30 MONDAY, DECEMBER 28, 2015

nssf@30

Daily Monitor

www.monitor.co.ug

Workers House
is one of the
assets where
NSSF gets
money through
renting out some
space to tenants.
PHOTO BY STEPHEN
WANDERA

How NSSF has grown its asset base to Shs6 trillion

Performance. Projections indicate that the current
asset base could be over Shs6.5 trillion by the end of
the financial year.
BY Mark Keith Muhumuza
mmuhumuza@ug.nationmedia.com

KAMPALA. On different occasions, the managing director of

National Social Security Fund
(NSSF), Mr Richard Byarugaba,
has been assuring members that
NSSF will focus on investing their
funds in profitable ventures.
The debate on NSSFs investment priorities started appearing when revenues were growing. This is as a result of growing
its asset base to Shs5.8 trillion as
at the end of October 2015.
According to Mr Byarugaba,
this translates to about 6 per
cent of Ugandas Gross Domestic
Product.
Projections indicate that the
current asset base could exceed
Shs6 trillion by the end of the financial year. This is attributed to
the increasing member contributions.
Compliance levels grow
When the decision was taken
to move NSSF from the ministry
of Gender to Finance Ministry,
the confidence in the Fund was
dwindling.
Compliance was nearly below
50 per cent as the incentive to
save was almost non-existent because of the tedious procedures
used to process payments.

Compliance levels by members

as of June 2015 was at 79 per cent
from 73 per cent in the previous
year. That means NSSF is still
short of nearly 500,000 member contributions. Nonetheless,
these compliance levels have
enabled NSSF to collect Shs688b
from Shs388b in 2011. Monthly
collections are at Shs50b, which
provides much needed investment liquidity.
When Mr Byarugaba joined
NSSF in 2011, the rebranding and
complete turn-around strategy
for the Fund started. When NSSF
re-launched in 2012, the members expectations were raised.
The Fund re-launched with
new promises, among them was
unveiling a new corporate identity that was accentuated with a
refreshed blue and green logo as
well as a new tagline, A Better
Future.
We are not merely changing
our look and feel, but the change
of our visual identity symbolises
my commitment, your commitment and our commitment to deliver a better future for our grow-

ing membership, Mr Byarugaba

said in 2012.
With the rebranding, monthly
contributions grew from
Shs24.5b to Shs42b.
As at September 30, 2014, a
compliance periodic audit established that employers of about
67,000 workers countrywide
failed to remit their employees
contributions worth Shs28b to
NSSF.
The defaulting employers were
mainly schools and vocational
institutions across the country
and had never remitted workers
contributions since their registration.
However, the asset base is bigger than the member contributions. This means that NSSF can
dispose of assets, pay members
fully and remain with balance in
the unlikely event that members
opted to take their money out at
once.
Revenue growth
This year, the economy slowed
down, interest rates increased
while the Shilling weakened,

NSSF CONTRIBUTION TO ECONOMIC GROWTH

NSSFs total assets stand is more than Shs5.8 trillion, which translates to
about 6 per cent of Ugandas GDP.
The Fund is the single largest holder of shares on the Uganda Securities
Exchange.
The Fund holds approximately 14 per cent of all bank deposits.
NSSF finance approximately 40 per cent of government debts through our
investments in government bonds and securities.

however, NSSF performance

defied this trend with increased
income.
NSSFs management at the annual members general meeting
held recently, were upbeat after
shrugging aside, a mixed 2014/15
to grow income by 35 per cent to
Shs807b.
On this income, at least,
500,000 members have been paid
Shs187b compared to Shs166b in
2013/14, which represents 13 per
cent interest on their savings.
Mr Byarugaba, who bounced
back as NSSF managing director
in November 2014, said the increased income was way above
our target.
He said this was a result of a
favourable interest regime. As
the private sector pays the price
for high-interest rates, NSSF
made gains from buying government debt.
In the last five years, revenues
have expanded from Shs161b to
the current Shs806b.
Government securities
In the same financial year,
interest rates surged and so did
the depreciation of the Uganda
Shilling. But this, in a way, played
into the hands of NSSF.
The Fund has investments valued
at Shs5.8 trillion up from Shs4.9
trillion in 2013/14. Out of this, 73
per cent, about Shs4.2 trillion is
invested in fixed income assets.
Fixed income assets refer
to treasury bills and bonds,

corporate bonds and fixed

deposits.
During the year under consideration, the interest earned on
government short and long-term
debt has been rising.
For instance, a two-year bond
that was generating interest of 10
per cent in July 2014, by August
2015, a new issuance of the same
bond was yielding 18.7 per cent
interest.
Similarly, short-term debt of 91
days, 182 days and 364 days rose
from 9.07 per cent, 10.33 per cent
and 10.68 per cent, respectively
in July 2014 to 12.76 per cent,
13.55 per cent and 14.02 per cent
by the end of June 2015.
NSSF is one of the largest holders of government debt, which
means any increment in interest
returns yields higher interest
payments.
The Fund increased its investments in government securities and other fixed income by
Shs800b in 2014/15 due to the
return on investments.
During the year, interest rates
on government treasury bonds
went up and as a result, we invested in those treasury bonds.
Therefore, our interest income
increased as a result of the rates
going up, he said.
Government securities continue to be the safe haven for
NSSF as often, the organisation
doesnt have to engage lengthy
to page 31

MONDAY, DECEMBER 28, 2015 31

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NSSF asset base growing tremendously

