Uganda’s National Social Security Fund registered unprecedented profit for the first half of 2008. After tax profit increased by 22 per cent to Ush131 billion ($74.9 million) compared to Ush107 billion ($61 million) in the financial year 2006/07.

The results come at a time the Fund is still troubled by the fallout from an old dispute in which the other party — Alcon International — wants $20 million claim in damages.

Aggressive restructuring of its investments portfolio, reallocation of investment from Treasury Bonds and Bills to commercial paper, and improved foreign exchange risk management drove the Fund’s impressive performance.

Equally, high returns on investment and manageable risk levels added to the good showing.

The Fund earned Ush51 billion ($29 million) in capital gains during the first half of 2008, with Stanbic Bank Uganda’s shares contributing 35 per cent to its total capital gains income.

Trading in Stanbic shares earned the Fund Ush18 billion ($10.3 million), reflecting solid stock market performance by Uganda’s leading bank coupled with sound trading strategy by NSSF.

The Safaricom initial public offering (IPO) earned the Fund Ush11 billion ($6.3 million) but constituted eight per cent of its total equity investment portfolio during the period under review.

Uganda Clays Limited, one of the best performers on the Uganda Securities Exchange, earned the Fund Ush13 billion ($7.4 million) in capital gains, while the remaining Ush9 billion ($5.1 million) is attributed to trading in other stocks on the bourse, which account for the Fund’s position as the leading institutional investor on the Ugandan bourse.

NSSF also registered strong growth in assets, property and equipment, long term investments, investment properties, and equity investments, but recorded less impressive performance on cost levels.

Total assets grew by 31.6 per cent to Ush1.19 trillion ($680.3 million). Property and equipment increased by 186 per cent to Ush19.3 billion ($11 million) while long term investments rose by 7.4 per cent to Ush21.4 billion ($12.2 million) by the end of June.

Investment properties grew by 29 per cent to Ush218.8 billion ($125 million) while equity investments increased by 156 per cent to Ush152.9 billion ($87.4 million).

Interest income rose by only 0.97 per cent to Ush68.1 billion ($38.9 million) while total income grew by 29 per cent to Ush169.4 billion ($96.8 million), indicating stronger revenue contribution from non interest income generating areas.

However, operating costs increased by 59 per cent to Ush38.2 billion ($21.8 million).

In addition, NSSF recovered Ush32 billion ($18.3 million) from defaulting employers but is yet to collect Ush60 billion ($34.3 million) more from such institutions as Makerere University, which owes Ush50 billion ($28.6 million).

Nevertheless, the seven per cent annual interest rate offered by NSSF on workers’ savings has been undermined by a rapid rise in the inflation rate — at 12 per cent — that is projected to rise further on the back of persistently high food prices in the country.

“We are going to pay above inflation for the first time. The interest rate will be comparable to similar savings investment products offered by commercial banks,” said David Chandi Jamwa, managing director of NSSF Uganda.

Financial analysts are divided on the likelihood of this happening.

“The financial risk make it unlikely. Their rate of return on investment might not exceed any interest rate above the current inflation level,” said David Ofungi of Dero Capital, a local investment advisory firm.

But others think that NSSF’s current rate of interest on workers’ savings is better than what some of its counterparts in the region pay.

“Seven per cent for social security is not bad. It is still three per cent in Kenya while inflation is over 20 per cent. Its counterparts are investing heavily on the stock markets but they do not yield quickly. They need to be very cautious about them,” said Anderson Mwaloma, interim secretary general of the East and Central Africa Social Security Association.

Additionally, NSSF’s long standing commercial dispute with Alcon International, the contractor hired to construct Workers House, at a cost of $21 million but whose contract was later terminated almost 10 years ago, is still a source of uncertainty for the Fund as the dispute — if not settled in NSSF’s favour — could leave it $20 million poorer. NSSF management now appears to be gravitating towards a less costly out of court settlement.

In the meantime, NSSF has recovered Ush500 million ($285,714) out of Ush726 million ($452,571) owed by the suspended brokerage firm, Crane Financial Services.