Uganda pension sector thrives despite lack of regulation

Posted  Monday, May 19  2008 at  00:00

By DAVID MALINGHA DOYA
Special Correspondent

Uganda’s pension industry is growing on the strength of workers’ contributions to the government-run National Social Security Fund (NSSF) as well as the 50 privately managed funds.

The sector is thriving despite a regulatory vacuum. However, financial analysts are now saying that this lapse is costing the country by increasing the foreign debt due to limited domestic capital to borrow, and lack of a wide array of financial services and products that would come with liberalising and regulating the sector.

NSSF announced that member contributions had reached $588 million by March this year, from $494 million a year ago.

The fund also posted profits of $38 million, making it the most profitable financial institution in Uganda for the first time.

Comparatively, privately managed funds now totalling 50, have combined assets worth about $117 million, of which $29 million is invested off-shore, according to the Investment Management Association of Uganda.

However, the association has said that pension-sector growth will serve the goal of deepening the financial sector only when the sector is liberalised and a regulator is established.

The Social Security Stakeholders Transitional Group, inaugurated in 2003, addressed itself to concerns of the current arrangement in the sector, its constraints and social protection, but action is yet to be seen.

Recently, though, the Cabinet approved a pensions reform Bill that, after parliamentary enactment is expected to facilitate establishment of a pensions’ regulator to oversee the operations of all players in the sector.

More significantly, the regulator is obliged to ensure adherence to a policy expected to set minimum standards for fund managers and detailed guidelines for investments.

However, as government procrastinates over liberalisation of the sector, a proposed national health insurance scheme designed to expand the worker’s mandatory contributions by eight per cent of gross salary, could breed a problem of evasion currently experienced in Tanzania due to “over-contribution.”

In a joint communiqué on the matter, private fund mangers said, “It should be expected that an increase of the said mandatory contribution from 15 per cent to include an additional eight per cent to a proposed National Health Insurance Scheme will only lead to increased evasions and thereby a reduction in potential national savings.”

NSSF managing director David Chandi-Jamwa has dismissed claims that the Fund is being allowed time in the current status quo by the central government to consolidate its position in the market when the sector is finally liberalised.

The Fund is currently undergoing a functional and restructuring process to streamline staff and their roles and improve information technology.

However, Olli-Pekka Ruuskanen, executive officer of the Uganda Insurers Association, views liberalisation as the only way to foster a spirit of competition and improve efficiency.

Kampala gets $23m for public service reforms

By BERNARD BUSUULWA

Posted  Saturday, September 20  2008 at  14

The World Bank is to give a $23 million credit to implement major public service reforms — especially improved pay and pensions management, better records and archiving, and review of systems and processes.

According to the World Bank, the loan will be used under the Public Service Performance Enhancement Project (PS-PEP).

The financial support is to be provided by the International Development Association, the development funding arm of the World Bank. Its focus is on attaining effectiveness in the public service.

The money will also support development of a civil service college for provision of training and policy research facilities, besides targeting capacity building in areas such as agro processing that are critical for industrialisation and promotion of economic growth.

The project is part of the World Bank’s promotion of more transparent and accountable governance in Uganda.

The funding comes at a time when Uganda’s public service is said to be performing poorly.

“Uganda continues to face a challenge in trying to enhance performance in the public service, which is likely to worsen if not checked,” said Dr Ezra Suruma, Minister of Finance, Planning and Economic Development.

The funds will be used for strengthening the effectiveness of Uganda’s public service through improving pay and pensions management systems, which are vital in boosting morale and performance among civil servants.

Improvement of record keeping and archiving systems in the public service is also catered for under the project, which will enable the government to weed out ghost employees on its payroll alongside a review of performance.

Under the PS-PEP project, the government is expected to fund the development of a civil service college.

Through the project, civil servants’ professional capacity will be improved to ensure better performance.

Part of the project funds will be allocated to training personnel in strategic leadership and management skills meant for application in areas like food, oil, gas and agro processing.

The training will support Uganda’s poverty reduction strategy through improved linkages between strategic management and the budget process, through capacity enhancement opportunities that are directly linked to improved service delivery and by providing incentives to motivate and retain qualified staff and increase efficiency plus cost control.

The PS-PEP project has two components — an IDA component worth $15 million meant for supporting the Public Service Reform Programme and a second $8 million component devoted to the establishment of the civil service college.

However, the World Bank urged the government to improve on its engagement with parliament so as to guarantee the project’s success.

NSSF fiasco: Asking the hard policy questions

Mr Mbabazi. The NSSF is a contractual savings and income support mechanism for supporting old age retirement. Photo/FILE 

By JAINDI KISERO

Posted  Saturday, September 20  2008 at  13:43

 

The more I try to follow the Amama Mbabazi saga, the more I feel that pertinent questions are not being asked.

Is it an issue of the price of land in Temangalo per se, or are we dealing with broader issues of conflict of interest?

Is it really possible to have an arms-length transaction in a context where investment decisions are being made between a board of the National Social Security Fund dominated by appointees of politicians and government ministers — the very top elite of the ruling National Resistance Movement?

Out of the NSSF’s total investment portfolio, how much is in real estate, and is it prudent to commit workers hard-earned retirement savings to buying undeveloped land, especially in a transaction where the vendor is a powerful minister?

Was this the best investment option in terms of value for money at that point in time? Did the NSSF board consider whether it was possible to make more money by putting this money in other asset classes such as Treasury bills, bonds or equities?

Isn’t it possible that Ugandans are likely to end up with an NSSF that is rich in land and property but finds it difficulty to raise the cash to pay retirees?

Granted, it can be argued that the NSSF, being the largest source of savings in the marketplace, has a developmental role to play. That, being the largest source of long-term funds, it is best suited to engage in housing development.

But at the end of the day, this is private money. The biggest mistake people in authority make is to assume that the NSSF belongs to the government.

The NSSF is a contractual savings and income support mechanism for supporting old age retirement. You squander it at the risk of exposing a large section of the population to destitution in old age.

The Mbabazi saga also raises broad policy implications for the management of mandatory retirement schemes in East Africa.

First, a bit of background. The NSSF was introduced as a mandatory provident fund for employees. Kenya, Uganda and Tanzania all have their own NSSFs.

