ZIMBABWE Independent group deputy business editor Tatira Zwinoira (TZ) caught up with the National Social Security Authority (Nssa) acting general manager Charles Shava (CS, pictured) and spoke to him on various issues including pension payouts in United States dollars (USD), their offshore investments and major development projects the authority is involved in. Below are excerpts of the interview:
TZ: Why has Nssa not put in a regulatory framework ensuring that pension payouts are in USD and are a liveable amount, given the fact pensioners are complaining about paltry payouts?
CS: The institution of a regulatory framework pertaining to currency use is the responsibility of monetary authorities, so in this regard Nssa cannot put in place a regulatory framework but operates within the framework provided by the monetary authorities. The Nssa Pension and Other Benefits Scheme is designed as a pay-as- you-go partially funded defined benefit scheme. As such, its pension pay-outs are sustained by current contributions, while the surplus is invested to meet future liabilities.
Contributions that were paid in USD during the multicurrency era were converted to ZWL at the rate prescribed by the Government in 2019. Currently more than 90% of the contributions are being paid in ZiG. Pensions are, therefore, paid in ZiG. However, the authority, being empathetic to the plight of pensioners and cognisant of the need to cushion them against inflation, pays a portion of the pensions in USD as and when resources permit. For instance, in the past five months the authority paid the bulk (80%) of the pensions in USD. We are planning to increase the pensions to US$60 in the coming months resources permitting.
TZ: And on paying liveable amounts?
CS: As regards paying a liveable amount, it is important to note that by design the Nssa Pension and Other Benefits Scheme (POBS) is not meant to be the only source of income for pensioners.
The comparatively low level of contribution towards the scheme shows that the scheme is meant to be complemented by other schemes. In fact, POBS, being a social security scheme is deliberately designed to co-exist with occupational and private pension schemes.
As such, it has a lower contribution rate in comparison with private pension schemes and is subject to an insurable earning ceiling. The contribution is at rate of 9% (consisting of 4,5% by employee and 4,5% by employer) of basic salary, up to a set insurable earning ceiling, which is subject to review. This low contribution rate clearly shows that it is not meant to be the main pension scheme, neither is it designed to meet all the pensioners’ needs. Despite its low contribution rate, POBS is paying higher pension benefits in comparison with private schemes.
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Currently, the Nssa minimum retirement pension is US$55 payable in ZiG at the interbank rate, while the minimum occupational pension as gazetted by Insurance and Pensions Commission (Ipec) is equivalent to US$40 for the private pension schemes, although latest figures show that the average occupational pension currently stands at US$17.
Despite having the lowest contribution rate, Nssa pays to the pensioners more than occupational pension funds on a dollar to dollar return to the members.
The current Nssa minimum retiree pension of US$55 is about three times higher than what is being paid by occupational pension funds. The Nssa minimum retirement pension also compares favourably with those of other countries in the Sadc region, although Zimbabwe is the only country with an insurable earning ceiling.
Zimbabwe’s contribution rate of 9% is also lower than that of most countries. Tanzania, Malawi and Zambia have contribution rates of 20%, 15% and 10%, respectively without a ceiling.
Regarding minimum contribution period for retirement pension, Zimbabwe also has a relatively low minimum contribution period of 10 years in comparison with countries such as Tanzania, Malawi and Zambia with respective minimum contribution periods of 15 years, 20 years and 15 years.
TZ: Where does Nssa see itself in terms of the development of the local economy, and in particular, in which sectors?
CS: Nssa’s strategic intent is to invest assets that generate sustainable income streams to enable the improvement of members welfare. We target investments that provide for real growth that surpass the growth in benefit obligations over time.
Nssa intends to play a pivotal role in impact investments that focuses on social and economic infrastructure and projects that generate foreign currency, substitute imports, and create jobs, reduce poverty, empower citizens and solve social problems and contribute to Gross Domestic Product (GDP). These projects include construction of shopping malls, renewable energy and agriculture, among others.
TZ: We understand that Nssa is looking to make offshore investments to bolster its balance sheet. In which areas will Nssa be looking to invest in?
CS: The offshore investment strategy is premised on complying with national laws on offshore investments guidelines as promulgated from time to time by the government and the Reserve Bank of Zimbabwe (RBZ). Our primary focus as a mobiliser of public funds is to contribute to local capital requirements by investing in the local market so that we contribute to NDS1 and Vision 2030.
However, to mitigate geographical risk for the benefit of Nssa members, we have previously invested a small portion of our funds offshore. Our offshore investment was biased towards supranational regional financial powerhouses such as Trade and Development Bank, Africa Finance Corporation, Africa Re and Afreximbank.
TZ: What the reasons for these financial institutions?
CS: The reasons for targeting pan-African multilateral financial institutions are as follows:
Well established, mature and tried and tested business models with moderate business risk and solid financial position.
Diverse shareholder base involving African Countries and developments financial institutions which makes their capital base.
Solid financial performance and growing profitability
Consistent dividend paying history supported by predictable dividend policies, which guarantee sustainable returns to Nssa.
