MARK KIDAMBA: NSSF, the distinguished Malwa group

Mark Kidamba is an Independent Financial Analyst (PHOTO/Courtesy).

Mark Kidamba is an independent financial analyst (PHOTO/Courtesy).

In my heyday, I was happily part of a Malwa group. Malwa is a locally brewed intoxicant that is made from millet and consumed hot, through a straw from a pot. My group was complete with a name, chairman, set of rules, treasury and would ‘sit’ daily.

Some of the group’s rules were: Oranges and salt were strictly forbidden because they make the brew go bad. Another was fighting during the sittings was prohibited. The chairman often emphasized, “If you fight and kick the pot, intentionally or unintentionally, you will get the ‘death penalty’.”

We also had a treasurer who would collect money from us in small portions periodically, to invest in buying a cow for the festivities at the end of the year and for emergencies. As much as I hate to admit, there was a group that outclassed ours.

This particular group would go on tours to the zoo. To this day, I wonder why sloshed ‘members’, chose to go visit bored wild animals at the zoo.
Akin to my Malwa group, National Social Security Fund (NSSF) has got a similar setting.

A chairman who comes in the form of a Managing Director, a set of rules- NSSF Act 1985, two million members and most identically, the fund invests like a Malwa group!

Here is how:
For those who might not know, NSSF is a contributory fund that was established in 1985 by an act of parliament- the NSSF Act. According to an August issue of the EastAfrican weekly newspaper, the fund is seated on an asset base of $4.2 billion (14.7 trillion Ugandan shillings), and has got two million contributors; making it the largest fund in East Africa. It [NSSF] grows by $284m (1 trillion Ugandan shillings) annually.

NSSF is a provident fund run by the Ugandan government which makes it a compulsory retirement scheme funded by the employer and employee, who both make monthly contributions towards the employee’s retirement plan.

Under NSSF, the worker contributes 5% and the employer 10%. To contribute to the scheme, the employer has got to be registered together with his employees (who have to be five in the least).
In line with section 30 of the NSSF act; regarding investment, the fund is given leeway to invest the contributions of members profitably. This includes “All monies in the fund, the reserve account, which are not for the time being required to be applied for the purpose of the fund…” the act states. It continues to give the board the prerogative to invest the monies as deemed fit with consultation of the Minister of Finance.

Section 4(3) of the act states, “The board shall ensure that there is secure, profitable and effective financial management of the fund for the benefit of the workers in particular and country at large”. This, cannot be said about the fund because it continues to run a lackluster investment strategy and holds a wanting investment portfolio.

As posted on their website, NSSF’s investment portfolio includes: Fixed income securities 78%, equities 15% and real estate 7%. To get a proper picture of how fallible this portfolio is, let’s break it down starting with:


Simply put, equity is money that is invested in companies by purchasing shares of that company on the stock market. NSSF is substantially invested in the East African equity markets namely: Nairobi stock exchange (NSE), Uganda stock exchange (USE) and Dar es salaam stock exchange (DSE). The fund is invested in media, telecom, banking, financial services through these companies.

This investment has proved to be counterproductive because it has always ended in losses for the fund. In NSSF’s 2019 annual members’ meeting missive, the fund’s Managing Director Richard Byarugaba wrote, “The East African stock exchanges suffered significant losses in value. The NSE 14%, USE 10% and DSE 21%”. This came after it was reported in the fund’s previous annual report of 2018 that it did not get dividend income from many of its assets, namely: New Vision, Vodacom Tanzania, Twiga cement, Kenya RE holding, Britam holding, Centum holding and the Cooperative Rural Development Bank Tanzania. Also, for the financial year that ended in June 2021, New vision posted losses and will not remit dividends to NSSF.

In NSSF’s integrated report of 2020, it was highlighted that between 2019 and 2020, the fund made a 14.7 billion shillings ($4.2m) loss in dividend income. The pandemic might be used as a scapegoat but during that same period, the Johannesburg Stock Exchange (JSE) gained 8% in its allshare index raking in a total dividends return of 12% according to Business Insider South Africa.

In 2020, the JSE had its best time in 20 years amid the pandemic documenting a 26% jump in the allshare index over 3 months to end 2020. In a nutshell, NSSF shouldn’t use the pandemic as an excuse but should look to diversify its equity portfolio by investing in global and continental markets.

This, the fund can do by looking to invest in major stock markets through Index funds and Exchange Traded Funds (ETFs). An index fund is a fund that tracks a major index like the FTSE 100, S&P 500, and possesses stocks of that particular Index to mirror it’s performance.

These funds are ideal for retirement accounts because they outperform other asset classes over a period of time and they match NSSF’s ethos of long term investing. They are passively managed and don’t need stock picking and market timing.

