Can someone tell me why it is better to break up NSSF rather than save it?
Posted Thursday, May 8 2014 at 01:00
The on-going reform of the pensions sector is something you should interest yourself in if you contribute to the National Social Security Fund (NSSF). A key reform is the on-going liberalisation of the sector to introduce competition.
The underlying argument is that competition will force NSSF, which appears to have a chronic problem with its management, to clean up or lose business to the start-ups, wither and die.
If this argument sounds a tad familiar, it is because it is the same prescriptive policy that informed the privatisation process through the 90s. Government, we were told, is incapable of running business and has no, er, business doing so. Free market competition would reward innovation and punish incompetence.
There are examples of where this happened. For instance, think MTV versus UTL. Yet this theory, we now know, has been debunked. When we sold/concessioned out the generating and distribution bits of our electricity network, we did so to firms owned, at least in part, by the governments of Great Britain and South Africa. UTL and National Housing were sold to a trading arm of the Libyan government.
As we have seen with China, the United Arab Emirates, Qatar and elsewhere, government-owned businesses can be successfully run for profit.
The bigger concern with NSSF is what I would call the sovereignty of capital. NSSF, which will soon cross the four trillion shilling mark in assets, is the biggest cash cow in town.
Leave it under weak and incompetent leadership, as has often been the case, and it will predictably fall prey to the clarion hunters. Former Minister Zoe Bakoko Bakoru, who fled into exile in the United States after one of many NSSF scandals, has a YouTube video out (Google it!) with interesting revelations about some of those who were dipping their beaks in the pension trough.
Think, however, of the transformative role NSSF would play under an honest and competent government. The Fund already lends money to government by buying Treasury Bills; why not change the law to allow it lend for productive investments that are long-term and have secure, guaranteed returns?
Why isn’t the NSSF an investor in Bujagali or Karuma power dams or in the ridiculously expensive new Southern Highway toll road?
NSSF currently lends money to commercial banks, which add a significant mark up and lend it to NSSF’s customers; is there an economic theory that stops NSSF from setting up its own bank and lending at cheaper rates? Wouldn’t that boost the economy overall?
As a (very small) NSSF contributor, I worry that my pension will not be enough to buy me a loaf of bread and a pint of milk when I finally qualify for it. As a Ugandan, however, I worry that we have chosen to see NSSF for the problems it has, rather than for the solutions it could provide.
Our attempts to reform NSSF, driven by people who don’t save with the Fund, have been half-hearted. When workers finally got slots on the board we ended up with a motley collection from the unions, of storekeepers and ‘Dobbis’ more adept at removing stains from starched shirts than increasing return on equity.
Few countries can claim to have developed and empowered their citizens financially without access to local capital, and with their economies largely in the hands of foreign capital as Uganda, sadly, is.
To then take the last major source of capital and break it up to benefit mostly foreign fund managers would be a strategic error of epic proportions. Someone needs to explain to me why is it better to break up the pensions pie rather than use it as a strategic investment tool.