KAMPALA – This is going to be, by far, the most unpopular article I have ever written but the pursuit of knowledge is sweeter than the glory of foolery. It has always been my view, that the role and work of a politician, I want submit, is nothing but to make noise. Our role (you and me), I would imagine, should be to help people capture that noise, pause it, objectively dissect it and help them understand how, in the real world, things work so that the people can form an informed opinion on what the politicians have said.
I have heard an exciting proposal by some politicians that NSSF (Uganda’s National Social Security Fund) should give people (members) at least 20% of their money to use during this COVID-19. In the view of those politicians, this money would be used by people to cope during this trying time.
I am an active contributing member of NSSF and pay my monthly dues. Be as it may, I cannot, even in the wildest of my dreams, fathom how one would think of such a ridiculous idea. Lets explore a few facts about how these pension funds work and why it is simply impossible for that to happen…and why I would not even want it to happen.
First of all… NSSF has about 1.8 million members who contribute to the fund every month. As of June 2019, NSSF had about UGX 11.3 trillion (US $3.05 Billion) in total assets. This is quite huge given that our GDP (all the money we have as a country ) is just about US $28.5 Billion (105 trillion Uganda shillings). It means that NSSF owns about 10.5% of our economy since it has 11.3 trillion of Ugandas total money. That’s how enormous it is.
So… lets start with the possibilities, wild as they are. Assuming NSSF decides that the situation is so bad…so lets give back people all their money…so it divides the UGX 11.3 trillion which it has amongst its 1.8 million members …it would mean each member gets about UGX 6.2 Million. Okay? Just 6.3 million shillings. Its such a young fund…can you imagine…just 6.2 million.
ANYWAY…assume we wake up tomorrow, nga NSSF has credited each of our accounts with UGX6.2 million. You know what would happen? Because we are in a state of panic, we would all flock the market for panic buying. As a result of an influx of so many buyers in the market chasing a few products, the prices would shoot up and the economy would over heat due to spiraling inflation. You would buy sugar at 30k per kg. Soon…your 6.2 million would be gone in a month…and you would need more because the panic buying has driven up the cost of everything.
The second problem with this is that because we do not want this money to keep in banks but to buy and stock essential stuff, many of which we cant pay online, we would need that money in cash. So the government would have to print more cash to ensure banks have sufficient paper notes to issue at counters or to dispense via ATMs. Printing of money would bring its own problems. By the way…of all the money you hear mbu Uganda has…less than 10% of it may be in cash. Its far less. Most of it is not cash…or atleast not in Ugandan currency…its in other foreign currencies…and gold. So there is not so many notes for all us to use for such a panic moent…because in an ideal setting…we dont need to have a lot of cash…we can transact without using physical cash. However…in this case…since we are buying essentials like food…where in Uganda we mostly pay in cash…we would need to have that money in cash. That would create a very huge problem. Money is not supposed to be in plenty ‘like that’. Thats the trick. If you have a lot of money in circulation and it becomes plenty in supply…it starts overheating the economy because demand or apetite to buy things…increases and outpeaks supply. Once ‘demanders’ are more than suppliers…prices usually go up.
Money loses value the moment a lot of it starts chasing few goods. The panic that would result would make people lose confidence in the currency since it has lost its first quality- It is not scarce any more. So people would now want dollars or other currencies…and because a lot of people are chasing the dollar…its value or cost would go up…making our money fall value…making imports expensive… since we buy those imported products in dollars. The whole thing about money is understanding that balance. It must be trusted…and must not appear to be plenty. You have a lot of it in circulation…it loses its magic. You have to maintain a very delicate property of its working…scarcity and trust.
But that’s a wild dream and it can not happen. They cant decide to give us all the money. So…lets now consider the proposition put forward by the politicians…that NSSF gives us 20% of our money. So if NSSF decided that its going to give 20% to each member, it would mean that each person (of the 1.8 million members) will get about 1.24m each. I said these are averages estimates…some would get more others less…but 1.24 would be the average. Not a lot of money, right? BUT this too is impossible because it would mean that NSSF has to put aside about 2.2 trillion to wire to the 1.8 million members if each is to get 1.24m (their 20%).
