In the heat of the ongoing debates on subsidy withdrawal, several people have called to ask me to provide some clarity on the issue. This followed my two-part article on the subject carried in my column a couple of weeks ago titled ‘Fallacies of the subsidy withdrawal narrative’.
Lots of people, especially from the northern part of the country, were concerned by reports carried in several media platforms that beginning from this month of July, prices of petroleum products will jump from the current N500 plus to about N700. The rise in prices will result from the arrival of the first batch of oil imported into the country following the deregulation of the sector. Already, filling stations have reportedly closed shop in anticipation of price increases resulting in fuel queues.
Questions like ‘Is the subsidy withdrawal going to result in more money to the government to enable it to improve critical sectors like education, health, road infrastructure and transportation as government spokesmen have claimed’? ‘Are we going to have an efficient management of the oil and gas sector to enable Nigeria to maximise the potentials of the sector as happened in countries on the same oil producing bracket as Nigeria’? ‘Who really are going to benefit from the withdrawal of subsidy now that the policy has become fully operational?’
Pondering over these questions and demands made me recall a series of discussions I had way back in 1984 with a Jewish-American friend of mine who was in Nigeria for a fieldwork on Nigerian Enterprise indigenisation policy. He was referred to me by my friends who were attending the same University of Oxford as him in England.
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At the time, there were growing pressures on Nigeria to approach the International Monetary Fund (IMF) for a possible bailout over its balance of payment deficits. But the military government of Major General Muhammadu Buhari, looking at the usually stiff conditions the latter had attached on the bailout, baulked. In place of approach to the IMF, the Buhari military regime in a fit of nationalistic fervour, had opted for ‘Countertrade’ (trade by barter in layman’s understanding) as a means of trading with the country’s partners.
The country then was abuzz with debates on the merits and demerits of both the countertrade and approaching the IMF.
And when I asked my Jewish-American friend for his views on the debates, he was emphatic that eventually Nigeria would be left with no choice but to approach the IMF and accept its conditions for a bailout. And to my questions about what the conditions were, his cryptic answer was ‘’subsidies’’. He explained further that Nigeria was spending too much money subsidising the price of petrol such that the commodity was far cheaper than what was obtained in his home city of New York back in the United States of America.
These answers rather than satisfy me, set off another bout of curiosity as to why the IMF would concern itself with how the price of petrol in Nigeria. And because I could not figure out what the IMF stood to gain on the withdrawal of subsidies in Nigeria, I put forward this question directly to him.
It is from the notes I made on his detailed answer to the question that I hope to answer the torrent of questions addressed to me as to who really benefits from the subsidy withdrawal which has now been fully implemented by the Nigerian government.
But before I do that it is pertinent to provide some background and update on this Jewish-American and why his words on subsidies and its beneficiaries are still relevant today as they were 39 years ago when Nigeria was still trying to make up its mind whether to approach the IMF or not.
For a number of very valid reasons, I will not name this Jewish American but from my references to him discerning people will know who he is. He is presently Executive Vice-President of a leading American financial institution and he is in charge of the Public Sector portfolio of that bank advising it on how to deal with Central Banks and manage Sovereign Wealth Funds of countries around the world. He also consults for both the World Bank and the IMF.
At the time of our first meeting in 1984 he was schooling at the University of Oxford in England after having attended one of the Ivy League of elite American universities, Dartmouth College in the American state of New Hampshire.
Since finishing his studies in Oxford he had gone on to work for the US Treasury Department and been appointed the Vice-Chair of Inter-American Bank which deals with sovereign loans to Latin American countries. Suffice it to say he is one of the top American investment bankers and in position as consultant to both the World Bank and IMF, coupled with his deep knowledge of Nigerian economy from his field study of Nigerian Enterprise Indigenization for close to 40 years now, he is one of the experts IMF relies on to advise it on Nigeria. He served in a non-executive capacity as one of the top advisers to former US Treasury Secretary Tim Geithner who was his classmate at Dartmouth.
I have gone to this length to make references to this top American banker who had first provided me with deep insight into how the IMF works highlighting especially the issue of subsidies as a policy tool and the chain of beneficiaries of subsidy removal in a given country right up to the main industrial countries.
At the time he was giving me this information 39 years ago, he would not have known he was going to be all these things I mentioned about him.
But now as he is a top IMF consultant on its dealings with countries around the world, Nigeria included, I would like to rely on some of the points I jotted down 39 years ago from the notes I made during our frank discussion on subsidies and the IMF, which are still relevant to the trending debates on subsidies following the recent decision of the Tinubu administration to fully withdraw it in the oil and gas sector of the Nigerian economy.
(To be concluded)
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