1 ON 1 WITH NSSF’S PATRICK AYOTA: We have made the best decisions for NSSF, but we are human too. Sometimes we get it wrong, but we learn from our mistakes Following the closure of the parliamentary inquiry into the National Social Security Fund (NSSF), Patrick Ayota, the Ag. Managing Director has come out to set the record straight on several issues raised during the inquiry. In this one-on-one interview with journalist Raymond Mujuni, on Friday 17th February 2023, Ayota addresses several untruths and clarifies the major issues that arose during the inquiry, reiterating that the Fund’s managers have at all times made the best decisions for the Fund in line with the Fund’s 10-year strategic plan.

Amidst all that’s been happening and all we have heard,  people out there want clarity. I know that the first thing you do in the morning is to check the Fund- if the savers’ money is safe, and you can cash it out when the members come. Is our money safe?  

Your money is as safe as it has been two, three, or five years ago. The safety of the members’ Fund is at two levels. The first level is at the investment level- the money we have invested out there is safe. We’ve got three classes of investments i.e. fixed income (government bonds), real estate, and then equity.  both stocks and bonds. If you look at the composition of that asset mix, for the last five years, fixed income, which is the safest securities have ranged between 77%- 79% of our portfolio; equities between 14-16% and real estate has been around 7%. That has been constant. So from an investment perspective, the money is safe because there’s nothing that has changed at the asset mix level.  

You know, the investment perspective is really for you, the ones running the Fund. Speak to me about the payout perspective. Has anyone walked into the fund and failed to get their money? 

No. We have an interesting set of numbers. For just the month of February 2023, we paid around UGX40 billion, and we’re paying it in shorter and shorter timeframes. So, nobody who wants their money, and is eligible for their money will fail to get money.  

There are a lot of people debating what the fund should do, and what the fund can do. But what exactly is the mandate of the Fund? What is it that you wake up in the morning to do and under the laws of Uganda, what is it that you have to do? 

Uganda is a member of the International Labour Organisation (ILO). In 1952, ILO came up with minimum standards for providing social security for member countries.  One of the pillars is healthcare, then disability, and then pension retirement.  From that, each country then crafted, within their laws, how they were going to meet those minimum standards. In Uganda, we’ve got the public pension sector, which deals with the public servants and then for the private sector, NSSF. Therefore, the overall mandate of the Fund is to provide retirement benefits to, especially people who have finished their work life. The way the law is crafted in Uganda is that we collect benefits, invest the benefits, and then when the members become eligible, you pay out those benefits. That’s the model that we have. 

Is that a model that you’re comfortable with? Based on your experience, running the Fund, is it a model that is working or would you suggest some modifications?   

I’ll give you a number that is a bit scary. Social Security is part and parcel of the labour market. Right now, about 80% of our members have less than UGX10 million in balances. Someone has been working maybe for the last 20 years, he’s 55, and he comes back and gets UGX8 million, mainly because our labour market is unstructured. People don’t work all the time. They drop in and out of work. We don’t have any safety nets. So there’s a bigger issue we need to solve if people are going to have some acceptable level of retirement. 

Thankfully, the recent amendments in the law partly addressed this by introducing voluntary savings- to allow those who feel 15% of their salary is not enough savings for their retirement, to contribute more.  

Speaking of the labour market, two ministries supervise you – the Ministry of Finance and the Ministry of Gender, Labour and Social Development. Some corners have said this dual role has been the source of the Fund’s problems. Being supervised by these two entities- what has it taught the Fund?   

Interestingly enough, Uganda is not the only country that has complex dual reporting roles. For example, Malaysia has got two boards, one board for investments, and another board, to cater for everything else. The aim behind that was to make sure that the expertise needed for a specific function is available. Investments require a different set of skills from issues of gender and labour. In Uganda, the law says investments must be approved by the Minister of Finance, because there is expertise there and gender, labour and social policy should go to the Gender, Labour and Social Development ministry because they have expertise in that area. The law is very clear on what each ministry ought to do. If we stick to that, there’s no problem because it’s not just unique to us as a country.  

Recently, we heard as savers that some of our money to the tune of UGX6 billion was asked for by the Ministry of Gender, Labour and Social Development for ‘activities’. First of all, was that money approved? Is that regular under the corporate governance structure? 