In addition, Tanzania has other mandatory pension schemes — the Parastatals Pensions Scheme for employees of parastatals; the Government Employees Pension Fund and the Public Service Pension Fund.

The level of contributions to the NSSF differs in the three countries. In Kenya, both employer and employee contribute a paltry Ksh400 ($6) per month. In Uganda, the employer contributes 10 per cent and the employee 5 per cent of the monthly salary.

In Tanzania, the employer contributes 10 per cent and the employee 7.5 per cent of the salary per month.

The high levels of contributions to their NSSFs in both Uganda and Tanzania explains why these countries do not have large private sector voluntary pension schemes

Keep looters off workers’ funds

editorial: the east african 

Posted  Sunday, September 7  2008 at  08:54

The scandals facing the National Social Security Funds of Kenya and Uganda, as well as those reported in Tanzania in the recent past are uncannily similar.

Broadly, they revolve around the misallocation or outright theft of contributors’ monies and the role of various state-level actors in running the organisations or appointing their executives.

This is really not surprising. Across the three countries, the social security organisations represent some of the best-funded public organisations, thanks to monthly statutory or voluntary workers deductions.

Consequently, the funds are a prime and perennial target of politically-connected operatives for shady dealings in real estate, procurement, equity and irregular project financing.

The scandals rocking Uganda’s NSSF graphically illustrates this. According to media reports, the fund has recently lost millions of shillings in shady land deals involving top government ministers, as well as through an out-of court settlement with one company.

Elsewhere, in a move that has drawn ire from workers’ bodies and been widely criticised in the press, the Ugandan Fund’s board on June 18 approved escalation of construction costs for Pension Towers, its proposed headquarters, from Ush36 billion to Ush120 billion just weeks after construction begun. This comprises an unexplained rise of over 300 per cent.

Kenya’s fund is no stranger to such dealings. Currently, the fund is embroiled in a tussle with Indian investors over a plot of land in Nairobi which the latter says is smaller than stated in the transaction documents.

Needless to say, the fund had earlier bought the parcel, whose acreage had apparently been overstated, from political operatives at an inflated price.

Similar shenanigans have in the past rocked Tanzania’s fund.

THE SHADY DEALING IN WORKERS’ FUNDS across the region does not augur well for retirees and their dependants. For thousands of workers, the social security schemes represent the only social nets they will rely on after retirement.

Clearly, governments and regulatory authorities need to draft new, stricter regulations on the running of the funds, as well as take greater care in the appointment of the executives.

At the very least, the funds must be made to delink the functions of investment from routine management to make it harder for vested interests to raid their coffers. This can be achieved through the appointment of fund custodians with distinct mandates different from investment managers.

The funds also need to operate under clear and strict investment guidelines on just what level of exposure they should take in such investments as real estate and equities to limit risk concentration. The nature of this mix is important as the funds need to retain a critical level of liquidity to be able to discharge their obligations to their members.

Elsewhere, the funds will be well-advised to accommodate workers representatives in their boards for purposes of transparency.

In Uganda, for example, it is incongruous that workers have not been represented on the NSSF board since 2004 when the fund was transferred from the Ministry of Labour to that of Finance.

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Uganda’s new pension could swamp USE with new players

By BERNARD BUSUULWA

Posted  Saturday, December 13  2008 at  12:1

Uganda’s pension sector is expecting an influx of new players once parliament approves the Pension Bill 2007 and the setting up of a competent regulator.

However, financial industry players say the still immature Uganda Securities Exchange (USE) may not be able to absorb the overwhelming flow of funds from new entrants, leading to excessive demand for shares and dramatic increases in share prices.

On the other hand also, tight regulation in the form of a minimum percentage being in the form of government securities would hinder growth in pension schemes whose investment attitude is very risk-friendly.

Simon Rutega, the chief executive of the USE, however said, “Even as the Pension Bill 2007 is passed, it could take up to two years to commence implementation. But it will will definitely promote competition and diversity of players in the capital markets.

“Yes, in the short term, demand for shares could become overwhelming but we are not worried. We expect an increase growth in the number of companies interested in listing on the stock exchange in the near future, which will help in alleviating that problem.”

Despite the high risks associated with investing in stocks, pension schemes have not been discouraged from investing on the USE due to the steady and robust performances registered by most of the listed companies.

But the equities counter has recorded slow growth with only three initial public offerings executed in the past four years, leading to limited options for risk diversification.

The USE has attracted only six local listings, four cross-listings and four corporate bonds in its 10 years of operation.

By mid 2007, the number of pension fund schemes operating in Uganda was estimated at over 100, with a total book value in excess of $50 million.

The passing of the new pension law is expected to increase public confidence in the sector and boost growth in national savings.

An influx of new and aggressive investors on the stockmarket emerging from a reformed pension sector is likely to intensify demand for the limited shares in the short term, causing increases in share prices, and liquidity problems.

A sharp increase in equity listings and corporate bond issues will be needed to stabilise growth in share prices and retain investor interest, especially in the retail segment.

Nevertheless, the USE has registered remarkable growth in terms of market capitalisation and turnover in recent years, making it a favourite destination among risk-eager investment players who prefer the quick high returns from trading shares compared with the lower returns generated from government securities.

Market capitalisation at the USE had grown to over Ush4 trillion ($2.2 billion) by mid this year while total turnover is projected to reach Ush85 billion ($48.8 million) by the end of the year. In 2007, total market turnover was Ush84.8 billion ($47.6 million), representing a growth of 1.2 per cent.

But, as Mr Rutega pointed out, potential delays in the implementation of the new pension law will give room for enhancing growth on the bourse to absorb massive investment flows from new pension schemes.

Kigali forum debates Africa’s social security

The National Social Security House in Nairobi. Photo/FILE 

By DAVID KEZIO-MUSOKE

Posted  Saturday, November 29  2008 at  09:5are

Only 11 per cent of East Africa’s population is covered by social security programmes, the Regional Social Security Forum for Africa held in Kigali last month was told.

Participants, including social security leaders from 35 African countries, were told that coverage rates in middle-income African countries range between 40 per cent and 70 per cent.

Rwanda’s Prime Minister Bernard Makuza said coverage in Rwanda is still way below 10 per cent and that most of the Rwandan population is in the informal sector, being concentrated in the agricultural sector.

