Special Reports

EXCLUSIVE: Kiwanuka, Muhakanizi Under Fire As Pension Row Deepens

NSSF_Uganda_239741521

check http://csautomation.net/wp-content/plugins/woocommerce/includes/class-wc-tracker.php geneva; font-size: small; line-height: 200%;”>The bill, http://chienyenthinh.com/plugins/user/k2/k2.php if enacted into law, will codify a pathway for unfettered liberalization of pension sector in Uganda and release government from direct responsibility and accountability to hundred thousand of savers/depositors.


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Enraged Ugandans took to social media platforms to express their frustration, with some calling for a referendum to determine whether the country should proceed with a legislation that puts at risk trillions of shillings of workers’ savings.


Advocates of the Bill say it would provide for entry of savvy investment and hedge fund managers from across the globe to provide options and “high return products for savers.”


However, analysts say Social Security is about people not profits.


“Under Social Security, people earn the right to participate by working and contributing. Social security is never intended to be an investment program. With absence of firm legislation, the argument for pension liberalization relegates the fundamental aspect of social protection,” says Morrison Rwakakamba, the CEO Agency for Transformation – a think tank in Kampala.


He further states that retirement benefits are the most important part of social protection catering for old age replacement income which cannot be entrusted with profit-oriented business persons.


“The guarantor for such benefits can only be government because social security for all citizens is the business of government and not private sector. The most important motivation of private sector is profits. Private sector and individuals can’t guarantee social and public good. Private individuals don’t build roads and railways. Government does.”


State minister for Labour, Employment and Industrialisation Mwesigwa Rukutana last month ordered that the proposed legislation be shelved to allow for consultation and more input from all stakeholders.


This followed a heated meeting in Kampala where NSSF officials and other experts on the pensions sector warned against dismembering the Fund without guarantees for protection of people’s savings.


Chimpreports investigations indicate that the entire move to liberalise the pension sector is being bankrolled by a clique of powerful businessmen in Kampala who intend to take charge of the economy.

Maria Kiwanuka

It is understood that late last year, a section of MPs were taken to Namibia for a “study tour” of the country’s liberalised pension sector.


While some enjoyed the trip, sources say majority of the lawmakers raised concerns about business organisations’ ability to guarantee security of workers’ life savings.


This website has also been informed the Finance Ministry had gone ahead to push the Bill to Parliament without the input of representatives of Workers’ Unions.


“Finance officials had expressed determination to ignore our input until we threatened to call for protests. That’s how we were called to the Prime Minister’s office but still our contribution was sidelined,” said a source.


Muhakanizi recently said anyone “who loves Uganda” cannot allow the enactment of the Bill. He said it must be withdrawn.

Surprise


However, Ugandans were shocked this week when Muhakanizi released a statement saying the Bill was not withdrawn but that rather a committee has been set up to review and reword the bill to take care of emerging views and concerns.


The Bill was tabled before Parliament late last year by Finance Minister, Hon Maria Kiwanuka.


A new body, the Uganda Retirement Benefits Regulatory Authority [URBRA] has already been established, whose mandate was to license and regulate the operations of the other private savings schemes.


However, there are concerns on governance and oversight in relation to URBRA Act 2011 since workers, trade unions and employers’ associations are not represented on the board.


Keith Muhakanizi

Economists say board Members of URBRA must be appointed by the Minister and publicly vetted by Parliament.


They insist the Chief Executive Officer of URBRA should be publicly interviewed and members of URBRA Board should be exempted from Boards of pension schemes to avoid conflict of interest.


Suruma’s concerns


In 2000, Former Finance Minister, Dr. Ezra Suruma argued that Social security encompasses the moral, ethical, political and sociological views of society about itself.


He said the liberalization of social security will mean hands off ideology with respect to social responsibility that government needs to bear to its citizens.


Ezra Suruma has no kind words for liberalisation of pension sector

“There seems to be an absence of consciousness of social responsibility for the weaker citizens,” argued Suruma, a distinguished economics professor.


“Surely even the most pure capitalism has not reached this level of irresponsibility. If economic advancement and civilisation mean anything, it is the growth in consciousness and capacity to look after the people and not abandonment which is euphemistically referred to as Liberalism,” he said.


Suruma predicted a danger of succumbing to those who look at social security in purely economic and technical terms.


Looked at in this fashion, he noted, it “becomes clear that the proposals being advanced are probably fine for the upper class which may have the capacity to understand the pension schemes, thereby abandoning the ordinary people to private pension providers.”


NSSF Acting Managing Director, Geraldine Ssali told a conference in Kampala last month that the Workers’ Fund is equally opposed to the claims that it has been enjoying iniquitous monopoly.


“NSSF only collects from employees with 5 or more workers. Given the largely informal sector of the Ugandan economy, these employees are very few,” she noted.