Does NSSF have 2.2 trillion in cash plus bank balance? I doubt. The way pension funds work is that they collect money from members and invest. They do not invest for a year but for decades. The NSSF Uganda for example has 11.3 trillion in assets…but because most of that money is invested in different businesses here and out of Uganda, it does not have that money to give to its members even if it wanted to.
In 2018, NSSF gave out 450 billion in benefits to members (those who qualify under the different categories). This means that an NSSF manager’s need, on a monthly basis, is just about 40 billion to pay members. The rest of the money is always invested elsewhere. It does not exist in cash…and it doesn’t have to. It would lose its value due to inflation if it were held domantly on an account…and it would not serve purpose anyway.
Because that money would depreciate in value if it ‘sat there’- idle and yet NSSF is damn sure, that you-majority of its members, are young and will probably not be qualifying for that money in the next 10-15 years, it spreads it out into different businesses here in Uganda and other countries in the region. It only keeps very little of it in cash or in the bank.
NSSF owns shares in Safaricom, Umeme, Stanbic Bank Uganda Limited, DFCU Bank, New Vision Group, Tanzania Breweries Limited, East African Breweries Limited, Bank of Baroda Uganda, Diamond Trust Bank, BAT Kenya, Centum Investments, Kenya Commercial Bank, Equity Bank, DFCU Bank, CfC Stanbic Holdings, Nation Media Group (company that owns NTV, KFM, Daily Monitor, Dembe FM, et cetera), NIC Bank Limited, Stanbic Bank Uganda Limited among others.
It has shares in many other companies and owns several properties including prime plots in the city, buildings and land outside Kampala. For example NSSF, using your money, has Workers House Plot 5 worth over 65 billion, land on Mvule Rd Naguru, Land on Yusuf Lule Road, Independence Ave Arua, Land in Kisugu, Kabale, Jinja, Tororo, owns social secutrity house, owns land in Lubowa, Mbuya, Busiro, NSIMBE and owns Plot 16 Nakasero Rd.
So the money you give them is almost invested in long term businesses that fetch an interest on annual basis. Your money is lent to other companies like Banks that give you some ownership in their companies in form of shares. So for example, every time someone buys a new vision or Daily Monitor newspaper, NSSF earns from that sale. Whenever Stanbic, Equity, KCB, DFCU, etc make a profit…NSSF earns too because it owns shares worth billions in those businesses. When they make profit, you share. That is how NSSF is fetching over 1.6 trillion in revenues every year.
Here is the most interesting part. Because governments make budgets and plan to spend and yet they have not yet got the money to spend, they float what they call treasury bills or bonds on the market. This is a way of telling the public to lend the government money on the promise that it will pay them either after 3, 6 or 12 months ( for treasury bills) or bonds which are usually longer …upto 20 years. Governemnt…because its powerful and is the biggest revenue earer in this country…comes to the public and says…guys…if you give me 100 billion…I will pay it back after one year with an interest of 8%. So an NSSF manager knows…If I give government 500 billion, at the end of the year…sure deal…we shall have made over 40 billion in interest (before tax). Good deal isnt it? so it gives government money. Government waits for you and me to pay our taxes…it gets that money and goes and pays NSSF its principle plus interest. AND on and on…the cycle goes on. So because NSSF has a lot of money which is idle, it seeks borrowers whom it is sure, will pay back…and government is one of those very reliable borrowers…and it is always…always in need. and its a sure deal…come rain or sun shine…it will always pay and as agreed…on time.
So NSSF lends billions of money to government regularly…through purchasing treasury bills and bonds from government….which it pays back after 3 months…6 months…a year or even after 5 years. The interest on that money is not a lot…but it sure deal…and is better than many risky businesses that NSSF could invest in and earn big…but they are very risky…for example stocks. So it has very little apetite to invest in high risk…high return investments. It puts majority of its money in low profit but assured or fixed incomes- Treasure bills and bonds…or what in simple terms in lending governments money.
