24 November 2012

Uganda: NSSF Ready for Liberalisation


Ivan Kyayonka was recently appointed as chair of the Board of Directors of the National Social Security Fund (NSSF). He spoke to Joan Akello about the future of the Fund. Excerpts.

What is your vision for NSSF? What are you bringing on board?

I would like to see NSSF as the leading retirement benefits fund in the country. We would like see employees come to NSSF by choice because we are reliable, efficient and we offer competitive returns.

I have set a short term target that we must pay returns of at least 2% higher than the 10-year average inflation. If the interest in the last 10 years was 8%, then we should pay 10% interest. This will mean restructuring NSSF so as to minimize operational costs.

What are the opportunities and challenges of liberalizing the pension sector?

I think it will help to change the quasi nature of NSSF because it started off as a branch of the government then transitioned into a stand alone fund and enjoyed the benefits of a monopoly. Also, it will change the culture of the employees of NSSF who think government will protect them as they harass people to save. They must begin working like employees at a private firm. We have to clean up our act to attract customers.

We have to manage our costs because the new kids on the block will try to better the sector. We have a big portfolio of funds and the market though we have a bad history. I think we are better than someone who is just starting up.

How prepared are you for it?

We have started with a new board. Everyone is required to think of how differently they will perform in the future. Liberalization and change of mindset is on every NSSF employee's scorecard today.

NSSF depends on the USE, treasury bills and bonds. What other investment portfolio are you considering because the interest rates are falling and you made profits last year because they were high?

We have a board in the committee which advises on investments and projects. We have a matrix on what to invest in such as bonds (fixed income assets) and real estate. Lately, the equities have not performed because of the limitation on companies to invest in and the low activity on the Uganda Securities Exchange. We are lending banks and also to government through treasury bills. We would like to have our money in long term investments but we have to have maximum returns and mitigate risks.

The government has been discussing how we can float an infrastructure bond. If government wants to build roads and other long-term projects, it will float and very secure it because it is tradable; we can sell it and get money or keep if the returns are high. Insurance companies are looking to bonds too.

People are very scared about it but government paper is the most secure. If it borrows it must pay otherwise the whole monetary system collapses. Government earns only $4 billion from taxes but it would like to spend more billions in the long term projects. We are a long-term investor but have been forced to invest in the short term because of limited economic activity.

Therefore we are looking at investing in infrastructure bonds. We would like to ply the East African region because we have been limited to Uganda yet it has low activity.

When are you embarking on real estate ventures like Temangalo, Nsimbe, etc?

We would like to unlock a lot of investments in real estate though it has been bedeviled by challenges. Literally, the only success we have is the Workers House, which took us many years to complete. Scandals have passed us and we have to invest in land without any legal problems. We have a lot of projects such as Pension Towers, Nsimbe and Temangalo.

The people who save with us desire to have housing so if we build the houses; we not only sell but also provide a desirable product. We are planning to build low and middle income estates in Lubowa, Temangalo and Nsimbe. Lubowa is at the design stage, Temangalo is at the pre-qualification stage of securing consultants.

There are reports about corruption in NSSF. How are you tackling this issue?

If there is corruption in Uganda, so is NSSF. We are proposing to change the way we procure large-scale projects by outsourcing procurement to reduce influence peddling. We want to establish systems that promote a corruption-free environment that rewards people when they excel and punish those who willfully err. We are going to do a pilot that can help Uganda promote a transparent and efficient procurement process. It does not matter at which corruption is.

Transparency and competition in procurement will reduce corruption and influence peddling. By setting up a procurement environment where all the bidders feed in their input in the presence of other bidders. The bidding system will encourage open competition and transparency in tendering.

We will also give bonus to those who bring a return higher than the target and whatever good thing done on the scorecard. Instead of stealing the money, we should share it out with everybody who delivers. It will take time to eliminate corruption.

What is your relationship with the government? How independent are you from government control?

We derive our mandate from an Act of Parliament so we cannot be independent. If government had not legislated that any company employing more than five people must contribute 10% the employee 5%, NSSF would not have thrived. The act of empowers us to collect and invest the funds.

We have oversight from the Minister of Finance who appoints the board and must be consulted on all major investment decisions. We act as stand alone on equities because we manage the business but have common interests with government in securing long-term savings for workers, stimulating a saving culture and the economy.

When the client has more power than the lender, they can choose to pay or not. This has happened in countries like Greece. What safeguards are in place to protect workers' money from a wasteful government that may not pay back?

Workers' money is very safe. We need to ensure that it is prudently invested and earning sufficient interest to maintain or grow its value. We have the liberty to invest in what we have agreed with the minister. We have been lending to government through the Treasury at 20 plus per cent and people have been investing in Uganda because the returns are good.

The relationship with the minister may change as we liberalize whereby we shall account to the Uganda Retirement Benefits Authority. It will audit and check our performance, and will also require us to have a fund manager, a custodian and actuary who values assets and liabilities. These controls will improve the ways we safeguard workers' money.

What challenges does the pension sector face generally?

The poor saving culture and low number of savers in Uganda are a challenge. The fund has barely 500,000 savers. There are nearly nine million people without any formal saving yet there are many people who make more money than those in formal employment. In the last 20 years NSSF has been able to collect Shs 3 trillion, which has excited many workers who do not realize that their money grows over time.

I hope that we don't get 'cowboys' with the liberalization, which could compromise quality of services.

Why did NSSF decide to buy Umeme shares on the last day of its IPO?

We have bid to buy shares and we are waiting for the decision of whether we have been allocated. Did people expect us to jump in without carrying out any due diligence? We had to study Umeme, the energy sector; how it is likely to grow, the pitfalls and the risks. For instance, Umeme does not generate but only sells power. We had to do all this to assess whether the company is a good business deal.

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