If there were ever any doubts — against the background of an incapacitated Central Bank — that the National Social Security Authority (NSSA) has become a de facto lender of last resort, these must have been completely dispelled by some recent market developments. In late June, Finance minister Tendai Biti confirmed that the decision by Treasury to enlist Old Mutual and NSSA to fund the March constitutional referendum had the effect of straining smaller banks after the financial behemoths mopped up their funds held in the financial system as they sought to comply with government’s request.
Report by Omen Muza
“What we did on the referendum, we cannot repeat it. On the referendum, we borrowed $40 million from NSSA and Old Mutual. As a result, people cannot borrow from banks because NSSA and Old Mutual provide 60% of the on-shore lending that is in our banking system,” said Biti acknowledging a classic case of the public sector crowding out the private sector.
A few days earlier, NSSA had published a notice advising stakeholders that from November 2012 to March 2013, it provided loans amounting to $15 million through Metbank to six local authorities for water chemicals, water pipes and earthmoving equipment. Much earlier, of the $40 million earmarked for the Distressed and Marginalised Areas Fund (DiMAF) when it was launched in October 2011, $20 million came from Old Mutual while the other half was to be provided by Government.
Against the background of tight liquidity conditions and limited fiscal space, readily available local sources of liquidity, such as the NSSA kitty, assume heightened importance. Naturally, public concerns about proper accountability of such funds increase in a corresponding manner. Speaking in the context of the country’s limited liquidity and declining economic activity, the immediate past president of the Confederation of Zimbabwe Industries Kumbirai Katsande accordingly voiced such concern: “Locals, we have no capital, other than our money in NSSA and other pension funds. And here we need to be convinced that NSSA is utilising our funds in the best possible way.”
While analysts agree about the need for NSSA to diversify both risk and sources of income from investment activities, many share the concern that NSSA must be more circumspect in its investment activities, as it runs the risk of losing its focus and turning into an investment bank of sorts. Of course, NSSA’s principal responsibility, as envisaged under the NSSA Act of 1989 in terms of which it was constituted and established, is to its members, the workers who look up to it for sustenance through retirement income. But there is no denying that the role of State pension funds as initially envisaged has evolved significantly over the years. The reality of a decline in foreign sources of funding means that internal resources are expected to plug emerging funding gaps. And in our case, given our well-documented liquidity issues, who do we turn to? Well, look no further than the party to which a whole country turns in order to finance national projects such as a constitutional referendum.
In order for us to better understand the de facto role that NSSA tends to play now in our dollarised economy, we must view it in a wider context. On the African continent, pension fund assets are generally growing at a staggering pace: South Africa, for instance, saw assets grow from $166 billion in 2007 to $277 billion in 2011 — while Nigeria saw growth from $3 billion in 2008 to $14 billion in 2010. In Ghana, as a result of the 2008 National Pensions Act, the country’s Social Security and National Insurance Trust — their equivalent of NSSA — has become the largest institutional investor on the Ghana Stock Exchange and also has significant exposure to private equity funds. These statistics make it somewhat easier to understand why calls to harness pension funds for emerging infrastructural financing deficits are more pronounced than ever. Pension funds are the news drivers of a new growth path.
Bobby Godsell, the chairperson of Business Leadership South Africa, submits that the economic growth of the modern world is “being funded by pensions and provident funds of employees and from the contributions to life insurance policies”. Against this background, NSSA’s significant presence on the country’s investment horizon should not be frightful to anyone. However, this growing trend to seek aggressive deployment of pension funds for development purposes should not become an excuse for lack of proper due diligence and risk analysis when evaluating investment prospects.
In early 2012 media reports — citing a report by the National Economic Conduct Inspectorate — revealed that NSSA was exposed to local banks to the tune of more than $200m through a combination of direct equity investments, loans and money market investments in various, mostly indigenous banks. While public concerns at the time about high concentration risk in a markedly illiquid environment were quite valid, it is conceivable that without liquidity support from NSSA, bank failure would have been at a much larger scale.
In a future instalment, I will review some of NSSA’s public financing initiatives, which I believe should be viewed in a development context, streamlined and scaled up rather than be condemned and stifled.