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.
