Social Security Regulatory Authority (SSRA) Director General Irene Isaka told this paper that social security funds have rules and guidelines to follow and these only allow them to offer loans and bonds to interested industrial investors.
She was reacting to a recent directive by President John Magufuli while launching PPF Pensions Fund and National Social Security Fund (NSSF) buildings in Arusha where he ordered the schemes to henceforth refocus their investments from high rise buildings and infrastructure to industries.
Isaka told The Guardian that the funds could sponsor interested firms to invest in industries through loans, equities or corporate bonds.
“There is no provision for direct investment in industries in our existing investment guidelines. So the risk is mitigated,” the director general said.
She added, “We would expect that when social security schemes invest in industries, the investment would be in the form of syndicated loans, corporate bonds or the building of an industrial park to be sold to the industry owners”.
The SSRA boss pointed out that the guidelines set strict benchmarks for each asset class, saying corporate bonds carry 20 per cent; equity carries 25 per cent; infrastructure 25 per cent; loans 10 per cent, and real estate 30 per cent.
“Due to this prohibitive guidelines for direct investments, we made a call for the government to set a proper and conducive environment for industrialists, saying the funds were ready to sponsor the move countrywide,” she said.
According to Isaka, social security investment was confided to five principles, starting with safety wherein every shilling invested should be recouped; the investment portfolio should guarantee security of the members’ contributions. That’s why, owing to the guidelines, the funds are forced to invest at least 20 in government bonds.
She said the yield principle was that every shilling invested should produce a return. Hence the portfolio should provide a positive return over and above risk-free instruments such as treasury bills and bonds.
Isaka said, for instance, that the yield on a 15-year bond was 19 per cent, so any scheme investing in such investment duration should ensure that return on the investment is above 19 per cent.
The liquidity principle, she said, was to ensure that the scheme was liquid enough to meet matured obligations. That is why in the investment guidelines the amount indicated for fixed deposits was 35 per cent to ensure that members got their benefits as they fell due.
Isaka said the diversification principle basically dealt with risk management - that at any point in time every scheme should ensure that they did not place all their eggs in one basket.
The social, environmental and economic utility principle, according to the SSRA boss, was to provide utilities to communities around projects.
The benefits could directly be in the form of employment or indirectly in the form of products and services. Hence, apart from the fact that investment in industries has direct benefits economically, it also has indirect benefits in the form of social and economic utilities.
Launching the buildings in Arusha early last month, President Magufuli decried the trend by social security funds to make huge investments in buildings and other infrastructure, urging them to instead commit such funds in industrial development.
He said industries, apart from providing permanent job opportunities, unlike structures whose completion also spelt the end of jobs, also benefited the funds in new members, besides paying taxes to the government.
However, experts say a decisive move to invest in industry by the funds must be thoroughly thought out and not just rush it industrial ventures simply because the president said so.
Economic consultant Dr Donath Olomi described the order by the president as a socialism hangover still looming within the power structures of the government.
Dr Olomi explained that it was only under the philosophy of command economy that a state actor could issue directives that defy the tenets of a free market economy.
As an economic system, Dr Olomi asserts, economic decisions and the pricing of goods and services in a market economy were guided solely by the aggregate interactions of a country's citizens and businesses, insisting that there was very little government intervention as in central planning.
“Despite a positive visionary motive that the president has, he should avoid messing up with the current economic system structures.
He should rather respect opinion and advice from experts and should desist from issuing idealistic orders for state control of the economy,” he said.
He said such a move was likely to send the pension funds to their early death, as they were not designed to inject their members’ money into factories.
“He should be aware that industrial projects are complex and their investment returns take longer, a move that will see these funds collapse,” Dr Olomi cautioned.
He said from what he knew, social security funds were being regulated under an umbrella body and whatever they injected their funds into had an approved limit guided by the regulatory body.
He added that if these security funds put their money into such projects on political pressure rather than economic attributions, the government would have to bear the blame for the fate the funds would suffer.
According to experts, market economies work on the assumption that market forces, such as supply and demand, are the best determinants of what is right for a nation's well-being.
These economies rarely suffer from government interventions such as price fixing, licence quotas and industry subsidization.
Prof Mwesiga Baregu cautioned the government to make decision after thorough deliberation.
“The ‘Hapa Kazi Tu’ slogan is discouraging critical thinking. They should first understand market needs,” he said.
He faulted the president’s directive, claiming that social security funds were technically and professionally governed by policies.
“Social security funds invest where there are potential returns. They invest where they are not going to be hindered so that they do not interrupt paying pensions to retirees. Investment of the funds is meant to safeguard the value of benefits to its members in case of inflation,” he said.
But Dr Bashiru Ally, on the other hand, was very positive about the president’s advice, saying that security funds could enter partnerships to inject capital in industries.
He said security funds had capital while the government had none, so if security funds di ot play such a role in the industrialization process, then everything would be foreign owned.
President Magufuli further added that while social security funds in other countries contributed about 40 per cent to the gross domestic product (GDP), in Tanzania the sector accounted for only 12 per cent.
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