I think we’ve kind of gotten lost in thinking about this as a one-step process. The law has given the minister the responsibility and the right to amend our budget as well as propose and suggest (ideas). The Ministry of Gender was right, to propose an amendment to the budget. The second stage then was to come up with a list of activities to fit the suggested amendments. That part is what’s now going through the board. The board has not yet approved those sets of activities yet or allocated money for them. Remember the outcome of those activities is increased coverage and increased compliance. The board through management is developing activities for that purpose. Then when that is done, that’s when the funds will be released to fund those activities, managed by the Fund. People kind of misunderstood it, but that is the process in place at this time. 

Talking about investments, talk to me, how are NSSF investments structured? How do you approve investments? Who suggests those investments? How are they monitored? How do we get our payback from them? 

On an overall basis, we have got URBRA- the Uganda Retirements Benefits Regulatory Authority,  which is the regulator, that has issued investment guidelines that each pension fund needs to be considering as they invest. From that URBRA guideline,  we then develop our Investment Policy Statement, which is our philosophy on investments. From the Investment Policy Statement, we develop a  strategic asset allocation, which tells you what kind of assets will give you the best return to the member, given a certain level of risk. Currently, our asset allocation is 77.3% fixed income, 15.3% equity and 7.4% real estate. Then we look at the processes and procedures that guide us in investing, for example, how do you identify a viable stock? How do we analyse it? We’ve got what we call benchmark returns and assessments that are done by our investment teams. Many times they scan the environment and see what stocks/shares are doing well and or have potential. Sometimes somebody will approach us with a proposal, maybe for land. Sometimes we consider it and sometimes we don’t.  Once the investment department narrows down onto an investment proposal, they will do an investment proposal analysis which then goes to the management investment committee. If they okay it, it goes to the IPMC which is the Board Investment Management Committee and thereafter goes to the larger board. From that stage, it then has to go to the Minister of Finance, Planning & Economic Development for no objection.  

Let’s talk about the Uganda Clays investment. This is a loss-making company, that is not doing well on the stock exchange either. Why would NSSF pour money into a loss-making stock; we just heard from parliament that they did not pay back the money you lent them. 

I’m glad you raised the question. NSSF bought Uganda Clays shares at IPO in 2001. We own 33% of Uganda Clays. Around 2008, Uganda Clays went into expansion. At that point, we lent Uganda Clays UGX11 billion to help with the expansion. I remember they only made one payment and then they defaulted. The question we are asking ourselves is why put UGX11 billion in a loss-making entity? Because there are prospects and the company hasn’t died. It is now thriving and doing better. I will tell you something that NSSF did that members do not know. If it had been a private bank that had put UGX11 billion in Uganda Clays, in 2010 and Uganda Clays did not pay in 2 years, they would have foreclosed. 

What would have been the implication of that? It would mean the following:

• Today, Uganda Clays employs 1000 people. That would be no more. 
• Today, Uganda Clays contributes UGX1.5 billion to NSSF, which would be no more. 
• The 33% we own in Uganda Clays, would have been no more.

More importantly, we have now restructured the loan. The loan is now a secured loan with all the arrears and they will pay. Secured by land. Uganda Clays is becoming vibrant- and is beginning to work out. That is what is called patient capital. Remember, when you look at pensions, you just don’t look at the short term.  You take a long-term view. But for the sake of this nation, thank God NSSF did invest in Uganda Clays would be dead. The first company to list on the Uganda Stock Exchange would have been no more and the jobs would have been lost. 

But that won’t stop me from feeling bad, because when we save with NSSF, we think that the investment people, that NSSF will get us the best possible interest on the market from the monies that you invest. So, if recovering the best interest rates requires foreclosing on a company- a saver would say, maybe that is what should have been done. 

See, with foreclosure you don’t recover everything. You could lose more by foreclosing when they factor in the hierarchy of payments. As a shareholder, we could have lost out. 

