The National Social Security Fund invests in real estate, bonds and securities, etc to multiply savings. It now plans to venture into the commodities trade. Will it succeed? John Ricks Kayizzi explores.
The National Social Security Fund (NSSF) is preparing to invest into farming communities in a bid to spur earnings, hoping it would translate into savings with it.
However, financial experts have urged the Fund to tread carefully, saying any false move in uncharted waters could result in losing savers’ money.
In an earlier media interview, Patrick Ayota, NSSF’s managing director, said a pilot was done in 2019 based on a simple hypothesis, that if you intervene and the farmers make more money, they would save some of it.
“Our target was 100 farmers. We went to Mityana for three months. At that time, the price of maize was sh500 per kg. We were able to get a buyer who offered sh620,” he said.
“In three months, 206 farmers saved with the fund between 20% to 40% of what they had. So, it tells you that if you intervene in that space and the farmers make more money, you will give them the capacity to save.”
Ayota said if the fund is to flourish, it needs a sustainability agenda that includes support to local entrepreneurs to scale and create jobs as well as the fund’s interventions in health and education.
“There are seven million households. So, if you can touch half of those, you would reach far. So, now we are trying to deal with that together with the Government through Uganda Development Corporation UDC). But our intervention in agriculture is going to be in one area,” the MD argues Ayota said NSSF has a plan to start a national marketing company to boost farmers income and also bring on board beneficiaries from the Emyoga and Parish Development Model (PDM) to save with the fund.
Recent trends justify decision
According to the performance of the economy reports for the last seven months, maize has been the third leading foreign exchange earner for the country, after gold and coffee.
This is a new trend that was never the case in previous years. Increasingly, many countries are depending on Uganda’s maize production for their food security.
On the basis of the increasing earnings from maize exports, there is a high possibility that NSSF’s investment in the maize value chain will greatly boost production, improve adherence to standards, and improve the country’s earnings from coffee exports.
Nuwagaba supports plan
Augustus Nuwagaba, an economist and university don, said there is a misconception that NSSF should only invest in passive investment vehicles, such as treasury bills and bonds.
“They should engage in direct investment in areas, such as marketing and real estate, in order to increase returns and profits for their members. This way, they would support employment creation. They have been in portfolio investment for so long and need to go out and taste the waters,” Nuwagaba said.
He advised that 70% of NSSF resources should be put in bonds and treasury bills, 20% in real estate and 10% in direct investment.
John Walugembe, the managing director of the federation of small and medium sized enterprises (FSME), urged NSSF to become more accountable to members by letting them have an input in its investment plans.
Plan excites maize dealers
Dealers in grain have welcomed the value preposition of NSSF to enter the maize trade, saying it will create a strong value-chain, which will promote standards and boost farmer’s earnings.
“With creation of regional trade blocks, the fast-growing population and urbanisation, maize has become one of the most marketable products. There is need for ample funding in order to enable farmers go commercial and sustain both the local and regional market,” Henry Kizito, the director God’s Way Services, who are dealers in farm produce, said.
He argued that NSSF’s is a timely intervention that will boost maize production and increase earnings from maize exports.
“Every year, there is a rise in the demand for maize grain as food for consumption. Its demand for it as an ingredient for manufacturing animal feeds and other industrial products is increasing. There is need for huge investment in the product in order to enable it realise its full potential and NSSF might prove to be the missing link,” he said.
Partnerhip with grain council
Jacob Kabondo, the Association of Uganda Miller’s National Co-ordinator, said if NSSF comes up with the right model, it has potential to change the whole maize value-chain.
“They have the option of coming on board as aggregators, who buy in bulk during harvest time and keep the product up to such a time when the market price rises. This would go a long way towards creating price stability,” he told the New Vision in an interview.
Kabondo said NSSF would also lessen the risk of losing workers’ money in this initiative by venturing with people who are already in the maize value chain.
“They would avail affordable financial packages at a low interest rate. They would become co-partners in small firms created by the locals and become part of these firms until they recover their money. This model, which is feasible, is only practiced by UDB locally,” he said.
Kabondo, who also sits on the board of the Grain Council Uganda, said NSSF needs to partner with this body in a formal way.
“There were recent allegations in the media that NSSF has entered into a partnership with the Grain Council Uganda to deal in maize at a national level. We had to issue a disclaimer in the media to disown such pronouncements, since they tarnish our image and paint a picture of us being dealers,” he said.
More experts support NSSF
John Walugembe, the managing director of the Federation of Small and Medium Sized Enterprises (FSME), pointed out that there are currently huge gaps in the guiding policies in the grain trade.
He called on the authorities to harmonise quality standards and marketing regulations.
“There is currently a huge demand for quality grain with higher value. That is the only way Ugandans will be able to tap into the huge regional markets. A serious investor like NSSF can help oil this process with patient capital and investment,” he said.
Benard Wabukala Musekese, a senior economist and lecturer at Makerere University, said the strong performance of maize exports, which is just behind gold and coffee, was an outcome of increased export volumes and a favourable price.
“A decision to invest in such a commodity is largely an output price evaluation. Investment in commodities, such as oil, gold and agricultural produce is preferred, because they have an inflation hedge,” he said, adding that relative to financial assets, commodity prices tend to simultaneously move with inflation Wabukala said if he was to place NSSF into maize investment, he would, at most, ask for a 20:80 thresholds — 20 for commodities (maize) and 80 for financial assets.
Prof. Wasswa Balunywa, the former principal of Makerere University Business School, said they are doing a study on maize and the preliminary findings indicate increased maize production can create thousands of jobs and get so many Ugandans out of poverty because there is a high international market readily available.
He said if NSSF is to be involved, it should work with large scale farmers, who have ample storage and drying facilities.
“There are already large-scale farmers, who are already dealing in maize and can venture with NSSF. But we have to bear it in mind that large farmers are not in a position to improve lives of Ugandans.”
Experts with reservations
Dr Lawrence Bategeka, a senior research fellow at the Economic Policy Research Centre and former MP for Hoima Municipality, said: “If done well, it can be a profitable venture, since over 80% of Ugandans are involved in agriculture. But if they create a company and it eventually fails, who would pay back the invested financial resources?”
Charles Ocici, the Enterprise Uganda executive director, argued that the agricultural sector is so virulent and unpredictable to invest worker’s money in.
“They should work hand in hand with the Uganda Development Bank and the Uganda Development Corporation and offer them credit at low-interest rates, which could be lent to youth groups and other interested parties,” Ocici said.
He explained the above entities have the mechanism to do due diligence, because they frequently do that.
