Yesterday Finance Minister Maria Kiwanuka an 11.5% interest for savers at National Social Security Fund (NSSF) but observers could not help but wonder what could have been had the fund not been hobbled by bureaucracy and red tape.
In total the Fund will payout sh366b in interest.This is the highest rate of the return members have enjoyed since the 14% they earned in 2007. Last year the Fund paid its members 11.23%
In addition the fund grew to sh4.38 trillion from sh3.5 trillion in June 2013.
But more importantly the interest of member savings have kept ahead of the average inflation over the last ten years of about 9%.
"On the surface of it this laudable performance but on closer scrutiny the Fund is probably underperforming, given the privileged position it enjoys...
Last year NSSF’s investments were split between fixed income assets (bank accounts and government securities), Equity and real estate. A conservative enough mix the problem is in the mix of these various assets.
Last year the fund’s portfolio was biased spectacularly towards fixed income assets, which accounted for at eight in every ten shillings the Fund held. The rest of the monies were parcelled out to equities and real estate on a ratio of about two-to-one.
Industry experts suggest that if the portfolio was rebalanced so that fixed income accounted for half the portfolio and equities and real estate took up 35 and 15 percent respectively NSSF would be able to pay out at least 18%.
“Fixed income is safe but the returns are not optimum. NSSF has an extremely conservative asset mix. If they shifted the balance, a few more percentage points could be managed without risking members money unnecessarily,” a senior industry official told Business Vision.
"Two of the last three managements at NSSF have made it their goal to rebalance the portfolio but have come up against too much bureaucracy and political sniping...
The development of Temangalo and Pension Towers have been frozen by invetsigations. Construction on Pension Towers started around the same time as Centenary Bank’s Mapeera House and before dfcu’s spanking new headquarters in Nakasero, both of which are now occupied while Pension towers is barely off the foundation.
Currently parliament is probing the acquisition of power distributor Umeme’s shares, which NSSF holds about 15% stake. Allegations of insider trading and connivance by the board and management have been bandied around on the basis of whistleblower allegations.
A planned acquisition of a significant interest in a Tanzanian firm fell through a few years ago after NSSF failed to meet the deadline due to delays in regulatory approvals. The company has since seen its shares appreciate significantly and NSSF has missed billions of shillings in dividend payouts.
In addition there are requirements that the Fund’s investments be vetted by the Public Procurement and Disposal of Assets Authority (PPDA), another layer of scrutiny NSSF has argued is unnecessary in the case of potential investments. PPDA should be overseeing consumption items.
Former NSSF boss Richard Byarugaba appearing before parliament recently reported that in addition to the red tape, competing interests are always looking to frustrate deals if they fail to get contracted.
Nevertheless the Fund has continued to execute its other mandates.
Income is up 14.1% to sh479b from sh420b last year. Member contributions had risen to sh638b from sh558b last year and compliance stood at around 79%. The cost income ratio – a measure of management’s efficiency stands at 15% lower than the banking industry’s average figure of 55%.
Also since 2010 the Fund has managed to bring down the time it takes to process cl aims to about five days from 1005 days at the beginning of the decade.