But the important thing is, if you look at the last 7-8 years, there is an explicit promise that we made to our members. We said that we are going to do the following for the fund:

• Pay the member, a real return- that we would pay 200 basis points above inflation. We made that promise eight years ago and we have not broken that promise. We still do up today.
• We promised that we would grow this Fund to UGX20 trillion and guess what, we are at UGX18 trillion and we are still 2 years out. We are going to deliver that. 
• We promised members that our services- if they come and interact with us – on whatever channel- online, phone or face to face, we will deliver a superior service. We wanted our customer satisfaction to be at 95%. Today we are at 83% and we know what the other gap is and we are going to deliver that. 
• Every strategic promise we made to our members, we have kept.

It is also important to note, that when you are investing- most people have made the mistake to think that when you invest, you get everything 100% right. We are human beings. Every decision that you make that involves tomorrow, has uncertainty in it, because tomorrow’s dynamics, you do not know. You are making the best decision with the best information that you have at the time, knowing very well that it is partial information. You can only have full information from the past. The future is all about uncertainty but you make the best decision. Some of the investments will do very well and some will not, but in totality, the fact that the Fund has grown from UGX1.7 trillion to UGX18 trillion tells us that we have made more right decisions than wrong decisions.  

Speaking of wrong and right decisions, you decided to invest in real estate- and you’ve constructed some really beautiful properties. But a lot of savers, look at the investments you have made in real estate and the cost of those houses and say they will never be able to own this in my lifetime and yet it’s built with their money. How do you rationalise that decision to a saver? 

Let us look at Pension Towers for example. Remember Uganda wants to position itself as the best investment destination. We want to attract the best companies. These companies will not go to a country that doesn’t have Class A offices. What they will do, is fly to Nairobi, set up their regional operations there and have a liaison office in Kampala and fly back and forth. Pension Towers is one of the first Class A office spaces in Kampala. NSSF is supporting Uganda in its quest to be a favourable investment destination. But after attracting those investments- and Uganda has a lot of opportunities, where are their executives, going to stay? Lubowa is a Class A residential facility that is targeting such strategic clients. If they (investors) come and invest and invest in this country, who benefits? All Ugandans. So from a strategic perspective, the whole country and the members benefit. That notwithstanding, we still have places that we are developing for the middle and lower segments. We have Temangalo, and we are now developing Kyanja and we are going to do Nsimbe Estates. So we are catering for all classes.   

Speaking about Pension Towers, I watched you before the parliamentary committee and one of the questions that just remained in the air is the cost, of Pension Towers. It increased from UGX330 billion to UGX380 billion. Is it still a viable project?  

Yes, it is. 

When the first feasibility study for the project was done, with UGX327 billion as its budget, that was a project based on drawings around 2014/2015. Technology has since moved and we are now building a smart building, to cater for class-A tenants. That’s where the variance has come from. When when the initial designs were made, they were based on the technology at the time, but technology has moved such that if you want that building to be smarter, for example, we are using double-glazed glass. So the increase in the cost is what went into the building to make it smarter, for the future because we don’t want to be finishing a UGX330 billion building now and 5 years from now it is obsolete when you could have invested some more money and it remains a functional modern building for the next 25 years.

But overall, from a profitability and return perspective, it still gives us the return we are looking for, because the kind of tenants we are looking for, will pay a premium for a smart building.   

Let’s also talk about Workers House. Sometime back there was a case over this building with Alcon International that you won in the Supreme Court. Something came up in parliament that you do not have a title for the property- I thought that was strange.

Remember, when we went to court, the issue regarding Alcon- was resolved, and we began pursuing recovery of our title from them. Some lawyers in this town thought they would get away with it, but we ended up getting a special title for it and the members’ asset is safe.  

Let’s talk about Nakigalala land which is another of those real estate investments that have been under contention. Why would you spend UGX400 billion on that land?  

The actual price of that land is UGX250 billion. There’s another piece of land we were supposed to buy, estimated at UGX150 billion. The total gives you UGX400 billion. If you look at where Nakigalala is- in Kajjansi, I think an acre of land in that area is north of UGX800 million. We are getting a good deal. But like we do in all investments, we made due diligence and there are some issues that we found on that land. And we told the vendor to resolve the issues first before we can even think of buying that land. However, we had to make a budget provision for it. And there is a difference, between making a budget provision and the actual spending of the money. Most people have been interpreting it to mean that when you make a budget, you spend the money. No, not at NSSF. A budget is a plan. We haven’t spent that money yet. They (the vendors of Nakigalala land) have to first meet the criteria that we want from them.    

