Balancing the pressures from

different stakeholders World Bank Conference on

ALIGNING FINANCIAL SUPERVISORY STRUCTURES WITH COUNTRY NEEDS

Presentation byCandy W. Okoboi

Director Legal, Policy and Compliance - Uganda

The case of UGANDA

A small economy indeed..But OPEN

Area: 236,040 sq kmPopulation: 28,195,754Agriculture: 80% of pop.Exchange rates: LiberalizedInterest rates: LiberalizedCapital: Free movement

GDP

ppp

GDP

growth

GDP

p/cap

Inf. Inv.

Uganda $46.06billion

4.9% $1,700 8% 23.4%

South Africa $534.6billion

4.6% $12,000 4.6% 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

2000/1 2001/2 2002/3 2003/4 2004/5

Members’ Funds (Million US$) 109 138 176 225 286

Total Investments (Million US$) 94 119 158 198 262

Headline inflation 5% -2% 6% 5% 8%

Interest Rate earned

members contribution

(%) 3 4 6 7 7

NSSF “not so rosy” picture

NSSF members 178,882

Total paid employees (2002) 1,002,031

NSSF coverage 17%

NSSF funds/GDP 3%

Active labour force 6,404,000

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 AUTHORITY14 Parliament Avenue

Jubilee Insurance Centre,P.O.Box 24565

Kampala – Ugandawww.cmauganda.co.ug