Uganda's NSSF exceeds limit on securities, assets

David Masika, who has been in the real estate sector for the past four decades (he co-founded Lloyd Masika, a real estate valuation and property management company 40 years ago). He says it is time he left it to young blood and concentrated on cotton. PHOTO/FILE.

By BERNARD BUSUULWA The EastAfrican

In Summary

• The fund’s fixed income portfolio accounts for about 80 per cent of its total assets in contrast with a ceiling of 65 per cent fixed by the Uganda Retirement Benefits Authority (URBA).
• Similarly, its equity portfolio at the Uganda Securities Exchange is equivalent to 80 per cent of all listed shares among local firms, putting the fund at greater risks should it make additional investments.

The Uganda National Social Security Fund’s investments in fixed income securities and equities have exceeded the set limit, putting the provident fund on a collision course with regulators.

The fund’s fixed income portfolio accounts for about 80 per cent of its total assets in contrast with a ceiling of 65 per cent fixed by the Uganda Retirement Benefits Authority (URBA)

Similarly, its equity portfolio at the Uganda Securities Exchange is equivalent to 80 per cent of all listed shares among local firms, putting the fund at greater risks should it make additional investments.

“We had already exceeded our ceiling on fixed income investments by the launch of Umeme’s IPO late last year,” said Richard Byarugaba, NSSF’s managing director.

NSSF’s investment mix comprises 80 per cent fixed income assets, 10 per cent equities and 10 per cent real estate properties.

The Inspectorate of Government and parliament are investigating transactions in relation to NSSF’s purchase of Umeme shares and the sale of a city plot, while the Finance Ministry has re-advertised all senior management positions with expiring contracts.

The spokesperson for the Ministry of Finance, Planning and Economic Development, Jim Mugunga said: “The minister has decided to subject all the top management positions at NSSF to international competition so as to prevent a scenario where some managers’ contracts are renewed en masse but are later overshadowed by scandals.”

The top managers are accused of choosing to invest in the Umeme IPO without seeking board approval and of defying the Solicitor General’s advice not to invest in the deal.

The situation is similar to what happened in Kenya last week when the Labour Cabinet Secretary Kambi Kazungu dismissed the managing trustee of the country’s NSSF Tom Odongo. He replaced him with Hope Mwashumbe, the corporation’s secretary.

No reason was given for the dismissal but it made Mr Odongo the sixth chief executive to exit the provident fund in a span of five years.

In Uganda, Mr Byarugaba defended the fund’s purchase of Umeme shares, saying there was a scarcity of good initial public offerings (IPOs) on the USE, and that returns on the power distributer’s IPO had justified the investment.

Umeme earned the provident fund a gross dividend of Ush1.97 billion ($733,782), but the investment has stirred up controversy, and is now the subject of investigations. Last month, the provident fund said the value of Umeme shares had appreciated and it had made Ush13 billion ($11.6 million) from its shareholding.

Simon Mwebaze, an investment analyst at UAP Financial Services Ltd, said that the stock has proved to be rewarding though a Ush200 billion ($77.3 million) equity portfolio raises a lot of questions about NSSF’s long term investment profile.

“It is sad for government to expect Byarugaba to pull rabbits out of a hat when it has neither given him the hat nor a magical wand. Umeme accounts for roughly one per cent of NSSF’s equity portfolio and poses no big risk,” said Mr Mwebaze.

The Fund’s monthly contributions grew to Ush50 billion ($19.3 million) while Ush130 billion ($50 million) was paid out in benefits at the end of June, according to NSSF statistics.

As per its balance sheet, NSSF’s assets increased to Ush3.4 trillion ($1.3 billion) as at the end of June this year while disposable resources for investment jumped to nearly Ush150 billion ($58 million) per month