NPF stands out in the last 30 years

Alfred Sasako
As Solomon Islands celebrated its 30th independence anniversary last month, questions, in fact lots of questions, were and are still being asked: Where have we gone wrong? What have we to show for 30 years of toiling under the mantle of independence - local leadership, homegrown policies and so on?

Indeed, there is little to show for Solomon Islands independence in the way of development, economic development or otherwise. There are pockets of individual successes. At the corporate level, it is a different story.

Only one stands out—Solomon Islands National Provident Fund [NPF]—which in the last few years has become a local investment powerhouse. It has, for example, invested in Our Telekom, Bank South Pacific and South Pacific Oil.

Its growing investment portfolio has been widened in the last year to include offshore investment in assets such as property, foreign currency and cash deposits, maintaining a 70% onshore investment and 30% offshore.

At the top is Tony Makabo, a Solomon Islands national who in 2003 was appointed Chief Executive Officer of the 130, 000-strong member fund. He couldn’t have come at the worst time.

So I sat down with Makabo in his fourth floor office at the National Provident Fund Plaza on Mendana Avenue in Honiara to talk about the miracle turnaround of NPF’s performance, which in 1999 managed to pay its members only eight percent in dividends.

As he assumed the throne, he was shocked by a plethora of issues confronting the fund. He found, for example, the fund’s non-performing loans had reached S$69 million. These funds were borrowed by State-Owned Enterprises [SOEs] and Malaita and Western Provinces.

But there’s more. Makabo also found out the fund did not have an investment policy in place to guide his all-Solomon Islands team in managing members’ contributions.

“Instead, all NPF funds were invested in one basket, so to speak, government bonds and State-Owned Enterprises [SOEs]. I was also confronted by the fact that member contributions had virtually stopped owing to the so-called ethnic tension,” he said.

“It was not a nice picture to look at,” he said.

These non-performing debts had significantly affected NPF returns, he said.

Table 1 gives some idea on dividends paid to members, beginning in 1999, which at eight percent [8%] was the highest for seven straight years until 2007 when dividends hit double digit.

How did you do this? I asked.

“What my management did was to re-open discussions with government on restructuring the bonds. I am pleased we came out with an agreement that government would pay 40% of our investment in cash immediately.

“The rest was amortised at 3% over 15 years,” he said.

The next area was to discuss, again with the government, arrears in members' contributions. Again, the government agreed on securitisation—that is making partial payment with the balance being securitised,” he said.

Using a similar approach, we have recovered some S$19 million in outstanding loans from Malaita and Western Provincial Governments, as well as an additional S$34 million from State-Owned Enterprises such as Soltai Fishing Company, Solomon Islands Electricity Authority [SIEA], and so on. In 2006, the management addressed the issue of creating an Investment Policy Guideline for the Fund.

“We want a policy to guide the board on how to invest in different investment assets and industries. What we’ve come up with was an Asset Allocation driven by Risk Management, according to high to low risk categories,” he said. For example, we have allocated 37% of NPF’s investable funds to the low risk/low return investment, that is to say fixed term deposit. In medium risk/medium return, that is, investment in properties and loans, we have allocated 28%. The balance, that is, 35% is invested in high risk/high returns portfolios.

In all, NPF has invested S$741 million [about US$95 million] in these assets on behalf of its members.

According to Makabo, offshore investment leads the way in terms of returns, accounting for 50% of the fund’s revenue. Unlisted equity investment such as its 64.7% shares in Our Telekom and South Pacific Oil accounted for 33.6% while interests on loans and other income make up the balance.

How sustainable NPF management will maintain this remarkable turnaround is anybody’s guess.

“The fund is growing and will continue to do so. But we are mindful of how to sustain our growth,” Makabo said with a smile.2008 has already begun with a bad sign for NPF.

Makabo warned that a crippling strike by telekom workers in June/July this year was showing signs of dipping into NPF’s 2009 revenue. Whether it happened or not, NPF is one success story all Solomon Islanders, members and non-members, will be proud to associate with.