Another area that was of attention was the suspense account. The attorney General raised a red flag and said the Fund can do better. What are you doing in that regard?

First of all, having a suspense account is not a problem- ask any financial institution, they all do have suspense accounts. The NSSF suspense account has got two components. First, the money could come from somewhere you do not have full details of, so you hold it in a suspense account until you get the full details of the saver and move it to a regular account. And we usually get a lot of those coming in at the end of the financial year when organisations send in their pending payments. Sometimes they don’t send in all the information and yet we have to close our books for that year. So while the due diligence and follow-up are being done to get the owners of the money- it is held on the suspense account. That is why if you look at the suspense account at the end of the year and in between the year, there is a drastic reduction. There’s no big problem there. 

Where the suspense is static, these are legacy cases. Where  NSSF audits a company,  and then discovers arrears, but some of the beneficiaries had not yet registered with us and probably even left the organisation. So the branches have to start hunting for those beneficiaries. We sometimes even put Ads in the newspapers. This was worse when we didn’t have National IDs.  However, it is important to know that with NSSF you never lose your money. That money will always be there and each year we declare an interest, we also put interest on that money.  

When Covid-19 hit and then there was the mid-term access law, there is a significant number of people who did not withdraw their money- which was a sign of trust in the Fund. But over the last few weeks, we see some excitement online and some people seem to be losing trust in the Fund. Has that affected your operations in any way? Have the parliamentary proceedings affected operations in any way?

Let me give you the numbers. In January 2023, we collected UGX147 billion compared to UGX118 billion in 2022. So, members entrusted us with UGX30 billion more than they did last year. If you look at the payments that we’ve made, including mid-term access, we paid out around UGX90 billion and in the previous period, it was about UGX40 billion. The only area in which we seem to see a bit of a difference is voluntary savings. The year before, in January, we were getting about UGX1.6 billion monthly, it is now UGX1.1 billion. But that is largely because, a lot of the companies that had less than 5 employees and used to pay voluntary savings, have since joined the mandatory fold, since the law changed, mandating everyone employer to pay.  

Overall, when you look at staff operations, whether it is turnaround time in terms of benefits processing, we are doing much better. So, yes, people, our stakeholders were concerned, and the staff too, but in terms of rising to the occasion to deliver the service, we are okay.  

There is this matter of the Grain Council- first of all, has NSSF made any investment in the Grain Council? Have you considered investing in the Grain Council?

Zero. No, we have not, but let me explain what happened. 

Many Ugandans and many of us in the Fund, understand that the biggest gap in agriculture today is, if you look at all government interventions -NAADS, OWC, PDM- the underlying assumption is that the problem is the farmer. They all operate under the assumption that the farmer needs quality seeds, better equipment, needs post-harvest handling etc. Yes, they do need that,  but the farmer grows his corn and the first question they ask you is, where should I sell my corn? As a country, we’ve never really deliberately addressed the market side of agriculture. So farmers grow for an uncertain market. They don’t know where they’re gonna take their produce. So, two years ago, we started some thinking as NSSF, on how we really need to intervene in agriculture. We even did a pilot in Mityana District and found that when farmers get a bit more money, they can save with NSSF. 

Now, who is the expert on farmers in Uganda? We are talking about Uganda Farmers Federation, when you look at the area of grains, the Uganda Grain Council has the experts. We have been talking to a host of these and other stakeholders in the agriculture value chain, to understand the market. That is the extent of our discussion with the Grain Council. There is an initiative that we are working on, with the government, to see if we can intervene in this marketplace and bring predictability and certainty to the marketplace so that our farmers stop growing crops, that are not driven by market demand. And then we can utilise the aggregators, and the post-harvest handling, so that the farmer can then now know who is buying his crop, at how much and when they’re going to buy. If we do that well, we are going to revolutionise agriculture in this country because it will no longer be ad-hoc and chaotic. That was the extent of the consultations with the Grain Council. In terms of whether or not we are going to give them money, that has not come up.    

