How NSSF money is benefitting Uganda’s developing economy

Kampala. Last week the National Social Security Fund (NSSF) completed a Shs59.4 billion share acquisition from British private equity firm, Actis to become the majority shareholder in Umeme. The new shares lifted NSSF from 14.3 per cent to 23 per cent, cementing its position as the top investor in power distributor Umeme. That also meant that NSSF’s presence in the energy sector is increasing. Umeme is the only energy related company in Uganda where NSSF’s money has been invested.

Establishment
NSSF is the national saving scheme mandated by Government through the National Social Security Fund Act, Cap 222 (Laws of Uganda) to provide social security services to employees in Uganda. It was established by an Act of Parliament (1985) to provide for its membership, payment of contributions to, and payment of benefits out of the Fund. This is a provident fund, paying out contributions in lump sum. For the last Financial Year (2015/2016) alone, the Fund declared and paid an interest rate of 12.3 per cent to its members. Currently, NSSF is sitting on more than Shs6 trillion worth of assets.

Membership
NSSF has more than 600,000 active members, dominating the pension sector in terms of investments and returns. The other schemes are Kacita and Mazima launched this year.
Three months ago when several companies paraded themselves as distressed because of the weak economy and large exposure to bank debt, the Uganda Manufacturers Association suggested that NSSF be freed to invest in other companies. On a monthly basis the Fund collects about Shs70 billion, money that has to be invested.

At the Annual Members Meeting in October, Mr Richard Byarugaba, the NSSF managing director, told members that they were running out of investment options in Uganda. Now the question is, where is NSSF’s money in Uganda’s economy?
Lender to government
The largest portfolio of NSSF’s money is lent to the government through the purchase of Treasury Bonds. These are bonds that are usually issued as domestic debt and the function of purchasing is carried out by Bank of Uganda. As at end of June 2016, the NSSF was holding onto Shs3.7 trillion in Uganda government debt. Whenever the government issues a call for applications for debt, NSSF is often first in the queue and setting the pace in terms of price, and indeed it is given the green light.

Often, NSSF will compete with commercial banks on who takes the largest share of the government debt. Obviously, the consequences of the government debt acquisition are to crowd-out the private sector from accessing credit.
Mr Byarugaba often notes that NSSF is already financing government spending. The only problem is that the domestic debt is too general and not pegged to a specific project. In Kenya, NSSF has invested about Shs300 billion in infrastructure bonds.

Largest player on stock market
The NSSF is the largest investor on the Uganda Securities Exchange (USE). Of the eight locally listed companies, NSSF has shares in Umeme, Stanbic Bank, dfcu Bank, Bank of Baroda, Uganda Clays and the Vision Group. The total value of the shares they hold is about Shs400 billion. There is no single investor in the country that holds that sort of investment in Uganda’s capital markets.

Mr Paul Bwiso, the USE chief executive officer, told reporters recently that NSSF’s participation on the stock exchange provides confidence for institutional investors looking to place their money on Ugandan listed companies. NSSF participates in the banking sector by investing in three banks. It is also in publishing and construction sectors through Vision Group and Uganda Clays respectively.
NSSF’s investment in the Equity Group, KCB and Centum, through the Nairobi Stock Exchange, is significant because they all have a presence in Uganda through subsidiary companies.

Construction and real estate
In the past, this has been one of NSSF’s big investments. The Fund owns several properties and land in Uganda. Among them are the Workers House valued at about Shs60 billion, Social Security House valued at Shs30 billion, Lubowa Land valued at more than Shs200 billion and other capital works valued at almost Shs90 billion.
Notably, NSSF also has a 50 per cent stake in Housing Finance Bank, a commercial bank with a focus on providing affordable housing mortgages to Ugandans. That stake is valued at Shs57.8 billion. It also bought a corporate bond in the same bank valued at Shs6 billion.

Recently, the Fund launched a plan to acquire finished housing units from developers in order to address the supply side challenges in the real-estate sector.
The sector has also been the stickiest for NSSF as there are several projects that have not progressed on schedule such as the Pension Towers along Lumumba Avenue in Kampala, and the construction of units on the Lubowa land.

Bank Deposits
The situation. If there were more fixed deposit accounts in the economy, the cost of credit would be lower. But this is not the case. However, NSSF tries to bridge the gap with about Shs300 billion in fixed deposit accounts with commercial banks.

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