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The war against NSSF and Umeme

By Andrew M. Mwenda

How improved performance of the two companies tends to attract increasing hostility from parliament and the public

The Members of Parliament in Uganda, supported by a loud section of our chattering elite class, seem determined to hold to wrong things dearly even in the face of overwhelming evidence. Last year, a select committee of parliament recommended that government terminate a concession agreement with electricity distributor, Umeme. It provided considerable grist to the anti Umeme mill. Then two weeks ago, another select committee recommended that then-minister of Finance, the chairman of the board and the managing director of the National Social Security Fund (NSSF) are punished for buying shares in Umeme; a company they claimed is “making losses”. Again, the anti NSSF-Umeme coalition went wild in celebration.

Yet the complaints raised by parliament against NSSF buying shares in Umeme cannot stand even mediocre scrutiny. They claim that NSSF did not seek clearance of the Solicitor General (SG) before buying the shares. To be fair to the legislators, this is based on the evidence given by the SG to the committee. Yet the parliamentary committee should have invited NSSF officials and hear from them as well – a basic principle of natural justice. It turns out that NSSF actually sought clearance from the SG office. In a reply dated October 28, 2013, the SG advised that this request was unnecessary since in buying shares on the stock market there was no legal contract, agreement, treaty or document to sign, which needed such clearance.


A visitor to Uganda hearing the number of investigations by parliament, IGG, PPDA and the cacophony of shrill alarms by our chattering classes would think NSSF’s purchase of Umeme shares was the stuff that makes companies lose money. Let us examine the facts: NSSF invested Shs70 billion in buying Umeme shares between December 2012 and May 2014. Over this period, the value of the shares NSSF bought has increased to Shs 116 billion, an increase of Shs 46 billion or 65% in value. Over this same period, NSSF has been paid dividends by Umeme of Shs9 billion – 15% of the investment. For 2014 financial year, NSSF is likely to get dividends of another Shs11 billion, bringing her total dividend to Shs20 billion – almost 30% of the investment. The capital gain plus dividends bring the total benefit to NSSF to Shs66 billion – which is over 95%, return on investment in two years. This is an investment decision any investor in the world would be dreaming about, yet in Uganda it has being described as the most toxic.

Secondly, let us examine the performance of the two companies, which have become a subject of vicious attacks by parliament and a section of our chattering elites. The current NSSF management has significantly reduced the problems of corruption that had plagued the institution. They have made an impressive business turnaround of the fund in spite of constant harassment by our so-called democratic institutions but which could be best described as “empowered envy”.

Since 2010, NSSF revenues have grown from Shs160 billion to Shs577 billion (350% growth) while its operating expenses have grown from Shs45 billion to Shs65 billion (30% growth). Compliance has grown from 47% to 75%, assets under management from Shs1.3 trillion to Shs5.2 trillion, monthly collections from Shs28 billion to Shs60 billion, cost to income ratio reduced from 98% to 13%, cost of administering the Fund fell from 3.5% to 1.3%, the time between a retiree lodging his/her claim and getting his/her benefits has reduced from 105 days to 12 days, and finally, the interest paid to NSSF subscribers has increased from 3.0% to 11.5%. What more do the hecklers want?

The thing about our country is the degree to which sections of our elite are determined to cling unto their biases and prejudices (even in the face of overwhelming evidence) as if these biases and prejudices are gold. In spite of the many restraints imposed upon it by endless and mindless fiddling in its operations, NSSF is one of the best-managed pension funds on the African continent and beyond. I say this based on a broad continuum of indicators including return on invested capital, return paid to subscribers, the turnaround rate of claims, revenue-to-cost ratio, rate of growth etc. Our nation should be taking pride in such a well-managed fund.

Let us come to Umeme. It is one of the most successful electricity distribution companies on our continent in terms of loss reduction, rate of connection and profitability. Electricity losses are going up everywhere – Kenya, Tanzania, Rwanda, South Africa, etc. In Uganda, Umeme has reduced them from 40% in 2010 to 19% today and is projecting to reach 14% in 2018. For every one percentage point reduction in electricity losses, Umeme saves government (the taxpayer) $3.5 million per year. So today it is saving government $73.5 million per year. When Umeme did a Second Public Offering, the leading global equity firms with $1.3 trillion worth of funds under management were lining up to get a piece of the Umeme pie. On average these companies got only about 37% of what they asked to buy.

While our nation’s state-mismanaged UEB (Uganda Electricity Board), and its successor Uganda Electricity Distribution Company, were loss-making and depending on state subsidies, Umeme makes profits and pays billions in taxes to government. It has assets worth $400 million while its market value on the stock exchange is $380 million. In 2014, its revenue was Shs960 billion, with profits of Shs178 billion. It pays over Shs150 billion in taxes, spent $95 million on capital expenditure in 2014 (i.e. investing in the network) and plans to invest $450 million in the network over the next five years. What more does parliament and other hecklers on Umeme want the company to do?

It is possible that MPs know that these two companies are performing well. Because they are heavily indebted it is very likely that they are trying to use their constitutional power of oversight to threaten the managers of these companies thereby forcing them to bribe them. And what about Uganda’s chattering classes? It seems that a section of our elite class is suffering from social frustration. Unwilling to accept that a significant source of their frustration is their own laziness or lack of creativity or innovation they are constantly looking for a villain to attribute blame for their frustrations. If this suspicion carries any water at all, then NSSF and Umeme are victims of circumstances beyond their control.

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