Capital Markets Authority Protecting Your Investments Pension Funds in Capital Markets & Infrastructure Development Comments at the IOPS Global Forum, Mombasa, Kenya, 31 st October 2008 JAPHETH KATTO CEO, CAPITAL MARKETS AUTHORITY
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
Capital Markets Authority Protecting Your Investments
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
Capital Markets Authority Protecting Your Investments
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
Capital Markets Authority Protecting Your Investments
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.
Capital Markets Authority Protecting Your Investments
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
Capital Markets Authority Protecting Your Investments
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: [email protected]
Website: www.cmauganda.co.ug