Tawanda Musarurwa

In recent months there seems to be an increase in the number of private pension funds that have gone into liquidation — and that is a good thing.

Market failures are, in a sense, a form of “external control”: entities that deserve to fail will fail.

But what of entities that must not fail, for one reason or the other?

In such situations, where market failure is not an option, a strong emphasis should be placed on monitoring mechanisms.

For an institution such as the National Social Security Authority — which has lost millions (in United States dollar terms) in the past through bad investments, corruption or ineptitude — the role of the Minister of Public Service, Labour and Social Welfare, the NSSA board and management should essentially be one of safeguarding the interests of the pension fund.

They have a responsibility, as provided by the National Social Security Act (Chapter 17:04), to be accountable, transparent and above all, ensure good corporate governance of the institution.

As a statutory body tasked by the Government to provide social security for millions of Zimbabweans, NSSA is one of those few entities that cannot afford to fail.

However, the authority’s past is not encouraging. The recent dismissal of investment manager Mr Richard Fusire for “bad decision-making” that prejudiced the authority of at least US$7,4 million serves to highlight some critical corporate governance gaps both within and around the entity.

According to reports last week, Mr Fusire was accused of authorising the payment of over US$1,4 million in a housing project deal without following the entity’s proper investment market analysis.

He is also accused of  sanctioning investments of US$6 million with Metbank, which did not meet the authority’s criteria because of its poor credit rating.

There are, however, interesting claims made by Mr Fusire in his defence.

He alleges that the NSSA board at the time had in fact authorised the US$1,4 million investment on November 23, 2016, adding that the drawdown request brought by National Building Society through the Strategic Asset Investments Division was similarly green-lighted by the board.

The second key claim was that the board, through the involvement of the then Minister of Public Service, Labour and Social Welfare, had granted a special dispensation and facility to Metbank.

While it can be claimed that Mr Fusire’s hands are not clean, the board and line ministry also seemed to be complicit.

It is the board’s mandate to approve or disapprove the execution of a contract.

Section 19 of the NSSA Act reads: “An agreement contract, or instrument approved by the board may be entered into or executed by any person or persons generally or specially authorised by the board for that purpose.”

Actually, for a state pension fund, the role of the board is ever more important, with a broader array of key decisions, including determining actuarial assumptions, investment of fund assets, setting of benefits and other decisions that relate to the management of the fund. What was the logic behind the previous board’s decision, “through the involvement of the Minister”, to grant a special dispensation to a financial institution that had a low credit rating?

Ideally, the board should also act as a buffer between the ministry and the fund.

Poor corporate governance is felt most by the vulnerable in our society — the elderly. Why should pensioners, who are the ultimate investors, be merely residual claimants?

Developed by American economist Francis A. Walker, the residual-claimant theory of wages holds that wages are the balance of total industrial revenue after rent, interest, and profit (independently determined) have been deducted.

Translating this to pensions, pensioners receive the scraps after decades of investments.  This situation is exacerbated by investing into an inefficient or corrupt fund.

It is, therefore, incumbent upon the board (as trustees of sorts) to protect its essential stakeholders.

In an earlier interview, NSSA acting general manager Mr Arthur Manase said the authority had learnt from its past.

“The new board has set in motion several strategic initiatives in the investments sector underpinned by sound corporate governance principles.

“These governance practices are centred on prudent management of investments, which is critical to preserving NSSA’s balance sheet,” he said.

Only time will tell.