FROM page 30

PERFOMANCE

As at September
30, 2014, a
compliance
periodic audit
established that
employers of about
67,000 workers
countrywide
failed to remit
their employees
contributions
worth Shs28b to
NSSF.
The defaulting
employers were
mainly schools
and vocational
institutions
across the country
and had never
remitted workers
contributions since
their registration.
However, the asset
base is bigger
than the member
contributions.
This means that
NSSF can dispose
of assets, pay
member fully
and remain with
balance in the
unlikely event that
members opted to
take their money
out at once.
As the Shilling
depreciated, NSSF
has also been able
to withstand the
shocks through
several hedging
mechanisms.

procurement procedures to secure investments. Of the Shs807b

income, fixed income investments contributed 67 per cent.
Much of NSSFs setbacks in the
last financial year have been the
consistent questioning of investment decisions, such as Umeme
shares.
Profitable firms
NSSFs critics have often and
continue to question the investment in power distributor, Umeme. In 2014, NSSF defied the
odds and increased its stake in
Umeme to 14.2 per cent from 8
per cent.
In Uganda, NSSF earned Shs7b
worth of dividends from listed
firms with Umeme contributing
Shs4.5b.
The Funds decision to invest
in Umeme has been vindicated.
Many experts agree that it was
an inspired decision. Umeme is
now one of the best performing
stocks on the USE.
Overall, NSSFs investment in
equities (listed and non listed)
generated dividends worth
Shs34b, representing a 161
per cent jump from Shs13b in
2013/14.
During the financial year under review, the Fund increased
its stake in Equity Bank. In Kenya alone in 2014/15, the value of
shares NSSF held was Shs409b
from Shs107b. A recent opinion
written by Mr Byarugaba gave
reasons why they were investing
in equities.
Equities are a major investment avenue for the Fund as they
supplement safety attractiveness
of fixed income by providing
growth and return enhancement
alongside long-term inflation
protection, he said.
The value of investments in
companies within Uganda, Tanzania, Rwanda and Kenya rose from
Shs438b in 2013/14 to Shs901b by
the end of 2014/15. The value expansion can also be attributed to
investments in Bank of Kigali and
Tanzania Breweries.
As the Shilling depreciated,
NSSF has also been able to withstand the shocks through several
hedging mechanisms.
According to Mr Byarugaba,
during 2014/15, there were unrealised foreign gains of Shs169b.
These gains are as a result of assets held in foreign currencies
and their value appreciates with
strengthening currencies and the
weakening Uganda Shilling.
Unlocking real estate investments
The Funds strategy is now
to unlock the value in all its real
estate projects. The Fund is already in final stages of starting
construction of Lubowa Housing
estate for the high end of the market. It will also construct another
estate in Wakiso, Temangalo, for

The artistic impression of the proposed NSSF Lubowa Housing project. COURTESY PHOTO
the affordable housing market
In this financial year, there
has been limited or no activity at
Lubowa Housing project.
For Pension Towers, the services of another contractor for
the project are yet to be secured.
Mr Byarugaba describes these
delays as idiosyncratic risks associated with investments in real
estate that create delays and escalate project costs.
In fact, the value of assets NSSF
held in real estate did not grow.
There was a marginal decline to
Shs444.5b from Shs444.6b in
2013/14, according to a presentation made at the annual members
meeting.
Even as NSSF holds on to the
real estate assets, it made Shs10b
from renting out part of its properties such as Workers House, Social Security House, and Mbuya
property.
Additionally, the valuation of
the properties is also on the rise.
For instance, in 2014, the fair
value of assets NSSF holds rose
by Shs48b.
Mr Byarugaba has been pushing for withholding tax exemption on interest payments to
members. The argument is that
the tax is a disincentive for people to save. He also notes that
if it hadnt been for the taxes,
members would have been given
a return of 15.7 per cent instead
of the 13 per cent.
The future
In the next 10 years, NSSF will
be celebrating 40 years of existence in Uganda.
The outlook is for the Fund
to have grown to at least Shs20
trillion worth of assets. At the

NSSF and the developer will agree on house specs, amenities,

minimum units, price and timeline. NSSF will then provide a guarantee
that it will acquire the units once the project is completed. The
developer then identifies land that is acceptable to NSSF and build
houses as per agreed specs. Once completed, NSSF buys all the
houses and pays the developer, and then sells the houses to members.
The buyer either pays NSSF by cash or through mortgage,
Mr richard Byarugaba, NSSF MANAGING DIRECTOR

annual members meeting, Mr

Byarugaba pointed out key priorities that will drive the fund to
the Shs20 trillion mark.

Improving compliance levels,

diversifying the investment port
folio and roll out new voluntary
saving schemes are some of the

priorities. For much of NSSFs

criticism on investment, the
Fund is reacting to this.
For SMEs, the Fund will set
up a private equity firm that will
acquire stakes in these enterprises. NSSF will have the option
of exiting these firms through the
Uganda Securities Exchange.
The real estate sector, which
has been facing supply constraints will also benefit from
NSSFs investment strategy. A
more recent move is the Shs40b
off-taker project.
NSSF and the developer will
agree on house specs, amenities, minimum units, price and
timeline. NSSF will then provide
a guarantee that it will acquire
the units once the project is
completed. The developer then
identifies land that is acceptable
to NSSF and builds houses as per
agreed specs. Once completed,
NSSF buys all the houses and
pays the developer and sells the
houses to members. The buyer
either pays NSSF by cash or
through a mortgage, Mr Byarugaba added.
NSSF is also looking at properly structured infrastructure
projects that comply with the
regulations of the Uganda Retirement Benefits Authority.
For instance, the proposed
Shs1.2 trillion Kampala-Jinja
Expressway is expected to be
funded through private sector
funds. The private sector would
then get a return on investment
through a toll road charge on motorists.
The next article will explore how
much has been paid to NSSF
members since 1985.