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NSSA investments guided by good corporate governance

Former NSSA chairman Robin Vela

By Robin Vela

Pension and other social/welfare protection funds around the world that are tasked with paying pensions over future decades have a serious responsibility.

They must safeguard their cash while ensuring pension contributions earn a real return above inflation in the long term.

The National Social Security Authority (NSSA) is such a pension fund.

It manages the contributions of hard-working Zimbabweans and invests the same in long- and short-term instruments to preserve real value, deliver real investment returns and ensure its liquidity.

A fundamental requirement is to manage risk, in other words avoid losing money.

After several decades of hyperinflation in Zimbabwe and a new episode commencing, investing in appropriate value-preserving assets and instruments has been the best way to avoid the depreciation of cash.

History has it that property and equities, in the absence of the ability to purchase actual gold bars, has been the leading way to preserve value.

During the latter part of my tenure at NSSA, the potential for a repeat hyperinflationary environment was becoming evident.

One of the defensive strategies that NSSA pursued was to invest in affordable housing, which served the multiple purpose of preserving value, delivering a real return on investment and contributing to social and economic upliftment.

This strategy is contained in a blueprint for NSSA, which had been tasked with building 10 000 affordable houses between NSSA and its subsidiary National Building Society (NBS).

The Authority could fulfil its remit in more than one way. It has its own land banks, on which it can invite developers to tender for contracts to build housing. It did this in conjunction with NBS.

When NSSA was not using its own land bank, it was not required to go out to tender, as it was essentially entering in an off-take agreement.

On NSSA land, NBS invited tenders for the development of houses.

Under my chairmanship, tenders were awarded for the construction of affordable housing on NSSA land banks in Glaudina and Chinhoyi.

However, to my knowledge, despite the +/-18 months of following the rigorous state procurement process, not a single house was built.

To speed up delivery of housing, which was a government and social upliftment priority, the board of directors of NSSA decided to exert their authority to invest in houses through offtake agreements.

This entailed an entirely different process.

NSSA, like any other government body, is required to follow state procurement regulations to acquire goods and services. However, the Procurement Act allows certain deviations.

Section 3 provides for the exemption of certain classes of procurement and Section 7 of the regulations, Statutory Instrument No. 171 of 2002, refers to limited tender procedures under certain circumstances.

Sub-section 2 specifies these circumstances, one of which is the procurement of goods or services of a specialist nature, which applies in this case.

Deviation from the normal state tender procedure requires the approval of the board of directors, which was obtained.

NSSA’s specialist in state procurement requirements was always present when the housing investment was discussed and raised no problems with it.

To achieve the accelerated and efficient delivery of housing, NSSA entered into offtake housing contracts with four developers in mid-2017, the biggest of which was Housing Corporation of Zimbabwe (HCZ).

In these cases, the developers acquired the land, proposed the building technology and quoted a price at which the houses would sell.

The intention was that when the houses were completed, NSSA would buy them off the developers for resale at a margin.

In these off-take agreements, NSSA does not take any of the risks of financing and construction delays.

The houses are on sold at a fair price to make an appropriate return on investment for NSSA and they can also be mortgaged through NBS, which strengthens the NBS balance sheet.

While the delivery of affordable houses fulfils the authority’s social mandate, it is not a charitable activity – it is intended to preserve value in real terms and to generate returns for future pension payments.

These offtake agreements require NSSA to pay a deposit to the developer to demonstrate commitment.

However, deposits are not paid without full security.

Every deposit is secured by a third-party guarantee and a lien over the developer’s land.

If the developer does not own the land, the security is agreed with the titleholder.

In the case of HCZ, NSSA’s US$16 million deposit payment was secured three times over via a US$16 million Zimnat guarantee and a US$32 million lien over the development land — with the title deeds being held by NSSA.

Based on the offtake agreement with HCZ, 57 houses had already been completed and 53 were under construction at the time the process was halted by the then newly appointed minister. NSSA was confident that once the process was in full swing, HCZ would have been able to deliver 20-30 houses a day or 2 000 houses a year.

The reason HCZ was able to deliver at this pace was that they use a specialised modular design, proven in the US, in which pre-mixed concrete is poured into a mould. These houses, when delivered, are fully finished and furnished.

NSSA had standing applications from various trade unions wishing to buy the completed houses for their members.

The pre-approved applicants far exceeded the potential houses to be built.

Criticisms that these houses cost more than those delivered in the NBS Dzivarasekwa project are based on incorrect comparisons.

The Dzivarasekwa houses, at $25 000 each, had no interior finishings or furnishing.

The $38 000 price tag for the HCZ houses was for a fully completed and furnished unit, of higher quality and strength, yet still well within the “affordable” category.

NSSA can only fulfil its social and investment mandate when everyone sings from the same hymn sheet.

Where there are many different interest groups, in a politically heated environment, it becomes twice as hard to achieve challenging targets.

In a more stable environment, we believe NSSA would have delivered 10 000 houses over time, to the satisfaction of all concerned.

Today there is still a huge demand for housing in Zimbabwe.

NSSA can help to meet this demand, preserve real value in a hyper-inflationary environment, while making an appropriate real investment return for its pensioners.

*Robin Vela is the former NSSA chairman

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