There’s also been concern about the kind of pressurised environment in which NSSF is operating. You are probably the most profitable entity in Uganda sitting on a large sum of money and there are all these entities requiring money for the activities who think NSSF is the place to go and yet the savers are also thinking this is our money and should be kept safely.  Talk to us about the kind of pressure that you’ve been under in that regard. And how does NSSF as a corporate institution balance against these pressures? 

About 8 years ago, Richard was instrumental in leading us in the formation of strategic objectives. It’s a 10-year strategic plan, centred on four key parameters, namely: 

• The growth of the fund toUGX20 trillion. 
• You can’t grow to UGX20 trillion unless your members are happy, so we set our targets for customer satisfaction at 95%. 
• But you cannot make your members happy if you have disgruntled staff, so we set our staff satisfaction targets at 95%.
• Then we had to fix our processes to make it easy for members to register, and remit their savings as well as claims. So we set a 1-day turnaround time target for claims, by 2024/25, down from 95 days. 

So everything we do at the Fund rotates around that focus. Whatever proposal, anyone comes up with, we measure it against- one or all of those four parameters and we are so focused on that. This is what has served the Fund for all this long. That focus helped us. 

Do we get it wrong or right all the time? No, we don’t. We are people. We change. We try. We experiment. We innovate, all in the quest to deliver on those objectives. 

But one this you must remember, is, one of the measures of efficiency across the globe for pension Funds our size, and there are about 320 of them around the world worth about USD5 billion in size, one measure of efficiency is the cost of administration- how much it costs to run the Fund. If you take all the costs, divided by your assets, to get the cost of administration, globally, the benchmark, target is 2.2%. That’s what everybody strives to achieve. Our friends in Kenya right now are 2.7%, and Tanzania is at 3 point something. NSSF Uganda at the end of last year, we were 1.16% and we are driving that number towards 1% and we are going to exceed that number. Our efficiency is incredible. We track it, we measure it, and we follow it because it’s in tracking that you’re able to give the member value.

Could some of the anger from the savers be justified? For example, we have just known how much money goes to members and CSR activities. We also learned that some of your staff, as a way to get them motivated are being taken to luxury destinations. Savers have justified anger towards how their money is being spent. From a management perspective, do you have a justification for why you do those things the way that you do them? Do they benefit the savers at the end of the day?  

I understand where and why members are upset. I think one big learning for me is that we need to learn to communicate better and bring clarity so that our members understand what we are trying to do and it is for a greater cause.  I’ll give you a very good example. Last year, declare 1% interest rate, was worth UGX141 billion.  This year, to declare 1% will be about UGX160 billion. So if our target is to declare 10%, that means that we must have at least UGX1.6 trillion shillings in earnings, to give the member a 10% interest rate. 

Then you need to begin to look at staff costs from a productivity perspective, and ask yourself, what will it take to deliver this UGX1.6 trillion in earnings? 

Much of the focus during the Parliamentary hearing was so much on the spend; the cost, and never on value. Let me just give you a couple of stats that will show you what I mean.

Between 2021 the fund was UGX15.6 trillion. By June 2022, the Fund had grown to UGX17.3 trillion- a UGX1.8 trillion growth. Our total budget during this period was UGX200 billion. It means that for each shilling spent, we generated value for the member, 9 times. If you look at the staff costs, for each shilling we spent, we generated 13 times the value for the member. This on its own may not make a lot of sense, but let’s compare it with our neighbour (Kenya). In the same period, for each shilling they spent, they generated five times the value- remember ours was 9 times. For each shilling they spent on staff, they generated 9 times the value, ours was 13 times. What makes this Ugandan NSSF staff, generate more value, for NSSF members in Uganda, than their counterparts in Kenya?  

So, what lessons have you learned throughout the gruelling process of the parliamentary inquiry and the issues around it- things you can say that we were not doing right and now we are gonna pay attention to? 

What I have learnt is that not everybody will understand you. I think the things that we do here at NSSF are not what every company does. So they can’t even believe that we are doing those things and the tendency is to default to the traditional known position. So one of the things we need to do is bring clarity to the things that we do. We need to explain ourselves much better and then we need to engage a lot of our stakeholders and show them that we can do better, as a country.  I think when we focus on that, we will grow and go together.