Why Uganda should move to privatise NSSF and other remaining publically owned or supervised enterprises
Last week, Umeme issued a Secondary Public Offering (SPO) on the
Uganda Securities Exchange (USE) to institutional investors (individual
investors have their turn this week). The response by the market has
been unprecedented. Thirty international companies with a good
reputation offered to buy the company’s shares. Only 20 were given a
piece of the Umeme cake. And even with these, the shares were
oversubscribed by over 250%. Consequently, on average each of these
companies got about 38% of what they asked for. This means that if any
company wanted to buy shares worth $10m it was allocated only $3.8m.
Among the companies vying for a piece of the Umeme cake was Investec
from South Africa with offices in London. It has taken 18% of the
company and thus becomes the largest shareholder in Umeme. When the
transaction is completed, the previous owner, Actis, through its local
subsidiary Umeme holdings Ltd, could become second biggest shareholder
with 15% and NSSF will be the third highest shareholder with 14%.
Investec is the largest equity fund in Africa with over US$ 100
billion under management. Farralon Capital from San Francisco is an
American equity fund with over US$ 50 billion under management while
Allan Gray from South Africa has over US$ 10 billion under management.
The other main investor is Coronation from London, also a billion dollar
The total funds under management by the companies that bid to grab a
piece of Umeme are in excess of one trillion dollars. Considering that
Uganda’s GDP is US$21 billion, the Umeme SPO is a game changer for the
First, its SPO has attracted equity funds with the biggest pockets on
the global financial marketplace. Second, electricity distribution is
the least attractive area for investment in poor countries. Last week
showed that Umeme has become a focal-point in making Uganda known in the
Third, given that these equity funds invest in other sectors, the
Umeme SPO may open their eyes to other attractive business opportunities
in our country. Finally their sheer presence is a signal to many other
investors that Uganda is a place to invest and get a risk-adjusted
How did we get here? I have been arguing that Umeme has been a game
changer for Uganda. Indeed, it is one of the critical points in the
hidden source of success of the Yoweri Museveni administration –
privatisation. Museveni has presided over an extremely corrupt and
incompetent state in the management of some critical public goods and
services especially in health and education. However, through
privatisation and liberalisation, he was able to liberate the economy
from the dead hand of a corrupt and incompetent state and, equally, to
free many economic activities from the ill-informed passion-driven
arguments of Uganda’s chattering classes.
The privatisation of Uganda Commercial Bank opened the doors for the
growth of a robust financial sector. Thus, between 1995 and 2012, the
total assets of banks grew from Shs 700 billion to 17 trillion; deposits
have grown from Shs 400 billion to Shs 11 trillion; profits from Shs 10
billion to Shs 550 billion; wages and other staff costs from Shs 20
billion to Shs 500 billion and the number of employees in the sector
from 567 to 11,000. These results can be seen in telecommunications,
insurance, and every other major sector of the economy except
To be fair, Museveni has ironically presided over impressive
effectiveness in the public delivery of water and media services. For
example, this year, the National Water and Sewerage Corporation (NWSC)
won the Distinction Water Leaders’ Award for exemplary service to
communities in developing countries in Paris. This month alone, NWSC won
the Best Africa Utility 2013/14 which was a recognition for its
strategic direction that has led to improved expansion of infrastructure
to more urban centres, improved revenue performance and community
accountability. The corporation is often hired for consultancy work in
The New Vision Printing and Publishing Company (now listed on the
USE), with its six newspaper titles, magazines, commercial printing
business, radio, television and a strong digital presence is one of the
most successful government-owned, commercially driven media houses I
know of in the whole world. Thus NWSC and New Vision are evidence that
even in an ocean of failure lie islands of success. But overall public
sector performance in Uganda has been characterised by gross corruption,
incompetence, indifference, apathy, foot-dragging and complacency.
Thus, the game changer for Uganda under Museveni has been
privatisation of state run companies and liberalisation of sectors of
the economy where the state previously enjoyed a monopoly.
That is why every progressive Ugandan should fight for the complete
withdraw of the state from any role in the management of the National
Social Security Fund (NSSF), the reform of public sector pensions from
government to membership contributions and the liberalisation of entire
sector. This will bolster long term savings and render irrelevant our
dependence on foreign aid and its attendant problems.
Uganda faces a choice over NSSF. It can open the sector up and allow
savers to take their money where they think they can get a good return.
Of course this requires a strong regulatory framework and a regulator is
already in place.
This may force NSSF to collapse and people employed there to lose
jobs. However, Uganda’s strategy should not be based on protecting
companies and jobs but the momentum for sustained growth. Because in the
long term, a job protection strategy is a loser; the winner is a job
Liberalisation of pensions will open the doors to private pension
funds, many of them international, which will bring new management
skills, technological and organisational innovations that will increase
the factor productivity – for capital and labour. Uganda’s biggest
challenge is changing the mind-set of our people. Years of socialist and
pseudo-nationalist ideologies have led people to look at the state as
the provider of many goods like roads, railways, telecommunications,
energy, schools and hospitals – a Santa Claus of sorts.
Many Ugandans are angry with Umeme because they do not want a private
investor to dominate the electricity distribution market which they
think should be owned by the state.
However, Uganda’s experience shows that the private sector can
deliver many services previously thought to be a responsibility of the
state – and even do it better.