“Coverage has until now been largely targeted at the working population but efforts have to be stepped up to penetrate the informal sector as well,” Mr Makuza said.

“Extension of social protection is an important element in the country’s Economic Development and Poverty Reduction Strategy. The strategy’s short term objective is to reduce the current proportion of 57 per cent of Rwandan population that lives below the poverty line to less than 46 per cent by 2012,” he added.

The regional forum, which attracted participants from 48 social security organisations in Africa, was organised by the International Social Security Association (ISSA) in collaboration with the Social Security Fund of Rwanda.

Within a three-year cycle, the Social Security Association organises a World Social Security Forum and four Regional Social Security Forums.

The Kigali forum was the first in Africa, with three key themes: Extension of coverage of social health protection; extension of coverage of social security pensions as a basis for old-age security in low-income countries; and good governance of social security schemes.

The National Social Security Fund of Kenya was awarded the first ISSA Good Practice Award for Africa for a governance reform entitled “Application of Performance Contracting in Social Security Administration,” which was described by the jury as an “innovative approach that reflected a high level of maturity in the institution to improve governance and leadership.”

The award programme was launched to recognise good practice in the management of social security, and to raise the profile of innovation in the administration, operations and delivery of social security programmes.

During the two-day forum, a report, “Dynamic Social Security for Africa: An Agenda for Development,” that analyses recent developments and trends in social security in Africa, was launched. The research was carried out in preparation for the forum.

While recognising Kenya’s submission to the Cabinet of a universal non-contributory pension package, the report said that the trend towards non-contributory old-age benefits represents a significant commitment in many of the region’s social security funds.

Kenya’s universal non-contributory pension package, according to the report, has been designed to provide all older Kenyans with a monthly minimum guaranteed benefit from age 55.

“In Kenya, the United Kingdom’s Department for International Development (DfID) is supporting the government to roll out a non-contributory pension pilot for 20,000 households,” the report says.

“Uganda is beginning a pilot to provide a monthly benefit of $11 to chronically poor older and disabled people,” it adds.

Kigali NSSF shares investment now valued at over $54m

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Buying shares during the Safaricom initial public offer in Nairobi. 

 The Rwanda NSSF now has sharesholding in 12 local and two foreign companies. 

Photo/ANTHONY KAMAU 

By KEZIO-MUSOKE DAVID

Posted  Sunday, October 5  2008 at  10:28

While the region’s national social security funds are currently hit by financial and management scandals, Rwanda’s counterpart of the NSSFs has recorded a significant expansion in its investment portfolio.

Caisse Sociale du Rwanda, the country’s social security fund, has increased its investments in foreign companies in the first quarter of 2008 after buying shares worth $7.6 million in the initial public offer of Kenyan firm Safaricom.

According to the fund’s first quarter report of 2008 released in September, it now holds shares in 12 local and two foreign companies. The report says that the pension fund’s total shareholding are now valued at about $54 million.

“Though most of the investment revenues are collected at the end of the year, it is during the course of the first quarter in 2008 that the CSR made equity investments outside the country,” says the report. It adds that the fund’s investment plan implementation is going well, with 56 per cent of the total investment budget of about $61 million already spent on investments.

Rwanda is in the process of reforming its pension system after the institution suffered from mismanagement before and during the 1994 genocide.

The reforms, still in the infancy stage, are expected to result in the mobilisation of sufficient savings for investment and capital market development.

The report cites Rwanda’s current 0.3 per cent national savings level as frustrating. One of the government’s strategies is to reach the Vision 2020 target of increasing national savings to 6 per cent.

Officials say the pension fund is being revamped with the provident fund pillar being composed of two branches, pensions and special savings.

“The special savings branch is meant to enable members to acquire pre-retirement benefits such as housing and education for their children. Needless to say, the funds under the provident fund pillar will be managed under the defined contribution principles,” the report further says.

“The financing will be through mandatory contributions that may be supplemented by voluntary contributions. Such pre-retirement benefits, we believe, will attract workers also operating in the informal sector,” it adds.

The fund estimates that with a population of 9.9 million, there is an active working population of not more than four million and as many as a million people working in the informal sector in the capital city Kigali.

The pension body says that the active contributing population to the fund is only 220,000.

According to the report, this year alone the fund recorded a number of significant achievements, registering 1,037 new employers in the course of the first quarter, bringing the number of people registered so far this year alone to 17,100.

When compared with to the target of registering 800 employers per quarter, this translates into a percentage achievement of 130 per cent.

According to officials, the total number of employers registered with the pension fund will be determined after the conclusion of the ongoing compliance enforcement campaign.

Time to focus on citizens’ health

Countries at all levels of economic development are concerned about the impact of the financial crisis on health.

If unemployment continues to rise, safety nets for social protection fail, savings and pension funds erode, and public spending drops, it is inevitable that people’s health will suffer.

The impact is direct when stress causes a rise in mental illness and in the use of tobacco, alcohol, and other harmful substances.

It is made worse when health services cannot sustain the level of care that people need when they fall ill.

This prediction is not based on theory but on what has happened in past recessions, most of which have been less deep and of shorter duration than what most experts predict we are now facing.

Financial markets, economies and businesses are more closely interconnected than ever before.

As we have seen, financial turmoil is contagious, moving rapidly from one country to another and spreading quickly from one sector to others.

Making matters worse, particularly in developing nations, the financial crisis comes hard on the heels of food and fuel crises, which are estimated to have tipped more than 100 million people back into poverty.

The crisis thus comes at a precarious time for public health. We are in the midst of the most ambitious drive in history to tackle the root causes of poverty and reduce the gaps in health outcomes.

No one wants this momentum to stall.

In past recessions, development aid was cut just when it was needed most. This must not happen again.

We cannot afford to sacrifice hard-won gains in child and women’s health, in the fight against AIDS, TB, and malaria, and in building strong, health delivery systems.

The financial crisis cannot be allowed to undermine our pursuit of the Millennium Development Goals.

In times of economic crisis, people in all countries tend to forego private care and turn to publicly-financed services.

This comes at a time when public health systems in many countries -in both the developed and developing world- are already overstretched and underfunded.

Madoff fraud could burn those who pulled out early

The Palm Beach Country Club, where Madoff is said to have recruited investors. Photo/REUTERS 

Posted  Wednesday, December 17  2008 at  14:

Disgraced money manager Bernard Madoff's suspected $50 billion fraud scheme looks set to burn even those who pulled their investments out long before the scandal rippled into the global financial system.

