Tuesday, March 14, 2023

OF NSSF, BONUSES AND DUBAI HOLIDAYS

The NSSF parliamentary probe is done and dusted. Parliament upheld the report’s recommendations, which among other things called for the resignation of the minister, scrapping of the board and the suspension of management.

"The report – a 562 page tome, is an amazing (I am trying to be polite) piece of work. If it was supposed to unearth impropriety of the management, it failed dismally and instead started clutching at straws. Parliament conducted a fishing expedition that came up short but decided to make drastic recommendations that made for sensational headlines but little much else....

The net effect is that they so muddied the waters, that it is inconceivable how gender minster Betty Among can continue to work with the board or management. Though to be fair, the relationship was already toxic and the committee only served to bring it into the public glare.

One thing that has become apparent to me is that NSSF has become too big for us. The magnitudes of money being delt with in NSSF we clearly do not have the band width to comprehend.

Two incidents come to mind.

In the report the committee was alarmed at sh33.3b bonus payment to staff and aghast at how 85 staff went to Dubai for a team building exercise that cost sh200m. In respect of this the committee said, “That the board should be cognizant of their core responsibility, which is to ensure a secure, profitable and effective financial management for the benefit of the workers …. Desist from such unnecessary expenditure, which will occasion loss to savers’ Fund.”

I would like to think that the motivation of NSSF staff in principle is a good thing. And I would like to think as well this motivation has to have a monetary value.

The trick with designing worker incentives is to link them to performance, in this case improved return for the members. Ideally if the enterprise does better than the previous year your bonus should be better, if you don’t it will be less. And the bonus should be a proportion of the improvement in performance. That sounds like a good enough principle.

So if for example you work for the Vision Group, which last year managed a billion shilling profit and say worker bonuses are set at five percent of profit, then we would share sh50m according to a predetermined formula.

Using that logic NSSF made surplus of sh1.26trillion in 2021/22 assuming like the example above worker bonuses were five percent of profit, then NSSF workers would be sharing sh63b among themselves.

What does sh63b look like?

For one it is more than half the Vision Group’s total revenue of sh100b in 2021/22. So, the knee jerk reaction at the Vision Group maybe “Shaaa! How can they get all that money as bonus?” But that would be us at Vision Group thinking from our small perspective.

In short NSSF has become too big for us. It has become so big that when we view its numbers against our smaller puny reality we think they must be up to something fishy.

Just to remind you NSSF has almost sh18trillion in assets under management. To stay with the Vision Group as an example, which has sh122b in assets, NSSF is nearly 150-times bigger than Vision Group. Basic logic would dictate that everything – wage bill, profitability, bonuses would reflect this reality. This is not the fault of the NSSF workers; Ok maybe to the extent that they worked to make these numbers happen and should therefore should be renumerated accordingly. You have a problem with that apply for a job at NSSF.

"Incentivising workers is a normal cost of business. The slave trade ended in the 19th century. The MPs should have put aside their shock at the “huge” bonus, asked how it was derived and maybe suggest a change in the formula to fit their perspective, which would be unfair to NSSF workers....

And then my pet peeve is the cost of houses at Lubowa. To their credit the committee restricted themselves to recommending a value for money audit of the project. But minister Amongi on the floor of parliament in her defence brought it up.

She outlined the cost of a three-, four- and five-bedroom bungalow and asked the house gleefully how a house can cost sh3.2b. She clearly couldn’t wrap her head around the concept. The speaker Anita Among asked her whether she had alternative prices for the same properties and the minster had no clue. Someone helped her with a note, which showed that comparable properties at the Royal Palm Estate in Butabika were better priced – though they too are outside the range of the majority of NSSF members.

There are many things that can be faulted with this comparison not least of all that the locations are different – have you driven on the Port Bell road lately; that  Royal Palm was launched 12 years ago – have you tried buying a bag of cement today, you can tick off the differences. 

Somehow the committee queried the unit price of the houses, the total scope – 2,417 units and cost -- $400m (Sh1.5trillion) was probably too much for them to handle.

In hindsight maybe NSSF should have anticipated this need for cheap houses and built the ugly lifeless high rise apartment blocks, which we see in western capitals, which would have increased the number of units and maybe brought unit costs down.

NSSF however decided to build high end properties on the prime Lubowa land and the more affordable housing, which will complain are still too expensive in Temangalo and eventually Nsimbe estate.

MPs may want to use the opportunity to lower the cost of mortgages – now not below 10 percent anywhere, lower the cost of development – infrastructure takes up at least 30 percent of the price and urge government to underwrite the infrastructure costs of such massive projects, all within their power to do.

"The truth is we need to upgrade our reality to manage NSSF. And this is a serious issue we have to address ourselves to. NSSF is a modern institution in a pre-industrial country. Either we cut it down to size, since it has galloped far ahead of our reality or we elevate ourselves to appreciate not only what it has become but the Fund’s strategic vision as well to better oversee it well into the future....

I say this on the assumption that our motives are noble and their no ulterior agendas at play.

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