“Dear Muhereza Abel Kyamutetera, NSSF declared interest of 10% for 2022/2023. Your account is credited with an interest of UGX31,020,402. Your provisional balance is UGX341,224,425”.
This is one of the best messages that I have received this year so far. In fact, it is one of those messages I look forward to around this time- because by law, NSSF must declare the interest rate before October every year. It is one of those messages that translates the many niceties and promises that the Fund makes in the year, into reality.
And this year’s message was frankly a surprise as the Fund went through quite a torrent of headwinds. There was turmoil in global financial markets catalysed by the Russo-Ukrainian war, and subsequently investor flight from most of the developing markets back to the US and subsequently a reduction in value across all East African stock markets. Back home, there was the investigation of the Fund by Parliament and the Inspectorate of Government. Locally, we also saw the appreciation of the Uganda Shilling against the regional currencies, and the reduction in long-term bond yields increased pressure on the Fund’s performance. Add that to the fact that the Fund, between December 2022 and June 2023, didn’t have a substantive Managing Director, then you begin to understand why anyone should have expected an interest rate of less than the 9.65% declared last year.
For instance, on a year-on-year comparison as of 30th June 2023, the 10-year bond yield dropped from 15.600% to 14.788%, the 15-year bond yield dropped from 16.194% to 15.291% and the 20-year bond yield dropped from 17.6345% to 15.313%. In addition, the stock markets in Uganda, Kenya, Tanzania, and Rwanda suffered a reduction in value. The Uganda Securities Exchange Local Index was reduced by 11.47% the Nairobi Stock Exchange All Share Index was reduced by 14.04%, the Tanzania Stock Exchange Share Index was reduced by 4.02%, and the Rwanda Stock Exchange reduced by 2.27%,”
But as it is, Patrick Ayota, who was appointed the caretaker Managing Director in December 2022, and recently confirmed as substantive Managing Director is holding his own and staying afloat at the deep end. Of course, Mr. Ayota is no stranger to the Fund. Before being appointed Ag Managing Director and subsequently confirmed, he has been part of the Fund since July 2011 as the Chief Finance Officer, until December 2017, when he assumed the role of Deputy Managing Director. As such, he has been part of the Richard Byarugaba-led team that transformed the Fund from a UGX1.7 trillion Fund in 2009/10 to UGX17 trillion by the end of 2021/22⏤ a growth of over 10 times or 922%!
Before joining the Fund, he was the Finance Director for Barclays Bank Uganda (now Absa Bank Uganda). He also has extensive experience in strategy formation and execution; innovation; financial reporting and accounting, taxation, leadership and project management. He is a Certified Public Accountant (CPA) and holds an MBA from the University of South Carolina (USA) and a Bachelor of Science Degree in Finance from Liberty University, Virginia (USA).
The 10% interest rate is underpinned by a 15% increase in total realised income from UGX1.9 trillion to UGX2.2 trillion, itself driven by a 15.4% increase in member contribution from UGX1.49 trillion in Financial Year 2021/22 to UGX1.72 trillion. The Fund was also able to cut its costs⏤ cost-to-income ratio improved from 11.7% to 9.4% and the cost of administration reduced from 1.18% of total assets to 1.02%.
Also worth noting is that the 10% interest is also above the 10-year average inflation, which in 2022/23 was 5%.
Assets Under Management (AUM) increased by 7.5% from UGX17.26 trillion in Financial Year 2021/22 to UGX18.56 trillion in Financial Year 2023/24, putting the Fund on an assured course to meet its UGX20 trillion targets by 2024/25. In fact, according to Ayota, with the current asset base, the Fund projects that this target will be met by June 30, 2024, one year ahead of schedule.
Other non-financial indicators underpinning this growth are an increase in the rate of compliance from 55% to 57% as well as an increase, from 83% to 86% in customer satisfaction.
Resilience, diversification and astute risk management
“Overall, the investment environment in Uganda and the region was challenging over the last Financial Year. However, the Fund was able to increase its revenue owing to strategic asset allocation that enabled us to remain profitable, despite a generally depressed market,” Ayota told a media roundtable held to announce the FY2022/23 performance.
“For us to post a 15% increase in revenue shows our resilience and an astute investment risk balance,” Ayota added.
He says diversification is a core principle of this “astute investment risk balance”.
“The reason you diversify is you know that not all investments will be successful at the same time, but in totality, you will grow,” he adds.
Commenting about the Fund’s performance at the just-ended 11th Annual Members Meeting held at the Kampala Serena Hotel, Hon. Matia Kasaija, the Minister of Finance, Planning and Economic Development on September 26th commended the Ayota-led Fund for posting a remarkable performance on almost all the key performance indicators despite a challenging environment.
“I am especially glad that the Fund’s assets registered growth again from UGX17.26 trillion in Financial Year 2021/22 to UGX18.56 trillion in Financial Year 2023/24. Many naysayers did not imagine the possibility of growing this Fund to UGX20 trillion. That you will achieve that strategic objective a year ahead of schedule is laudable.” Hon. Kasaija said.
He added, “The second KPI I am interested in is the money you generated during the year because that shows the productivity of the investments that I approved during the year. I am therefore glad that the total realised income earned increased by 15% from UGX1.9 trillion in the Financial Year 2021/22 to UGX2.2 trillion in the Financial Year 2022/23.”
Hon. Betty Amongi, the Minister of Gender, Labour and Social Development also lauded the Fund’s performance but challenged it to create more solutions that will further address social protection in line with the International Labour Organization, the global body charged with developing international policies and programmes to improve working and living conditions worldwide.
