By Elias Biryabarema
KAMPALA, Sept 30 (Reuters) - Uganda faces presidential elections early in 2011, with incumbent President Yoweri Museveni targeting a fourth term in office.
Already one of Africa&${esc.hash}39;s longest serving leaders, Museveni will face off against retired Colonel Kizza Besigye, whom he has defeated in the last two presidential ballots.
Museveni was once hailed as a new breed of African leader by foreign powers, but relations with the West have frayed because of increasing opposition and rights groups&${esc.hash}39; accusations that the former rebel leader has become autocratic and corrupt.
Ugandan journalists fear a crackdown on press freedoms ahead of the vote and say they already face mounting intimidation and violence. [ID:nLDE68F1XS]
East Africa&${esc.hash}39;s third largest economy expects to become an oil-producing nation in 2011, but a protracted dispute with British exploration firm Heritage Oil <HOIL.L> may delay production and risks unsettling other investors.
With the potential to be a top 50 oil producer, Uganda stands to reduce its budget dependence on foreign aid and improve poor infrastructure.
Here are some of the factors to watch:
ELECTION BATTLE
Museveni has been in power since 1986 and his nomination as the National Resistance Movement (NRM) presidential candidate, a party built around the former rebel leader, surprised no-one. Nor the fact he was picked unopposed by the party faithful. [ID:nLDE68A02T]
However, one party rival has filed a legal challenge, urging the High Court to quash Museveni&${esc.hash}39;s bid because he was barred from standing. Some political analysts have suggested the move is a publicity stunt designed to portray the NRM&${esc.hash}39;s internal systems as democratic.
Uganda removed a cap on presidential terms in office in 2005. Museveni is expected to face his stiffest challenge yet from an opposition striving to present a unified front. His share of the vote has dwindled in each of the last three polls.
But the fragility of the opposition Inter-Party Cooperation (IPC) coalition was underlined in August when one of the five parties withdrew, citing a row over demands to reform the electoral commission.
With Uganda poised become an oil producing nation, Museveni has reason to cling onto power, fuelling fears among rights groups and journalists of a clampdown on civil liberties and press freedoms. [ID:nLDE68F1XS]
A proposed public order management law will give police sweeping powers to ban political rallies and demonstrations on "reasonable grounds". Another law under consideration will allow the government to shut down newspapers if they publish information deemed prejudicial to national security.
What to watch:
-- An intolerance of dissent, opposition rallies and further attacks on journalists and threats to media houses.
-- Signs that Uganda&${esc.hash}39;s opposition will continue to rally around Besigye or, alternatively, indications the brittle coalition will come undone. A fragmented opposition will likely struggle to defeat Museveni.
-- Foreign aid cut? Donors may cut aid in the next financial year if the government does not curb corruption. Foreign aid contributes 30 percent of the annual budget. Substantial cuts could stall key infrastructure projects.
-- Any signs the influential traditional Buganda kingdom is siding with the opposition push against Museveni. Relations between Museveni and Buganda rulers have been bad and sparked riots last year. A war of words is unlikely to spook investors but further prolonged violence could unnerve financial markets.
OIL WINDFALL
Tullow Oil <TLW.L> expects first commercial oil and gas in the final quarter of 2011. It expects to produce its first refined products from Uganda by 2014, with a 200,000 barrels per day export pipeline onstream by 2015.
Tullow and the government estimate there to be 2 billion barrels of recoverable reserves in Uganda&${esc.hash}39;s Albertine Rift Basin. That might be conservative, some analysts say, with reserves perhaps four times higher.
The central bank says oil production could drive Uganda&${esc.hash}39;s growth rate up to 10 percent. [ID:nLDE68J0JD]
Tullow is confident Uganda&${esc.hash}39;s capital gains tax dispute with UK explorer Heritage Oil <HOIL.L>, whose Ugandan assets Tullow purchased, will not stymie its production plans to farm out stakes to China&${esc.hash}39;s CNOOC <0883.HK> and France&${esc.hash}39;s Total <TOTF.PA>.
Heritage Oil has sold its 50 percent stakes in Blocks 1 and 3A to Tullow Oil for ${esc.dollar}1.45 billion but there is a row over whether Heritage is supposed to pay capital gains tax estimated at ${esc.dollar}404 million.
What to watch:
-- Bidding for the Kingfisher field. Energy Minister Hilary Onek has said the government is undecided whether to allow Tullow to apply exclusively but said Uganda would consider Tullow favourably if it applied for a production licence. [ID:nLDE686115]
-- Resolution of tax dispute, breakdown in negotiations, or impasse. Heritage wants arbitration in London, Uganda says the local courts can decide the matter.
-- Personal interventions from Museveni who wants the final say on all oil and gas deals. [ID:nLDE67I0XZ]
-- New regulations. A new law overseeing the hydrocarbon sector is expected to be passed by parliament by the end of 2010. Changes include tough new income tax proposals so companies pay tax on production revenues and the sale of assets [ID:nLDE67H0LR]. Remaining licences could then be auctioned.
BOMBING FALLOUT
Uganda faces mounting criticism from rights groups over the the handling of suspects in connection with the July bomb attack in Kampala that killed at least 79 people.
In neighbouring Kenya too, many are angered by the way their government has extradited Kenyan nationals to Uganda, alleging the correct judicial procedures have not been followed. [ID:nLDE68R265]
Uganda has said it might form a special court to hold the bomb attack-related trials behind closed doors, triggering fears the suspects will not receive a fair trial.
A total of 38 people, including Ugandans, Kenyans and Somalis, have been charged with terrorism over the bombings.
What to watch:
-- More attacks by al Qaeda-linked rebels. Does the deployment of additional Ugandan troops to Somalia heighten the risk of another attack? Any targeting of the oil sector could prove particularly damaging.
-- Any signs the government is using the attacks as a pretext to squeeze the opposition ahead of 2011 elections
-- Situation in Somalia. If al Shabaab continues its determined push against AU&${esc.hash}39;s AMISOM forces in Mogadishu and Uganda takes more casualties, furious voters could decide to punish Museveni at the ballot box.
ECONOMY
Uganda&${esc.hash}39;s economy may expand by 6.7 percent this year before reaching 7 percent in 2011, fuelled by growing private consumption and public expenditure, a Reuters survey forecast in August. [ID:nSLAHJE6A8]
Coffee export volumes are forecast to rise as high as 3.1 million 60-kg bags in the 2010/11 season from an expected 2.7 million bags in 2009/10, according to Uganda Coffee Development Authority (UCDA).
Inflation is forecast to tick upwards after falling to a six-year low of 1.7 percent in August. Increases in consumer prices had been easing after heavy rainfall earlier in the year led to bumper harvests.
The Ugandan shilling <UGX=> has fallen 18.5 percent against the dollar so far this year, while the stock exchange is one of the best performing in Africa.
What to watch:
-- South Sudan referendum on secession in January 2011. A "Yes" vote is expected but if the result ignites a dispute with Khartoum, or even a resumption of war, trade could be blocked.
-- Impact of oil investments on the local currency. As Uganda moves to develop its budding oil sector into production, dollar inflows are expected to surge, relieving pressure on the local currency.
On the other hand any major decline in export receipts could ramp up pressure on the shilling.
-- Food prices. Significant upsets to food supplies could push up prices and stir up unhealthy inflationary pressures. Fears of dry weather in the region later this year could exacerbate price pressures.
(Editing by Richard Lough and Giles Elgood)
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