During the two years of full-scale war, Ukraine has experienced a staggering collapse in its exports abroad, reaching a record low for the past decade. Although there is an underlying trend of volume growth, in value terms, exports remain markedly low compared with previous years. The main challenges remain the same: the ongoing hostilities and their impact on production and logistics.
The economy still needs significant external support and additional investment, particularly in the real sector of the economy, which will play a vital role in the recovery process. However, its protection remains one of the most critical issues for the international community. Access to substantial insurance against possible war risks is limited. Most international insurers consider Ukraine a “no-go zone”, and so obtaining insurance for investment projects is challenging. The Government of Ukraine has often declared that it is a priority to create favourable conditions for investors in Ukraine, particularly in regions where it is safe to do business.
With this goal, as well as to boost Ukrainian exports, in 2018 the Ukrainian government established the PJSC Export Credit Agency (the “ECA“). The National Bank of Ukraine regulates the ECA’s activities as an insurer with a special status. The government has granted ECA the ability to insure, reinsure and provide guarantees under contracts that support export development. Currently, the ECA ensures exports of all works and services of Ukrainian origin, covering up to 85% of the value of a foreign economic contract (i.e., export contract) with a total value of up to UAH 150 million (equivalent to some EUR 3.6 million). The ECA is to insure risks that may arise during Ukrainian exports to stimulate large-scale expansion of exports of goods, works and services of Ukrainian origin. These risks include non-payment to a Ukrainian exporter, a Ukrainian exporter’s failure to repay a loan or the expiration of a guarantee issued to secure the fulfilment of a Ukrainian exporter’s obligations.
A recent innovation in the ECA’s activities of encouraging investment lending during wartime has been in providing insurance and reinsurance of investments of international and Ukrainian companies, including against military and political risks (caused by armed aggression, hostilities or terrorism). The Ministry of Economy and the National Bank are preparing a resolution to define a list of military and political risks and the terms and procedures for such insurance / reinsurance. This resolution should be published in the coming months. The impact of the ECA, both for Ukraine and internationally, on the revival of commodity exports is expected to be significant.
Although this is just a start, as of today the ECA has so far supported 74 exporters in 93 new transactions. The volume of supported exports totalled UAH 7.8 billion (equivalent to some EUR 187 million). The agency reports that due to the removal of circumstances that hindered its work in the past, it now covers 45% of Ukrainian exports, as opposed to just 16% in the past. By applying the entire range of existing instruments, Ukraine can expect to achieve higher economic growth in general and an overall increase in new investments.
Material prepared by Olexiy Soshenko, Managing Partner and Artem Mykhailyk, Paralegal, for the 4rd edition of LIR Ukraine (page 26).