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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