Tuesday, September 29, 2015


Recently National Social Security Fund (NSSF) boss Richard Byarugaba rued the lack of investable projects locally.

The Fund which manages sh5.8 trillion ($1.8b) in assets has about sh160b to invest per month, which for lack of viable projects it ploughs into government paper and fixes in commercial banks.

Of course the argument is that the money deposited in the banks will be on lent to the private sector but one has to feel that more can be done with that money.

Why is it difficult for NSSF to invest more prolifically locally?

The law aside let us look at the math.

Byarugaba and his team have pledged to pay contributing members an interest above the ten year moving average of the inflation rate.

Using simple arithmetic the average annual inflation for the last 10 calendar years is 9.34 percent. If NSSF is to come good on its pledge it would pay a bit over that figure to its members. Of course what that means the return on all their investments ten has to be above 15 percent for the year.

As a rough indicator all their assets if deployed would bring in about a trillion shillings this year.
US Billionaire Warren Buffett,whose company Berkshire Hathaway is valued at about  $240b keeps warning his shareholders that it is becoming more and more difficult each year to show a real return because the size of projects he needs to show a meaningful return are growing fewer and fewer.

Last year he splurged $28b to buy food company H. J. Heinz, in 2009 he spent $26b in acquiring logistics company Burlington Northern Santa Fe and the year before he bought chewing gum maker Wrigleys for $23b.

"His deals are few and far between and he keeps joking that he needs an elephant gun when he goes out shooting. No million dollar deals for Buffett, thank you.
NSSF finds itself in exactly the same situation for a corresponding economy...

And when they decide to invest abroad as the y did earlier this year in putting down sh120b for a stake in Kenyan based Equity Bank we start tearing out our hair and start questioning Byarugaba’s patriotism.

NSSF investing abroad is not the scandal, the real scandal is that we do not present big enough projects to NSSF for it to bankroll.

True that NSSF’s $2b war chest is a drop in the ocean of the infrastructure developments we so badly need --- the 700 MW Karuma dam alone will consume upwards of a billion dollars, but letting them in on a hundred million dollar stake or there would reduce on the exchange risks that come with borrowing abroad and also give the workers of Uganda a stake in these projects and the accruing benefits.

But government initiatives aside there is an embarrassing dearth of private sector projects that would tickle NSSF’s fancy. MTN is probably is the only billion dollar company in Uganda, with even Stanbic valued at less than $500m.

Meanwhile NSSF is not in the business of the shelling out money from its till. To get access to NSSF’s stockpile you either have to issue a bond, list on the Uganda Securities Exchange or sale a share of your company to them, like the $2m deal that was cut with Serena Hotel about a decade ago.

That being said I think NSSF needs to recognise its context and even the mountain cannot come to it it should go to the mountain.

Within the law NSSF should start up a private equity fund, basically a company which buys interest in going concerns to help them grow and then when certain parameters have been met sell out. So they could seed the Fund with say $10m or sh36b and hope to invest in 50 companies over the next five years.

It may even consider having several Funds, tiered to match the amount of money required. So you could have a lower tier for companies requiring $1,000,000 and above, another for $100,000-plus and finally for $50,000 - $100,000.

"I fear though that even if NSSF bent over backwards for us it might still suffer an inadequate deal pipeline....

Using Warren Buffett’s rules, how many companies can show a sufficiently long track record of improving shareholder value over years even decades? How many companies can show a distinct competitive advantage that cannot be replicated and therefore guarantee near monopolies years into the future? And finally how many of these have management systems that can be relied on to continue doing what they do well into the future?

So you want NSSF’s money fair and square? Get ready to roll up your sleeves and get to work!

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