Ukraine urgently needs greater availability of political/conflict risk insurance. Billions of dollars in investment projects, including most of those previously considered by the boards of foreign companies for Ukraine since February 2014, could go forward if the risk from the unresolved conflict in eastern Ukraine could be covered by political/conflict risk insurance at reasonable cost, as is presently available for almost all other countries that are similarly affected by conflict. Potential investors in Ukraine need much greater availability of such political/conflict risk insurance.
Adequate political/conflict risk insurance is not presently available for Ukraine. The Multilateral Investment Guarantee Agency (“MIGA”), a branch of the World Bank that is the largest international organization providing political, including conflict, risk insurance globally, presently has a theoretical capacity of 820 million US dollars of political risk insurance cover available for Ukraine. However, MIGA has strict criteria for the level of risk that it is willing to accept, and consequently MIGA political risk insurance is generally available only for smaller Ukrainian investments in limited circumstances, i.e. generally for investments that are perceived to not be very susceptible to war risk (such as to insure a Porsche car leasing program, where the cars may be quickly removed from Ukraine). Obtaining MIGA political risk insurance currently is also a relatively long and difficult process, and only possible for new cross-border investments.
Turning to national political risk programs and private insurance, it is generally difficult to obtain such political/conflict risk insurance for investment in Ukraine, except in some special short term cases for high premiums.
The reform programs to be presented at the Ukraine Reform Conference in Toronto, Canada, on 2 to 4 July 2019, are very important, but reforms by themselves will not result in enough new investment, so long as most potential investors, and their lenders, fear that conflict might completely destroy their investments. While such destruction may be highly unlikely, most investors and their lenders need this risk to be insured as a condition for proceeding. The provision of adequate political/conflict risk insurance by itself should significantly encourage a much higher level of investment for Ukraine by mitigating the conflict risk.
To provide for such increased availability of political/conflict risk insurance by MIGA of foreign investment and lending into Ukraine, a multilateral trust fund backing MIGA for Ukraine is needed based on stand-by guarantees by supporting countries. Such a trust fund structure could be funded by, among others, Canada, Japan, Sweden and the UK, with the European Investment Bank (“EIB”), similar to what they are already providing to permit political/conflict insurance by MIGA for most other conflict situations, including for the West Bank and Gaza.
No actual capital should ever need to be advanced, since assuming the conflict in Ukraine does not spread, the insurance would never actually need to be drawn on, so there would be virtually no cost apart from administrative expenses. These administration expenses should be minimal since the existing World Bank MIGA administrative structure and staff can be used to provide this expanded political/conflict risk insurance, and the documents for the West Bank and Gaza trust fund could serve as a model for documentation to be quickly created for a Ukrainian program.
To best respond to Ukraine’s current situation, such political/conflict risk insurance should be modified from the traditional MIGA insurance as follows: (1) it should be readily available at a reasonable cost (i.e. based on the cost of political risk insurance for non-conflict countries) for all genuine investors and lenders and be available on an expedited basis – in order to provide greater support for the Ukrainian economy, investors and lenders should thus be encouraged to invest and lend on the same basis as if there was no risk from conflict; (2) it should be available for both foreign and domestic investment and lending; and (3) it should be available to cover existing investments where, as a consequence of such insurance, further investment and lending can be made and disinvestment will be discouraged. By creating such a program based on a special World Bank trust fund administered by MIGA, domestic Ukrainian investments, that MIGA cannot otherwise put on its books under its Convention, can also be covered, as has been done successfully by the World Bank, through MIGA, using trust funds for most other conflict affected countries as well as the West Bank and Gaza.
On the foregoing basis, the needed political/conflict risk insurance can be provided to significantly help promote the Ukrainian economy and create the right context for the Ukraine Reform Conference reforms, such as those for the fight against corruption, to stimulate economic development for Ukraine.
Bate C Toms – Chairman of the British Ukrainian Chamber of Commerce (BUCC), 21 June 2019**
The above photograph is of UK Trade Trade Secretary Liam Fox, MP, addressing the Ukrainian Week in London Conference held by the BUCC at the Savoy Hotel and the EBRD Headquarters in London, at which BUCC Chairman Bate Toms spoke on the need for MIGA political risk insurance to encourage investment in Ukraine.
*Please see the ICBAC Resolution here.
**Mr. Toms has been campaigning for political risk insurance for Ukraine since February 2014, publishing his first article on this in the Kyiv Post of 20 March 2014 (Statement by the Chambers of Commerce and Business Associations of Ukraine on the Need for Political Risk Insurance for Ukrainian Investments).