USD as main trading currency which minimise exchange risk on our investment.
Captive market as these entities by treaty, provide member countries with services.
Development impact as they focus on growth of Africa. Afreximbank focuses on financing exports and imports, TDB trade and development, AFC focuses on key infrastructure, while Africa Re mobilises insurance funds through its insurance treaties. Combined these entities have poured billions of dollars into developmental programmes in African countries.
Consistent shareholder value creation through growth of Net Asset Value.
Massive opportunity to co-invest with these entities and unlock the much-needed foreign direct investment intoZimbabwe.
TZ: Is it legal for Nssa to invest into the offshore market given that it is a public entity, holding public funds?
CS: All offshore investments require exchange control approval by RBZ, so they are perfectly legal. The offshore investments are limited to maximum of 15% of an entity’s total investment portfolio to ensure a positive bias towards local investments. As Nssa, we are fully compliant with these guidelines, with our focus being on local investments. Only 2,3% of our investments is offshore
TZ: What are the top investments being made by Nssa into infrastructure development projects?
CS: Nssa has made a strategic decision to contribute to economic development through real estate and financing infrastructure. Nssa is currently active in several projects that involve shopping malls, servicing of residential stands and mixed-use developments in Harare, Mutare, Chinhoyi and Masvingo.
Nssa is prioritising development of its various land banks as part of unlocking value for members. With regards to infrastructure, Nssa has been financing all onsite infrastructures during servicing of land and has also contributed towards the financing of new roads, which include Kanyemba Road and the road to the new parliament. Nssa is also invested in solar generation in partnership with other players.
TZ: Do you have any other strategies of investment in the local market?
CS: We are implementing an eco-system approach to local investments where our investee companies benefit from each other.
Over the past years we have been implementing a consolidation strategy that targeted insurance and banking sectors. These consolidation strategies are almost complete. The focus going forward is to optimise the local assets. We also look to co-invest with other like-minded institutional investors to pool together capital for economic growth.
TZ: Nssa saw about US$600 million wiped off its balance sheet over the past two years owing to economic challenges. As Nssa holds public funds, is the authority still able to continue operating? Explain.
CS: The correct position is that the shrinkage of the balance sheet emanates from the loss of local currency value from the period of full dollarisation to introduction of local currency. At one-point Nssa’s balance sheet stood around US$1,2 billion during full dollarisation, however, following the introduction of local currency and the exchange rate of 1:2,50 in 2019 and subsequent depreciation resulted in the USD equivalent balance sheet size dropping significantly. The current upsurge in economic activity punctuated by a stable monetary and exchange rate environment is seeing our balance sheet steadily heading northwards.
Over the past two years the authority has been undertaking massive refocus and transformation of its investment portfolio towards real assets that do not lose value despite inflation. To this end, the authority’s investments have performed well as the financial investment grew by an impressive 1,416% in 2023 alone thereby outperforming the Zimbabwe Stock Exchange (ZSE) All share industrialindex (981,54%) and exchange movements (792%). Our property portfolio performance also grew by nearly 300% in 2023 compared to 2022 and is expected to grow further in 2024 on the back of increased activities that Nssa is making in the housing development market.
TZ: Can you give us an update on development projects that NSSA is involved in?
CS: Nssa recently completed the servicing of 753 medium density stands in Glaudina that are on the market and being sold through the National Building Society, our wholly owned subsidiary.
Nssa also completed the servicing 90 low density stands in Borrowdale, part of which have been sold through NBS. Nssa has also nearly just completed a 22MW solar plant in Nyabira in collaboration with other development partners. The authority is currently servicing 723 low-cost residential stands in Chinhoyi.
Nssa has also begun preliminary work to service 19 hectares for high density residential stands in Masvingo and we hope to complete this by end of 2024. Around 600 stands will be realised.
Over and above residential developments, the authority in partnership with private developers is constructing two shopping malls in Harare (Makoni Shopping Mall in Chitungwiza and Liberation Mall in Harare) and an SME industrial hub in Sakubva Mutare. The authority is also in the advanced planning stages for a modern iconic state of the art mixed use development in Mutare, Meikles Park.
TZ: Please provide an outlook for Nssa.
CS: The outlook for Nssa is positive and exciting.
The board and management has gone on an ethical drive to drive Nssa business upwards by focussing on its core mandate as defined by its founding legislation as well as its two schemes, the Accident Prevention and Workers Compensation scheme and the Pensions and Other Benefits Scheme.
We are paying the best pensions in the industry, and we are now the pension of choice in the country.
We have reduced the Lost Time Injury Frequency rate from a high of 6% to around 2% in the past two years and we aim to get to the internationally accepted standard of less than 1% within three years. The protection of workers health and safety is a critical component of national development.
We have increased our money market investment income over the past three years by over 1500% and our properties income by over 300%.
We believe the future is bright and Nssa will consolidate its position as one of the most stable and largest contributors to national development.
Our contribution to NDS1 and vision 2030 is now clearly unambiguous.
