Prime
I’m sorry darling NSSF, but this is not working. It’s you, not me
Author: Daniel K Kalinaki. PHOTO/FILE.
What you need to know:
- Even if we appointed Pope Francis today to run NSSF, he will be hauled before a parliamentary committee in a few years, accused of inflating the procurement of incense or overpaying cardinals.
During debate about pension reform a few years ago, I was in the minority opposed to breaking up the National Social Security Fund. This ran counter to my libertarian ideology and free-market instincts. But the countervailing logic was that our national interest would be better served if NSSF’s massive financial firepower was concentrated in specific transformational projects.
Take infrastructure, for example. Mega projects cost piles of money and, for the inconvenience of risking crisp banknotes in hot, dusty, and politically risky backwaters, investors demand eye-watering guaranteed returns on investment, sometimes as high as 20 percent on the US dollar.
NSSF participates meekly as a shareholder in one or two that list their shares, then patiently waits for dividends, depending on the firm’s performance. But it could be more ballsy and go in with the big boys as a core investor.
It would be a sweet spot. Foreign investors would meet their local content requirements while benefiting from NSSF’s local market and investing knowledge. NSSF would get into high-yield, long-term investments aligned to its long-term cashflow needs. If the Fund did the heavy lifting on local currency expenditure and foreign investors on dollar-denominated spend, it would need no umbrella for foreign exchange risk. A return pegged to the dollar would be ka-ching! for NSSF savers.
There would be other strategic benefits. The cost of infrastructure projects would fall due to cheaper money. We would get more project for the same amount of cash, delivered faster.
In addition, shifting a significant pile of NSSF money away from government paper and commercial deposits would make domestic public debt more expensive and curb the appetite for consumptive borrowing. Without cheap NSSF deposits, commercial banks would have to compete to mobilise domestic savings, and to lend to the private sector. Interest rates would fall.
After closely watching the fight in NSSF over the past two months, I concede that I was wrong. In its current misalignment of interests, incentives and governance structures, NSSF will always be a scandal waiting to happen.
There are two underlying problems. The first is that NSSF is a fat cow lazily grazing in a pasture surrounded by hungry, giggling, scheming hyenas. Every carpetbagger, snake oil salesman, and purveyor of games of chance sees the Fund’s teats as a gushing sprout on which to latch their dry, cracked lips to nourish their greed. The lactose-intolerant ticks suck blood.
As long as NSSF has so much money and Uganda so many thieves, it will always end in parliamentary investigations and premium ocular secretions.
Secondly, NSSF has a cognitive governance flaw: the people with money in the Fund have no power over how it is run. Those with the power, from the President down to some board members, have no money in NSSF.
This misalignment of incentives will always lead to poor outcomes and scandal. Even if we appointed Pope Francis today to run NSSF, he will be hauled before a parliamentary committee in a few years, accused of inflating the procurement of incense or overpaying cardinals.
Dear Reader, I give up. We will never be able to leverage NSSF’s firepower in this guerrilla war of vested but misaligned interests. There are simply too many barbarians at the gate. Only the invisible hand of the market can reward and punish mistakes in the pensions sector by allowing savers to move their money from dodgy funds to those better run.
Doing it overnight might buckle NSSF. So we can phase it over a few years while also allowing new entrants to the job market to side-step NSSF altogether. The Fund, and particularly its so-called guardians, have developed a sense of entitlement to our savings; it is time for them to work as hard for our money as we do.
Many savers who qualify to cash out would have looked at the liquid oozing out the wounded Fund over the past months and decided to move their stash. Others who had kept their mid-term access in so as not to waste it might feel like if their money is to be wasted then it should be them to do it, not some trade union gangsters.
Dear NSSF, it was good while it lasted, and we tried to make this work. But it is time to look for financial love elsewhere. It’s not us; it’s you!
Mr Kalinaki is a journalist and poor man’s freedom fighter.
Twitter: @Kalinaki
