Capital Markets Authority Protecting Your Investments

Pension Funds in Capital

Markets & Infrastructure

Development

Comments at the IOPS Global Forum, Mombasa, Kenya,

31st October 2008

JAPHETH KATTO CEO, CAPITAL

MARKETS AUTHORITY

Capital Markets Authority Protecting Your Investments

Presentation Outline

Snapshot of the Pensions Industry in Uganda

Snapshot of Capital Markets Industry in Uganda

Pensions and Capital Markets Development in Uganda

Pensions and Infrastructure Development in Uganda

Comments on Papers presented

Way Forward

Capital Markets Authority Protecting Your Investments

Snapshot of the Pensions

Industry in Uganda

Dominated by the National Social Security Fund (NSSF)

Members funds 2007/8 – (approx) Ugx 1.08 trillion

Approximately 40 private sector pension schemes with

assets of approximately UShs 100billion (2003)

Public Service Pension Scheme (Pay-as-You Go) in arrears

of over Ushs 400 billion. Will become contributory.

Members of Parliament Pension scheme recently

established. Contributory but self regulated.

Private sector schemes not regulated

A regulator expected by the end of 2008. It’s this

regulator which will spearhead the pension reform

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Snapshot of Capital Markets

Industry in UgandaNo restrictions on foreign investment

One stock exchange with 9 listed companies and a market capitalization of over Ushs 6 trillion

4 outstanding corporate bonds worth Ushs 103 billion

29 outstanding treasury bonds worth Ushs 1.5 trillion

5 fund managers with Ushs196 billion funds under management

Capital Markets Authority Protecting Your Investments

Pensions and Capital Markets

Development in Uganda

Opportunities

Provision of demand for securities

Provision of Underwriting for Initial

Public Offers

Provision of liquidity in the stock market

Stabilization of prices in the stock

market since they are long-term

investors

Enhancing corporate governanace

Capital Markets Authority Protecting Your Investments

Pensions and Capital Markets

Development in UgandaChallenges

Governance Issues

Lack of a pensions regulator. What model.

Unliberalised pensions sector

Monopolistic pension industry dominated by one player

Non-involvement of professional investment managers in the management of the pension funds especially of the dominant NSSF

There are very few listings of debt and equity products

An undiversified product base (i.e. there are a few types of securities available in the market)

Lack of credit rating agencies

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Pensions and Infrastructure

Development in Uganda

Opportunities

Vast natural endowments available for infrastructure projects from land to rivers and water bodies with a potential for energy production

Huge demand for infrastructure (roads, railways, housing) from the high population growth rates and development needs of Uganda

Capital Markets Authority Protecting Your Investments

Pensions and Infrastructure

Development in UgandaChallenges

Usual dilemma of investment objectives of pension funds: Fund Returns vs National Economic Development

High risky nature of infrastructure projects especially green field projects (i.e. investments that depend on cash flows of newly constructed or under-construction projects)

Valuation: Usually mark to market valuation is required by pension funds which is not usually possible for instruments backed by infrastructure assets

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Juan Yermo’s Paper

Pension Fund and Capital Markets

Informative and well-researched paper

On preconditions and key determinants of capital market impact of pension funds:● Uganda successful with macrostability and well-

regulated banks

● Challenges are with governance and regulation. Private pension sector unregulated and regulation of public sector (NSSF) weak

● Access to anxilliary services is also a challenge. Services (trustees, custodians, administrators, fund management not well developed).

Capital Markets Authority Protecting Your Investments

David Tuesta’s Paper

Infrastructure Investment and

Pension Funds in Latin America

Very useful presentation and case

studies

Uganda yet to purseue any reforms but

would like to learn from other countries

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Nic Rouse’s Paper

Infrastructure in Africa – a Debt Perspective

Very useful paper and would like to see EAIF in Uganda

Little experience of PPs in Uganda. Bujagali Power Project a good test case.

Legal framework and local capacity has to be developed.

Issues of sovereign and corporate rating need to be addressed.

I agree – political will is a pre-requisite. Risks of interference in pricing and delivery.

Need to change culture – people still expect Government to provide roads (free of charge), subsidised water and power. Note however low income of majority.

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Way ForwardGood Governance is a must

Urgent need of pensions regulator – must be“independent” and regulate all schemes (NSSF,parliament, public service)

Pensions sector needs to be liberalised.

Pension fund regulations must be structured sothat the goal of safeguarding the value ofpensions does not hinder investments in viableand profitable infrastructure projects

Infrastructural projects also need to tailor theirinstruments to satisfy the needs of pension funds.These instruments to be attractive to pensionfunds, they need to be, to the extent possible:

i) More liquidii) Less risky (lower probability of failure)iii) Less volatile

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Thank You

Capital Markets Authority Protecting Your Investments

For More InformationContact:

Capital Markets Authority

8th Floor Jubilee Insurance Centre

14 Parliament Avenue

P.O.Box 24565

Tel: +256 414 342788

Fax: +256 414 342803

E-mail: info@cmauganda.co.ug

Website: www.cmauganda.co.ug