The S&P 500 for instance, has had an annualised return of 10-11% since it’s inception in 1926 according to historical records.

With ETFs which are funds traded on an exchange, NSSF can have the privilege to invest in a basket of goods of industries, commodities, mutual funds, giving it access to high return sectors like technology. ETFs are favourable because they are easy to explain to members and are low cost as you don’t have to worry about high investment management fees.

Therefore, NSSF’s continued sole investment in the East African equity markets is ‘patriotic’ but asinine.


NSSF has invested in several real estate projects in the country like: Lubowa housing project, citadel apartments Mbuya, Pension towers, Mbarara city house, Temangalo. Unsurprisingly, the fund’s integrated report of 2020 reported a Sharpe ratio of -0.23 on real estate. A Sharpe ratio is a financial metric that measures the performance of an investment, a negative Sharpe ratio as is the case with the fund’s real estate, means the asset class is a bust!

NSSF should instead look to invest outside the East African market to reduce overall risk, and in markets that respond differently to systematic and unsystematic events in the Great lakes region. It’s imperative for the fund to target global financial centres that play a key role in the global economy. Cities like: London, New York, Paris, Tokyo are tech hubs that attract talent in need of office space and have a solid customer base.

The fund can invest in global real estate directly or through Real Estate Investment Trusts (REITs).

REITs are private or publicly traded well regulated companies that own, operate and finance income producing properties. NSSF may choose to invest in them by buying equity, Mutual funds or ETFs of REITs. This is feasible because REITs have a straight forward business model.

The adoption of a diversified real estate portfolio, will help hedge against another ‘Temangalo’ debacle and avert costly encumbrances like the Nsimbe estates deal that cost NSSF roughly 30bn shillings ($8.5m).
Fixed income securities
These comprise treasury bills, notes, bonds and corporate loans.

They take up an astronomical chunk of the fund’s investment portfolio at 78%. Understandably because of the high bonds yields in Uganda and East Africa. For instance, a Ugandan 10 year bond yield is 14% in comparison to a 1.2% yield for a 10 year US bond.

However, 78% is a monstrous cut to be allocated to fixed income securities and exudes laziness on the side of the board! It should be noted that fixed income securities long term, have a lower rate of return than equity and fair poorly in times of inflation; East Africa is a hotbed of inflation. Also, if sold before their maturity date as was the case with David Jamwa, former Managing Director NSSF, fixed income securities can result in losses.

Therefore, it’s only logical that the cut given to fixed income securities is reduced and allocated to other profitable asset classes like: private equity, commodities, and further diversified to global fixed income securities in low inflation environments.

As a member and card holder of NSSF, these are my countersuggestions regarding the fund’s investment strategy and pensions sector:

First, the pension sector should be liberalized and properly regulated to accommodate more players in the industry. These players will coexist with NSSF and will give the saver more options to choose from to invest their savings. This will lead to more benefits for the saver.

For example, the worker’s contribution to NSSF is 5%, employer 10% to make a combined contribution of 15% to the fund. An amendment can be made for the employee to contribute their 5%, the employer then splits his 10%contribution; 5% to NSSF and 5% to the worker’s desired pension fund. Meaning NSSF will get a 10% contribution, and the pension fund of the employee’s choice gets 5%. This will ensure that at the worker’s retirement, they will get benefits from NSSF, and the pension fund which will pay the worker a pension from their savings.

Unfortunately, this was not brought up in the amendment of the NSSF Act in 2019; leaving the worker undercut, and an unknown number of unregulated and unregistered voluntary private schemes operational in Uganda as revealed by a document titled: A Description of the Pension System in Uganda by David Nyakundi, an advocate of the Kenyan high court.
Also, the fund should invest in commodities like Gold and Silver to hedge against inflation and uncertainty because it’s known that in times of uncertainty, people buy gold as a store of value. Gold is pegged to the US dollar at $35 per ounce. This means that the more the dollar losses value as a result of inflation, the more expensive and valuable gold gets.

Lastly, NSSF should delve into the world of private markets- private equity and consider venturing into collectibles like wine, stamps, art that can be transformed digitally into Non Fungible Tokens (NFTs) thereby creating multiple streams of income for the fund. Economist and investment savant Lord Maynard Keynes, understood this and bought art work by Cézanne at £500 but a similar version of his artwork was sold for $250m in 2012.

In Uganda, for people to get employment, they resort to all sorts of ludicrous shenanigans like: witchcraft, bribery, offering sex for jobs. It is imperative that NSSF emulates their members’ enthusiasm in managing their savings ambitiously to make their toil count.
If that is not a lot to ask.

Mark Kidamba.
Independent Financial, Investment Analyst.
Twitter: @m_kidamba

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