Uganda’s pension sector takes aim at growth

As Uganda targets a US$500 billion economy, pension leaders say deeper savings could provide the patient capital needed for transformation

Kampala, Uganda | JULIUS BUSINGE | Uganda’s ambition to transform its economy could increasingly depend on how effectively the country mobilises and invests the savings of its workers.

That was a central message at the inaugural Stanbic Uganda Pensions Conference, held at Serena Hotel Kampala on October 1, where government, regulators, pension fund managers and financial sector players examined the role of retirement savings in accelerating Uganda’s Tenfold Growth Strategy.

Held under the theme “The Role of the Pensions Sector in Accelerating the Tenfold GDP Growth Strategy,” the conference came at a time when Uganda is seeking to expand its economy from about US$50 billion to US$500 billion by 2040.

The discussions placed pension savings at the centre of that ambition, not only as a means of securing retirement income but also as a potential source of long term domestic capital for infrastructure, housing, businesses, capital markets and other productive investments.

For Stanbic Uganda Holdings, the conference also marked the expansion of its investment management business into pension fund management through SBG Securities Uganda.

Mark Ocitti Ongom, chief executive officer of Stanbic Uganda Holdings, said the development was part of a wider effort to strengthen Uganda’s savings and investment culture.

“Retirement savings, once professionally managed, are sources of long term capital for the economy,” Ocitti said.

He said the question for Uganda should be how to help more citizens save for their future while ensuring that those savings contribute to productive economic activity.

“Saving can create jobs, grow the economy and create taxes with the corresponding opportunities,” he said.

The argument places pension savings within a broader economic cycle. When households save, financial institutions and investment managers can mobilise those resources for investment. When capital is invested in productive enterprises, it can support business expansion, employment, production and ultimately tax revenues.

But achieving that cycle will require Uganda to expand pension coverage beyond the relatively small proportion of workers currently participating in formal retirement schemes.

Expanding the base

Simon Mulongo, minister of state for labour, employment and industrial relations, said the size and reach of Uganda’s pension sector would determine how much capital it can ultimately contribute to national development.

“More demanding is to expand enrollment for account holders,” Mulongo said. He argued that pensions should become more accessible to Ugandans across different income groups and employment categories rather than remaining largely associated with people earning regular salaries.

For a country where a significant proportion of economic activity takes place outside formal employment, expanding pension coverage represents both a social and economic challenge.

Farmers, traders, small business owners, members of SACCOs, savings groups and other informal workers need pension products that reflect irregular incomes and different capacity to contribute.

The minister said banks, pension institutions and other financial players need to work with SACCOs, Village Savings and Loan Associations and other market associations to widen access to financial services.

The use of bank accounts and mobile money platforms, he added, would be critical in building a stronger retirement savings culture.

That approach could help address one of Uganda’s biggest challenges: getting more people into the formal financial system and converting small, fragmented savings into longer term pools of capital.

The potential is significant.

Daisy Nabakooza, the director of supervision and market conduct at the Uganda Retirement Benefits Regulatory Authority (URBRA), said pension sector assets under management had reached about Shs36 trillion as of June.

That pool represents a substantial source of domestic capital, but Nabakooza said the challenge is ensuring that it is invested in projects capable of delivering acceptable returns while protecting members’ savings.

“We cannot deploy funds in areas we cannot trust 100%,” she said. Nabakooza said regulators and industry stakeholders were therefore assessing investment opportunities in areas such as real estate and infrastructure while strengthening the processes used to evaluate projects.

For pension funds, the question is not simply where money can be invested, but whether the investment has appropriate governance, accountability, security and a clear mechanism for measuring returns.

“Investors want to know how to invest my money and exit when things do not work out,” she said.

Finding investments

The growing pool of pension assets is creating a parallel challenge: Uganda needs more investable opportunities that match the long term nature of pension money.

Kenneth Owera, the chief investment officer at the National Social Security Fund, said NSSF has about Shs35 trillion in assets, creating a responsibility to contribute to national development while protecting members’ retirement savings.

“That capital has to contribute to national development but also ensure we issue a good return on investment to our members,” Owera said.

NSSF already invests across several asset classes, including government securities, equities and real estate. Its equity investments include listed companies such as MTN Uganda, Airtel Africa and Quality Chemical Industries and more, while the fund also invests in regional markets.

But Owera said the growth of pension assets is not being matched by a similar growth in investment opportunities. “The challenge is there is growth in assets at NSSF but investment opportunities are not growing as much as we expect,” he said.

This is becoming an important policy issue for Uganda. As pension assets grow, concentrating too much capital in a limited number of traditional investments could constrain diversification. At the same time, pushing pension funds into projects simply because they are associated with national development could expose members to unnecessary risks.

Owera said every investment carries risk, but stakeholders can work together to strengthen the investment environment.

“There is a place for different players to come together to achieve outcomes like roads and other infrastructure,” he said.

This creates an opportunity for government and the private sector to develop more structured investment projects that can attract long term institutional capital.

For example, infrastructure projects could potentially provide pension funds with long term assets matching the duration of their liabilities, while giving government access to domestic capital beyond conventional borrowing.

But such arrangements would require strong project preparation, transparent procurement, credible revenue models and appropriate risk allocation.

Paul Muganwa, executive director, Stanbic Bank Uganda said pension funds have an appetite for long term investments but need assets that offer both returns and liquidity.

“Pension funds have appetite for investment in long term investments and they want options,” Muganwa said. He said tradable assets that allow investors to exit when market conditions change are particularly attractive.

For banks, however, there is a different risk calculation. “Banks carry short term financing risks of up to seven years,” Muganwa said.

That means banks must structure lending in a way that reflects their risk management timelines, while pension funds can potentially provide longer duration capital for suitable investments.

This creates scope for collaboration between banks, pension funds, capital markets and government in financing projects that require longer investment horizons.

From savings to growth

The broader economic argument is that Uganda cannot achieve its Tenfold Growth Strategy through public spending and foreign capital alone.

It will also require deeper domestic savings. The expected expansion of Uganda’s oil and gas economy could provide additional public revenues and foreign exchange, but pension sector leaders argue that domestic savings should also play a larger role in financing the country’s transformation.

Mulongo cautioned, however, that increasing financial assets alone does not automatically translate into economic growth. “An increase in financial assets does not mean the economy will produce,” he said.

Inflation, exchange rates, household incomes, productivity and the availability of productive businesses all influence whether financial resources translate into real economic expansion. His point is important for Uganda’s pension debate.

A growing pension sector is necessary, but it is not sufficient. The country must simultaneously create investable businesses, bankable infrastructure projects and deeper capital markets capable of absorbing long term savings.

Banks can help businesses become investment ready. Capital markets can provide tradable securities. Pension funds can provide patient capital. Regulators can establish safeguards. Government can create the legal and infrastructure environment required to reduce investment risks.

The expected growth in Uganda’s petroleum revenues could further increase the amount of capital available to the economy, but pension savings provide a different and potentially more sustainable source of domestic financing because they are accumulated gradually from workers and employers.

Uganda needs to move from a culture in which pensions are viewed primarily as money for retirement towards a system in which retirement savings are also recognised as an important component of national capital formation.

That does not mean sacrificing the interests of pension members for development objectives. Rather, the challenge is to find investments that can simultaneously protect members’ savings and finance productive economic activity.

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