No one is safe at NSSF

By Haggai Matsiko

Major shake-up in management looms at Shs3.4 trillion workers fund

Richard Byarugaba, the managing director of the National Social Security Fund, remains firm he will retain his job after Finance Minister Maria Kiwanuka directed it should be advertised.

But coming at a time when Byarugaba faces mismanagement allegations, observers say, asking Byarugaba to re-apply puts him and fellow managers of the Fund whose jobs are to be advertised too, in a very precarious situation.

Byarugaba’s job and that of David Nambale, the Fund’s Corporation Secretary are some of the most coveted jobs in town as the holder controls the Shs 3.4 trillion in assets of Uganda’s biggest financial institution. While Byarugaba commands that empire as MD, Nambale must sign off any transaction at the Fund.

Apart from the clout, the two men enjoy unrivalled perks; golf at top spots, posh cars and cribs, and flights to cool off at the world’s top destinations. In short, their jobs are the kind that if lost, cannot be easily found.

Yet, as the situation looks, the minister, who is their boss, is already planning for a future with without them. And for her, it cannot be a hard job; between 2002 and 2008 alone, NSSF had hired and fired four MDs.  That is an average 18 moths for each MD. Byarugaba, 52, has done three years. He was appointed in 2010.

While Byarugaba can re-apply for his job, he already knows that the minister’s decision was reportedly informed by plans to skirt the problem of a leadership vacuum in case the managers are implicated by an on-going Inspector General of Government (IGG) investigation into allegations of mismanagement.

The rancorous allegations emerged less than two months ago in an anonymous document that cited irregularities in over 20 deals that Byarugaba and his colleagues have touched or implemented in the past three years.

Byarugaba recently rubbished the allegations of impropriety at a hurried press conference but investigators are still at work.  Parliament’s Committee on Commissions, Statutory Authorities and State Enterprises also announced in July that it would also start digging up in the NSSF backyard.

Parliament’s entry into the affairs of the nation’s sole statutory private sector retirement benefits fund cannot be music to NSSF officials;  while the IGG is deemed to have professional investigation expertise, MPs usually take things a notch higher and invoke politics, emotion, and intrigue.

The man Byaruhanga succeeded, David Chandi Jamwa faced ruthless grilling by the MPs and investigations by the IGGs before he was thrown into jail.

And it is not just Jamwa. None of the previous managers—Abel Katembwe, Yolamu Barongo and Leonard Mpuma has had a smooth ride or has been able to finish his term. They have all landed in trouble over investment decisions and corruption allegations.

As a result, critics have argued that this has caused managers at the Fund to be too cautious and fail to make bold investment decisions that would earn contributors a sensible interest.

Under Byarugaba’s tenure, the most valuable investment has been the Umeme shares, in which the Fund pumped Shs 52 billion in an Initial Public Offering (IPO) by the sole national electricity distributor.

Yet, despite posting a profit of Shs 1.9 billion recently, the Umeme shares purchase is top amongst those decisions haunting Byarugaba. It was highlighted in the anonymous whistleblower document.

Byarugaba, seemed unbothered when The Independent interviewed him, perhaps drawing confidence from his self-proclaimed impeccable management savvy that he likes to allude to from time to time.

“If you look at my pedigree, there shouldn’t be any reason why I shouldn’t be able to get my job back,” he said in a casual tone, “the minister’s announcement is normal, getting the NSSF top job is a very competitive process…that is what the regulations require, so you have got to obey.”

However, for a manager of his caliber or the caliber he likes to present, the news cannot be normal. To many, the announcement is the clearest signal for a potential shake up at Uganda’s provident fund.

While the minister could have automatically renewed the contracts, Ivan Kyayonka, the Fund’s board chairman, told The Independent that Kiwanuka in “her wisdom decided that the jobs be thrown up for competition”.

“The Minister feels strongly that NSSF should renew itself after every three years,” Kyayonka told The Independent. Kyayonka says she informed him of that decision in a response to his inquiry on whether to renew the managers’ contracts that were soon expiring.

Kiwanuka noted that the contracts would only be renewed until Dec. 31 this year to allow for the fresh recruitment process and a smooth transition at the Fund.

Asked whether the Fund’s board was not concerned such a move would affect its stability, Kyayonka said: “It is her decision, and there is nothing you can do about it.”

Byarugaba also told The Independent that the history of top managers at the fund had not affected him in anyway.

“I think when you have the mandate, you work,” he said, “I haven’t felt constrained in any way.” He added that the fact that he is completing his tenure at a Fund where no CEO has is enoughtestimony of his achievements.

Kyayonka, told The Independent that the current NSSF management has had “their outstanding performances and a few challenges” but declined to delve into details.