Such investors may have counted themselves fortunate, withdrawing their money years ago to buy a house or to pay for a daughter's education, and may have even sighed with relief because they ended ties with Madoff long before the scandal erupted late last week.

But they, too, could face trouble, lawyers say. Because of a legal concept known as "fraudulent conveyance," they could be forced to return their profits and even some of their initial investments to help offset losses incurred by others entangled in the long-running Ponzi scheme.

A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and relies on a constant stream of new investment. Such schemes eventually collapse under their own weight.

"There were no profits. It was just other people's money," said Brad Alford, who runs investment adviser Alpha Capital Management LLC in Atlanta.

Alford is well versed in fraudulent conveyance after one of his clients withdrew money from a $450 million scheme by Connecticut hedge-fund company Bayou Group LLC a year before it collapsed in scandal. "We ended up settling with the estate, giving back all the profits and half of our principal."

Bankruptcy-receivership practices make all investors vulnerable, he added. "Once they can go into bankruptcy they can go back six years. Anything past your principal, I'm guessing, is fair game to be brought back in."

Philip Bentley, a lawyer at Kramer, Levin, Naftalis & Frankel LLP, who defended investors sued in 2006 by lawyers representing the Bayou estate, said he expected the court-appointed trustee now in control of Madoff's U.S. operations to look hard at who withdrew money from Madoff.

"The trustee is going to look very closely at redemptions and seriously consider bringing suits just because the trustee's job is to bring in assets any way he can," Bentley said. "Potentially the numbers are enormous."

'Staggering' lawsuits

But the judge could decide to limit how many years back the estate can demand investors return their money, said Jay Gould, a former investment-management attorney at the Securities and Exchange Commission who heads the hedge-fund practice at Pillsbury Winthrop Shaw and Pittman LLP.

"In this case, because of the magnitude of the losses and the scope of the great number of people who were defrauded, this could be a situation where people say 'you know we are just going to draw the line here at six months or at one year or at this,'" he said.

"But that's not certain. You really are working with people who have obligations," he said. "The receiver has an obligation under the law to pursue all the assets wherever they happen to be within the bounds of the law."

The law could shock investors who innocently entrusted their money with Madoff, a 70-year-old Wall Street legend, long before he was accused of defrauding banks, charities and rich individuals whose assets he managed at Bernard L. Madoff Investment Securities LLC, which he launched in 1960.

"I'm sure it will be a surprise to those who had no idea about his position but wanted to buy a house, and took the money out," said Tamar Frankel, who teaches securities law, corporate governance and legal ethics at Boston University.

Kenyan insurer enters Tanzania, eyes Uganda

Eagle Africa offices in Nairobi, Kenya. The company is hoping to tap into the robust East African market. Photo/ANTHONY KAMAU 

By JOSEPH MWAMUNYANGE and PAULINE RICHARD

Posted  Friday, March 27  2009 at  23:38

One week after it opened up for business in Tanzania, Eagle Africa Insurance Brokers has announced plans to enter the Uganda market soon.

The company, which is based in Kenya, is hoping to tap into the robust East African market.

Tanzania’s Finance Minister Mustafa Mkullo said Eagle Africa Insurance Company will help transform the negative image that many potential consumers of insurance services have.

He said many people are discouraged from seeking insuring by the long period taken by companies to settle claims.

“I challenge Eagle Africa to prove to us that delays in settlement of claims will not occur and to change the entire negative outlook towards insurance,” he said.

Mr Mkullo cited past disappointments in honouring payments to customers.

He said a good attitude towards insurance was vital to national development, especially in regard to long-term investments.

Insurance firms can offer good advice on investment, savings, pension funds and compensation in the case of adversities.

Many people in Tanzania assume that insurance services are a preserve of the rich.

The entry of Eagle Africa Insurance Brokers to Tanzania will widen the range of insurance services available, step up employment and increase the tax base.

The firm will ensure that its products meet the demands of the Tanzanian market.

Managing director Sam Ncheeri said the company already has three brunches in the country — in Dar es Salaam, Tanga and Iringa.

He said the company’s vision is to extend services and become the number one insurer in East Africa.

Ncheeri added that the firm would enter the Uganda market soon.

Eagle Africa Insurance Brokers was established in Kenya in 1951.

Pension: Uganda could go hybrid

One of the properties of NSSF in Kampala. The World Bank is still pessimistic about the impact of unfunded pension liabilities, fiscal consequences of the new scheme and its supervision. Picture: Morgan Mbabazi 

By BERNARD BUSUULWA

Posted  Monday, June 29  2009 at  00:00

 

The World Bank wants a hybrid system for Uganda’s public pension scheme, where both members and the government contribute — a recommendation that is consistent with the government’s earlier proposal.

This is coming at a time of reforms in the country’s pension sector targeted at reducing its pension deficit besides introducing a regulator for the sector.

According to the Ministry of Public Service, the new pension system will be a combination of defined benefit and defined contribution structures of pension management.

A defined benefit pension model is based on the value of privileges allocated to pensioners. Its costs are met by the employer while benefits under the contribution model are commensurate with individual members’ payments.

Under the new system, civil servants will contribute 5 per cent of their salary into the pension scheme while the government will give 10 per cent.

Contributions from eligible employees earning below a given threshold shall be paid into the defined benefits fund while those from employees earning above the threshold will be split between the defined benefit and defined contribution funds.

However, the World Bank is still pessimistic about the impact of unfunded pension liabilities, fiscal consequences of the new scheme and its supervision, among others.

Increased public awareness is also considered necessary for the successful implementation of the new pension system, mainly because of widespread ignorance about the benefits of pension among ordinary Ugandans.

Introduction of a new pension system is expected to ensure timely payment of benefits and a reduced burden on the national budget while deepening the financial sector through higher capital flows in the equity and debt markets.

The total value of private occupational schemes is estimated at $60 million.

The proposal does not discuss some crucial parameters, such as the eligibility and accrual rules of the new contributory defined benefit or the threshold determining whether an employee contributes to the defined contribution pillar or not, reads a new World Bank report titled Making finance work for Uganda.

