Business Page – October 26, 2003

National Insurance Scheme - Report 2001 (Final Part)
 

Introduction  

Today this concluding part of the review of the Annual Report of the National Insurance Scheme for 2001 begins by looking at the resources which the NIS has accumulated since it began operations in 1969, and how those resources are deployed. The reserves at the balance sheet dates over the recent past were $2.2B at December 1992, $8.8B in 1997 and $19.3B at December 31, 2001, a 777% increase since 1992. The funds are largely held in bank deposits, Government of Guyana securities and increasingly investments in private sector companies both listed and unlisted.
Investments in private sector companies have increased from $20M in 1992 to $1,667M in 2001, representing respectively 1% and 9.4% of the total value of investments. The companies in which the Scheme has invested fairly significant amounts were:
1. Laparkan Holdings Limited,
2. Courts Guyana Inc
3. Guyana Bank for Trade and Industry
4. Demerara Distillers Limited
5. Demerara Bank Limited
6. Guyana Co-operative Insurance Service
7. Guyana Stores Limited
8. Neal & Massy Guyana Limited
9. Guyana National Printers Limited
10. Citizens Bank
11. Pegasus Hotel
Over the years, the Scheme has been criticised for its failure to adopt a coherent investment strategy, and its current portfolio includes a mix of loans and shares in both public and private companies. Despite the composition of the investments, the accounts do not give any details of the income from these major categories to facilitate a comment on the yield from the respective sources. The average yield on the entire portfolio of investments for the year 2001 was 11.62% compared with a yield of 11.8% in the preceding year. There has to be some doubt as well whether all the investments are fairly stated, and there seems to be a pressing case for a review for possible impairment in the values at which the investments are carried in the books.
The notes to the accounts for the past several years show that the Scheme holds 2,500 in Citizens Bank at a cost of $32,500,000, suggesting a staggering price paid of $13,000 per share which must be incorrect. The accounts also show that the company owns 100,000 shares in Neal & Massy Guyana Limited, for which it paid $100M. On the other hand the annual return of Neal and Massy filed at the Deeds Registry shows that the company owns 20M of the 519M shares issued by the company, making the NIS the largest shareholder after the Trinidad parent.

Loans

Since 1996, the Scheme has been extending to Laparkan Holdings what appears to be revolving loans to facilitate “major expansion” of its hire purchase programme. At December 31, 2001 the outstanding amount was $255M - the highest that it has ever been. It is something of a mystery why the company would borrow from the NIS at 17.08% per annum when it should be able to obtain a lower rate from the commercial banks. If it could not do so and all things being equal that could possibly suggest that the banks consider the company an above average credit risk which it might not have been prudent for the NIS to undertake.
An additional issue is whether the law gives the NIS the authority to make such loans. Section 33(5) of the NIS Act states “any monies forming part of the fund may from time to time be invested by the Board in such securities as may be approved by the Administration.” It is doubtful that an apparently unsecured loan falls within the definition of securities suggesting that the Board has no such authority.
During the year, the Scheme made its largest single investment in the form of a loan of US$4M to the Government of Guyana for the purpose of building the Caricom Secretariat Headquarters. The loan is repayable over 25 years at a rate of 4% in the first 15 years and 5% in the next ten years. Questions arising from this loan include a) whether it was negotiated at arm’s length; b) how the fixed rate compares with the rate of return assumed by the actuaries; and c) from a wider perspective whether the NIS is bearing part of the cost of hosting Caricom in Guyana.

Operational problems?

The Annual Report provides some very useful information on registration of employed and self-employed persons that raises concerns about the Scheme’s success in its mandate to register those persons and/or the spin which is put on the performance of the economy. Successive Reports show that the number of employed persons registering annually has declined from 10,712 persons in 1992 to 9,307 in 1997 and 6,915 to 2001. Nor does the Report not suggest that the large numbers leaving schools annually are moving into self-employment. The number of self-employed annual registrants rose quite dramatically from 1030 in 1992 to 1586 in 1996, but it has been downhill since then reaching its lowest level to date of a paltry 332 or 79% of the number registering in 1996. These figures which are corroborated by the cumulative numbers are both instructive and frightening, as they tell a story of unemployment which does not receive the recognition and attention it warrants.
Recently there has been a spate of letters in the press about the difficulties experienced by contributors, particularly those reaching pensionable age seeking to claim their benefits. Despite the long-standing and serious nature of this problem the Scheme has failed to resolve it or to convince the public that it is treating it with the urgency it deserves. For almost two decades I have advocated without success for the Scheme to confirm annual and cumulative contributions at the end of each year as is enshrined in the law in Grenada.
In the late ‘80s Dr Nanda Gopaul and I assisted the TUC in the preparation of a submission to the Government on the TUC. While there have been some amendments to the NIS laws since that time, there is no evidence that the authorities formally considered the TUC’s submission. And in 1993, the IDB submitted a Review and Analysis of the Scheme and made sweeping recommendations for its reform, but ten years after, very little has changed. Meanwhile, the TUC has been particularly silent on NIS matters despite their effect on the membership of the movement. Surely this is one area where the various factions in the movement could find common ground.
We noted last week the failure by the Board to implement the recommendations contained in the last Actuarial Report as at December 31, 1998. The 2001 Report gives no indication when the report on the next study due at December 31, 2003 would be available. BP strongly believes that the period for such studies should be reduced to three years and that the Scheme should retain its own firm of actuaries available to it on a continuous basis.

Conclusion

The NIS controls more assets than several of the commercial banks operating in Guyana. It needs to be managed with much greater recognition of the principles of good governance including more timely and informative financial information. Indeed, the Report’s commendable quality of statistical information is not matched by the quality of its financial statements for which the directors are responsible. However, there is nothing preventing the auditors from bringing their influence to bear on those statements with a view to improving their quality and rendering them more helpful to the Scheme’s stakeholders which include all the employers and employees in the country and those in receipt of pensions and other benefits.
The NIS is a good case of where form alone means nothing. It has a fairly manageable sized board of nine, including the Scheme’s CEO as deputy Chairman, a leading trade unionist, another who is a representative of the TUC, a leading member of the Private Sector Commission and the head of an accounting firm. Head of the Presidential Secretariat Dr Roger Luncheon has been the Scheme’s chairman since his Party won the 1992 elections. While at the operations level the Scheme has made considerable efforts to earn a reputation as a worker-friendly organization, it is time that the Board consider whether its structure and composition would not benefit from a major overhaul including changes at the top. Despite the huge accounting reserves, the viability of a long-term scheme is measured by its actuarial rather than its accounting liabilities. On that score, there must be serious concerns.   (Back to top)