UBBC attended sessions on investment, where we heard from leading investors, banks, and insurers in Ukraine on how best to overcome challenges to private investment.
Most investment to date has been through Government backed banks and insurance mechanisms, for groups like World bank (IFC), EBRD, EIB as key portals for investment support, in addition to government backed global trade finance insurance from government trade agencies, especially the German’s and Danish and to lesser extent the UK. Ukraine is now focused on how to get private capital and FDI into Ukraine, to review mechanisms, challenges and to analyse how to overcome obstacles.
While Gov lenders have committed over $6bn the private sector FDI amounts to only £600m, including French purchase of Telco networks. Given Ukraine needs at least $486bn funding for rebuilding and building back better, there is a way to go.
EBRD says the role of the big lenders now is to act as catalysts for private capital to follow into Ukraine, especially in tech, where the aim is to be the new silicon valley.
Giovanni Salvetti of Rothschild and Co analysed the key Issues to be tackled including the regulatory environment, capability of the banks and private markets in Ukraine, the War and political uncertainty (the key risk) lack of insurance in the country and reinsurance beyond Ukraine, corruption, long term lack of funding from the IFIs, Oligarch control of key sectors. Some of these are being addressed quick rapidly and well, especially regulatory environment as Ukraine head for Eu accession, corruption is also being tackled effectively, but reinsurance is an issue and the depth of long-term funding required to rebuild Ukraine is to be solved, the banks are in a reasonable liquidity position, but lack some expertise and capability and are in process of being sold to international banks ( like DB. Rothschild?) but the overriding issue is political uncertainty, and this may not resolve quickly, even if Trump manages a ceasefire.
However, there are some private equity and investment funds who were in Ukraine prior to the war and more recently, namely Horizon (tech focused), Dragon (diverse projects) Hillmont (Agri focus) and Diligent, all of whom say they are enjoying good returns, often in double digit. But funds need a 10year window to operate in and to encourage new funds, more stability is required. There is a portal for investment already available through the investment promotion agency, which will be refocused very soon, but certain sectors are more ready for immediate FDI opportunities, namely: tech and digitisation, renewable energy, agriculture and logistics, which have all seen growth and set for more.
Horizon is focused on companies with exporting potential, currently and ahead of Eu accession, as those who market into EU will grow strongly.
Bayer’s Oliver Gerlich warned that mid-sized companies in Ukraine need an incentive now to grow, including access to insurance, and those considering entering the market need to be prepared to plan well and ensure the right people are in place – as up to 30% may be called up, and counterfeiting can be a problem ( the gov is tackling) but that first mover advantage before competitors appear will be very profitable in the next 5 years as the potential for Ukraine is great and the people will favour those who supported them.
In relation to insurance the Gov of Ukraine is trying to arrange for war risk insurance for critical sectors, but there is currently very little private insurance and reinsurance in the market, not least because the insurance companies do not have the capacity to cover significant risks. There is an opportunity for reinsurance in the medium term to set up a better insurance industry, perhaps focused on simple areas like earthquake risk, car insurance. Smaller entities like ARX and INGO do cover sporadic specific areas in the West up to £20m of total private cover, but the Ukrainian market is too big a liability (£486bn) for anyone to cover other than Government backed schemes. Work is going on to address this with voluntary and compulsory first and second stage schemes that can be extended to include industry that has been excluded to date from insurance. EBRD is examining a platform for global reinsurance in 2025, that may begin to address these issues.
UBBC expects to run an online investment webinar with some of the leading organisations in the coming weeks. Let us know if you are interested to register or even contribute.