NSSF lost Shs1 trillion due to foreign exchange losses 

Finance Minister Matia Kasaija (Right), consults Mr Ayota during declaration of the NSSF savers interest rate in Kampala on Tuesday.  The Fund declared a positive interest despite a huge growth in foreign exchange losses. Photo / Micheal Kakumirizi 

What you need to know:

  • The losses were a result of economic volatilities particularly in Kenya, and the East Africans region, as a whole

Foreign exchange losses due to NSSF investments outside Uganda increased by 76.86 percent to Sh1.05 trillion in the year ended June 2023, the Fund’s annual report indicates. 

The report, which highlights the performance of National Social Security Fund (NSSF) for the 2022/23 financial year indicates that foreign exchange losses rose from Shs13.4b to Shs1.05 trillion due to a mix of capital flight and constrained cash-flows from cross-border equity investments.

The largest portion of losses, the report noted, were recorded on amortised debt instruments, which increased to Shs831.67b from just Shs18.99b in June 2022. 

The Fund also recorded losses on internally managed equity securities, which rose to Shs200.8b from just Sh3.6b in the period ended June 2022. 

However, income due to dividends from externally managed equity securities, performed well, rising to Shs13.16b from Shs4.39b. 

“Foreign exchange losses arose from depreciation of foreign currencies against the Uganda shilling, which affected foreign denominated assets and liabilities. The key driver was the depreciation of the Kenya shilling to the Uganda shilling,” NSSF said in its annual report for the 12 months to June. 

The Fund further noted that it was aware that the losses present market risks in its business model and affects the income of its financial instrument holdings. 

The losses are mainly a result of market risks that are synonymous with volatility in equity prices, interest rates, and foreign exchange rates.

Speaking on the sidelines of declaration of the Fund’s 10 percent interest rate on Tuesday, Mr Patrick Ayota, the NSSF managing director, said whereas they were cognizant of the impact of the losses, the situation, which has especially resulted from volatilities in the Kenyan economy, and the region as a whole, was temporary. 

“We are long term investors. As long as [the Fund’s] fundamentals of investments haven’t changed, you ride with the wave. The Fund has invested in the Kenyan bonds that are doing well with favourable rates of up to 15 percent, compared to others,” Mr Ayota told Monitor.

NSSF holds investments in Safaricom, Tanzania Breweries, Bank of Kigali, East African Breweries, Trade and Development Bank and Twiga. Others are CRDB Tanzania and Equity Group, among others.

However, the investments have exposed the Fund to currency risks, resulting in foreign currency gains or losses. 

When it is deemed appropriate, the Fund matches foreign currency assets to liabilities in order to maintain an acceptable level of net exposure with regard to monetary assets and liabilities in foreign currencies.

In accordance with the criteria outlined in the Fund’s investment policy, the investment committee is charged with diversifying investment portfolio.

All investments held by the Fund are valued according to market prices, with the exception of those held in Housing Finance Bank, Yield Fund, and TPS Uganda.

NSSF addressed members’ worries on why it has consistently held onto stocks such as Uganda Clays that are unresponsive and have made lower or no returns over time.  

“The losses of these companies are normally offset by dividends of another well performing company like MTN and that is why we hold onto some of the companies due to their investment strategies. That is the essence of diversification because not all companies perform well at the same time,” Mr Gerald Kasaato, said on the side-lines of the interest declaration.

Volatility of equities 

Since NSSF is required to give its savers an interest rate that is 2 percentage points higher than the 10-year inflation rate, it invests less in equities because of their volatility in order to prevent significant losses. 

For the period ended June 2023, the interest was slight more than 3 percent higher than the 5.8 percent average 10-year average. 

NSSF investment are shared out both within outside Uganda, with 12.51 percent held in equities, 9.01 percent in real estate and 78.48 percent in fixed income. 

However, despite the losses, the Fund returned an increase in investment income, which during the period under review, rose from Shs1.9 trillion to Shs2.2 trillion. 

The Fund also registered an increase in assets under management from Shs17.26 trillion to Shs18.56 trillion. The Fund, which has projected to grow its assets to Shs20m by June 2024, a year earlier than planned, has more than two million savers.