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!
