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The importance of activating investments of social security surplus revenues in Yemen

 

For that social security revenues are basically Saving(provident) Funds, it is crucial that revenues be invested to serve community best interest and social development goals as well as Social Security Fund goals. It is also necessary that revenues values be maintained and avoided risks related to inflation. The government has taken several measures , some of which to exempt social security revenues from taxes, to encourage Social Security Funds to carry out investments which gives Funds an edge over other business by increasing Funds' proceeds.
If the social security Funds revenues were not invested, it will lead to negative impact on the State and society in terms of increasing the contributions needed to finance the capital Funds, and increasing liabilities of State, employers, and laborers. Consequently, reflecting the increasing liabilities on consumers in form of price hikes. Also , social security funds' investments guarantee Funds constant cash flow and protect State's treasury which enable Social Security bodies to always provide better social security services to secured employees.
The following schedule shows the administrative structure of investment departments of various social security authorities:

Description
The Gen. Auth.S.S.and pensions.
The general corporation for S.S
The S.S.F. of Ministry of Interior
S.S.F.of Ministry of Defense
Gen. Investment
Dep. Availability
 Not available
 Available
Not available
Not available
Investment Dep.
Available
Available
Available
Not available
Inves. Committee
Not available
Not available
Not available
Not available
Treasury bonds participation rate
66%
44,4%
87,8%
100%
Dollars deposits rate
33%
48,5%
___
__
Economic pro. Participation rate
0,4%
1%
1,8%
__
Human resources investment rate
__
6%
8,8%
__
Cash debits
0,7%
1%
1,6%
__

S.S.F./ social security fund
source: the researcher making.
Through above schedule, it is noticed that the necessary investment administrative structure don not exist in addition the absence of the investment committee supposedly having investment experts, and focusing on available banking investment in the Central Bank of Yemen due to the absence of strategic social security revenues investments. Furthermore, the government policy restricted investment to be mainly either treasury bonds or deposits with a rate not less than 89% up to 99% or 100%. Economic and social investments are few but most of which were not successful so far due to:
- Investments carried out by governmental resolutions not subject to social and economical feasibility study.
- mismanagement of investments.
- unavailability of expertise.
Social Security revenues investments domains
The following schedule set out hereunder reveals all S.S. Funds investments for the year 2004:


Investment type
amount
rate
Governmental bonds( treasury bonds, deposits in dollars)
183,087,137,171
97,5%
Share rate (equity portion)
2,915,150,000
1,6%
Debits
1,127,959,257
0,6%
Real estate investments
599,415,002
0.3%
Total:
187,729,661,430
100%

source: the researcher making.
We can conclude that investment are mainly treasury bonds with the rate of 97,5% whereas other social security investments rated 2,5% only which make funds susceptible to risks contrary to basic principles of investing social security revenues proceeds that are(investment value guarantee, suitable profit, cash flow, social and economical interests, investment timing, and variation).
Funds Investments in treasury bonds
The following shows the treasury bonds investments contributions compared with other associations to date13/12/2004


The participating association
The actual value of the   treasury bonds
Contribution rate
Social Security Funds
128,635,127,277
47%
Banks
93,856,071,632
34%
Associations/firms/organizations
40,257,781,173
14%
Private sector/ common individuals
12,976,748,857
0%
Total:
257,725,728,939
100%


source: Central Bank of Yemen, an official letter addressed to prime minister, bonds committee chairman No.(103721) dated 1/1/2005.

This schedule reveals that social security funds are mostly investing in treasury bonds 47% out of the total amount allocated for investments 97,5% out of the invested revenues proceeds .
The treasury bonds investments existed to accomplish the following objectives:
- to finance the state budget deficit.
- to absorb the cash flow out of the market to lesson inflation.
For that public debit is one vital source to finance social and economic development. Most governments in the world restore to such to finance infrastructure construction especially with the high population growth that is in Yemen 2,3% annually , which creates lots of needs to meet for the population such as food, housing, education, jobs ….ect.
The private sector and common individuals contributions are very limited with the rate of 5%. This leads to inactivity of bonds when distributing proceeds. The high contributions of funds raise risk levels when governments are in need for social security finance and are not willing to finance deficit. Other experts are of the opinion that the most inappropriate domain to invest social security revenues in is when they are used to finance state budget which hampers economic productivity ability, low investment percentage, and may lead to a national calamity .
Social security funds dependency on treasury bonds eliminates other investments options and opportunities especially with high proceeds potentials yield out of treasury bonds. It also prevents social security funds of social and economic investments experience and creating employments opportunities to achieving the desired development.
Social security revenues can possibly be invested in residential buildings and other lucrative investment opportunities to serve the best interest of both social security funds and community at large. It has been concluded through initial census conducted in 2004 that houses average is less than the numerical figure of population growth. Therefore, demands for houses increase as the family average members (1, 7) and family members living in one house (6, 8). Moreover, the demands for house continue to increase due to the high population growth, immigration form villages to cities, break down of big families etc…..All the above with private sector that do not offer houses investments for limited income individuals who spend nearly 70%-80% of their income for rent, are incentives for social security funds to make such investments.
In order to succeed, social security investments need an appropriate investment circumstances to reduce poverty and create more jobs opportunities and improving life standard. However, studies conducted in relation to investigation of investment environment in Yemen showed that there are still considerable obstacles hinder investment activities caused by fragile organizational structure of Yemen's economy, authorities inability to gain control and place legislations into effect, and the absence of stock market that directs and conducts properly the available economic resources that makes capitals more sufficient and positively influence administration structure. It requires that social security revenues be invested in light of the international social security investment standards and eliminate investment opportunities with high risks as the implementation of well studied investment policy reduces inflation possibility and its impact on social security revenues and funds. It also maintains revenues values.
Initiatives aimed at reforming social security revenues proceeds have been made. One of which was to establish a consolidated Fund for all funds revenues (suggestion made be Dr. Isameel Hagar, the coordinator of the council of social security revenues investments). The suggestion was made with the purpose of avoiding funds revenues potential risks caused by reducing state treasury bonds, which social security funds depend heavily on, in addition to risks associated with inflation and national currency value decrease that may increase government liabilities.
The above suggestion was intended to: diversify investments, reduce possible risks, make capital investments to compete with the private sector, eliminate government administration, and to distribute liabilities among all funds.
Managing social security revenues investment by qualified experts a part from governmental administration and political pressures will certainly strengthen social security funds, secured employees and economy. Consequently, reducing rate of unemployment and poverty.
Clearly social security funds lesson social security deficits in the long run. On the other hand, it is associated with high risks due to lack of social security revenues investments experience and appropriate circumstances necessary for investment. Clear investment policy is urgently needed to be compatible with the financial goals, and a way from political, social, and internal government economy. State and active public support is vital.

Recommendations
- Setting up administration of revenues and proceeds undertakes investments management by experts and completes social security funds' organizational structure.
- looking for investments expertise.
- Investing social security revenues proceeds in guaranteed lucrative businesses, eliminating government intervention, forcing social security funds to be liable for financing its own projects carried out without the required studies in relation to profitability according to state's social and economical strategies.
- Encouraging investments in telecommunications, cement factories, fuel (diesel, gas) and the like investments that create new jobs with high proceeds. Nevertheless, variation of investments remains crucial to avoid risks.
- Making business related to building houses for limited – income of secured employees.

 


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