As financial institutions struggle to recover from the devastating effects of the global financial crisis, the Social Security Fund of Rwanda’s (SSFR) investment portfolio grew from Rwf126 billion in the first half 2008 to Rwf138 billion in the same period this year.
The figures represent 9.6 percent or Rwf12 billion.
The national pension body, which is the largest intuitional investor in the country, said the growth is a result of wisely-made investments, pension reforms that were commissioned by cabinet in 2006 plus new staff that were recruited around 2007.
However net returns on investment dropped by 30.5 percent or Rwf1.4 billion from Rwf4.5 billion to Rwf3.1 billion in the period under review as companies in which the body owns shares decided to reinvest the would-be returns.
“Last year at the same time we received dividends from our investments, significantly from the Development Bank of Rwanda (BRD), Banque de Kigali (BK) and Sonarwa.
This time because of the liquidity situation, the shareholders decided not to declare dividends but instead to invest their would-be returns into increasing the capital,” Henry K. Gaperi, CEO of SSFR told Business Times in an exclusive interview last week.
The SSFR owns 22 percent in BRD, 33 percent in BK and 16 percent in insurer Sonarwa with a combined shareholding value of Rwf3.9 billion.
“So, when you look at the money that came in, it may mislead that our investments didn’t perform. Actually they did only that from the shareholders’ point of view it was decided that we invest that money into the same companies,” the CEO said.
Contributions collected or money disbursed by employers rose significantly by 24 percent from Rwf9.4 billion to Rwf11.7 billion on account of the increased number of new registered employers.
Gaperi said that in the first six months of 2009 about 1700 new employers were registered. The figure is expected to rise in the third and fourth quarters of the year.
In terms of benefits, the institution paid out Rwf3.1 billion compared to Rwf1.8 billion in the first half of last year. This means that more money was paid to pensioners.
“So, in whatever angle you look at it there is a remarkable progress,” said Gaperi.
He also added that SSFR is seeking to increase its investments in real estate because the sector is safer in terms of guaranteeing returns. Statistics show that with a value of Rwf58.2 billion and a net return on investment of Rwf2.2 billion in the first half of 2009 government treasury bonds dominate SSRF’s investment portfolio.
The significant performance has been registered at a time when the local banking industry and the global financial sector were grappling with liquidity constraints.
SSFR says it has been affected by the liquidity crunch but local banks in which it owns shares are some of the strongest institutions that kept the economy running.
“So for whether our operations where affected, I think in the long run yes because if banks aren’t able to give as much loans as they should, it means that some companies will reduce their economic activity and therefore may not employ as many people as it should be thus the contributions may be lower towards social security.”
Gaperi added that private companies may not be forthcoming to partner with SSFR in projects where partnership is needed since most of them have been hit by the credit crunch.
“That may also hinder the pace of the projects that we would otherwise implement. But I think globally the effect was not that significant,
“We have gone through those challenging times and the country is beginning to witness significant growth again.”
The liquidity crunch in the local banking industry has partly been attributed to a drain in banks deposits, largely a result of huge withdrawals by large companies and institutions to implement their investment obligation. This left commercial banks with little deposits.
According to Gaperi the move by large institutions was right because the Rwandan economy experienced high inflationary pressures and interest rates throughout 2008.
“I think that was very wise because last year around November, the inflation rate hit in the 20s and the deposit rate was about 10 percent,
“If they hadn’t put their investments in other packages, the inflation would have eaten a lot of their money,” he explained, adding that institutions will always put their money where they think it will generate more profit other than keeping it in banks for a small interest.
The pension body plans to expand its presence in the traditional informal sector, following a new government policy that gives pension schemes a framework to expand.
The current legal framework limits pension saving to people with formal employment.
Only seven percent of the estimated 10 million people in Rwanda use public pension as a saving vehicle. Gaperi says that less than 15 percent of Rwanda’s workforce is formally employed.
“When you look at all those in formal employment, about 96 percent are registered with us,” he said.
Government is also in the process of introducing new products like maternity insurance and provident fund.
“These are going to be part of the incentives to bring onboard other non-traditional contributors. But also in the process we are doing a lot of education and sensitization,” the CEO said.