The only way a managing director can protect their job at the fund is by sitting on their arms and doing nothing
Early this year, the National Social Security Fund (NSSF) bought shares worth Shs 52 billion in an Initial Public Offering by Umeme, the electricity distributor in Uganda. In response, the Central Organisation of Free Trade Unions – Uganda (COFTU) and the National Organisation of Trade Unions (NOTU) have launched a complaint to the Minister of Finance, Maria Kiwanuka. The complaint is veiled blackmail that threatens “a series of actions beginning March 1, 2013” if she does not accept to meet with them. In short, COFTU and NOTU are saying that for NSSF to invest, they must have a say.
Almost 90 percent of people who contribute to NSSF are non-unionised workers. I would have expected the president of Uganda to defend the interests of the majority against this loud organised minority. Indeed, the unions nominated to NSSF individuals who cannot qualify to sit on a board of a major financial institution. However the Central Bank Governor, Emmanuel Tumusiime-Mutebile, accepted them under political pressure.
As I write this article, NSSF has a portfolio of nearly Shs 3.1 trillion. They collect about Shs 2.1 billion per working day, making it Shs 50 billion per month. Of this, 82 percent is invested in short term fixed income assets – government bonds and fixed deposit accounts in commercial banks. Six percent is invested in equities i.e. shares on the Uganda Stock Exchange (USE) and about 12 percent in real estate. If a pension fund in any other country in the world had such a portfolio mix of its investments, the managers and the board would be fired immediately.
As a pension fund, NSSF has long term liabilities to its subscribers. For example, someone who graduates from university at 22 and begins working and saving with NSSF can only get their money at 55 years i.e. after 33 years. To ensure that such a subscriber’s long term savings have a good and reliable return, NSSF is supposed to match such an obligation with a long term investment. Yet as seen above, 82 percent of total NSSF assets are short term investments that are not even cushioned against inflation. Consequently, over the last 10 years (2002-2012), NSSF subscribers have earned a real interest (interest earned minus rate of inflation) of only one percent.
I used to think that NSSF troubles emanate from its internal management dynamics. Over the years, I have learnt that the internal problems are secondary. NSSF’s biggest problems emanate from its external environment i.e. politics. Because it is controlled by the government, this gives room for every Tom, Dick and Harry who can leverage either public opinion or the powers-that-be to arm-twist NSSF. The problem is not just the powerful money barons with behind the scenes influence. The other problem is a collection of ordinary but ill-informed people who have the power of public opinion (legislators, journalists and our chattering class) or the vote (trade unions).
Hence the only manager at NSSF who can succeed at their job without blemish is one who does nothing. Thus, if an NSSF MD collects our savings and buys treasury bills and bonds and puts the rest of the money in fixed deposit accounts in commercial banks, he would never get into trouble. He would only need to ensure that the board members, especially those representing the unions, are taken good care of i.e. their sitting and other allowances are paid regularly, promptly and generously.
For example, since David Jamwa left NSSF almost five years ago, the fund has not purchased anything of value – except Umeme shares. And now it is very possible that the current MD, Richard Byarugaba, may lose his job over it. This cannot simply be due to internal corruption. Neither can it be because of impunity i.e. lack of punishment for previous misdeeds. Every former NSSF MD or board chair has left the Fund amidst allegations of corruption leading to criminal prosecution, spending time in Luzira and loss of reputation.
From Abel Katembwe to Yolamu Barongo, Leonard Mpuma to David Jamwa, the story does not seem to change. Byarugaba has been the most cautious and equally the one who has spent the longest time trying to resolve investment issues.
It has taken more than ten years since NSSF bought land in Lubowa, five years since it purchased Temangalo land, 20 years since it acquired the Lumumba Avenue plot and another nine years since it bought Nsiimbe land. All of them have been under negotiations for development without ever succeeding. Any purchase of substantial real estate by NSSF always leads to investigations, political contestations and the eventual fall of the MD and board. This is not because of the corruption. That is an excuse – if at all. The problem is political fractionalisation.
I see this in the United States. There, vested interests generate political contestation along partisan lines on almost anything and everything the federal government tries to do. Consequently, it took the richest country in the world 70 years to pass major healthcare legislation giving its indigent citizens health insurance. And even then, the matter was resolved by the Supreme Court – and the deciding vote, the Chief Justice made it clear, was political considerations.
NSSF is a financial institution like commercial banks. The only difference is that we are all mandated by law to save with it and it holds our savings for a long time. When Crane Bank or Barclays are lending money or buying shares they do not seek the approval of the minister of Finance or PPDA. How can NSSF be required to seek a minister’s approval or the consent of unions to buy publically listed shares? How can it compete in the market with such controls? The best solution is to avoid state control of anything of value. Most value generating assets should be owned by the private sector. So privatise NSSF!