Balancing the pressures from different stakeholders World Bank Conference on ALIGNING FINANCIAL SUPERVISORY STRUCTURES WITH COUNTRY NEEDS Presentation by Candy W. Okoboi Director Legal, Policy and Compliance - Uganda The case of UGANDA

A small economy indeed.. But OPEN Area: 236,040 sq km Population: 28,195,754 Agriculture: 80% of pop. Exchange rates: Liberalized Interest rates:Liberalized Capital:Free movement

GDP ppp GDP growth GDP p/cap Inf.Inv. Uganda $46.06 billion 4.9%$1,7008%23.4% South Africa $534.6 billion 4.6%$12,0004.6%17.9% Financial sector assets = 33% of GDP

The financial sector landscape

 15 commercial banks with assets under 30% of GDP  7 credit institutions with assets of under 1.5% of GDP  2 development banks  3 finance and leasing companies  19 insurance companies with assets under 1.3% of GDP (90% non-life)

 1 statutory provident fund – The National Social Security Fund (NSSF)  1 stock exchange (Uganda Securities Exchange) with market cap of US$2,286m (8 listings & 15 Government bonds)  1 collective investments schemes manager (3 schemes)  4 asset managers

 Bank of Uganda – prudential regulator for financial institutions (commercial banks and credit institutions)  Capital Markets Authority – prudential regulator of the securities market  Uganda Insurance Commission – prudential regulator of the insurance companies and agents  No prudential regulator for the pensions industry

NSSF “not so rosy” picture 2000/12001/22002/3 2003/4 2004/5 Members’ Funds (Million US$) Total Investments (Million US$) Headline inflation 5%-2%6%5%8% Interest Rate earned members contribution (%) 34677

NSSF “not so rosy” picture NSSF members178,882 Total paid employees (2002)1,002,031 NSSF coverage17% NSSF funds/GDP3% Active labour force6,404,000 Figures as at June 2005

Outside NSSF  Over 50 Private occupational schemes  Current approximate assets US$60m  Unfunded defined benefit Public Service Pension Scheme with escalating liabilities to Government of approx. US$200m

High on the agenda  Liberalization and independent regulation of the pensions industry  Fully funded public service scheme  Enhancement of social security and pensions products  Expansion of pensions coverage

Who are the different stakeholders and what are their views? Supervisory structure

Government / MOF  Financial sector deepening  Cost efficient regulatory structures  Reform NSSF  Increased domestic savings  Address public sector liabilities  In favour of CMA being reformed to assume the regulation of the pensions sector

Government / MOGLSD  Reform of social security structure and expansion of social security products  Preservation of NSSF preferential status  In favour of an independent pensions regulator and have legislative proposals to this effect.

Capital Markets Authority  Development of institutional investor base  Self sustainability through expansion of portfolio  Economies of scope / market development  In favour of consolidated regulator with CMA as the nucleus

Bank of Uganda  Concentration of regulation of commercial banks and credit institutions and macro economic policy development  Impromptu Regulator by virtue of “rogue” provision of the law  Keen on the merits of consolidated regulation for NBFIs  In favour of consolidated regulator with CMA as the nucleus

Uganda Insurance Commission  Opportunities for institutional growth and empowerment  Growth opportunities for insurance providers to offer pension products  In favour of consolidated regulator with UIC as the nucleus of a new body altogether which will absorb existing structures

Employees  Real returns!  Freedom of choice & flexibility  Wider scope of benefits  Universal coverage  Competitive forces for all  Conversion of NSSF to pension fund  In favour of independent regulator (as opposed to Minister)

Employers  Reduced liability  Freedom of choice  Reform of the NSSF to become market responsive  In favour of independent regulator (as opposed to Minister)

NSSF  Survive – averse to competition  Preferential place in the liberalized sector  National provider  Element of compulsory contributions  In favour of independent pensions regulator (prefer the Kenyan model)

Development partners  Speedy reform  Funded schemes for all categories  Cost and operational efficiencies  In favour of consolidated regulation for the capital markets, pensions and insurance industries

Balancing all these strong sentiments

All-inclusive task forces  The Social Security and Reform Stakeholder Transition Group (STG) appointed by the Minister of Gender, Labour and Social Development in January 2003  Report on policy recommendations regarding social security and pension reform  Recommended “new independent consolidated regulator” with social security mandate

All-inclusive task forces  Pension Reform Taskforce (PRTF) by the Ministry of Finance, Planning and Economic Development in 2004  Considered STG report as “starting point”  Stakeholder input to Cabinet policy paper  A case of too many cooks and duplication of efforts

Interim supervision over NSSF  Presidential directive to transfer the fund to Finance from Labour in 2004  Bank of Uganda interim regulator in view of its resources  Fund reports to Ministry of Finance and Bank of Uganda  Can a central bank adequately regulate provident funds? Investment decisions lie with Minister

Look to our neighbours  “Local” solutions to local problems  Similar socio-economic infrastructure  In line with the overall strategy for regional integration – the East African Community  Assume the neighbour’s mistakes; Kenya’s model is already facing a lot of challenges

Look to the Consultant  External and independent views and recommendations  Impartial consideration of all stakeholder opinions  Home-grown solutions at risk

Unresolved preliminary issues  Policy direction and sequencing  Leadership and coordination  Clarity of mission: Social security reform or pension sector reform or both?

Conclusion  Preliminary issues to be speedily resolved  Consolidated regulation likely to take the day  Need to be exposed more to the challenges of other markets in order avoid those mistakes and arrive at the best model for our circumstances.

Thank you for your kind attention CAPITAL MARKETS AUTHORITY 14 Parliament Avenue Jubilee Insurance Centre, P.O.Box Kampala – Uganda