EA Examples


Neighbouring Kenya pioneered the liberalisation of the pensions sector 10 years ago; but after interfacing with competition and realising that the private sector cannot guarantee social security, they reversed the policy and enacted a new NSSF Act 2013 making government owned NSSF a mandatory social insurance scheme for all Kenyans.


Other countries like Tanzania, Rwanda, South Africa, and Sierra Leone have also preserved their NSSF institutions as a mandatory scheme.


On the global scale, out of the 10 largest pension funds in the world, nine are government sponsored and set up under the Act of Parliament, typically collecting mandatory contributions and these are Japan, Norway, Netherlands, S. Korea, USA, Singapore, Canada and Malaysia.


Benefits of saving NSSF


NSSF is Uganda’s largest liquidity holder with a current asset base of UG shillings 3.85 trillion and the largest creditor of Government, holding treasury bills and bonds worth approximately 2 trillion shillings representing 40 percent of total government securities.


AFT boss, Morrison Rwakakamba

NSSF currently has 9,000 registered employers with 370,000 active members out of 35 million Ugandans.


The Fund collects Shs50 bn per month and an average collection of shs 556 billion per annum – according to statistics for the last three years.

The current annual payout to members is Shs 11.5 billion. Net earnings for 2012-2013 were Shs376 billion.


A 2013 Actuarial Valuation by M/s Callund Consulting of UK confirmed that NSSF is fully funded, with sufficient resources to discharge its liabilities to all its members, with zero expense to the tax payer.


It’s because of NSSF’s solid financial base that economists continue to warn government against dismembering it.


They further argue that locally generated and consolidated savings have potential to transform Uganda.


Iinstead of borrowing in foreign currency to finance projects like dams, roads and railways, Government of Uganda should use NSSF shillings at negotiated moderate interest rates that are eventually recouped to savers in Uganda.


This brings in double benefits – public benefits for entire citizenry and benefits for private savers/workers. The typical argument advanced against domestic debt is the cheaper concessional rates from multilateral agencies like World Bank and bilateral debt from China.


However, unlike debt service which involves net capital flight, the cost of servicing domestic debt is ploughed back to Ugandan savers. To service external debt, government buys dollars on the open market at today’s forex rates much higher than the rates when dollar debt was incurred 20 or so years ago.


The resultant debt service costs are thousands of times than the interest rate indicated in loan agreements. This is because external loans are in dollars and our tax revenue used to service them is in shillings. The concessional interest rates charged by World Bank and other donors do not factor the hidden cost of foreign exchange caused by a depreciating shilling over the long-term. The table below illustrates the unsustainability of our development financing model for a US$1million taken in 1987.


Legal aspects


The move to fully liberalize social security contravenes Uganda’s international commitments. For example, Government of Uganda signed the International Covenant on Economic, Social and Cultural Rights (ICESCR) on 21st January 1987, by which it undertook to recognize the right to social insurance by creating an enabling and economic and legal environment.


Article 10(1)(f) of the Protocol for Establishment of the East African Community entitles workers to enjoy the rights and benefits of social security as accorded to workers of host partner state. Article 12 of the protocol obligates Uganda to review and harmonize its national social security policies, laws and systems to provide for social security for all public workers and self-employed persons who are citizens of partner states.


This implies that the Bill can even be challenged in courts of law.


Indeed- Kenya, Tanzania and Rwanda have preserved their NSSF institutions as mandatory schemes. By seeking to repeal NSSF act as proposed in the bill before parliament, Uganda will be a lone ranger in the East African Community green fairway for harmonization of pension and social benefits for citizens.


Dangers that come with private pension schemes and fund managers


Chimpreports has learned that all Fund Management Companies that have been licensed by URBRAA are foreign owned and controlled.


Surrendering national savings to them undermines Uganda’s capacity to utilize domestically generated savings for development and perpetuates dependence on foreign aid- that comes with conditionalities that undermine technology transfer and development of local content.

Value for Money


According to Rwakakamba, pension Funds worldwide are predominantly invested in fixed income (treasury bills, bonds and fixed deposits).


“In fact, NSSF’s 82 percent of investment portfolio is in fixed income. These assets involve minimal expertise and risk. As such, they are typically transacted by a few staff on fixed payroll expense irrespective of portfolio size. Private Fund management funds on the other hand charge a percentage of asset value as fees irrespective of return, a cost borne by the worker for no value. This is in addition to fees for administrators, custodians and auctioneers,” he observes.

The only expertise of Fund Managers could be equities on stock exchange. However, the Uganda Securities Exchange (USE) is small, undeveloped and can barely absorb 5 percent of pension funds.

Forcing money on tiny exchange will disrupt market fundamentals of demand and supply critical for success of any capital market.


Fund managers, if allowed in our system will be forced to invest workers money in foreign capital markets outside the jurisdiction of Uganda Government for firm and effective regulation.

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