Tuesday, September 30, 2014


Last week Chinese E-commerce site Alibaba sold its shares on the New York Stock Exchange raising more than $20b or equivalent of the size of the Ugandan economy, in a sign of things to come.
In the same week I sat in a meeting where the point was made that, how is it possible that National 

Social Security Fund (NSSF), with its sh4 trillion war chest is investing abroad when local businessmen are crying for a source of cheap capital.

On the one hand the Chinese businessmen in moves to get wider international acceptance are selling their shares abroad, while here our biggest financial institution is investing abroad.

For Jack Ma – the founder of Alibaba, which in market capitalisation is bigger than more established e-commerce sites Amazon and ebay combined, to be able to sell his shares in US he had to organise his company to be acceptable to investors there.

Could he have raised the $20b in China? Most probably. But with wider international acceptance he can tap into a bigger pool of finance, human resource and innovation. Remember that name, Jack Ma, because with the Chinese market tied down, expect him and his company to be jostling for space on the front covers of the leading business publications for years to come. He is 50.

NSSF argues that it has to invest abroad because they are few investment opportunities at home. Before you drop your mouth and slap your head at the apparent absurdity of this claim lets examine look at it again.

Using a rough calculation if NSSF paid its savers last year 11% on their money, they need to make more than that in profit on their sh4.2trillion hoard. They would need investments that would give them double digit returns on their money at least.

"NSSF is not a charitable organisation and as a saving member I would expect them to be very exacting in how they choose their investments and partners...

Imagine if NSSF stood on their street corner and announced they had a trillion shillings to lend out or invest and can people present their proposals. Say they just want to deal with just 100 investors so they would be willing to invest at least sh10b or $4m with each investor. Whereas the line may stretch around the corner onto Kampala road, the short list of promoters may not fill the Fund’s reception area.

This is why?

NSSF’s mind set is(or should be) locked on the Return on Investment or how quickly will it get its initial capital back. In making this judgement he will evaluate the quality of the management, the potential for growth in the company’s market, the competitiveness of the applying company in that market and whether they are getting the investment at a fair value.

These parameters are important in determining what to invest in, especially since NSSF is dealing with people’s pensions or retirement funds. It is unlikely and shouldn’t be, looking for the riskiest propositions, no matter how high a return they promise. So straight off NSSF is not going to be lending to startups it will be looking for solid, established companies that can absorb sh10b and show a return in relatively short order.

In our example, to be of interest to NSSF a company needs to be able to absorb a sh10b injection. With that you knock off 95 percent of our companies.

But even for those remaining five percent they may still have a few more hurdles to jump.
NSSF is not a bank so does not lend to the general public. So interested parties would have to sell shares to the Fund or issue a bond, a form of borrowing. To do either they would have to get their books in order and their books and processes audited by a reputable firm.

In saying there are few projects to invest in what NSSF is saying is, it has looked and not found enough businesses in Uganda that are willing or can jump through all those hoops to interest them.
 Whose fault is that?

Back To Jack Ma and his Alibaba. By listing in New York, Ma’s message to the world is that my company meets the highest known standards of business practice. He has entered an exclusive club of businessmen and businesses that can tap resources from around the world. He did this because he wants to play on a wider stage than China and that is the cost of entry.

NSSF is not a charitable organisation and as a saving member I would expect them to be very exacting in how they choose their investments and partners.

You are a Ugandan businessman, thank you very much. But you need more than proof of citizenship to make you interesting. If you do not live up to best business practice I really don’t want to see my money thrown down your black hole.

Get your house in order. Show some ambition, at least grow out of Kampala for God’s sake. Then you can begin to lay claim to NSSF’s billions.


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