potential to transform governments and encourage greater accountability and reform. In most cases, pressure from the middle class is unlikely to secure sweeping political reform of autocratic governments in the short term (as in Egypt). But it may result in a more welcoming business climate, better access to credit, and improved service delivery. Middle-class citizens, especially entrepreneurs with a stake in economic reform, are the most likely to push back against revenue-draining state monopolies, excessive red tape, and elite capture of industries. The poor are too busy simply surviving and the rich often have a stake in the status quo. Middle-class constituencies can and sometimes do bolster protectionist policies or union obstructionism to needed reforms (witness South Africa's public sector unions), but the same can be said of the world's most developed economies. In general, middle-class interests will help to galvanize economic and political reforms far more than pressure from other countries, donors, and multinational institutions.

A strong middle class also has other political benefits. At best, it fosters an active civil society and in some cases checks on executive power, providing a constituency for moderation at times of intense political stress. In the bloody aftermath of Kenya's 2007 elections, it was civil society groups such as local NGOs, media, business associations, and churches that forced the political elite to retreat from the brink. Over time, a growing middle class is likely to push back against the kind of big man politics that has characterized much of Africa since independence. For example, while Nigeria's middle class has not reined in the country's pervasive culture of corruption that effectively puts the government up for sale, the commercial hub Lagos and surrounding southwestern states have become an opposition stronghold for the reform-minded Action Congress of Nigeria (ACN), eroding the ruling party's monopoly on power. Likewise, South Africa's ruling African National Congress, which has dominated politics since Nelson Mandela's historic inauguration in 1994, is also finally losing ground to opposition forces judging from last month's municipal elections.

After a half century of violence, volatility, and suffering, major African countries may finally be on the road to a more sustainable political and economic future.

Philippe de Pontet and James Clinton Francis are analysts in Eurasia Group's Africa practice

By Hani Sabra and Anne Fruhauf

Last week was tough for recently deposed leaders. On April 13, an Egyptian prosecutor ordered the detention of former president Hosni Mubarak and his two sons, Gamal and Alaa. Their fate mimicked that of Laurent Gbago, the former president of Ivory Coast who was captured on April 11 looking dazed and disheveled after a five-month political impasse and two weeks of vicious fighting between his forces and those of incoming President Alassane Outarra. Gbagbo is reportedly being held under U.N. protection in the northern town of Korhogo (an Outarra stronghold), and despite an alarming photo of Gbagbo's wife surrounded by soldiers, the new president has promised that the couple and their allies will receive fair trials. In Egypt, Mubarak is confined to a military hospital, while Gamal and Alaa are in locked up in Tora Farm prison, where Gamal has seemingly lost his appetite. These tribulations will likely be just the beginning of long processes to bring the former leaders to justice. So what can they expect next?

Egypt

• The most likely scenario for Mubarak is that he ends up confined to a military hospital. The humbled former president will probably be tried and, if found guilty, will inevitably serve his sentence in bed. Similarly, if doctors determine that Mubarak's health is too poor for him to stand trial -- and the physician's advice may be determined by politics -- he will likely still languish in a hospital until his death.
• A less likely scenario is that Mubarak leaves Egypt for medical treatment and does not return. Arab states including Saudi Arabia are probably advocating this option, given their ties to Mubarak and desire to avoid setting a precedent for prosecuting fallen officials. Egypt's military leaders could be tempted to release their former benefactor, especially if doing so comes in exchange for Saudi largesse.
• There's also a small possibility that Mubarak will be released. It's a long shot because Egypt's political climate means that most of the former officials will be tried and convicted even if the evidence is shaky. But if Mubarak, his sons, and their closest associates are set free, instability will rock the country once again.

