GETTING NASSIT INVESTMENTS RIGHT IS BEYOND CHANGE OF LEADERSHIPApril 29, 2014
BY ISMAIL BANJA KANDEH.
The bombshell that dropped late Thursday17, April 2014 from State House that President Koroma has relieved the services of the National Social Security and Insurance Trust’s (NASSIT) Director General Samuel Bangura (Jr), his Deputy Director General-(MFST) Gibril Saccoh, and Director of Investment, Idris Turay was not much of a surprise to the public given the history of frequent media highlights on several alleged financial irregularities in the recent past, which was further given weight to by the investigation of the Auditor General on the recently published NASSIT 2010 Financial Audit Report.
Report on the NASSIT 2010 Systems and Financial Audit by the Audit Service Sierra Leone (ASSL) did not only proffer facts that the Trust is making delay in processing and payment of pension to its beneficiaries, but that it is as well making investments that seemed not worth any value for money and/or making very little or no returns on capital investment. For example, the report states that as at 2010, the Trust had capitalized Le 26.8 billion in respect of administrative and repair costs for the ferries undertaken by the Trust on behalf of the Sierra Ferries Ltd, an allegedly loss making subsidiary company that is 100% owned by the Trust (NASSIT).According to the report such would seem to be the case for most of the other subsidiary investment companies and projects so far undertaken by the Trust. The situation is made more scary when the report states that the Trust did not prepare a consolidated account (i.e. Financial Statements) incorporating its subsidiaries, associates, and joint ventures in accordance with the International Accounting Standards (IAS) 27 for the financial year ending 31st December 2010, while at the same time the audit reporting time 2013, 2011 and 2012 annual reports, including annual audit reports, were still outstanding, which represent a breach of section 16(1) of the NASSIT Act 2001 that requires the Trust to submit an annual report to the minister in charge of Social Security within six months after the expiration of the financial year.
Therefore, given the above background; it is not surprising to hear the tips in the media that President Koroma has axed three of the top management staff of the institution. Though it was prompted as result of a letter that emanated from the NASSIT Board Chairman, Jacob Kanu, recommending the overhauling of the entire management structure of the institution’ (New Citizen Newspaper, Tuesday 22 April 2014), however it should have been done long before this time to avert the looming disaster.
Of course no sane person can argue the fact that when the head of an institution is rotten there is nothing one could do to prevent other parts from suffering from the rottenness. The Chairman, Jacob Kanu of the NASSIT Board might be right, but he too took part in the process to cause the establishment to go rotten. In his alleged recommendation to President Koroma for overhauling the entire management structure of the NASSIT, the interpretation by many is that because his time had expired. However, apart from the fact that if such overhauling is to be done fairly, it must be based on the findings that clearly identified those that are responsible for the wrongs that may have happened and/or may be happening at NASSIT. It is still doubtful to think that bring better ways of investing NASSIT reserved funds is to simply change the leadership of the institution. It is the humble opinion of many Sierra Leoneans that though change of leadership is a necessary factor, but ensuring better investment of reserved funds requires more fine-tuned policies and laws than to just change the leadership.
Yes, it is natural that when wrong is done the doer must suffer the consequences. So there is nothing bad and wrong about the sacking of top management staff for whatever wrong things they may have committed in the institution. If the wrong doers are identified and commensurately punished in whatever way, it will send the right message to the public. Sacking them is just the beginning of the right action expected by the public, but it should not stop there. Can sacking some members of the current management guarantee the next crop of managers to do right thing? In Sierra Leone, the private sector is not only too narrow but very fragile to profitably absorb NASSIT resources without risk of collusion or corruption between reserved fund managers and rouge investors. However, some developing countries have skilfully reviewed and fine-tuned their laws to overcome problems such as embezzlement, wrong or mis-directed investments and more. Liberalizing pension funds through enactment of laws to allow well guided state-borrowing using long term domestic debt instruments for financing of specific profit oriented development projects; allowing overseas investments of reserved funds through enactment of laws to enable participation in overseas securities and equity markets; and allowing through enactment of laws for the management of reserved pension funds by private fund managers different from the institution administering the pension scheme itself, where there are strong, capable and credible fund managing financial institutions and booming private sector.
This piece will address itself to the first option, which is liberalizing reserved pension funds through enactment of laws to allow state-borrowing through long-term domestic debt instruments for the financing of special profit oriented development projects, and will base on the experience of the Singapore’s Pension Fund – the Central Provident Fund (CPF).
