The full-scale invasion of Russia into Ukraine has brought not only a lot of sorrow but also challenges for both society and the country's economy. Unfortunately, we now have to overcome powerful life changes and adapt to new realities.
Currently, in Ukraine, not only thousands of buildings of both residential and administrative funds are destroyed, but also entire cities and villages. According to various estimates, the cost of reconstruction varies from 410 to 750 billion US dollars. This is a colossal sum that grows every day, and Ukraine will definitely not be able to handle it alone. That's why it is important to talk about attracting foreign investments.
It should be noted that the investment climate in Ukraine was complicated even before the start of Russia's full-scale invasion. Accordingly, after the beginning of the great war, this only became more complicated and it is necessary to work closely in this direction. The reform of Ukraine's investment market will help support our economy now and restore it in the post-war period.
Speaking of the present, it should be noted that in the conditions of war, great attention should be paid to numerous military risks in the context of domestic and foreign investments. Fortunately, there are certain shifts in this direction, but more on that later. Existing Problems The war provoked numerous economic changes in Ukraine. In particular, there are budgetary constraints. However, there are still opportunities for creating mechanisms for investment insurance, although they are insignificant.
Indeed, the insurance of military risks is one of the important preconditions for attracting foreign investors to Ukraine. Moreover, it is important for structuring the entire ecosystem of important financial instruments.
Insurance of War Risks
On November 22, 2023, the Verkhovna Rada of Ukraine adopted in the second reading and as a whole the draft Law No. 9015 on amendments to the Law of Ukraine "On Financial Mechanisms for Stimulating Export Activities". This legislative act was developed specifically for insuring investments in Ukraine against numerous war risks.
The draft law provides the Export-Credit Agency with the authority to insure and reinsure investments in Ukraine against risks caused by terrorism or combat operations.
Should President of Ukraine Volodymyr Zelenskyy sign the legislative act, with the exception of its individual provisions, it is to come into force on January 1, 2024. Accordingly, within the next three months after the publication of the act, the National Bank of Ukraine must develop a list of main military risks, as well as the procedure and conditions for their insurance.
It is expected that the draft law will help eliminate numerous gaps in investment policy that limit the possibility of insuring domestic investments by the Export-Credit Agency in wartime. Thus, conditions will be created for scaling up investments in Ukraine.
In addition, it was also announced that the draft law would stimulate the strengthening of the industrial, in particular, the defense-industrial sector, and the creation of new jobs. Accordingly, this should lead to an increase in the inflow of funds to budgets of all levels. Theoretically, this looks quite attractive and should also encourage significant support of economic activity in Ukraine during and after the war periods.
The Cabinet of Ministers of Ukraine adopted Resolution No. 1235, which made changes to the charter of the Export-Credit Agency. Overall, the changes concern giving the agency the opportunity to participate in the implementation of agreements for compensating expenses to insurance companies that insure vessels in the internal waters of Ukraine, territorial sea, and waters of seaports. Accordingly, the agency received such opportunities exclusively during the period of martial law.
By the way, the only founder and shareholder of the Joint Stock Company "Export-Credit Agency" is the Cabinet of Ministers of Ukraine. Accordingly, the Cabinet of Ministers owns the rights of corporate governance of the ECA through the management body authorized by it - the Ministry of Economy of Ukraine.
Insurance of the Grain Corridor
Ukraine has already implemented mechanisms for insuring grain corridors. An agreement was concluded between Ukraine and the international insurance broker Marsh McLennan to facilitate the transportation of grain and agricultural products by ships from the Black Sea.
For information: Marsh McLennan is an international company, whose activities include insurance brokerage, investment consulting, reinsurance, etc.
Ukraine has been negotiating with global insurance companies regarding guarantees of the grain corridor for quite some time. On November 2, 2023, the Cabinet of Ministers of Ukraine adopted Resolution No. 1140, which effectively started the mechanism for insuring maritime shipments in wartime. The document talks about allocating 800 million UAH for compensating insurance companies and reinsurance companies for maritime transportation risks. The disbursement of these funds is carried out through letter of credit payments at JSC "Ukrgasbank" and JSC "Ukreksimbank". Accordingly, the funds will be transferred to the bank accounts by the Export-Credit Agency. The intermediary that will confirm the collateral for foreign insurers will be the German creditor DZ Bank. Within the framework of this Resolution, the National Bank removed restrictions on the agency's foreign transfers.
It is expected that Marsh McLennan will offer insurance for vessels up to 50 million US dollars. The insurance is intended for transport vessels carrying agricultural goods in conditions of war risks.
By December 30, 2023, the Export-Credit Agency must report to the Ministry of Economy and the Ministry of Finance about the funds that were used.
Consequences
This insurance mechanism will allow Ukraine to significantly support the Ukrainian economy, keep the Black Sea open for international trade, and guarantee the supply of agricultural products to countries around the world. Currently, this is one of the important economic lifelines for Ukraine, as international trade is an important aspect of ensuring the operation of the country's economy.
It is hoped that in the near future, such legislative changes will no longer be relevant and there will be no need to insure war risks. However, at present, we have such a reality and we need to adapt to it.