Vision 2035, a UGX50 trillion Fund and creating the willingness and capacity to save
The end of one journey, is the beginning of another and the top of one mountain is always the bottom of another, so they say. The Fund, well confident that it will beat its UGX20 trillion target by June 2024, has set its eyes on a new target⏤ UGX50 trillion by 2035 and ensuring that at least 50% of Uganda’s working population (from the current 10%) is covered. He also wants to achieve 95% customer satisfaction and staff engagement.
If it has taken the Fund 10 years to grow by UGX14.2 trillion⏤ from UGX4.4 trillion in 2013/14 to UGX18.6 trillion in 2022/23 and will take a maximum of 12 years, to get to UGX20 trillion by 2024/25; can it add another UGX30 trillion in the next 10 years?
“Yes we can, and we shall” Ayota resolutely says.
And it is not a nice to have. It is a matter of the Fund’s strategic survival.
See, the Fund is maturing. Benefit payments are catching up with
Contributions and if the fund doesn’t jerk up the contributions, monthly benefits payments could wipe out the monthly collections, therefore wiping out the fund’s ability to invest and earn more for the members.
Over the last 10 years, benefits paid have grown from UGX166 billion in 2013/14 to UGX1.199 trillion. Contributions have on the other hand grown from UGX553 billion annually to UGX1.717 trillion. The proportion of benefits paid to contributions has been increasing pointing to a maturing Fund from 27% in 2013/14, peaking at 80% in 2021/22 because of midterm payouts, lowering and possibly stabilising at 70% in 2022/23. That means for even UGX100 in collections, UGX70 is paid out to qualifying members. And benefits payments are also growing faster than collections⏤ over the last 10 years, benefits paid have been growing at a CAGR of 21.9% while contributions grew 10.69%.
So the Fund must over and above increase the rate of active members⏤ out of the 2.2 million registered members, only 1.06 million members had balances with the Fund and only 704,000 were active. Of those who hold balances, 83% have less than UGX 10 million and of those, 50% have less than UGX 1 million.
Out of the 88,200 registered employers, only 45,660 are active.
Combined, this forms only 10% coverage of employed Ugandans.
“If our purpose is to make lives better, we surely can’t exist to make lives better for only 10% of Uganda’s working population. We want to widen the net and cover at least half (50%) of likely eligible workers,” Ayota says.
This is the thinking of Vision 2035.
“Our investment portfolio is resilient but facing headwinds globally and locally. We want to innovate for new growth⏤ Keeping in mind the national agenda around infrastructure development & industrialisation,” Ayota says, adding: “We want to live our purpose while creating value for our members, staff, government and the public”.
CLICK HERE TO READ PATRICK AYOTA’S FULL INTERVIEW
To achieve this, the Fund is pursuing a two-pronged strategy namely, creating a willingness to save, but also the capacity to save.
To create a willingness to save, the Fund is going to aggressively pursue financial literacy as well as run compliance campaigns, focusing largely on the importance of saving with the Fund. Over and above sustainably engaging stakeholders, the Fund also believes that it continues earning sustainable returns and benefits to members, this will enhance both the trust in the Fund as well as their willingness to save.
“We need to revisit our investment strategy as well as look at alternative investments including Public-Private-Sector Partnerships, affordable housing and key impactful projects that will unleash a savings culture,” Ayota, a passionate advocate and campaigner for wider social security, emphasises.
But willingness to save, without the money to save is as good as useless, which is why the Fund is focusing on three major initiatives that will increase people’s (both existing and potential members earnings as well as monetize the large informal sector and make savings convenient. This is collectively known as the “creating capacity to save” component of the strategy.
One of the areas, the Fund is targeting is the agriculture sector which contributes about 24% of GDP but contributes a tiny fraction of NSSF savings. Ayota believes if the Fund can support existing government initiatives to boost agriculture, especially focusing on fixing the post-production, especially the marketing part, will create increased earnings and therefore savings by the farmers.
“The biggest informal sector in Uganda is in agriculture. So whatever you do, you cannot forget agriculture,” Ayota says.
“In 2019, we did a pilot study that was based on a simple hypothesis⏤ that if you intervene on the demand side, and farmers make more money, they will save some of that money. Our target was 100 farmers in Mityana for 3 months. At that time, the price of maize was UGX500 a kilo. We were able to get a buyer, who came and bought at UGX620. By the end of the 3 months, we had managed to recruit 206 farmers into the programme and saved with the Fund between 20% to 40% of the money they made. That tells us that if we intervene in that space, and the farmers make more money, you will give them the capacity to save something,” Ayota adds.
In line with that, the Fund has already, started, through the Hi-Innovator Fund, in association with the Mastercard Foundation, becoming a “catalytic organizer for informal groups” by organising groups to engage in value-adding activities, thereby creating both jobs and revenues and subsequently savings.
“Through the Hi-Innovator, we have so far seed-funded 265 businesses, 61% of which are women-led businesses. We have also trained 16,919 entrepreneurs. From this, we have created and sustained 88,674 jobs and created 1,800 new contributors to the Fund bringing in over UGX200 million in contributions. This is something that works,” Ayota adds.
“The Fund is going to be more visible and more present, in the lives of ordinary Ugandans- to help that Ugandans save, beyond the formal workers. Our vision is UGX50 trillion by 2035 from the current UGX18.5 trillion and we want to do that, when the member is 95% fully satisfied and our staff too and we are paying good interest/returns. We believe if we do that deliberately, and target industries that have the most impact, then Ugandans are going to be more proud that they are saving with the Fund. That will increase compliance as well