NSSF does not only lend money to Ugandan government through the treasury bills or bonds…but it does the same to Kenya, Rwanda, Tanzania. Your money is spread across so that in case of anything…you dont lose everything. So your money is not seated somewhere in an NSSF account in Uganda. Most of it is only there in words…but in reality…that money is being used by Banks…private companies…governments…or is held in form of assets like land…buildings and other forms of equity. Are we together?
So…NSSF in principle…can not…manage to give each of you 20% of your money because the way it operates is that it invests that money since it has never anticipated that all of us can ever want it at the same time. Never… and it does not have it in cash anyway. It would need to be given time…to wait for its treasury bills and bonds to mature…to get back the money invested and the interest. Or…in the worst case scenario…it would have to do a quick sale of its shares in the different companies in order to mobilise cash to give you…and given the situation as it is now…investment apetite in stock markets is very low…people are not sure how businesses are going to fare in the days to come…so they would not be willing to give you good money for your shares. So NSSF would lose very miserably if it would find itself in such a situation.
While NSSF has 11.3 trillion on paper…I doubt if it has even 20% of that money in cash or at Bank. Most of it is not liquid…it is in form physical assets or equity… that would need to be liquidated to give you your 20%. Okay? So next time a politician says something…do some research to ask yourself if what they are saying is feasible…or they simply do not understand a thing about how some of these things operate.
AND if I were asked, even if all those things were possible…I would still not recommend. Why? Because COVID-19, atleast in Uganda is still unfolding. It has just started, We are not yet at our worst. We do not know how long this is going to go on. So I would not be quick to advise that people be given the money at this time. You have no idea how terrible it can get…so am not sure…I would be quick to recommend such a measure. The solution is not NSSF. May be in other ways but not transfering money to members like that.
If people were given this money…they would fire that money on useless things whose prices are being inflated by speculators…and yet we don’t know how long this is going to go on. I do not think that we are yet at the stage where you need to let 2.2 trillion-shilling sink into the public at a go. The effect on the economy is simply too much if you understand the basics of economics. Inflation due to rise in commodity prices would be satanic in proportions. Politicians should research their policy proposals before they come up with ridiculous things.
If this article was so long that you forgot everything, remember this…NSSF Money is invested in many places…to be recovered over long periods of time. So it is not there in cash for you to pick. Secondly…COVID-19 has just started…we don’t know if this is the time people need the money or there are worse times to come when that money would be better deserved. I hope I have simplified it for you. Anybody who says NSSF should give people 20% of their money is either being populist or lacks the basic understanding of simple economics.
Sometimes it is good to know these things so that if tomorrow, when those you don’t like have gone away, and may be you are the one running the show…you understand how these things work and can actually make technical decisions based on science and facts. For me…even where I disagree with government…I preffer to have an idea about how the thing works…or the technical knowledge on a subject….if I was in that position. Don’t let politicians just make proposals without understanding their feasibility.
In fact, as of June 2019, if I remember well…NSSF had less than 500 billion in cash and bank balance (money that is readily available for you to use). The money keeps coming and is invested or re-invested. Even where it is…it would take months if not years to actually access it in cash. You would need to look for people to buy your interests in the businesses where you invested your money…which would put you in loses…since you are in panic selling.
The role of politicians is to make noise…the role of technocrats is to sift that noise and make it consumable for citizens. I hope you have understood why NSSF money should not be anywhere near your dreams…unless you have qualified for it under the current legal regime. The way the thing works is that at the time you qualify for it…it will be ready because they have a way of forecasting to know how many people will be due within a specific timeframe…and how much they are likely to qualify for..so they secure that money for you. If we all went to demand for it…it would not be there. Government borrows it…after it collects taxes and gets other Non-Tax Revenues…it pays back to NSSF or other lenders… But some of those loans it takes are long term loans…and so as we stand now…your government could be having over 2 trillion shillings owned by NSSF which it pays back slowly …mpola mpola. Let me end here. It cant get any simpler than this. Bye even.