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Review of NSSA’s public financing initiatives

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According to a recent public notice, National Social Security Authority (NSSA) strives to enhance relationships with its strategic partners through four key areas: capital provision, promotion of workplace safety and health, benefits payment, infrastructure development, and housing provision.

Report by Omen Muza

In this instalment I review typical examples of NSSA’s public financing initiatives, a number of which I believe it has assumed by default partly because of government’s inability to finance capital expenditure and partly because of beneficiaries’ inability to sustain operations from internal sources of finance.

My focus is, however, on three of the five highlighted areas — capital provision, infrastructure development and housing provision — which basically constitute the developmental side of NSSA’s mandate.

While NSSA’s founding mandate of providing social security is fundamental, I believe the developmental role it executes through its public financing initiatives is equally important and should in fact be actively promoted.

Capital Provision
A typical way in which NSSA is providing the much needed capital is through the financing of some municipalities’ requirements. Given their generally poor credit ratings and the inability to generate adequate revenues against the background of economy-wide liquidity challenges, municipalities are currently unable to raise financing through the traditional way of issuing municipal bonds. To avoid a total breakdown of essential services, NSSA has stepped in to close some of the financing gaps at local authorities. In so doing, it is complementing the role of banks by mobilising savings and redeploying them through loans, thereby improving market liquidity. Between November 2012 and March 2013, NSSA provided a total of $15 million for water chemicals, water pipes and earth-moving equipment through Metbank to six municipalities namely Harare ($6 million); Bulawayo ($4 million); Chitungwiza ($2 million); Mutare ($1 million); Masvingo
($1 million) and Gweru ($1 million). In mid-2011, at a housing delivery meeting chaired by Prime Minister Morgan Tsvangirai, had noted the inability of local authorities to provide bulk infrastructure such as water reticulation, sewer systems and road networks, thereby seriously affecting national housing delivery.

Through the $5 million Retrenchees’ Loan Facility (RLF), NSSA is also providing working capital to those retrenched from both the public and private sectors, on condition that they contributed to NSSA during their working life. Preference is given to those already running viable projects and loans of between $500 and $5 000 are disbursed through Metbank and FBC Bank Limited. The repayment period is between six and 12 months at an interest rate of 10% per annum. This facility combines NSSA’s social welfare mandate of providing a safety net with the business motive of providing capital on commercial terms.

NSSA also provides financing to the Small and Medium Enterprises Development Corporation (Sedco) for on-lending to SMEs and to banks for on-lending to qualifying corporate borrowers. In 2011, NSSA said it had provided $180 million for on-lending through various local banks. While it is commendable that NSSA provides such magnitude of financing for on-lending by banks, comparable to the likes of PTA Bank and Afreximbank, it must be noted that it insists on security such as title deeds. It is my considered view that NSSA should progressively seek appropriate ways of availing finance without onerous security requirements. A good example is trade finance, which is a relatively safe asset class. Trade finance exposures are usually short term in nature and generally self-liquidating. Well-structured trade finance facilities could help NSSA to reduce banks burden of providing collateral security as a precondition for accessing financing, while still achieving the twin objectives of balancing risk and return.

Infrastructure Development
A good example of NSSA’s infrastructural development initiatives is its 13% shareholding in Chengetedzai Depository Company, the company which won the tender to run the country’s first Central Securities Depository (CSD). A CSD is critical financial market infrastructure whose development government is, however, currently unable to finance from its limited resources so NSSA, being a quasi-government institution was, alongside the likes of the Infrastructure Development Bank of Zimbabwe (IDBZ) called upon to step into government’s shoes and provide seed capital.

Housing Provision
Housing is a critical requirement for workers who are NSSA’s lifeblood so it is a strategic imperative for the national pension fund to be involved meaningfully in housing delivery activities. Out of the $500 million invested by NSSA in various portfolios in 2011, only $25 million was invested in housing delivery projects, with the bulk of the funds going to equities and the money markets. This statistic is manifestly clear that NSSA needs to do more to champion housing delivery for the benefit of workers who contribute faithfully to its fund as noted by President Mugabe in September 2011. Recent speculation that the state pension fund is contemplating owning a building society could be aimed at eventually correcting this anomaly.

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