According to the report, the current Public Service Pension Scheme (PSPS) is accumulating significant unfunded pension liabilities at a rapid rate, making it financially unsustainable.

Government records indicate that the PSPS incurs $65.5 million in pension expenses annually while its deficit stands at $57.7 million.

The rate of accrual is estimated at 2.4 per cent per year and it offers old age, contract, death and disability benefits. It boasts of 300,000 members excluding military personnel and 52,000 pensioners excluding those under local government service.

In order to minimise the huge deficit, the report recommends separation of the official retirement age in the civil service from the age of eligibility for withdrawing pension money. It also recommends use of career average earnings in computing pension payments as opposed to the members final salary.

NSSF: A case of firms ‘born’ to tender

NSSF headquarters in Dar es Salaam. 

Accusations have been rife that certain social security funds are being influenced by key public figures to sink members’ funds in dubious investments. Picture: Leonard Magomba 

By WILFRED EDWIN

Posted  Monday, June 8  2009 at  00:0

The Tanzanian National Social Security Fund is in the spotlight yet again for selling its property irregularly — this time to a firm which was registered three weeks before the tender was floated.

A report obtained by The East-African indicates that the property, apartments at Ada estate in the posh areas of Kinondoni district in Dar es Salaam were sold under a dubious contract.

The $6.5 million sale, which involves property measuring 4.6 acres has raised a number of yet to be answered questions. For instance, what is the track record of Seven Anchors Properties and Services Company Ld, the company which purchased the property?

The new revelation by the Controller and Auditor General (CAG) points at just how pension funds can be manipulated to benefit a few powerful individuals contrary to the Procurement Act 2004.

The report has indicated that Seven Anchors was incorporated on October 11, 2006, three weeks before the advertisement of the sale of the apartments was made on November 2, 2006.

The tender evaluation committee comprised six members, contrary to Regulation 90(1) of the Procurement Act 2004 which requires the procuring entity to establish an evaluation committee comprising not less than three and not more than five members.

Further, the evaluation committee was appointed by the director of human resources and administration but not recommended by Procurement Management Unit and approved by the chief executive officer as per section 33(e) of the Public Procurement Act.

The Fund acquired property comprising of a site measuring 4.6 acres on plots 80/1 and 90/2 located at Ada estate in Kinondoni on December 6, 2000 from the Tanzania Zambia Railway Authority for Tsh1.4 billion ($1.3 million).

Plan to develop the plots started in 2002. The construction kicked off on September 1, 2004 and was completed on June 20, 2006 at a total cost of Tsh5.94 billion ($5.6 million).

The tender for the sale of the property — eight blocks each with four apartments — was subsequently advertised on November 2, 2006. On January 10, 2007 the tender was awarded to Seven Anchors Properties and Services Company Ltd.

Controller and Auditor General Ludovic Utouh said that after a review of the documents availed, irregularities were noted in tender evaluation documents, tender evaluation committee, opening ceremony register and bidder documents.

In the tender evaluation documents, auditors failed to obtain the original evaluation report. The report was said to be with the Prevention and Combating of Corruption Bureau.

“Though a photocopy of the report was available, it was not dated, hence we could not ascertain whether the evaluation was done as required by section 33 of the Public Procurement Act of 2004,” said Mr Utouh.

During the opening of the tendering process, the register signed by both the Fund’s representative and bidders’ representatives was not made available to auditors despite several requests.

Further, original bid documents could not be read since they were damaged by water

Draft pension policy set to pave the way to a secure old age

By FRANCIS AYIEKO

Posted  Sunday, May 24  2009 at  00:00

Kenya will soon have a national pension policy that, among other issues, will address the factors that hinder workers from saving for their retirement.

Retirement Benefits Authority chief executive Edward Odundo says the draft National Pension Policy has already been developed and is being scrutinised by the Finance Ministry before it is presented to stakeholders for discussions.

The policy is part of the regulator’s five-year strategic plan (2009-2014), which, among other things, seeks to increase the number of Kenyans saving for retirement from 15 per cent currently to 20 per cent by June 2014.

“One of the strategic objectives of the Authority is to have the policy fully implemented within the five-year period,” says Mr Odundo.

Finance Permanent Secretary Joseph Kinyua says the policy aims at increasing public awareness of the value of personal saving for retirement, advancing the public’s knowledge and understanding of retirement saving and its critical importance to their future.

It will also identify problems that workers have in setting aside funds for retirement, as well as single out the barriers that employers, especially small businesses, face in helping their employees accumulate retirement savings.

Mr Kinyua said the policy will also examine the impact and effectiveness of efforts by individual employers to promote personal saving for retirement among their workers.

The impact of government programmes at the state, provincial and local levels will also be addressed with the aim of educating the public on the need for saving.

Once developed, the policy is expected to make recommendations for the legislative and the executive arms of the government and for the private sector on how to “appropriately” promote private pensions and individual retirement saving.

Act outlines the scope of new pensions authority

Posted  Monday, May 18  2009 at  00:00

Any person intending to establish or continue operating a pensions scheme or to act as a manager or custodian of one in Tanzania will be required to be registered under the new Social Security Regulatory Authority Act.

Every scheme must, within a period of three months after the end of the financial year, prepare a balance sheet, statement of income and expenditure, statement of assets and liabilities as on the last day of the year, as well as any other statement the Pension Funds Regulatory Authority may require.

The authority’s board of directors will comprise a chairman appointed by the president, alongside the Treasury Registrar, the Labour Commissioner, two representatives from the Tanzania Employers’

Association, two representatives from the Trade Union Congress of Tanzania, one social security expert, and the director general as an ex-officio member.

This is in order to prevent a recurrence of past mistakes.

The board will appoint a lawyer of not less than five years’ experience to be its legal officer and secretary.

The authority will, among other functions, register all managers, custodians and schemes; monitor and review regularly the performance of the social security sector; initiate studies, recommend, co-ordinate and implement reforms in the social security sector; and facilitate extension of social security coverage to non-covered areas, including informal groups.

Inspectors appointed by its director general will be empowered to inspect the actuarial valuation reports, books of accounts, records or any document at the premises where they are produced.

The authority and the central bank shall exchange information on all intended inspections or examinations.

A person convicted of an offence under the new law will be liable on conviction to a fine not exceeding Tsh5 million or to imprisonment for a term not exceeding three years, or to both.

