 |
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)
|
|
