As soon as the crunch from the lockdown forced upon us by the coronavirus disease started biting, calls emerged for the National Social Security Fund to “do in themselves a job”, as we say, and hand over some money to its savers.
The earliest most people qualify for their NSSF pensions is when they turn 50 and haven’t had a job in a year. However, some contributors facing mid-life financial crises in their 30s or early 40s look at their immediate needs and wish they could cash in now and let the future take care of itself.
This, of course, defeats the whole purpose of social security or saving for the future, but it reveals serious holes in our socio-economic fabric. Average monthly expenditure by Ugandan households was Shs325,000 in 2016/17, down from Shs328,200 from three years earlier, according to the latest available numbers from the Uganda Bureau of Statistics.
Of this, about half is spent on basic food and (non-alcoholic) drink. After spending on clothing, transport, communications, health and education, most Ugandans hardly have any money left over for savings and investment.
The only reason most Ugandans who contribute to NSSF have any savings with the Fund is because the money is deducted at payroll and remitted directly. It allows members to pay themselves first before bills and the Black Tax kick in.
Unsurprisingly, many of us are one paycheque away from financial ruin. Many employees received a salary for March, but most companies will have to dig deep to make April payroll. Should the lockdown and the economic crisis continue through the second quarter, then expect massive layoffs and bankruptcies.
In the last five years, more than a million Ugandans have been born into or fallen back into poverty. Expect that number to double if the economy, which we were told was ready for take-off, has to return to the hangar.
Regardless of how long the medical part of the emergency lasts, the economic hangover will linger; 2020 is written-off for many firms, and Bank of Uganda says the impact, which will halve economic growth, will last well into 2022. NSSF is an easy target, but raiding it isn’t the solution. First, the average saver, we are told, retires with a pension of about Shs15 million, which is often the only cash pile they have. This, at the average household expenditure level, is equivalent to less than five years’ sustenance, without shocks.
Secondly, the law currently doesn’t allow the Fund to handover cash to members who might have missed their mortgage payment or their sack of food aid “posho”.
But third, and perhaps most importantly, the Fund is set up to meet long-term obligations. If it were to dump its equity holdings, for instance, in order to meet short-term cash needs, it would do so in a bear market and lose money. In Uganda, where it is by far the biggest investor, it would even struggle to find similarly deep-pocketed firms or individuals to mop up its exit positions.
The underlying problem, therefore, is an economy of high unemployment and low quality and low-paying jobs, which leave people with inadequate savings to cushion themselves against short-term shocks, while exiting them, at retirement, with a financial bed too short and a blanket too narrow.
NSSF is not the problem, but it can do more to be a stronger part of the solution. Many members gripe, with good reason, about the Fund lending to commercial banks at, say 14 per cent, which then lend to them at double that.
Similarly, high-end real estate might offer better returns, but the absence of low-cost or affordable housing weakens the Fund’s hand in debates with members struggling to get onto the property ladder.
A Bill currently before Parliament proposes some interesting reforms in where NSSF puts its money. It should be passed quickly, with amendments to give the Fund even more legroom to play an activist role in the economy.
To many, the NSSF is like a grandfather from whom one expects a large inheritance, but who just won’t die. Yet, with its large asset base, the Fund can be a transformational catalyst in the economy today by becoming a major investor in roads, schools, hospitals and large-scale commercial farms.
This would create more and better paying jobs, expand the pool of contributors, make NSSF more visible in the day-to-day lives of its members and seek solid long-term returns from investments that members can feel and benefit from before retirement.
The current crisis will force tough decisions, many of them long overdue. Our response should be to reimagine our investments today in order to have a more financially stable future, not to eat the future today.
Mr Kalinaki is a journalist and a poor man’s freedom fighter.