DO NOT THROW OUT THE BABY WITH THE BATH WATER

I am not a big fan of parliamentary probes. They tend to be high on drama and low on substance.

Last week's parliamentary report on the National Social Security Fund (NSSF) probe did not disappoint in this regard.

The probe which took two weeks in February, was called in response to gender minister Betty Amongi's allegations of mismanagement at the fund that were preventing her from renewing former managing director Richard Byarugaba's contract.

The probe hearings served up a lot of sensation and ended up besmirching the reputations of the minister, board and management. Given the tone of the probe its recommendations for minister Amongi to resign, scrapping of the board and suspension of the entire management should not have come as a surprise.

Its former US President Barack Obama who said that democracy is messy. And in the exercise of that messiness a lot of good can get thrown out with the bath water.

"When you strip away all the dazzle and razzmatazz I came away feeling that the good performance of the NSSF management over the last decade was overshadowed and unfairly so by what I thought were some administrative lapses...

These lapses while quite shocking were often seen out of context and blown out of proportion.

First of all the fund has shown consistent growth since 2011 growing to sh17.5trillion last year from sh1.7trillion. A tenfold growth that has been independently verified and speaks to the progress the management has made for its members.

And while it is true that some investments have not shown much growth during the period, it is unrealistic to expect uniform growth in a basket of assets and to pick certain parts of the portfolio, which are under performing to damn the entire portfolio.

In fact, to objectively judge the Fund one should look at their 10 year strategic plan that was drawn up in 2015 and expected to expire in 2025.

In this plan they had set a target of growing the fund to sh20trillion,  a target they seem to likely to achieve ahead of target; to improve customer satisfaction to 95 percent, a figure which stands at 83 percent today; growing staff satisfaction to 95 percent by 2025, which is currently at 92 percent and finally to reduce turnaround time for processing of benefits to one day from the average of 26 days in 2015. Today this figure stands at nine days.

"This progress shared publicly with the members annually, suggest that more has gone right than wrong at the Fund. To lose sight of this would be to unfair to the management and demotivating for future leaders of the Fund....

One issue that was particularly unfair was the committee's criticism of the sh16b and sh17b bonuses paid to staff in 2021 and 2022 as excessive and uncalled for.

In any other organisation in this country those figures would seem outlandish, but in both cases this was in recognition of the funds creation of sh2.3trillion and sh1.7trillion in additional value. Simple arithmetic would show this was one percent or less of the value created and well with in a realistic range.

The number looks big if not viewed in its proper context.

The parliamentary probe was a good one to the extent that it gave everybody a hearing, the challenge was the conclusions it arrived at, which painted the management and staff in a less than fair light.

I know that the attraction to control or at least influence the goings on at the sh17trillion Fund can be hard to resist for even the most upright saints. But we need to recognise that the Fund is on a positive trajectory and it  should be helped to maintain this for the benefit of its members and the economy as a whole.

I have been a member of the Fund since my first paycheck in December 1995, I have an obvious bias to see NSSF continue progressing in its positive direction for at least the next five years. Beyond my own selfish needs it will do me good if it continues being profitably run well into the future so my sons and their children after them can benefit.

"This has been the longest stretch of good performance of the Fund in living memory and  compares favourably with other funds in the region....

The Kenya's NSSF, which has been in existence longer than our own, lags behind our Fund in performance. By one measure, their assets have grown an average of eight percent annually over the last five years compared to 17 percent per year for our NSSF. And  this despite our Fund being bigger than theirs.

As we go into the debate of the report by the whole house of parliament, we  would do well to keep this perspective in mind.

Again to paint this period black would be a great disservice to the management and the future prospects of the Fund and if the house cares anything about the members of NSSF they will do well to keep this in mind.

UCB; FLOGGING A DEAD HORSE

Easily half of all Ugandans alive today were born after 2000. This is a source of great opportunity for the country, in that if managed well, this young population will deliver a boom in the economy in coming years as they become productive citizens. 

On the flip side, it also gives opportunities for revisionists to confuse the youth about the country’s history.

In the last week the fate of the defunct Uganda Commercial Bank (UCB) and the role of former central bank governor Emmanuel Tumusiime Mutebile in its demise came up. It was suggested, no, forcefully declared, that Mutebile’s closure of the UCB was part of an imperialist plot to weaken the economy.

I personally reported on the UCB privatization process, but before that the seeds of its destruction were laid by bank and government officials who thought they could suspend the laws of economics, politics and good sense to keep the bank afloat, accelerating its demise instead...

By the time the NRM came to power in 1986, UCB like the rest of the economy was on its knees. It was the biggest bank by deposits and with 36 branches – a branch in almost every district, was the biggest by branch network as well. But the huge branch network was more a liability than an asset as they were not connected and could not activate the synergies that would come with the branch network.

