By BERNARD BUSUULWA The EastAfrican
In Summary
- Retirement Benefits Sector Liberalisation Bill 2011 is awaiting parliamentary approval, expected this month, after which pensioners will have the choice to exit the NSSF in favour of private schemes, five years after its implementation.
- Analysts say clauses in the Public Procurement and Disposal of Assets Act that prohibits public buyers from negotiating directly with suppliers of goods and services have undermined the NSSF’s ability to acquire land for investment at a competitive cost
Rigid procurement rules and high administrative costs could undermine the competitiveness of Uganda’s National Social Security Fund (NSSF), in the wake of liberalisation.
The Retirement Benefits Sector Liberalisation Bill
2011 is awaiting parliamentary approval, expected this month, after
which pensioners will have the choice to exit the NSSF in favour of
private schemes, five years after its implementation.
This means the NSSF, which is already facing
challenges in ensuring good returns on worker’s savings, will have to
find new ways to attract contributions.
Analysts say clauses in the Public Procurement and
Disposal of Assets Act that prohibits public buyers from negotiating
directly with suppliers of goods and services have undermined the NSSF’s
ability to acquire land for investment at a competitive cost.
Cases of price inflation were recently discovered in land offers made to the Fund between 2010 and 2011.
A document seen by The EastAfrican shows
that the cost of about 100 acres of land in Entebbe that the fund
planned to buy in order to develop upmarket housing units was quoted at
four times the average market price per acre, forcing NSSF to abandon
the venture.
Equally, the process of procuring land under the
law is lengthy, taking nearly a year. It includes making invitations to
potential sellers, screening offers and hearing appeals from aggrieved
parties.
Small retirement pension schemes with assets of less than Ush100 billion ($40 million) are not bound by these guidelines.
“Heading towards an era of liberalisation, how do
we compete with a private retirement pension scheme that offers a 12 per
cent return per annum while it takes us almost a year to purchase a
single piece of land? We need shorter turnaround times for business
transactions,” said a senior NSSF manager who requested anonymity.
Similarly, equity transactions tend to be costly
due to the bureaucracy involved. The Minister of Finance, for example,
must endorse any deals proposed by the institution in spite of
increasingly short trading times recorded on regional stockmarkets.
“The Fund’s low exposure to equities means it
could find itself below average industry performance in times of
extended stockmarket rallies,” said Kenneth Owera, an investment analyst
at Stanlib Uganda.
The huge administrative structure at NSSF is also a
barrier to high returns. Despite a restructuring exercise completed
almost three years ago that saw 160 employees sent home, branches
reduced from 46 to 23 and collection work outsourced to commercial
banks, NSSF’s administrative base remains large, eating into revenue.
Last year, the Fund closed with a balance sheet of Ush3.4 trillion ($1.4 billion).
While its cost to income ratio fell from 55 per
cent to 16 per cent, its administrative cost as a share of total assets
has averaged 1.7-1.85 per cent to date, compared with a global range of
0.5-0.8 per cent, according to statistics from the Uganda Retirement
Benefits Regulatory Authority
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