Singapore is one of the developing countries to first tap its reserved pension funds for financing social development projects, particularly in the area of housing, through the use of appropriate domestic debt instruments. Starting in 1968 the Government of Singapore embarked on Public Housing Scheme, which marked the first liberalization in the use of CPF fund. To achieve this objective, the government first undertook three fundamental measures as follows: First, it liberalized the CPF fund to extend its domain to cater for other social, economic and political imperatives such as home-ownership, healthcare, education and investment. From 1968 to 1996 several changes were made in the CPF Fund that allowed government and members’ access reserved funds to pay for housing, healthcare, education and shares. Second, the Government Bond Market was developed by establishing the Monetary Authority of Singapore (MAS) that introduced a kind of Government Securities known as the Singapore Government Security (SGS). The MAS managed the sale of SGS, which the government issued out mainly to CPF Fund to access development fund. Third, the Housing Development Board (HDB) was revamped and re-engineered to serve as a vehicle to drive the home-ownership program.
Having got the above three fundamental measures in place, the government facilitated the circular flow of the CPF fund to finance the construction of HDB flats meant for rent and sale to individuals. The pattern and flow go like this: First, the CPF Fund buys SGS from the Government through the MAS as a government debt instrument. Second, the Government allocates the SGS generated fund to HDB for building flats (houses). Third, the HDB finances HDB flat construction for rent or sale to individuals who pays mortgage instalments.
This is the innovative strategy that the Government of Singapore used to overcome the difficulty in investing its reserved pension funds in its economy without much risk exposure to fund managers, rouge investors and the government, while at the same time achieving success in one of the country’s topmost development priority in the area of social housing. The strategy prevented corruption and collusion between pension fund managers and rouge investors because the fund managers do not directly involve in the investment deals, while it also prevented the government from misusing the reserved fund because the utilization of the fund for special development projects was well guided by laws and public scrutiny. Today Singapore’s Affordable Social Housing policy has achieved a remarkable 90% home-ownership.
It is the view of Sierra Leoneans that the Singapore experience be replicated. The Government of Sierra Leone can liberalize the NASSIT reserved pension funds through an Act of Parliament to have access to the funds for development purpose, just as Singapore did.
To achieve this, the government would first have to develop long term securities (bond) through the Central Banking System- (Bank of Sierra Leone). Establishing a specialized agency similar to that of the Monetary Authority of Singapore (MAS) could be useful. The Government would have to legislate a Development Loan Act, which would allow the establishment to issue out Government Bonds (Securities) as long term debt instrument to finance (not recurrent expenditure) but long term infrastructure development like affordable housing, strategic toll tarmac roads, land and sea ports, electricity, and essential services such as public transportation among others. The Government Bonds (Securities) can be issued to the NASSIT Trust and other state-owned Commercial profit generating institutions like the National Insurance Company(NIC), Sierra Leone State Lottery (SLSL), Sierra Leone Commercial Bank (SLCB), and Rokel Commercial Bank (RCB) among others to generate funds for long term infrastructure and essential services development through other state-owned commercially oriented development agencies like Sierra Housing Corporation (SALHOC),Sierra Leone Road Authority (SLRA), Sierra Leone Road Transport Corporation (SLRTC), National Power Authority (NPA), Sierra Leone Port Authority (SLPA) etc, etc.
In this process the government would serve as a mediator and guarantor between fund generating state- institutions and infrastructure developer/service delivery state-owned enterprises. As such where there is a default of debt repayment, the government as guarantor will automatically be obligated to assume responsibility for liabilities as in the case of any international debt.
Prior to this initiative, bond proceeds should be handed over to state-owned commercially oriented development and service delivery agencies. Government would have to commercialize, re-engineer and re-invent them by reviewing and refocusing their vision, mission, and corporate objectives as well as overhauling their management structure and operational functions in order to meet the present day-free market challenges. They would have to be re-injected with sufficient financial capital, technical and management expertise. They should be re-invented and re-engineered in such a way that they are able to operate profitably to meet running costs and repay government guaranteed loans allocated to them to undertake their respective projects.
A flaw in this strategy could be the misuse of government borrowed reserved pension funds by utilizing commercial government agencies, but a counter to that argument is that whether the suggested liberalization and government funds borrowing or not, the government is still the under-writer of the NASSIT Scheme. According to the NASSIT Act 2001, if the government’s appointed Board and Management of Trust happen to bankrupt NASSIT to an extent that the scheme cannot pay its members pension on the occurrence of contingencies, it automatically becomes the obligation of the government to undertake such pension benefit payment to claimants on behalf of the Trust. So equally, if the government is enable to access the reserved pension funds through long-term development bonds and becomes reluctant and/or unable to recover repayment of the borrowed funds by utilizing government commercial agencies then it still has the same obligation to undertake pension payment to claimants on behalf of the Trust.
This strategy will not only ensure that the NASSIT reserved pension funds is protected against misuse, rouge investors and undue political interference , but it will also ensure that the funds accrue attractive returns on the long-term bonds while at the same time boosting the economy and promoting domestic borrowing. Until and unless such guided laws are put in place, the possibility for a misuse of NASSIT reserved pension funds by management, rouge investors and undue political interference will hardly come to end by any frequent change of leadership in the institution.
The government must legislate laws that protect the NASSIT reserved pension funds as well as properly guide its investments by the Trust’s management.