To illustrate, as recently as 2000 before it was privatized, if you drew a check in UCB Kasese and came to cash it in Kampala, it would take at least a month before your account was credited.

It does not take a detective to surmise the shenanigans that would go on to speed up the process.

This is important, because in the 1988/89 budget, then finance minister Dr Crispus Kiyonga announced the launch of the Rural Farmers Credit Scheme (RFCS), which was supposed to avail credit to small farmers, he however lamented that the UCB network, through which the scheme was being implemented, was too limited. He reported with glee that the Bank was set to open 136 new branches in the coming year to facilitate the scheme.

This was obviously a political decision.  There was no mention of how much government was going to give UCB to aid this project, which would have been necessary to shoulder the four-fold expansion of its network. In the next budget he reported that the bank branches had actually risen to 170.

Bankers tell me that to open a new branch anywhere in the country today would take at least $350, 000 or more than sh1.2b and that’s before salaries and overheads. So even if we reduced the cost of opening a bank by a factor of 10 to about $35,000 the bank was going to lay out at least $4.8m in a year to make the minister’s wish come true. Even the government of Uganda would be hard pressed to come up with these figures at the time. In the previous year government had collected sh17b in tax revenues or about $113m at the official exchange rate of sh150 to the dollar.

So, the bank must have dipped into its already strained resources to meet this commitment and it would not be a stretch to imagine that, they used depositors' money as well, in the hope they would put it back before customers realized it.

This did not happen, as the RFCS was a spectacular disaster that accelerated the bank's downward spiral. The general economy did not benefit from the scheme , the evidence being that 40 years later we are still a subsistence agricultural economy....

It was no wonder then, that one-time UCB boss Professor Ezra Suruma reported in his book “Advancing the Uganda economy” that cash was short in the bank at one time, that to cash your check at the main branch, you would be asked to wait as depositors came in and their money given to you. No bank would reach that state of illiquidity now before it was shut down. Which is as it should be.

While the connected types are blamed for borrowing the money and running, the unsustainable expansion of the branch network egged on by armchair economists, takes the bigger blame for the bank’s troubles.

And the government tried to save the bank. It swallowed all the bad loans that resulted from the RFCS, and placed them in the Non-Performing Assets Recovery Trust (NPART), filling the ensuing hole in UCB’s books with sh100b.

Finance minister Jehoash Mayanja Nkangi lamented that with those funds, he would be able to build three new classrooms for all schools around the country. That’s the cost of government intervention the critics do not factor in their musings.

But after cleaning the balance sheet, UCB went right back into its evil ways, accumulating bad debt and generally acting as a weight around the neck of the industry and the economy.

"So, to stop further hemorrhage government stopped the bank from lending, with all deposits it got going into buying treasury bills, which in 1992/93 were traiding at more than 20 percent, explaining how UCB became profitable again just before its privatization...

 But the bank was supposed to lend to the public and not to the government. People in the know discount the profitability of the bank at this time, as it was not serving its core function.

In a nutshell that is what led to the privatization of UCB, government could not support it and it was leading to the inefficiency of the entire banking sector.

The government insistence and Mutebile’s eventual disposal of the bank has actually ensured that the bank serves its role. So much so that UCB, now Stanbic, pays in taxes every year for the last three years, the equivalent or more than $20m. This is the amount Stanbic paid for UCB.

The revisionists want us to believe that selling the bank to foreign capital, has been a disservice to the economy, while presenting no evidence. It is just sexy to abuse foreign capital. The evidence paints a very different picture.

UCB was privatized in 2002 since then across the industry, deposits have increased to sh30.2trillion as of June last year from sh1.33trillion in 2000 (I couldn’t find 2002 figures in time for this). But more importantly lending jumped to sh18.3trillion from sh0.53trillion during the same period. This growth is not solely attributable to economic growth, as credit grew by about 17 percent annually, almost thrice as high as the average 6 percent growth shown by the economy during the comparable period.

While credit to real estate development, personal lending, trade and manufacturing are still ahead of agriculture, it is safe to say it is Ugandans who have benefited the most from this trend. Personal lending grew to sh3.7trillion in June last year from an insignificant number in 2000.

The critics seem to suggest that if banks were locally owned we would have done better, suggesting maybe locals would be given favourable rates and managers would look away when they default, is that the kind of banking industry we want? Especially since the beneficiaries would be an even narrower base of connected people as we have seen in the past.

If as Ugandans we are failing to gain funding for our personal projects the evidence shows it is more a function of our poor business acumen than that UCB is dead.