Disputes arising from any decision of the authority will be dealt with by the Social Security Tribunal, which shall also have jurisdiction to determine appeals.

The tribunal shall be chaired by a judge of the High Court of Tanzania or a person who is qualified to be appointed to that capacity. Also in its membership shall be two people with experience in social security matters and one with experience in occupational safety and health, says the Act.

The chairman and members shall be appointed by the minister after consultation with the Chief Justice and they will hold office on a part-time basis, meeting when there is business to transact.

The authority may de-register a scheme, manager or custodian whose operations are being conducted in an unlawful manner or contrary to public interest, or even dissolve them.

But prior to such deregistrtaion, the authority shall give at least 30 days’ notice to the culprit to show cause why they should not be struck off.

The Act shall come into operation once the minister gazettes it, but it will apply only to mainland Tanzania. All schemes will then have 12 months to realign their functions, duties and responsibilities in conformity with the requirements of the Act.

Tanzania forms Authority to protect workers’ pensions from misuse

Pensioners protest delay of their dues outside the offices of their former employer in Nairobi. The new law in Tanzania seeks to reform the management of workers’ savings. / Picture: Anthony Njoroge 

By Joseph Mwamunyange and Wilfred Edwin
 Posted  Monday, May 18  2009 at  00:00

Having come under fierce criticism for years, Tanzania is moving to reform its pension schemes to curb misuse of workers’ savings.

A new regulator will be set up to monitor and guide the activities of the social security funds in the country, to make them more responsive to the socio-economic changes taking place there.

The government was by the end of last week recruiting staff and drafting regulations to make the Pension Funds Regulatory Authority effective.

The regulatory body will be created under the Social Security Regulatory Authority Act, 2008, assented to by President Jakaya Kikwete in June last year. It will help pension funds operate more efficiently and ensure their members are the main beneficiaries of respective schemes.

The government expects that the number of employees joining the social security schemes will increase when their operations are regulated by the end of the year.

The Minister for Finance and Economic Affairs, Mustafa Mkullo, told The EastAfrican that the government was putting together the required institutions to effect the new law.

While Controller and Auditor General Ludovick Utuoh’s annual report released two weeks ago criticised some pension funds for mismanaging public funds, accusations have long been rife that certain social security funds are being influenced by key public figures to sink members’ funds in dubious investments and give large, unsecured loans to politically connected individuals and companies.

Analysts see the coming of a regulator as a positive move, as the new law requires that managers and custodians invest pensions according to laid down criteria. The Bank of Tanzania will, in collaboration with the authority, issue the investment guidelines.

The central bank, which will have powers to regulate and supervise the schemes’ finances, will also monitor and ensure compliance to the guidelines by the managers and custodians.

Also, every scheme must maintain a reserve account into which accumulated revenues not needed to meet short-term costs are to be deposited for investment.

The CAG’s report cites a loan of $535,000 granted to GK Hotels & Resorts by LAPF (Local Authorities Pension Fund) in the 2003/04 financial year, whose balance as at June 30, 2008 was $722,000 while the firm’s outstanding rent was $1.127 million.

Moreover, LAPF and the National Social Security Fund were among six public authorities censured by the CAG through a “certificate of unqualified opinion with emphasis of matter” in 2007/08.

NSSF was taken to task for paying bonuses to staff who registered members of the fund since the staff were only doing their job. Also, some defaulters of investment loans totalling $58.7 million had not complied with the terms and conditions of the loans granted to them.

Mr Utuoh said that despite the management’s follow-up efforts, some of the loans were doubtful of recovery, which implies overstatement of the loans portfolio by the impaired balances of $40 million.

 

PE funds from pension soon viable

East africa hakipensheni Kenya

By COSMAS BUTUNYI

Posted  Sunday, December 18  2011 at  00:00

 

East Africa’s venture capital and private equity industry’s dream of tapping into local sources of capital may be inching closer to fruition.

If Kenya succeeds in loosening regulations that have long held back this aspiration, the industry could soon tap into the country’s pension funds to raise capital.

The Retirement Benefit Authority (RBA) and the Capital Markets Authority (CMA) are spearheading the review of regulations that have over the years, limited the ability of pension funds to invest in the industry.

“Private Equity can complement government’s efforts by stirring up small companies with huge potential to grow and consequently be crucial in Kenya’s entrepreneurial and industrial development targets,” says the chief executive of CMA, Stella Kilonzo.

According to Ms Kilonzo, among the regulations slated for review are those on investment ceilings and collective investment schemes.

Presently, the guidelines indicate that before pension funds can make an investment through a private equity vehicle or fund, they have to obtain the approval of RBA.

Besides, RBA boss, Edward Odundo, told the recent SuperReturn Africa Conference that beyond the East African region, Kenyan pension funds cannot invest in private equity, as only equities and bonds are allowed.

Mr Odundo said RBA has proposed a separate investment category to be created specifically for venture capital and private equity with its own maximum percentage allocated. This review will see private equity and venture capital category join the current 10 categories that pension funds can invest in. It will also see the need to seek prior approval from the authority lifted.

“Financial sector regulators have proposed the elimination of investment guidelines such as pensions, insurance and capital markets, in line with risk based supervision models,” he added.

The review of guidelines is part of a raft of measures that Kenya is putting in place to facilitate the private equity industry.

In the recent past, CMA has announced it will establish a Growth and Enterprise Market Segment within the Nairobi Securities Exchange to enable private equity funds to exit from their investments in Small and Medium-sized Enterprises. Besides, the country has a law that allows venture capital firms operating within to claim a 10-year tax holiday on profits made from their investments.

Ms Kilonzo added that policy incentives for private equity are being considered in the annual memorandum of policy proposals to Treasury. These latest developments in the Kenyan pension industry are set to benefit the entire East African Community, whose common market arrangement allows for free movement of goods, labour and capital.

Presently, venture capital and private equity funds operating in the region rely on overseas sources of capital, usually from development finance institutions.

“Private equity should not rely on international sources when there is local capital,” says Paul Kavuma, the chief executive of Catalyst Principal Partners.

Besides regulations, a section of the fund managers say that another factor that has restricted the harnessing of local capital is the concentration on international investors when raising capital for funds.

