BoU, NSSF, commercial banks tread slowly out of financial crisis

Bank of Uganda is trying to emerge from being every small child’s play. Last week NSSF, the provident worker behemoth declined to issue clearance to its lawyers accusing them of failure to remit their worker contributions on time.
In Uganda, an employment tax of 10 per cent is paid by the employer and 5 per cent by the worker to NSSF for any establishment employing more than five employees. NSSF’s buzz saw has wider implications as other government agencies like KCCA, which enjoy financial autonomy and run on a cash-flow budget, are facing similar sanctions. In fact, enforcement action by one government agency against another one is relatively new and just one step ahead of garnishee actions, issuance of warrants of distress, etc.

There may also be another round of quiet finger pointing. Two weeks ago, dfcu Bank lost its top lawyer to NSSF who may have migrated with stories to tell. NSSF also upped its charm offensive against non-compliant employers weeks ahead of its annual retirement bonanza announcement.

In 2018, NSSF announced a record 15 per cent interest return for its members. Such a rate of return while very popular with its members has implications for the wider economy.
First it encourages two kinds of behaviour, the first is positive, older workers maximize their contributions to NSSF to “save” for their retirement. Actually the law allows for voluntary contributions in that regard. NSSF utilises the extra cash to meet its recurrent obligations and saves the rest for a rainy day.

Second, which is negative, “smarter members” sitting on huge retirement pots after 20 years of employment decide to cash out their benefits by emigrating, joining government [even if for a brief period] leaving relatively well paying jobs for a significant pay cut, but a big one-time pay-off from NSSF.
With Shs500 million, a “retired worker” at age 45 with a very conservative outlook can purchase two brand new prime location apartments and look at a monthly return of Shs2.5 million for as long as his eyes can see, in addition to the security of “sleeping with his or her money.”

Actually the luckier ones strike out better the price of unfinished builds in the city suburbs rises so fast, a condo costing Shs280 million will rise to Shs320 million while the builder is still driving concrete into piles at the site.
In fact, at that point, the NSSF story starts to look lousy. If the economy is red-hot, with all the symptoms attendant to it like real estate, a very risky sector, then the purpose for NSSF starts to diminish after all the fund is in the real estate sector competing with commercial banks who are BoU’s clients.

In the case of BoU, their workers are covered by one of the most generous cradle to grave welfare benefit, free healthcare for workers, retirees and their dependents.
The doctor in charge of sick call at Bank of Uganda sits at executive level. Infact the benefits are so rich that BOU Directors outside guardians of its vaunted independence joined the lifetime of benefits several years of ago earning the same studded benefits as their employees.

So while NSSF continues to be the sole savings vehicle for most employees, richer workers are eyeing exit, avoidance and independent investing. The billion shilling worker who works more like a bank may be eyeing a completely different set of alternatives. Richer Ugandans hitting retirement age are with a cautious eye on Uganda’s politics starting to hit the trail again, emigrating abroad cushioned by NSSF’s retirement benefits.

So BoU and NSSF, both subjects of the Minister of Finance, need to look cautiously over their shoulder. Legacy economics has been praising the $2 billion Ugandans abroad send home that has helped the economy weather downturns. But NSSF economics may lead to the opposite problem, net outflows of retiring Ugandans hitting up the fund early for their money.

Mr Ssemogerere is an Attorney-at-Law and an Advocate. [email protected]