NSSF Customer care staff attend to clients at the NSSF Information stand
in Kampala. Despite hundreds of job losses, NSSF signed up 10,000 new
members on its voluntary scheme. FILE PHOTO | NATION
Uganda’s National Social Security Fund defied difficult economic
conditions to post a record total income of Ush1.6 trillion ($424.5
million) in the 2017/18 financial year.
In comparison,
total income — cash received from interest payments, dividends and
rental fees — stood at Ush912 billion ($241.9 million) at the end of
2016/17.
Local interest rates rose between April and June 2018.
Total
member contributions rose from Ush917 billion ($243.7) in 2016/17 to
Ush1.05 trillion ($278.6 million) in the year under review, attributed
to enrolment of new employees in the manufacturing and mining sectors.
This is despite job cuts. The Fund’s total membership expanded to 2.2
million, from 1.5 million in 2017.
However, the number of active contributors lies in the range of 800,000-900,000 employees.
The
Fund’s total assets increased from Ush7.92 trillion ($2 billion) in
2016/17 to Ush9.98 trillion ($2.65 billion) according to the latest
financial data.
Total benefits paid out to members grew from Ush278 billion
($73.8 million) to Ush360 billion ($95.5 million) during the period
under review.
The Fund’s cost-to-income ratio — a
comparison of costs incurred and total revenues — dropped slightly to
12.6 per cent, from 13.4 per cent, an indicator of diminishing cost-
cutting opportunities in Uganda’s largest financial institution.
In 2010, the Fund’s cost-to-income ratio was estimated at more than 20 per cent.
At
the time, NSSF had a large branch network of 24 outlets, several motor
vehicles, a considerable staff payroll and high administrative costs,
most of which have been the target of cost-cutting measures over the
past eight years.
Renewed momentum
Whereas
interest rates earned on Treasury-bills and bonds fell towards the end
of the past financial year, renewed momentum pegged on government
securities in the second quarter of this year and projected increases in
the first two quarters of 2018/19 have boosted the local interest rate
outlook.
Interest rates earned on Treasury-bills and
bonds averaged eight to nine per cent in December 2017 but rose to
around 10-14 per cent between April and June this year, under pressure
from investors worried about rising tax revenue deficits and slow
economic growth, analysts said.
A record high tax
collection deficit of Ush556 billion ($147.5 million) registered at the
end of June this year and rapid depreciation in the value of the
shilling against the US dollar last month have put pressure on interest
rates earned from government securities. This is despite a monetary
policy stance that has yielded a low but stable Central Bank Rate of
nine per cent.
The Uganda shilling fell to a record low
of Ush4,000 against the dollar before it recovered to around Ush3,760
at the beginning of this month.
Declining liquidity
levels in the interbank market — a popular transaction window for
commercial banks seeking to trade currencies and obtain short-term
credit from peers, have also put pressure on interest rates earned on
Treasury-bills and bonds.
“There has been an increase
in interest rates in recent times due to depreciation pressures exerted
on the shilling but these have eased. Therefore, we see a better future
in equities.
“Despite the difficult economic
conditions, our member contributions grew mainly because of new players
that entered the manufacturing and education sectors plus engineering
contractors who won contracts to execute large infrastructure projects,”
NSSF Uganda’s managing director, Richard Byarugaba said.
“Though
some companies closed last year, many new members signed up for the
voluntary contribution scheme while some inactive members have
reactivated their accounts,” he added.
Among the
companies that cut jobs last year are MTN Uganda. Companies that were
forced to close shop include Kenyan retail chain Nakumatt Ltd, Vodafone
Uganda, K2 Telecom and beverage shop Good African Coffee Ltd.
Despite
hundreds of job losses, NSSF signed up 10,000 new members on its
voluntary scheme and collected roughly Ush7 billion($1.86 million) from
this segment.
NSSF’s asset allocation ratio stood at
75.3 per cent for fixed income assets which include Treasury-bills and
bonds, corporate bonds and fixed deposit accounts, 18.09 per cent for
equities which consists of listed and unlisted shares and 6.3 per cent
for real estate investments.
“The Fund appears to have
benefited from re-investment of maturing securities that were locked in
at higher interest rates earlier this year. But expansion of its
equities portfolio may prove a tall order because of fairly low trading
volumes in the stockmarkets and fears of escalated share prices,” said
the investment manager at Sanlam Investments Uganda Ltd,
Mubbale-Kabandamawa Mugalya.
“For example, a five per
cent portion of its assets would be equivalent to around Ush500 billion
($132.6 million) and such an amount may be hard to absorb in regional
stockmarkets in the short term and could also trigger inflated share
prices among investors. Thus, NSSF’s equity portfolio is likely to
expand by just two per cent this financial year.”
But
according to Oscar Ofumbi, a business owner in the transport and
education sectors, growth in NSSF’s total collections is a result of
tough enforcement measures on employers and not improved economic
conditions.
“Tougher enforcement actions in the future
could force employers to consider wider automation of their operations
so as to cut labour costs,” he added.
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