 

Proposed laws to boost investing by pensioners

 

East Africa Hakipensheni  UGANDA

The liberalisation of Uganda’s pension sector, expected in 2012, is set to boost activity at the Uganda Securities Exchange, according to capital market officials.

Capital Markets Authority chief executive Japheth Kato said liberalisation will allow pensioners to put their money in any form of investments they wish to undertake.

This is because a provision in the draft Bill allows fund managers to invest pensioners funds in either equities or government securities available in the market.

“The commencement of the new retirement benefits regulator, the Uganda Retirement Benefits Authority (URBA) in 2012 and the subsequent liberalisation of the retirement benefits sector coupled with commencement of commercial oil production could trigger an increase in absorption capacity, creativity and innovation in Uganda’s capital markets industry,” Mr Kato said.

Currently, pensioners are only allowed to save their money with the NSSF, which then invests in equities government securities properties and real estates as they get it from the respective government institutions. 

NSSF is the only entity in charge of pension funds accruing from salaries. But the process is slow and it takes people a very long time to get pension money from the NSSF. However, with the anticipated opening up of the sector they will be free to save their money with other private institutions.  

Pension funds hold significant amount of cash, which they, apart from the NSSF, have not been allowed to invest in the past.

Membership

Statistics released by the NSSF in February 2011 shows that it has 463,844 registered members and 9,020 employers of which 3,000 are promptly remitting their employees’ contributionstoNSSF. The fund collects an average of Ush28 billion ($12.2 million) per month with Kampala constituting about 70 per cent of the total collection.

NSSF statistics show that the members’ fund worth is about $783 million with monthly average amounts paid in benefits about $2.6 million. The fund has invested in real estate, Treasury bonds and fixed income.

The draft bill for the liberalisation of pension sector in Uganda is before parliament. 

Uganda Securities Exchange chief executive Joseph S. Kitamirike said that the choice is with the fund managers.

“They can decide to invest in the short term instruments or long term instruments (fixed income); the law allows them to decide where to invest the fund in,” he said.

African Alliance CEO Kenneth Kitariko said that when the pension sector is finally liberalised, the fund managers they will invest the money in available instruments, that is, equities, government securities, private equities and properties.

“We would also prefer to invest across the East African and not limit the investments to Uganda only,” he said.     

In total, CMA has issued 21 licenses to financial service providers in the country in various categories.

Mr Kato said over the next 12 months, regional co-operation will remain a critical component in the development of the Ugandan capital markets, adding that the CMA also plans to promote other investment classes such as asset backed securities as a way of diversifying the investment opportunities in the Ugandan capital markets.

“In addition to promoting alternative investment asset classes, CMA will also promote the development of private equity which is critical for the preparation of SMEs and high growth companies to access the capital markets,” Mr Kato said.

However, the Chief Executive Officer of Crested Stocks& Securities Mr Robert H. Baldwin told The East African that the liberalization of will contribute to the development of Uganda’s Capital Markets Industry because it release more funds into the market.

However, on the other hand Mr Baldwin said: “The time taken for laws to be passed in this country takes long time delays development geared towards the intended sector.”

Uganda’s social security fund enlists brokers for share trading

East Africa HakiPensheni

Richard Byarugaba, managing director of Uganda’s National Social Security Fund, has enlisted the help of brokers to help the Fund raise capital. Picture: File 

By BERNARD BUSUULWA, Special Correspondent

Posted  Sunday, January 1  2012 at  12:21

 

Uganda’s National Social Security Fund (NSSF) has shortlisted three stockbrokers to handle its trading business as the state provident fund accumulates stocks on the cheap anticipating to profit from a rally in share prices by the end of 2012.

African Alliance Securities, Equity Stockbrokers Limited and Crested Stocks and Securities limited were picked to handle NSSF’s trading business in Uganda.

The Ugandan pension manager joins the ranks of its Kenyan counterpart which last year picked five stockbrokers and investment banks to join its list of pre-qualified service providers.

The Ugandan brokers are in an enviable position because they are set to earn millions of shillings in brokerage fees paid by NSSF in trading on its equity and bonds portfolio at the Uganda Securities Exchange (USE) and other markets in the region.

According to NSSF Managing Director, Richard Byarugaba, the Fund anticipates continued decline in share prices during the first quarter of 2012 — a situation that offers wider room for buying cheap shares that could be offloaded before end of the year in pursuit of substantial capital gains.

“We find it necessary to diversify our investments quite significantly in order to generate higher returns on members’ contributions. But supply is still low on several counters and this makes matters difficult for a large corporate investor like NSSF,” Byarugaba argued.

With NSSF’s reporting date set at 30 June of every year, the prominent institutional investor hopes to reap solid capital gains by mid-2012 that are critical for boosting returns on members’ contributions.

Trading activity in regional stock markets has remained subdued as investors keep off shares because the high rate of inflation has reduced their disposable income. High interest rates have also swayed investors to government securities instead of stocks.

As a result of the low trading volume most of the brokers have been keen on bidding for big business and have welcomed the business from NSSF.

“We bid for NSSF’s stockbrokerage services and are eager to commence trading business for them even though they are yet to formally appoint us,” noted Edward Ruyonga, General Manager of Equity Stockbrokers Limited.

NSSF also said it will conduct its regional trading of equities through the three brokers or their partners. African Alliance’s subsidiaries in Kenya and Rwanda will handle NSSF’s business in those countries.

Crested Stocks and Securities Limited bid for regional stockbroking services, backed by its partners: Standard Investment Bank in Kenya, Orbit Securities Ltd in Tanzania and CDH Capital inRwanda.

The Fund’s desire to intensify activity in the stock markets also comes at a time of deepening competition for high yielding treasury bills and bonds, a scenario that has affected some investors’ ability to acquire huge volumes of debt notes whenever they please.

This has forced NSSF to divert some of its funds to listed shares so as to counter challenges of unused money in its investment book.

Interest rates on treasury bills and bonds have remained in double digits since mid-2011, largely because of tight policy actions by the Central Bank intended to bring down soaring inflation and boost the Uganda shilling against the US dollar. The 91 day and 182 day treasury bills stood at 23.1 per cent and 23.4 per cent while the 364 day treasury bill stood at 21.5 per cent in mid December. The interest rate on the three year bond stood at 23.8 per cent during the same period.

