Uganda's National Social Security Fund (NSSF) reported a sh405b loss for the year that ended in June 2019 on the back of unrealised losses on their equity positions and foreign exchange losses.
Last year the Fund reported a sh240b surplus for the year which prompted them to pay out a record 15 percent interest on member savings. NSSF has said they will announce the new interest rate at the member meeting on 27th September but they have warned that, understandably, they will not match last year's rate.
Their accounts show they will be paying out sh978b in interest this year to their members down 11 percent from last year's sh1.1trillion.
They are confident that they will beat a promise they made to their members five years ago that they will pay out at least two percentage points overt he 10 year average inflationary rate. The average inflationary rate of the last ten years was 6.7 percent.
A cursory look over their accounts shows that entire loss was attributable to fair value losses on their investments of sh169b and currency losses of sh247b for a total loss of sh416b, variables not really under the management's control.
Interestingly their dividend income sh77b was up 45 percent from last year's sh53b. Interest income was up 19 percent with rental income slipping marginally to sh10.7b from sh10.9b the previous year.
The telling detail is that only 6.82 percent of the dividend income comes from Uganda. This is interesting because whereas all the regional bourses in which NSSF has an interest in all suffered double digit losses during the period under consideration, the Uganda Securities Exchange (USE) was down the least. So if our equity holdings were biased towards the USE instead of Kenya there would be less of a loss.
And that is the challenge and one governments needs to stop sidestepping and address squarely. NSSF does not invest abroad leaving opportunities begging in its backyard, it invests abroad for lack of opportunities at home.
As has been mentioned earlier its portfolio is biased heavily towards government debt, in fact of all government's bond issues NSSF holds 40 percent and it is also the biggest holder of outstanding shares on the USE.
Government needs to actively encourage our biggest companies to list on the USE, which would, at the bare minimum, reduce NSSF's foreign exchange risk. Some estimates have it that the market capitalisation on the USE can more than double over the next five years if the government took a proactive stand on the issue.
The counter argument is that last year the fund made sh313b in currency gains. Ironically the losses came about because the Uganda shilling this year fared better not only against the US dollar, but also the Rwanda Franc, the Kenya and Tanzanian Shilling. An anomaly seen against its record over the last several years.
The benefits that would come with a more vibrant capital market, it can be argued too far outweigh the currency gains that would be made investing abroad. Those gains are not permanent as this last year has shown.
This being as it is, it still raises questions about NSSF's asset mix. As it stands now 79 percent is in fixed income, mostly government paper, 15 percent in equity and six percent in real estate.
It was not all doom and gloom for the Fund though. Total revenues were up 20 percent to sh1.25trillion from last year's sh1.04trillion. Its assets under management were up 13 percent to sh11.3trillion from sh9.9trillion. During the same period the economy grew by six percent. And the Fund was able to cut its expenses to assets to 1.28 percent from 1.31 percent the previous year.
Every so often the Fund's asset allocation throws up a surprise but on the whole NSSF is doing the best it can -- given the circumstances.
Last year the Fund reported a sh240b surplus for the year which prompted them to pay out a record 15 percent interest on member savings. NSSF has said they will announce the new interest rate at the member meeting on 27th September but they have warned that, understandably, they will not match last year's rate.
Their accounts show they will be paying out sh978b in interest this year to their members down 11 percent from last year's sh1.1trillion.
They are confident that they will beat a promise they made to their members five years ago that they will pay out at least two percentage points overt he 10 year average inflationary rate. The average inflationary rate of the last ten years was 6.7 percent.
A cursory look over their accounts shows that entire loss was attributable to fair value losses on their investments of sh169b and currency losses of sh247b for a total loss of sh416b, variables not really under the management's control.
Interestingly their dividend income sh77b was up 45 percent from last year's sh53b. Interest income was up 19 percent with rental income slipping marginally to sh10.7b from sh10.9b the previous year.
The telling detail is that only 6.82 percent of the dividend income comes from Uganda. This is interesting because whereas all the regional bourses in which NSSF has an interest in all suffered double digit losses during the period under consideration, the Uganda Securities Exchange (USE) was down the least. So if our equity holdings were biased towards the USE instead of Kenya there would be less of a loss.
And that is the challenge and one governments needs to stop sidestepping and address squarely. NSSF does not invest abroad leaving opportunities begging in its backyard, it invests abroad for lack of opportunities at home.
As has been mentioned earlier its portfolio is biased heavily towards government debt, in fact of all government's bond issues NSSF holds 40 percent and it is also the biggest holder of outstanding shares on the USE.
Government needs to actively encourage our biggest companies to list on the USE, which would, at the bare minimum, reduce NSSF's foreign exchange risk. Some estimates have it that the market capitalisation on the USE can more than double over the next five years if the government took a proactive stand on the issue.
The counter argument is that last year the fund made sh313b in currency gains. Ironically the losses came about because the Uganda shilling this year fared better not only against the US dollar, but also the Rwanda Franc, the Kenya and Tanzanian Shilling. An anomaly seen against its record over the last several years.
The benefits that would come with a more vibrant capital market, it can be argued too far outweigh the currency gains that would be made investing abroad. Those gains are not permanent as this last year has shown.
This being as it is, it still raises questions about NSSF's asset mix. As it stands now 79 percent is in fixed income, mostly government paper, 15 percent in equity and six percent in real estate.
It was not all doom and gloom for the Fund though. Total revenues were up 20 percent to sh1.25trillion from last year's sh1.04trillion. Its assets under management were up 13 percent to sh11.3trillion from sh9.9trillion. During the same period the economy grew by six percent. And the Fund was able to cut its expenses to assets to 1.28 percent from 1.31 percent the previous year.
Every so often the Fund's asset allocation throws up a surprise but on the whole NSSF is doing the best it can -- given the circumstances.
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