I read with keen interest and watched in awe as Mr Morrison Rwakakamba, the presidential assistant on research and information, made arguments against the liberalisation of the pension sector in the Daily Monitor of May 9, and NTV Fourth Estate talk show on May 12 respectively. Chris Obore, a fellow panelist on the show, summed it up well when he referred to the arguments as a classic case of ideological anarchy prevalent in the NRM party and by extension the government. Though harsh on the surface, the scathing review by Obore may actually be the best description of the status quo in Uganda today on all matters economics, education, health, pensions, infrastructure development, social policy, etc.
For the last 20 or so years, social policy in Uganda has been structured to telling people that they need to bear market risks and fend for themselves. Having adopted the IMF and World Bank inspired Structural Adjustment Programmes in the 1980s, the Ugandan State pulled out of all sectors that are key to social protection such as housing, job creation, banking, healthcare, tourism, agriculture, etc. So, it is surprising that a State that has been absent from all these key facets of social policy, can now be expected to be the guarantor and overseer of the pension sector.
The URBS Act 2011 Article 5, Section 1(h) indicates promoting long-term capital development as one of its core functions! This is re-echoed by the Finance ministry’s press statement in the Daily Monitor of May 12. The key issue here is whether this long-term capital “freed up” by liberalisation of the pension sector, will be allocated to sectors and ventures that will spur “job-creation and economic growth”.
The prospects don’t indicate that this will be the case. For a long time, because of the unfettered financialisation, a lot of the long-term capital that would ideally be going into production of tangible goods and products needed for both domestic consumption and exportation has ended up in buying financial assets, such as government debt. None of these government securities are owned by local SACCOs or community cooperatives. They are majorly owned by offshore investors and banks! The pension funds will follow the same paradigm. The investment in financial assets such as fixed deposits, Treasury Bills and bonds has not generated benefits to the wider society. If you look at the banking sector, on average, 70 per cent of their asset portfolio comprises of the loan book and government securities. These assets are backed by customer deposits.
So, who are the banks lending to? According to the Bank of Uganda State of The Economy Report, March 2014, trade and commerce take the lion’s share of private sector credit. Trade and Commerce in Uganda deals primarily in importation of finished goods to sell off through wholesalers and retailers. Ideally, these banks and pension funds would be financial intermediaries, to collect spare cash (savings) in the economy and link it to the agricultural firms and industrial corporations to produce the goods we need. This would foster job creation, technology and skills transfers and generate foreign exchange by exporting to regional markets like DRC, Rwanda and South Sudan. But this is not happening.
This requires social policy, industrial policy and a developmental state akin to the Ethiopia and China model. It requires a robust ideological conviction to make that choice on what approach to adopt. We have failed to regulate the banking sector into buttressing our agricultural and industrial sectors; we are surely not ready to regulate and marshal the pension sector into providing the required long-term capital to spur agriculture and industrialisation, which are integral to job creation for millions of our youth. Jobs are the most fundamental facet of social protection.
Mr Agaba Rugaba is a civil engineer and socio-economic commentator. email@example.com & Twitter: @RugabaAgaba