But Byarugaba said he believed he has been very successful at NSSF. He cites innovations that saw compliance among contributors jump from 49 %, to 73 %.

“Our customer statements are much cleaner and there are multiple channels through which we serve our customers like the Interactive Voice Response (IVR), Face Book, SMS…” he noted.

Byarugaba adds that his tenure has seen the Funds costs of operation reduce from 35% of the revenue to 15 % and the interest to beneficiaries has increased from 3 to 10%.  But critics say that for a fund that collects Shs50 billion  monthly, 10% interest is still too small and expenses of 15% of 51 billion too high.

Byarugaba remains confident.  “The market thinks much better of us,” he says.

The only failure he is willing to acknowledge is the delay to develop the various properties that the Fund acquired before he joined it.

“But like I have always said, it will always be difficult to build because of the different interests and how the PPDA process is; you can see this with UNRA [Uganda National Roads Authority] and other public institutions,” he says.

Failure in the housing sector might prove to be his biggest test before the public. While his several innovations might have eased the operations at the Fund, the public only sees results if the interest payable to them is increasing. And one way of increasing the interest on contributions is making good investments.

Byarugaba has invested the bulk of the contributions into ventures with low returns and failed to develop the bulk of the Fund’s assets.

“The managers at NSSF, due to perhaps fear to lose their jobs have failed to develop the Fund’s assets and invest in things that accrue sensible returns,” an investment expert told The Independent, “with all that money, how do you give your contributors a 10 % in interest?”

NSSF owns land in Ndeeba, Arua, Gulu, Hoima and Mbarara, Temangalo, Lubowa and in the heart of Kampala city. All this has remained undeveloped.

Its flagship real-estate investment, the Pension Towers, projected to rake in US$10.5 million or Shs27 billion per annum, was first conceived in the 1990s and would have made an estimated Shs 273 billion in ten years.

At the time, that would have been enough money to erect two other structures of that size. But as it is, the building is set to consume triple its original cost or about Shs 300 billion.

The Pension Towers has spent 20 years without being completed, the Lubowa land has also laid on the drawing board for over 10 years, Temangalo about six, and the land in Nsimbe about 10 years.

While the NSSF management blame the delay to develop these prime properties on red tape, politicking and complicated procurement laws, the public blames the Fund managers for failing to move things.

Many critics find a problem with NSSF’s current investment portfolio which keeps the bulk of the Fund’s assets in low-revenue earning fixed assets.

NSSF has Shs2.8 trillion or 82% of its Shs3.4 trillion assets held in interest earning fixed deposits and treasury bills. Only Shs269 billion is invested in equities and Shs400 billion is in the real estate projects.

And of the Shs400 billion real estate portfolio, Shs81 billion is in properties that earn the Fund rent, leaving only over Shs319 billion that is in the land in Lubowa, Temangalo and Pension Towers. Even for these assets, Byarugaba said, contributors are benefiting since their value is appreciating.

Critics question the wisdom in investing 82% of Fund assets in government bonds and fixed deposit accounts of commercial banks and blame the `wrong’ investment decision for the low interest. It is such that criticism that informs contributors clamour for the pension fund to be disbanded to allow for the privatisation of the sector.

Byarugaba agrees that since most of NSSF contributors are long term contributors, to get them a good return, the Fund is supposed make long term investments yet its biggest investment is short term and is also exposed to inflation.

But Byarugaba insists that with pension schemes, the priority is on securing pensioners’ assets and is the main reason managers of the Fund have to operate on the side of caution.

“We are a pension Fund and the priority is on securing pensioners’ funds,” Byarugaba says, “if we went into risky ventures, we would make money but we could also lose it and real estate is always a risky venture.”

In neighboring Kenya, for instance, Byarugaba says the Kenyan NSSF was forced to sell all their real estate. He adds that even in Uganda, the new law caps investment into real estate at only five percent, and yet the Fund’s current investment in real estate is 12 percent.

“So even if we build houses, we will have to sell them so as to reduce our exposure to real estate,” Byarugaba says.

He cites the world’s largest pension Fund, the Japanese Government Investment Scheme to justify an investment portfolio like NSSF Uganda’s.

The Japanese scheme, Byarugaba says, invests 60% of its assets into domestic bonds, 12 percent in domestic stock, 11 percent in international bonds, 12 percent in international stock and 5 percent in short term assets.

The NSSF board chairman, Kyayonka, supports Byarugaba’s long-term perspective. Unfortunately, Byarugaba’s contract gives him only three year to show results. He now has only until December to make his mark with two investigations by two merciless government bodies and a minister looking for change at the top.

NSSF portfolio