Ivory Coast

• For Gbagbo, one possible fate is standing trial at the International Criminal Court (ICC), as the Liberian warlord Charles Taylor did. The hurdle there is that Ivory Coast signed but never ratified the Rome Statute, which established the court, and Gbagbo's southern supporters -- as well as others across the continent, where resentment is building against the ICC's seemingly single-minded focus on Africa -- would question the court's impartiality. An alternative might be an ad hoc tribunal situated in another African country.
• An Ivorian tribunal would likely be better for national harmony and seems equally plausible at this stage. Ouattara has asked South Africa to help him establish a Truth and Reconciliation Commission to investigate all human rights violations committed since the ill-fated election in November, including by Ouattara supporters and northern rebels. But it's unclear whether the process would offer any form of amnesty, or whether Gbagbo and his closest allies would be included in it.
• What is clear is that by resisting until the bitter end, Gbagbo has almost certainly squandered his chance of exiting with dignity. Had he and his fighters surrendered, he might have secured favorable exile terms (possibly in a friendly country such as Angola) and immunity for crimes against humanity. As it is, he'll have to plead his case.

Hani Sabra is an analyst in Eurasia Group's Middle East practice. Anne Fruhauf is an analyst in the firm's Africa practice.

By Ian Bremmer and David Gordon

A wave of money flooding into emerging markets has lifted many boats. But when the tide goes out, certain countries -- and the investors betting on them -- may be left high and dry.

There are very different risk profiles among emerging markets, and even beyond the increasingly turbulent Middle East, not all are going to perform well this year. The risks facing these countries include negative economic policies (fiscal imbalances in some, premature austerity in others) as well as more purely political risks (including contentious elections and political violence). As these problems play out in 2011, they will contribute to poor investment outcomes, ranging from adverse regulatory changes to asset bubbles to weak stock market performance.

The most notable underperformers are Argentina, Hungary, Peru, South Africa, Sri Lanka, and Thailand.

In Argentina, investors appear overly optimistic that policy will improve -- either as a result of President Cristina Kirchner losing her re-election bid or a change in direction if she wins. In fact, she is likely to win, but policy is unlikely to change, leading to higher inflation and more populism.

In Hungary, markets have recently turned south, but still do not seem to be pricing in the scope of the potential impending crisis as the Fidesz government attacks asset holders across a range of classes. Hungary may once again have to turn to the IMF, but Prime Minister Viktor Orban has walked himself into a political corner with his vitriolic anti-IMF rhetoric.

Investors in Peru underestimate the potential for populist candidate Ollanta Humala to make a serious run at the presidency. He's a decided underdog to be sure, but it's too early to write him off. Even if the more market-friendly Alejandro Toledo wins, we're likely to see more resource nationalism -- and mild capital controls if the Peruvian sol continues to appreciate.

Despite its aspirations, South Africa won't improve its investment climate in 2011. Growing political pressure on President Jacob Zuma ahead of municipal elections in April-May and the ruling party leadership contest in 2012 will increase the risk of government inertia and erratic policy-making and reinforce the African National Congress (ANC)'s "single party rule" mentality."

Many people have become overconfident that the end of Sri Lanka's civil war will usher in a period of political stability. But President Mahinda Rajapakse, insecure in his position, is centralizing power while failing to address the country's structural challenges. That's a recipe for resurgent political and ethnic tension, and it will dampen growth prospects.

Finally, 2011 promises to be a year of political tension in Thailand, especially given the king's failing health. Allies of former Prime Minister Thaksin Shinawatra remain popular in much of the country, raising the risks of a violent, flawed election or a military intervention. There's real potential for serious and sustained unrest involving Thailand's incumbent elites and the pro-Thaksin "red-shirt" movement.

Ian Bremmer is president of Eurasia Group. David Gordon is the firm's head of research.

By Philippe de Pontet and Willis Sparks

Why would President Omar al-Bashir allow the southern third of Sudan to secede, taking 80 percent of the country's oil with it? Maybe he won't. It's far from a done deal. But for the moment, it appears his government might be willing to do just that.

