The National Social Security Fund (NSSF) while continuing to post profits is hampered by red tape and dogged by political sniping that would make it uncompetitive in a liberalized environment.
Last week NSSF held the first ever annual meeting of its members.
The management reported a near three fold jump in annual profits to sh239b in 2012 from the previous year’s sh84b. This on the back of a doubling of revenues to sh264b from sh134b and a growth in members numbers to 500,000. And as was announced earlier this year they paid members 10% on their money for last year.
Companies with more than five employees are mandated by law to contribute to NSSF. Employees contribute five percent of their gross pay and their employers’ contribute double the amount. NSSF then pools these resources and invests them in such a way as to show a return for its members.
According to NSSF 96% of workers who start contributing with the fund end up qualifying for retirement benefit – a lump sum payment when one turns 55, while the remaining four percent die or benefit for the disability benefit.
Going forward NSSF boss Richard Byarugaba pledged to pay his members an annual interest of two percentage points above the average inflation rate of the previous decade.
Last year’s spike in inflation means the ten year average was about nine percent a situation that will change towards a lower average when this year’s inflation is factored in, meaning the interest on member savings could dip next year. In February annual inflation came in at ….. .
“That is the bare minimum you can get, just beating inflation,” African Alliance boss Ken Kitariko said.
But he said it was hard to blame NSSF management when their hands were tied.
“It’s actually extreme grief. You can’t have people crunching numbers then an official in the ministry or a unionist raise questions. By their its nature investment is time sensitive you can’t afford delays.”
Kitariko suggested that either “the government cuts them loose, allowing them to do their job unhindered or they outsource the bulk of their money to external fund managers who will not be hampered by red tape and politicking.”
The world’s richest and arguably best investor Warren Buffett has since 1976 managed an average annual return that is 19% higher than the treasury bill rate and 6.1% higher than the stock market during the same period in the US a country with an economic growth rate that is a fraction of what Uganda has exhibited in the last two decades – an annual average of about six percent.
Industry sources agree that at the heart of NSSF’s underwhelming returns is the nature of its investments.
Every eight in ten shillings under the fund’s investment is locked up in fixed income investments. These, like government paper, corporate bonds and fixed deposits, are the safest investment options but also have the lowest returns of all assets classes. The remaining 20 percent is divided unequally between real estate and equities.
NSSF’s management has plans to shift the balance more towards real estate and equities but argue that there is a shortage of local investment projects to absorb their billions.
‘Take for instance Temangalo the plan is to put up 5,000 units each of between sh50 to sh120m and sell them off. But that maybe practically difficult to achieve because as it is now a major mortgage lending bank in this town only does 200 mortgages a year,” NSSF boss Richard Byarugaba said.
He said a proposal for members to use their savings as down payments on mortgages may help matters but it is still being ironed out and this may helps matters.
Because of this dearth of investable projects the option to invest abroad is gaining traction.
“Our collections are growing exponentially,” Byarugaba says. “Largely because we are collecting more of what is due to us and less because the economy is growing. We have to invest to show a return … in a way we are becoming a victim of our own success.”
But some observers are refusing to be taken in by NSSF’s lamentations.
“Uganda is a virgin investment destination, opportunities are slapping us in the face at every turn. What NSSF has to do is to get innovative,” one analysts familiar with the industry said.
“According to the NSSF act it has two major objectives to manage fund for the financial benefit of its members and secondly, to help develop Uganda. You will shore up those returns but looking away from the traditional avenues.”
The observer said there was much scope for branching out into land banking, arguing that land was a finite resource whose value is bound to rise annually, build-to-sale residential properties, venture capital and private equity funds.
While acknowledging the bureaucratic hurdles and sniping from politicians as a major impediment to NSSF unlocking the full potential of its assets, he said this would not change if one was allowed to invest abroad.
NSSF is sensitive to criticism that it needs to invest more in Uganda before it can go out side.
At the annual meeting the fund’s chairman Ivan Kyayonka pointed out that sh2.4trillion is fixed in local banks, lent to local companies and to the central bank and so the issue of not investing locally does not stand up to scrutiny.
“Liberalization is here and unless government wants to kill off the fund they need to rethink their engagement with it. It has the potential to play a transformative role in this economy if it is not saddled with political baggage and held back by bureaucratic red tape,” another observer said.