NSSF:TO WHOM MUCH IS GIVEN, MUCH IS EXPECTED

There was jubilation in the streets of Kampala when National Social Security Fund (NSSF) announced 12.15 percent interest on member savings for 2020/21.

I exaggerate of course. But it was a good rate, better than the previous year when they gave members 10.75 percent  and the best rate we have received since 2018 when they announced 15 percent. This is a rate better than what people get on fixed deposit accounts at the bank and rightly so.

With a portfolio which is overweight, 78 percent on fixed income – government paper and fixed deposits, it would be scandalous if they could not manage a double digit return. This coupled with their progressively lower cost of administration, down to 1.06 from 1.19 percent of assets the previous year, means they can shift more of their returns to members than other players can. Traditionally asset managers charge two percent of assets.

Assets under management rose to sh15.5trillion from sh13.3trillion but the interesting statistic is that despite the vagaries of Covid-19 for the third year in a row NSSF is making more money from its investments, sh1.8trillion than it is raking in from member contributions, sh1.2trillion. this is a factor of the rate of growth of contributions is slowing as the compounding effect, earning interest on interest begins to go exponential...

Looking in from the outside, one is tempted to think NSSF have a tested business model and that they can now press automatic and cruise from here on, into the future.

That last statistic shows that this is not the time for the NSSF management to rest on its laurels. The fund is hitting maturity and in order to sustain the momentum it needs to increase its efficiency and find new avenues to park its money.

According to their strategic plan NSSF has as an intention to reduce its exposure to fixed income to 70 percent, increase the portion committed to equity to 25 percent and have real estate account for five percent of its total. The current distribution is 78 percent, 15 percent and seven percent respectively.

A rebalancing of the portfolio is necessary to optimize member returns, however NSSF finds itself playing in a small pond.

For the time being government paper continues to be lucrative, but that is because of government needs to finance its development agenda, with oil on the horizon will this still be an issue? The local equity market is too small to lift the needle for NSSF.  Uganda Securities Exchange (USE) market capitalization – the value of the companies whose shares are trading on the exchange is sh20.7trillion. NSSF whose equity portfolio stands at sh2.3trillion has disproportionate share of the floating shares on the USE. In real estate NSSF, with a trillion shilling in holdings, is punching well below its potential.

NSSF will always be a big player in government paper the challenge is to increase the equity and the real estate space.

Mobile phone company MTN is set to list its shares – at least 20 percent of the company on the USE by year end. With an expected sale of about sh700b expect this to give the USE a much needed shot in the arm. Airtel should be coming onto the market in a year or so down the line. These two listing may serve to increase NSSF equity holdings but not by enough.

"A strong lobby should be set up to compel more companies to list on the exchange. Companies which were privatized is a good place to start. The “gentleman’s” agreement can be invoked and they list their shares on the market....

Within the law too NSSF can set up a private equity fund, which would allow it to buy interest in local firms. This would require them to build in house capacity in this direction and have direct impact on local economic players.

In real estate NSSF is setting up very well to be the biggest real estate developer in the country. The Lubowa and Temangalo projects alone will bring more than 7,000 units to the market over the next decade. But more can be done.

How about NSSF buys a bigger stake in Housing Finance Bank (HFB), where it currently controls 50 percent of the company. This would tie in very well with their real estate development plans. A better capitalized bank would be employed to finance other developers and also provide mortgages for NSSF’s units coming to market.

HFB’s paid up capital is sh61b, half the amount NSSF collects from its members monthly.

A takeover of the troubled National Housing Construction Corporation (NHSCC) would be an interesting possibility as well. Dogged by shareholder disputes and undercapitalization NSSF could very well be the knight in shining armour the underperforming company needs.

Government should consider too, underwriting infrastructure costs in the development of real estate to lower the costs to intending buyers, not only to NSSF but for the industry as a whole.

And if, as is this government’s wont to drag its feet, we should lift restrictions on how far afield NSSF can invest its funds. International markets can swallow anything NSSF can throw at them.

I can understand the argument for keeping NSSF funds close to home, but if we don’t do anything to increase NSSF’s options locally it would cramp their style and make them fail to give the double digit returns we have become accustomed to. Government should care about this, because NSSF is our best long term saving vehicle and can be a major driver of this country’s development, as long as workers trust it and continue to save with it.

The point is for NSSF to sustain or exceed its growth trajectory while it is restricted to investing only within the East African, means it is only a matter of time before the biggest Fund in the region begins to falter in living up to the high expectations it has set itself.