10 September 2008
opinion
NSSF is in the news for the wrong reasons. It is very likely that the tenure of the current managers of the fund is hanging in the balance. Ironically the fund has been in the middle of an internal turn-around: reporting better returns for its members, an effort to recruit new professional talent in different fields.
The fund for the first time in three years had full-time managers, David Jamwa, formerly of PriceWaterhouseCoopers and Prof. George W. Mondo Kagonyera, a former cabinet minister. A level of certainty had not been seen at the fund since the departure of the team of managers led by Abel Katembwe, Prof. Yoram Barongo and John Baptist Kakooza, who had their own way of the Cross thrown their way via the construction of Workers House.
There are various matters that have had major play in the ongoing firestorm: first is the alleged influence peddling by the Minister of Security and another financially distressed shareholder in the National Bank of Commerce in the sale of a large parcel of land to NSSF in the suburbs of Kampala; second is the focus on the process under which the purchase was approved.
Was it an acquisition or a procurement under the purview of the Public Assets Procurement and Disposal Authority? The third is the demand by the labour unions to transfer the oversight and responsibility of the fund back to the Ministry of Labour.
There are some new evolving issues : these include the role of the President in directing investment decisions made by the fund. NSSF has made some significant equity investments in the past. It is also developing a new policy of build, operate and transfer of certain valuable parcels of land on behalf of various stakeholders like Church of Uganda and the NRM ruling party.
Without a doubt, NSSF is now the largest single economic player in the economy. URA may have the most impact on the running of operations of government closely followed by the Ministry of Finance that manages the country's budget and Bank of Uganda's role as a custodian of the Consolidated Fund. The growth from ashes of the fund is perhaps Mr Milton Obote's greatest legacy.
Bi-partisan support established the Fund in 1985 and gave it powers to manage a provident scheme on behalf of Ugandan workers. After the first wave of privatisation there was always pressure to break up NSSF as a bloated or mismanaged monopoly that for years always preoccupied the front pages of the state and privately owned media. It matters least that some of these players have in later years been beneficiaries of the Fund's largesse.
NSSF survived because management correctly argued it was owned by its members. Politicians have never accepted this truth and they have always viewed the Fund as a "General Fund." If NSSF is to survive, this statement must carry statutory walls to keep politicians out of the affairs of the Fund. The Unions have some merit in complaining about being marginalised in the Fund's affairs.
NSSF has more liquidity on its hands than can prudently be invested under prevailing local, regional and global market conditions. There is a legitimate question of absorption capacity. NSSF's investments are not regulated by law. What started as an informal policy where NSSF placed funds in different banks in fixed deposit accounts augmented by treasuries and later a modest infusion of foreign stocks has grown into a behemoth of investment decisions.
Holding money in time deposits only carries so much coverage because the deposit insurance coverage for deposits held with failed banks is at most $2,000. NSSF lost significant amounts of money in all the banks that were closed by Bank of Uganda in the late 1990s. Treasuries offered by Bank of Uganda are not offered regularly and soaking 100 per cent of NSSF collections in the Treasury is not a viable option. From this perspective equity and real estate investments may make some sense.
From a soundness and custodial perspective real estate and securities promise the highest rewards but carry the highest risk of loss and potential for abuse. A case can be made for NSSF to participate in the secondary market buying securitised assets with an established rating scheme. NSSF cannot become a landlord and investment broker.
Global events have confirmed that the returns on real estate and equities move in lockstep with the underlying economy. Such reforms carry some bad news for workers. Workers in return for better sleep at night would have to give up the 14 per cent return offered by NSSF. In the market today, the highest rated security, the long term Government bonds offer between 13 per cent and 15 per cent return. But they carry less drama than buildings that have been NSSF's Achilles heel, Workers House, Udyam House etc.
NSSF probably needs many changes. I am not inclined to say that transferring NSSF's political oversight to Mwesigwa Rukutana from Ezra Suruma makes a case for better oversight. The answer lies in an independent regulator, an independent investment board with authority to hire investment managers to oversee a section of the pie with defined performance benchmarks. Government today does not seem to comprehend the financial disaster the collapse of NSSF would have on the economy.
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