· 8 months ago

What NSSF amendments mean to the startup ecosystem in Uganda

NSSF

Plans are afoot for proposed changes to the NSSF Act. The document, a copy of which has been making rounds on social media, states proposed changes to the National Social Securities Fund (NSSF) Act Cap 222.

This is to be done through a National Social Security Fund Amendment Bill 2018 tabled in Parliament.

While the process for bringing the proposed amendments into law has to be followed, it is widely expected that the amendments to the NSSF Act will pass to calm agitation and push for liberalization of the pension sector through the Retirement Benefits Sector Liberalisation Bill 2011 currently before Parliament.

Though there are many amendments proposed, we focus below on those that are of most concern to the startup and early-stage ecosystem in Uganda. These include:

  • The mandatory contribution of all workers regardless of the size of their enterprise.
  • To amend the Act to provide that an employer who fails or refuses to remit contributions within the prescribed time may have the business managed by a third party.
  • Persons over the age of 60 years will not pay tax on their benefits

Mandatory contribution, regardless of the organization’s size, will increase available investable funds for NSSF, even faster. Currently, the NSSF fund size is UGX 7.9 trillion (USD 2+ billion).

According to UBOS, the range of wages in Uganda is between UGX 430,000 to UGX 1,770,000 for low skilled and high skilled employees. This is against an employed population of approximately 8 million people.

Also read: How to use blockchain technology to unlock real estate potential in Uganda

Even at a salary of UGX 400,000, over UGX 480 billion in monthly collections can be realized. By taking a 15% pension contribution.

Additionally, stipulating that persons over the age of 60 will not pay tax on their benefits should also encourage savings for longer.

This, combined with increased allocations and fund size which will be seeking investment opportunities reinforces the case for investing in early/mid-stage businesses via vehicles (VC funds, PE funds).

NSSF has invested in a Private Equity fund to date targeted to SMEs in the Agribusinesses space. It is thus conceivable that they can invest in a Venture Capital fund targeted to local early-stage businesses.

But, it is also worth noting that this increased pool of funds for investment will come at an expense. Especially for early-stage businesses.

The proposal to make contributions mandatory for all workers regardless of enterprise size will lead to increased costs to do business through the NSSF obligations. Especially, seeing as the majority of Ugandan businesses are micro, small and medium enterprises (MSMEs). Most of which are operating informally.

As the organisations charged with overseeing the processes for registration and compliance with business operating rules in Uganda, including URSB, URA, Local Municipalities (KCCA, Wakiso, etc.) and NIRA are becoming more integrated, these costs of operating a business will be inescapable and easily enforceable.

They will then mean more barriers to starting a business in Uganda. As well as increased costs of running it. Especially for early-stage companies.

This may slow down growth as early-stage businesses try to optimize the already scarce resources. In turn, it might lead to a need for extra capital requirements within the ecosystem to shore up costs and remain compliant.

Uganda already has an existent and growing informal economy. To combat the need to follow NSSF, I predict a spur in the existing gig economy – aka informal employment. The amendment will further it as employers, especially early-stage businesses, try to navigate costs and labour laws.

Although, this should also present an opportunity for platforms that enable crowdsourcing of labour. Or ease one to seek employment as an independent contract worker.

Look at it this way; The same way Uber is able to use drivers without paying Social Security and other benefits, businesses will be able to do the same. A business will only hire someone to execute tasks as an independent contractor.

Already, local players in this space include ProInterns. While globally platforms available for crowd-sourcing labour are growing by the day. Notable ones include PeoplePerHour, UpWork, Fiverr and more.

Kenneth Legesi is a Management Consultant and Corporate Finance Advisor. He is also passionate about catalyzing financing for startups and SMEs in Africa.

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