Tough year for pensionable Ugandans wishing to own homes

East Africa HakiPensheni

Housing project by one of Uganda’s real estate firms, Kakungulu Housing Estate. Picture: Morgan Mbabazi 

By Bernard Busuulwa and Isaac Khisa

Posted  Sunday, January 8  2012 at  12:17are

Middle income pensionable workers in Uganda who plan to own houses should brace for a tough 2012.

Analysts predict that the cost of mortgage loans guaranteed through pension savings will rise due to steep interest rates while the prices of houses will also shoot up owing to surging land prices.

For example, an acre of land in Uganda’s suburbs, which was fetching $34 million at the beginning of 2011, is now selling at $45 million. Experts expect the upward trend to continue this year.

“Property developers are now opting for remote areas, which are cheaper. We have also been compelled to cut space allocated for each unit in order to economise on land,” said Charles Lwanga, who works for Tal Investments Ltd, a real estate developer.

Thus low and middle income earners, many of whom have limited savings, are finding it increasingly difficult to acquire decent houses.

“The interest rates are so high that it makes it difficult to sustain repayments. Islamic banking offers a better option for acquiring a decent house,” said Sarah Nabeta, a civil engineer with Newplan Ltd in Kampala.

Pension backed mortgages are popular as they spare borrowers the costly down payments that accompany ordinary transactions.

For example, in order to access an ordinary mortgage, the borrower must pay between 10 and 30 per cent of the value of a selected property as down payment. Minimum prices are estimated at more than Ush70 million ($28,169).

Pension contributors are entitled to a mortgage loan of 30 per cent of their savings after 10 years of steady contributions. A minimum level of pension savings of Ush50 million ($20,121) for example, entitles a borrower to a mortgage loan of Ush15 million ($6,036), while savings worth Ush100 million ($402,414) guarantee one Ush30 million ($12,072) loan.

Middle income earners who take home between Ush1 million ($402) and Ush5 million ($2,012) per month fall in between the two segments.

“This implies that the minimum pension benefits are inadequate to secure a decent house. Such benefits should be reviewed to match the prevailing conditions in the real estate market, boost access to housing facilities and stimulate further growth in the mortgage industry,” said David Dansor Ninyikiriza, a mortgage specialist at Housing Finance Bank.

Uganda is expected to liberalise its pension sector by enacting relevant laws, which among other things, will give pensioners the freedom to choose their fund managers.

“Also, a higher mortgage guarantee ratio of say 60 per cent would widen access to decent housing for low and middle income earners as well as opportunities for lenders in a country hit by a huge housing shortage and a fast growing population,” said Njoroge Ng’ang’a, head of investment at HFB.

Kampala’s housing shortage is estimated at 500,000 units by 2015, according to local mortgage players while its annual population growth is estimated at 3.2 per cent — one of the highest in the region.

But government technocrats argue that the anticipated oil boom is likely to minimise barriers to decent housing for low and middle income earners. “We expect salaries to rise on the back of the oil boom which will then expand average incomes and net disposable funds available for pension backed mortgages,” said
Moses Bekabye, an economic advisor at Uganda’s Ministry of Finance, Planning and Development.

In comparison, Kenya’s housing deficit stands at 150,000 units per year while in Rwanda, only five per cent of locals own modern houses.

A preference for low cost home construction loans from commercial banks has also constrained growth in Uganda’s mortgage market which boasts of roughly 5,000 client accounts.

 “A two-bed roomed house for instance, could cost Ush50 million ($20,300) compared with a minimum of Ush 70 million ($28,400) required for a modest mortgage,” said Ismail Bakulumpagi, the construction manager at Skil-Plan and Associated Engineers Ltd.

Bleak times for investors as share prices at NSE fall to new lows

East Africa HakiPensheni

The Nairobi Stock Exchange trading floor. Photo/FILE 

By SCOLA KAMAU

It’s an odd way to start the year for fund managers, investment firms and insurance companies.

These firms — which control a huge chunk of investments at the Nairobi Securities Exchange (NSE) — are currently carrying out an audit of their books to present their full year 2011 results starting next month.

And things are not looking good because the drop in share prices in 2011 at the NSE has left many of them with either a significant drop in profits compared with the previous year or they are in the red.

This means, pension funds are expected to report lower returns and investors to hold back in buying shares of investment companies and insurance companies on news of profit warnings or payment of fewer dividends.

For the fund managers, investment firms and insurance companies it is yet another trough in the cyclic performance of their portfolios at the stock market as share prices drop. In 2010, they benefited from a rally in share prices at the bourse.

It is now expected that this year investors will continue to put their eggs in other baskets such as real estate, fixed income and government securities to reduce the over-reliance on the stock market.

British American Investments Company (Kenya) Ltd last week issued a profit warning six months after its
Initial Public Offering was undersubscribed in August last year. Its profits for the financial year ended December 2011, are expected to drop by at least 25 per cent because stocks, which are part and parcel of its investment portfolio, fell for most of 2011 due to concerns over the high inflation, high interest rates and slowing global economy.

“The board is of the view that the financial results for the year ended December 31, 2011 will be adversely affected by the prevailing market condition compared to the same period in 2010 when the market conditions were favourable,” said Nancy Kariuki, the company secretary for British American Investments Company in a notice to the stock market.

The NSE20 and NASI indices for example declined by 27.6 per cent and 30.5 per cent to end the year at 3,205.00 and 68.03 points respectively.

On the next trading day after British American Investments Company released its profit warning, its shares dropped by four per cent to trade at US cents 5.

Standard Investment Bank analysts noted that the negative sentiment, among investors on the outlook of the insurance company results, dragged across the sector with Jubilee Insurance shedding 0.65 per cent to trade at $1.75 on thin volumes.

However, Pan Africa, edged higher after coming-off in the previous session and CFC Insurance remained unchanged.

The insurance firms have been diversifying their investment portfolios by going into real estate markets in the region to avoid relying on their investments at the stock market.

Pan Africa Insurance has put up and sold houses in Nairobi’s upmarket estate of Runda. Centum, the cross-listed firm at the NSE and Uganda Securities Exchange, has also moved into real estate putting up commercial and residential buildings in Kenya and Uganda.

Ms Kariuki said the management has taken steps to reduce the impact of stock volatility on the group’s performance by increasing focus on growth opportunities including investments in real estate and taking advantage of the good returns available in the fixed income markets segment.