Tuesday, July 13, 2010


This week the National Social Security Fund (NSSF) was in the news for not very charitable reasons.

According to one media report NSSF paid sh11.1b for 464 acres in Wakiso district from Kampala businessman Amos Nzeeyi and a company called Amer Ltd. What seems to have got every hot and bothered under the collar is that Security minister Amama Mbabazi has an interest in Amer ltd.

In Kampala, the city of seven thousand rumours, it is not a huge leap from this juxtaposition to believing that Mbabazi must have used his influence to have NSSF buy the land from him.

But what seems to have sent us into a collective fit of righteous indignation is the detail that the price seems to have been over inflated.

According to those familiar with the case there are supposed to have been two other bidders willing to sell NSSF land. Ms Mebra Nannyunja Kizza offered 100 acres on Entebbe Road at sh37m an acre and Ideal Homes Ltd, which offered 159 acres also on Entebbe road at sh40m an acre.

Nzeeyi and Amer ltd offered 464 acres in Wakiso for sh27m an acre.

Apparently these three bidders were drawn from a data bank NSSF keeps of people who have offered it land for sale in the past.

These three were the most responsive bids – NSSF wanted 100 acres of consolidated land, near the city and which can support a residential development.

In arriving at a fair price they inquired from area land brokers about land rates, investigated the cost of recent acquisitions in the area and sought the opinion of three independent valuers.

The going rates according to the findings ranged from sh28 to sh40m an acre while the valuers’ estimated the land’s value at between sh14.5 and sh18m.

So what has everybody’s hair standing on end is the discrepancy between the price paid for the land, sh24m an acre and the independent valuers’ figure.

There overwhelming feeling seems to be NSSF should not have paid nay more than the valuers’ advised.

Property valuation is not an exact science and is made all the more difficult in a country like Uganda where there are no valuation standards predetermined by a local authority.

It is fair that in determining land prices you check what the going rate in the neighbourhood is and is an acceptable means of determining market value.

The independent valuers used an income capitalization method, which basically entails determining the possible income from the land over a predetermined period into the future and discounting to find a present value.

So for example if a piece of land can bring in revenues of sh100m over the next 10 years by using a suitable rate like the yield on treasury bonds of the same duration for instance to determine that the land might be worth sh750m. A perfectly legitimate means to arrive at property value.

Of course since valuation is not an exact science in a willing buyer, willing seller situation as obtains in Uganda, negotiations are entered into and a price arrived at to the mutual satisfaction of both parties or not.

Is this unusual? Not at all. To illustrate. The current market price of the New Vision on the Uganda Securities Exchange is sh2,480 a share, however independent valuers believe a fair value of the share is sh2,143 and yet the net asset value of the company – when you subtract liabilities from assets, comes to about sh380 a share, of course since the New Vision is a going concern the negotiated price is often a multiple of the net asset value in the absence of price setting mechanism like the stock exchange.

So for NSSF’s detractors to be howling about the price paid for the land, they maybe barking up the wrong tree.

However, you can fault NSSF on not seeming to be transparent in their investment processes, barely five years after the Nsimbe land debacle.

NSSF is within its rights to buy land from any bona fide land owner. And the management of NSSF should rest assured that it will be criticized whenever they make an investment decision.

The only way they will blunt the inevitable criticism of their investment decisions is to bend over backward in ensuring a transparent process.

Published in August 2008, New Vision

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