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NSSF: Govt, stop babysitting us

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By Andrew M. MwendaAlmost every two years we are treated to the spectacle of all the ills at the National Social Security Fund (NSSF). An inquiry into the Fund has always exposed rot leading to the board and top management getting fired, ministers responsible being reshuffled, sometimes the managing director and the chairman get prosecuted and jailed.

Why does the pattern of violations at NSSF remain the same and even get worse in spite of these investigations, expositions, prosecutions, humiliations and changes in management? The answer seems to me that the problem of NSSF is not internal to its management but external to its environment.

Any meaningful resolution of the continuing crisis at NSSF has to begin by situating the Fund within Uganda’s wider politics.

The paradox is that NSSF suffers these scandals – not because it has failed – but because it has succeeded. The Fund has grown its portfolio from just under Shs 100 billion only fifteen years ago to Shs 1.3 trillion and more today. Like all other contradictions under President Yoweri Museveni’s rule, this has also been possible because of the impressive growth of Uganda’s economy over these years.

Museveni pioneered the shift in economic policy in Africa from state control to liberalisation, deregulation and greater private sector participation resulting in impressive growth for two decades. Yet Uganda’s politics has remained largely neo-patrimonial – exhibiting similar factionalism and looting seen in Mobutu’s Zaire, Moi’s Kenya and Eyadema’s Togo. Therefore the more NSSF has been successful, the more it has attracted the attention of powerful people who want to steal from it.

This is why we need to focus on how to get government out of managing our savings. Yet public debate largely focuses on moralistic calls for punishing the culprits, appointing a new board and management, on increasing oversight over NSSF activities (all of which have been done over and over again without anything coming of them), on having more “workers’ representatives” on its board etc.

These recommendations add to the problem instead of solving it. We need a new vision – not just for NSSF – but the social security sector as a whole. Why should the public be debating whether it was good for NSSF to buy Nsimbe or Temangalo or to invest in this or that stock? The fact the public is involved in such a technical debate is actually the problem. NSSF is like a bank; we all keep our money there. The only difference between the Fund and an ordinary bank is the time of collecting one’s money. With a bank, you can pick it any time of your choice; with NSSF, when you are 50 years.

Why are we in Uganda not always involved in debating how the Managing Director of Barclays or Stanbic gave out a loan to MTN or Uganda Breweries? Don’t we have our savings there? I think that equally, when the general public begins debating whether NSSF was right to invest in land or stock, you have a structural problem. Our interest in NSSF should be limited to the rate of return on our savings. The rest we can leave to the regulator to ensure that all the rules to protect workers’ savings are adhered to. Bank of Uganda is doing this job excellently with commercial banks already.

The lesson from the continuing scandals at NSSF is that we should liberalise the social security sector. Currently, the law forces us to put our money in a fund which is largely managed by the state. We should be arguing that government should allow other players to enter the market for social security in order to enhance competition. Every worker should choose where to keep their savings depending on the promised rate of return. Government should stop treating us like children whose savings it should manage for us?

I have over slightly Shs 100m in NSSF. This year, Stanbic Bank floated a bond with a 14.5% rate of return. Fixed deposit accounts for two years at Crane bank return 14% and you can negotiate better terms if you fix your money there for five years. Why does government force me and all other Ugandans to keep our savings with NSSF which is giving us only 3%? This is a forced tax government is imposing on all those saving with NSSF.

It is absurd for trade unions to ask that they represent workers when only 5% of workers in this country are unionised. The outcome of increasing workers’ representation on the NSSF board is to lull us into the belief that our money is safe when all historical evidence shows over the last 15 years, NSSF has never paid interest above the rate of inflation. This means workers in Uganda have been suffering negative real savings i.e. workers have been losing money all these years.

It is even disturbing that the public gets excited about former NSSF MD, David Jamwa, spending Shs 50m in a casino and taking salary advances of Shs 244m. Although this is a very bad thing, it is a very small problem for me as a saver with NSSF compared to a decision by government in November last year to suspend all NSSF investments for five months.

The Fund collects Shs 20 billion a month, so the Shs 100 billion collected could not be invested. Even if the rate of return was only 15% as per the Stanbic bond, the foregone earnings by the Fund over the five months were worth Shs 55 billion on the money collected between November and April alone. If we were to add the return foregone on all other potential NSSF investments in those five months, the figure could as well go above Shs 130 billion. That makes the scandals of Jamwa and his group a joke.

The reader should not think I am trying to excuse Jamwa and his group for their scandals. They can as well be hanged. However, we should fight on strategic issues not the tactical ones. The biggest problem at NSSF is not the petty thefts by its managers. It is the business and investment opportunities foregone as a result of government direct involvement in managing our savings.

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Comments (2)Add Comment
Social Security
written by Omeros, October 24, 2009
I couldn't agree more - liberalisation of the pensions industry is precisely what is required. Quite why the public is made to swallow negative returns on their contributions I have never understood, particularly in circumstances where the underlying assets in which NSSF invests yield returns far excess of the paltry sub-inflation rate at which NSSF pays out. It makes you wonder where all that carry went - though you don't have to wonder that hard.
The NSSF Scandals
written by Robert Busuulwa, November 07, 2009
I think Andrew's piece is an excellent expose of the problem at the NSSF. Organised saving in this country has completely failed and resorting to fixing the barn door when the horse has bolted will not help. The key issues are the meagre returns 'investors' (read savers) get for their savings. Other countries in the region are beginning to look at this savings market seriously with a view to unlocking the great potential it has to economic growth and development. My point is that it is time we de-regulated the entire pensions savings industry, de monopolised the NSSF (and its poor record - rates and scandals combined) militates against it as a final arbiter for matters of investment and saving for the ordinary men and women up and down the country.



Regards

Robert

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