OUR BUSINESS:
Operating context
External environment
Global economic outlook
In FY2023/24, the global economy continued to demonstrate resilience in navigating the enduring impact of the pandemic, the Russia - Ukraine conflict, and the resultant cost-of-living crisis. Despite disruptions to energy and food markets caused by geopolitical instability and aggressive monetary tightening to combat decades-high inflation, economic activity slowed but persisted.
The ongoing effects of the Russia-Ukraine conflict, exacerbated by other geopolitical tensions like the Gaza conflict further complicated the global operating landscape. However, the IMF projects a steady decline in global inflation from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025. Meanwhile, the global economy is forecast to maintain a growth rate of 3.2% throughout 2024 and 2025.
Impact
The Fund continues to face cost pressures due to global supply chain disruptions. These challenges are particularly pronounced in the Real Estate Portfolio where certain construction inputs are imported. Additionally, elevated energy prices, a lingering consequence of the Russia-Ukraine conflict, have contributed to increased operational and capital expenditures.
Our response
The Fund continually adjusts its budget and operations in response to escalating costs driven by global supply chain disruptions and rising energy prices. These measures have mitigated the immediate impact while a more comprehensive approach, including investment diversification, enhanced risk management, cost optimisation, and strategic partnerships with contractors and suppliers, is being implemented to minimise the impact.
Regional overview
Kenya
According to the World Bank, Kenya's economy grew by 5.6% in FY2023/24, surpassing the previous year's growth rate of 4.9%. This growth was primarily driven by the agriculture, fishing, and forestry sectors. While projections indicate continued growth, averaging 5.3% in 2024 according to the IMF and World bank and 5.5% according to the National Treasury, the operating landscape remains uncertain.
Kenya's inflation has remained within the Central Bank of Kenya's target range of 2.5% to 7.5% due to a stronger shilling, reduced fuel and electricity prices, and the Central Bank's policy rate increases. While inflation is currently under control, the Central Bank maintains a cautious stance due to global inflationary pressures.
The Kenyan shilling recovered from the previous year, appreciating by 17.2% in the first half of 2024. This improvement was due to factors such as Eurobond buybacks, infrastructure bond issuance, and improved investor sentiment. However, underlying vulnerabilities, including a persistent current account deficit, and dwindling foreign exchange reserves, pose risks to currency stability. Additionally, the government's fiscal position remains challenged by revenue collection targets, exacerbated by the withdrawal of the Finance Bill 2024.
Impact
Kenya is a significant market for the Fund, with its economic performance directly influencing investment returns. The shilling's appreciation positively impacted the Fund's portfolio for FY2023/24. However, recent unrest poses risks to future returns.
Our response
Kenya remains a key market for the Fund. To mitigate risks and capitalise on opportunities, we maintain close monitoring of the Kenyan economic landscape. Our investment strategy emphasises diversification across sectors and industries to enhance portfolio resilience. This approach enables us to navigate short-term volatilities while maintaining a long-term perspective.
Tanzania
Tanzania's economy has shown steady growth, with a 5.7% increase in 2024, driven by public and private investment. The country has maintained low inflation, which is a key strength. However, challenges persist, including foreign exchange liquidity shortages. While the Central Bank has taken steps to stabilise the economy, such as raising interest rates, the full impact of these measures is yet to be seen. The government's focus on infrastructure development and social spending aims to boost economic growth and improve living standards.
Impact on the Fund
Tanzania's relatively stable macroeconomic environment is a positive factor for the Fund. However, foreign exchange liquidity constraints limit investment opportunities.
Our response
The Fund closely monitors the Tanzanian market, seeking to capitalise on emerging opportunities. A diversified investment approach and a long-term perspective are essential in navigating the market's challenges.
Local overview
Uganda
Uganda's economy grew by 6.0% in FY2023/24, driven by gains in agriculture, industry, and services. This momentum is projected to continue, with GDP estimated to grow by 6.4% in FY2024/25. While inflation moderated to an average of 3.0% in FY2023/24, the Bank of Uganda's maintenance of the Central Bank Rate (CBR) at 10.25% since April 2024 reflects a cautious approach to managing inflationary pressures.
Although current monetary conditions are deemed adequate to contain inflation around the medium-term target of 5%, the Central Bank remains vigilant given the projected increase to 5.4% in FY2024/25.
The Ugandan shilling, exhibited relative stability, appreciating by 1.7% quarter-on-quarter in June 2024, supported by factors including tight monetary policy, increased foreign inflows, and robust export performance.
However, the currency's sustainability remains contingent on addressing the underlying current account imbalances.
Impact on the Fund
The Fund’s investments in Uganda are exposed to local economic conditions given that the Fund’s largest portion of investments is held locally. Rising inflation poses a risk to the real return on the fixed income investments, while overall economic performance impacts the profitability of equity holdings.
Our response
The Fund employs a diversified investment strategy combined with a long-term perspective to mitigate short-term economic fluctuations and generate sustainable returns.
Regulatory landscape
The National Social Security Fund (Amendment) Act, 2021, has yet to be fully implemented due to the pending subsidiary legislation. The conclusion of these regulations is crucial for the effective operationalisation of the Act's expanded scope.
Our response
As we await conclusion of the regulations, the Fund has proactively undertaken a comprehensive review and alignment of its business model, reorganised its structure to include a dedicated department for expanding social security coverage, and is developing innovative products to cater to the needs of the expanded beneficiary base.
A NEW DAY - CREATING SHARED VALUE FOR SUSTAINABLE GROWTH