A strong economic recovery, relatively stable inflation and an upsurge in the stock market helped push up Uganda’s National Social Security Fund’s returns, leaving savers in positive territory.

The NSSF announced an 11.2 per cent return on contributors’ savings for the 2012/13 financial year, on the back of strong performance in equities, shrugging off weak returns from real estate. This return was over two per cent higher than the inflation rate, which averaged 9.23 per cent.

The performance is an improvement on 2011, when NSSF posted an average return of 10 per cent. It posted six per cent in 2010.

Total interest paid to members increased to Ush278 billion ($108.7 million) in 2012/13 compared with the Ush202 billion ($78.9 million) recorded in 2011/12.

NSSF enjoyed high earnings from government securities and fixed deposits as well as listed shares — capital gains and dividends — at the Uganda Securities Exchange (USE).

Treasury bonds and fixed deposits, account for 70 per cent of assets held by Uganda pension schemes. In 2011, most fund managers reallocated their investments, reducing their equities holdings in favour of government securities, to take advantage of the inflation-induced rise in interest rates. But the tide is turning.

Relatively stable inflation opened a window for investors at the USE, putting share prices on a recovery path. USE’s All Share Index rose from 1,226.27 points to 1,582.70 points during the period, representing a 6.8 per cent monthly growth rate.

Consequently, price rallies on the Safaricom and Umeme counters noticed since December 2012 boosted NSSF’s incomes.

READ: Umeme posts 53pc growth in half year profit after tax

Safaricom and Umeme shares accounted for 19 and 18 per cent of NSSF’s Ush264 billion (103.2 million) equity portfolio while total realised incomes grew by 57 per cent to Ush444 billion ($173.6 million) during 2012/13, according to NSSF statistics.

However, signs of a slowdown in the stock price rally have raised worries among fund managers over repositioning equity portfolios to sustain high returns in a period of declining interest rates driven by loose policy actions by central banks.

“Foreign investor demand has directly boosted share prices across East Africa. This has seen some stocks register big gains. However, this widespread rally is likely to cool off in a few months,” said Kenneth Owera, an investment analyst at Stanlib Uganda.

NSSF’s real estate portfolio posted dismal returns due to stalled housing projects such as Nsimbe Estate and falling occupancy rates in commercial office premises in Kampala.

Whereas this portfolio is valued at Ush405 billion ($158.3 million), its return on investment stood at just two per cent — a scenario that analysts blame on frequent procurement delays and corruption.

While NSSF claims deployment of a third party agent could minimise procurement hurdles, new investment options like private property funds offer a tricky proposition in the absence of relevant laws.

“We have diversified our stocks in the regional markets so as to tap into rising performance indicators,” said Richard Byarugaba, NSSF managing director.

By the end of June, fixed income assets rose to Ush2.8 trillion ($1 billion) equivalent to 80 per cent of NSSF’s balance sheet while total assets grew to Ush3.5 trillion ($1.4 billion). Total contributions increased by 18 per cent to Ush558 billion ($218 million) while total benefits paid out surged by 39 per cent to Ush140 billion ($54.7 million) during the same period.

Investors in the region are lining up to cash in on Uganda’s cash-rich NSSF when plans to privatise it are completed later this year.

At least 78 firms, including NSSF, have already applied for licences to manage retirement benefits schemes once the industry is liberalised.

By privatising NSSF, the government hopes to end the pension fund’s monopoly, leading to increased efficiency, innovation and return on investment through increased competition in the pensions sector.

READ: Uganda NSSF privatisation deal promises to be lucrative