26 November 2012

Rwanda: Experts Warn On Social Security

The message during the 5th East and Central Africa Social Security Associations (ECASSA) meeting in Kigali, two weeks ago, was very clear: Countries with no clear path to social security for all risk sinking deep into abject poverty while those that embrace social protection will witness economic growth.

Delegates at the meeting did not need to look far for evidence of this because the host country provided it.

With over 90% of the population enjoying health insurance, Rwanda's social security protection provides ingredients for the successful fight against poverty. More than a million Rwandans emerged out of poverty between 2005 and 2012 owing to a combination of policies aimed at promoting social protection.

According to experts from the International Labor Organization (ILO) who spoke at the conference, countries that do not develop social security will certainly remain poor because the population remains sick, uneducated and therefore less productive. Yet those that embrace social security reduce poverty and inequality leading to social peace.

"Social security is an economic tool. Sustainable growth requires good health and education," said Theo Butare of the ILO.

However, social security can only be a vehicle of growth if there is a clear vision that is backed by adequate resources.

Those in the know say that Namibia, Rwanda and South Africa have demonstrated that social security for all is possible in the continent where almost half of the population lives under "social insecurity."

This is how it works: A clear social protection policy gives nationals equal access to good education and health. It is healthy and educated population that is employable and therefore productive. With many skilled people in employment, a government is able to collect more taxes that it uses to finance development projects which in turn lead to high social protection.

According to ILO, social protection policies should include maternal care, basic income to children in form of equitable access to social services, income to old people as well as adequate income to persons in active age.

In Rwanda, the Rwanda Social Security Board has been trying to broaden coverage and increase benefits to members.

For example, a draft law, now in Parliament, seeks to overhaul the current system and give savers more pre-retirement benefits such as buying/building homes, paying tuition fees among others. RSSB already provides medical benefits to members and pension.

The new legislation proposes to cap insurable earnings to about Frw 400,000 and introduce a new platform called a provident fund--a form of savings account into which a member's contributions above the earnings ceiling are kept. Savers can access these funds even when still in active employment so as to solve immediate social needs like housing, school fees while the pension account is left intact to cater for retirement.

With a total investment of Frw 307 billion, RSSB clearly stands out as a major contributor to the country's social economic development.

Moreover, these investments are in strategic areas such as real estate that has not only helped alleviate shortage of residential houses and office space, but has contributed to improving Kigali city skyline.

The developments include 300 residential houses in Kaciru, the $450m Vision City Estate and Kinyinya Estate for civil servants. That is in addition to Pension Plaza among others. RBBS has about 21% of its investment in real estate.

According to Angelique Kantengwa, the director general of RSSB, about $20 million (about 15% of total investment) have been invested in Treasury Bills--an investment that positions RSSB as a major player in stabilizing the financial markets. And with billions of francs in local commercial banks, the RSSB's contribution to the liquidity of the banking sector cannot be underestimated.

Through these deposits therefore, RSSB plays a big role in financing SME's--the drivers of Rwanda's economy--that borrow from banks. The Board is currently managing total portfolio of about $600 billion--which is 8% of GDP.

The future

In order to enable national social security funds deepen their contribution to economic growth, experts have suggested new innovations in the way the organizations invest and manage the massive resources in their position.

According to Anthony Mwithiga of STANLIB, a fund management company, investment in infrastructure projects such as energy offer high returns.

With the east African region suffering chronic shortage of electricity, investment in power generation is indeed a worthwhile venture because of the ever growing demand and ready market for electricity.

He also pointed social security fund managers to look into the direction of working with government under the build-own-and-transfer projects.

Concession agreements where funds can offer guarantees to borrowers and earn commission is another area to invest in.

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