South Sudan is hoping to hold a referendum on January 9 that will almost certainly lead to its independence from the government based in Khartoum. After years of negotiations, North and South remain far apart on issues that must be resolved if a credible vote is to take place, and if an independent South Sudan is to be truly viable. But incentives and pressure from outsiders may help bring this off.

Last week, the State Department formally offered the North some attractive conditions-based carrots. If Khartoum accepts the results of the referendum, Washington will lift restrictions on non-oil trade and investment. And upon fulfillment of the terms of the Comprehensive Peace Agreement that ended the civil war in January 2005 and "resolution" of the Darfur conflict, the US will give al-Bashir's government much of what it says it wants: sanctions removal, normalization of relations, and support for a multilateral plan to reduce Khartoum's astronomical $38 billion debt.

In return, the South will have to share some of its oil wealth with the North, moving gradually over the course of several years from the current 50/50 split to a smaller share for the North that's large enough for Khartoum to accept. The two sides will also have to demarcate the border and resolve the status of the oil-rich province of Abyei -- not easy tasks. On Friday, a U.N. summit on the issue will bring together representatives of North and South with U.N. Secretary-General Ban Ki-Moon, President Barack Obama, and Secretary of State Hillary Clinton.

There are solid grounds for optimism beyond the persuasive powers of the diplomats involved. First, China, one of the few international players with real influence in Khartoum, wants a North-South agreement that averts any risk of a return to civil war, since most of the 480,000 barrels of crude oil that Sudan exports each day are bound for China. That's more than 5 percent of China's imported oil. A North-South conflict in Sudan would cost Khartoum and Beijing dearly.

Second, Washington will lean heavily on the South to compromise on the sharing of oil revenue and the border demarcation process. The South depends on support from the United States and the United Nations for the referendum and its independence. With billions of U.S. aid dollars spent, and billions more to come, it's high time that the United States put real pressure on the South to make necessary compromises, starting with oil revenue-sharing.

Finally, the North is not entirely vulnerable to southern control of oil. The South may hold 80 percent of the reserves, but the existing pipelines run north. The two sides must get along if either is to profit from the oil.

Last week, Hillary Clinton told a Council on Foreign Relations audience that Sudan is "a ticking time bomb of enormous consequence," reminding everyone involved how much work remains to be done-and how easily negotiations could fly off the rails. The United Nations will offer to play a leading role (with the African Union) in preparing the referendum. That's critical since preparation time for such an ambitious vote is running short, in a region almost entirely devoid of infrastructure. Khartoum's response to this proposal will give some indication of its willingness to make compromises of its own, as it has grudgingly done on several occasions since the 2005 peace agreement.

The Obama administration has adopted an ambitious (and risky) strategy. Much of what it has promised Khartoum will depend on "resolution" of the conflict in Darfur, an issue not directly related to the North-South conflict. Khartoum will want clarity on what the word resolution actually means, balking at allowing the South to secede without knowing just how high a bar it must clear to claim the incentives Washington has promised. The United States, European Union, United Nations, and Khartoum's friends in China and Egypt will have to remain actively involved if talks are to remain on track.

In the end, despite hot heads and tough talk on both sides, North and South will probably move toward compromise on oil profits, the border, and Abyei during the six-month transition period between the referendum and the official birth of a new nation (whose name has yet to be determined). A return to civil war would serve neither government. An end to conflict and a stable environment for oil production would profit the two governments' most powerful foreign friends.

If things go wrong, either side could get aggressive. A breakdown in talks before the referendum could push the South to simply declare independence unilaterally -- not an auspicious start to nationhood in one of the world's toughest regions. Alternatively, the North could decide to seize control of the South's largest oil fields. It could also destabilize border regions -- though Khartoum knows well that any attempt to stoke a broader conflict across the South would invite a military response that could trigger a return to war that virtually no one wants.

But for the moment, there are solid grounds for optimism that one Sudan can peacefully become two. And that would be an accomplishment worth celebrating.

Philippe de Pontet is Director of Eurasia Group's Africa practice. Willis Sparks is an analyst in the firm's Global Macro practice.