In mid-October, President Yoweri Museveni led a Ugandan delegation to the Global African Investment Summit [TGAIS] in London.
The two-day summit, which was chaired by former Nigerian president Olusegun Obasanjo, sought direct funds from some of the world’s largest institutional investors into projects across numerous African countries, including Uganda, Tanzania, Ghana, Rwanda and Togo.
The TGAIS is designed as a platform for African governments to bring bankable projects to the international market, targeting a range of financiers, including institutional investors, family offices, pension and private equity companies. Uganda is set to become a major African oil producer within a decade and has already officially confirmed commercially viable oil deposits of about 6.5 billion barrels. Production is due to begin in 2018.
As such, huge infrastructure projects such as roads, an oil export pipeline, a multi-million dollar oil refinery are to be built in Hoima, where much of the oil activities are taking place. There are also huge opportunities in the mining sector with deposits of gold, iron ore, copper, phosphates, nickel, aluminum, and rare earth elements identified in addition to considerable industrial and construction minerals.
If Uganda liberalised its pensions sector, it would possibly have the capacity to raise huge amounts of funds to invest in such large investment projects domestically. In Asia, Europe and the USA, pension schemes – the sort which African heads of state were courting at the TGAIS – are among the major sources of investment funds.
Liberalising the sector in Uganda would raise the number of pension schemes and consequently savers and expand the assets in which savers’ funds can be invested. The new industry watchdog, Uganda Retirement Benefits Regulatory Authority (URBRA), has already stipulated these asset classes and designed regulations to boost collections from savers.
Increased collections would open up possibilities for schemes to invest in huge public projects like the national oil refinery, the Kampala-Jinja expressway, and the revival of a Uganda Airlines if government wished it, among others. For Uganda to reach that stage, potential savers would need to understand the benefits of saving, including building a robust social security system that reduces the proportion of the population that falls into poverty during old age.
Busani Ngwenya, the managing director of Alexander Forbes Financial Services Uganda, has emphasised the importance for Ugandans to understand one key issue behind retirement – inability to work. He says that when one is faced with this inability, they have to rely on something or someone for financial survival. In Uganda and largely Africa, children used to cover the gap and provide for their parents but in this day and age, it is not a guarantee.
“In the event that we are not earning income, we only have our savings to rely on. Ideally, we should not outlive our savings otherwise, we become a burden to our loved ones,” says Ngwenya. This then begs the question: are you already saving with any pension scheme?
According to the World Bank’s June 2014 Uganda Economic update, less than 10 per cent of Uganda’s working- age population participates in formal saving schemes for their old age. The 2010 Uganda National Household Survey showed Uganda had 15.2 million workers, of whom 2.5 million were employed in the formal sector. Of these, about 450,000 (18 per cent of all private sector workers) are active contributors to the National Social Security Fund (NSSF).
In addition, 275,000 teachers and civil servants belong to the Public Sector Pension Scheme. That leaves a large proportion (71per cent) of wage earners who do not contribute to any form of pension scheme.
The World Bank report states that in the past, extensive social and extended family networks have limited the need for old- age social protection systems. Changing social and economic circumstances have resulted in financial pressures faced by the traditional support structures and by the elderly themselves who in some cases have family still financially dependent on them.
Coverage to bring more Ugandans into the saving fold is one of the justifications for the liberalisation of the pensions sector that is ongoing, and is spearheaded by the ministry of Finance and URBRA.
Edris Kisambira is a business journalist.
Source : The Observer