President Volodymyr Zelensky is finally seeing results from his efforts to generate private-sector investment in Ukraine as multilateral organizations such as the European Bank for Reconstruction and Development (EBRD), the World Bank’s Multilateral Investment Guarantee Agency (MIGA), and the US International Development Finance Corporation (DFC) begin to provide comprehensive war insurance to corporate investors.
Ukrainian Finance Minister Serhiy Marchenko speaks with CI Ukraine using CI Glass during World Bank/IMF meetings after meetings with JPMorgan Chase CEO Jamie Dimon and ERBD president Odile Renaud-Basso on October 13, 2022.
Ukrainian Finance Minister Serhiy Marchenko was visibly frustrated that he could not generate critically needed private-sector investment into Ukraine while attending the IMF/World Bank annual meetings in Washington in October.
Zelensky himself stressed that West’s financial assistance to the Ukraine must be seen as an investment and not charity during his address to a joint session of the US Congress in December.
“Financial assistance is also critically important. And I would like to thank you, thank you very much, thank you for both the financial packages you have already provided us with, and the ones you may be willing to decide on.
“Your money is not charity, it’s an investment in global security and democracy that we handle in the most responsible way,” Zelensky said in his speech just weeks shy of the 82nd anniversary of Winston Churchill’s address to Congress following the Japanese attack on Pearl Harbor, Hawaii.
The main obstacle blocking private-sector investment or reinvestment into Ukraine is the inability to source war insurance during the ongoing war in the country, said Conal Duffy, the Chicago-based practice leader for political risk insurance for Alliant Insurance.
“There is the five powers’ exclusion [the five permanent members of the UN Security Council] where insurance companies have been barred for decades from providing war insurance if any of the members are involved in a military conflict,” Duffy said.
Duffy also estimated direct losses in Ukraine by private-sector insurance companies to be about US$10 billion.
According to Rothschild’s – the main investment bank operating in Ukraine after JPMorgan Chase – more than $2 billion of private-sector investment into Ukrainian small and medium-sized enterprises (SMEs) operating in agriculture, manufacturing, logistics, information technology and infrastructure is frozen because of the lack of war insurance or clarity whether insurance by multilateral organizations such as the EBRD and MIGA will cover war risk.
“Private-sector investment is as vital as war materiel, especially now with Russia about to launch a new offensive,” a banker working in Ukraine said. “Private companies need to operate so they maintain employment, supply the population along with the war effort.”
Even the mayor of the city symbolizing alleged Russian war atrocities, Bucha’s Anatoly Fedoruk, does not hesitate to remind one and all that Bucha and Ukraine are open for investors.
Bucha Mayor Anatoly Fedoruk and Deputy Mayor Mykhailyna Skoryk-Shkarivska on attracting US private sector investment to rebuild and grow Bucha, at The Wilson Center in Washington DC on January 30, 2023.
However, Western donor nations to Ukraine are fully aware of the structural roadblocks to investments and are now acting through multilateral organizations best suited to vet buy-side investors and ensure that new investments do not end up back in the pockets of Russian or Ukrainian oligarchs.
The World Bank’s MIGA insurance agency will next week announce the creation of a $100 million to $200 million trust providing first-loss war risk guarantees for direct foreign investors in Ukraine.
According to a MIGA official, the insurance agency is addressing the impacts of the war in Ukraine on the private sector during and after crises through donor-supported guarantee issuance in Ukraine through a planned Support for Ukraine’s Reconstruction and Economy (SURE) Trust Fund and, second, guarantees for other countries affected by the war in the region, as well as fragile and conflict-affected countries and emerging economies impacted by overlapping global crises.
At the same time the London-based EBRD is working hard to find actionable solutions over the issue of war insurance to trigger private-sector investment into the country.
“There are ongoing discussions about potential mechanisms for war risk insurance among the members of the international community, insurance companies and private investors. We are actively involved in these meetings but unfortunately there is no readily available solution yet,” an EBRD official said in a statement to Capitol Intelligence/CI Ukraine.
“The EBRD cannot provide insurance instruments per se, but it is important to work with other institutions to develop a war insurance product, particularly as this will help to bring back foreign direct investment into the country and could enable faster reconstruction efforts.”
An EBRD source said the UK, the country that has most consistently backed Ukraine in its war to defeat Russian aggression, has made war insurance one of the leading themes for the British government-hosted Ukraine Recovery Conference to be held in London on June 21-22.
The lack of clarity over war insurance is topping the likes of John Crites II and his family-owned, Petersburg, West Virginia–based hardwood processor sawmill operator Allegheny Wood Products from acquiring a Ukrainian competitor in the country’s forestry capital, Lutsk.
Allegheny Wood Products president John Crites II speaks to Capitol Intelligence/CI Ukraine using CI Glass after hosting a US House Ways and Means field hearing at AWP headquarters in Petersburg, West Virginia, on February 6, 2023.
Another potential US investor is defense concern and merchant supplier L3 Harris, which could acquire a dual-use Ukrainian company to shorten supply-chain issues and build a presence in a postwar and EU-member Ukraine.
Prior to Russia’s illegal annexation of Crimea in 2014, Ukrainian companies supplied up to 40% of the Russian defense industry.
L3 Harris chief executive officer Chris Kubasik may want to make a Ukraine acquisition to win the hearts and minds the US Senate and House Armed Services Committee but also as a tool to beat back unjustified opposition within the US Federal Trade Commission over its announced $4.7 billion takeover of rocket-fuel producer, Aerojet Rocketdyne Holdings.
But ultimately it will be the United States that can immediately kickstart critical private-sector investment through its often-overlooked US International Development Finance Corp, an agency that provides loans, political risk insurance and equity to private-sector companies investing in countries of geo-strategic importance to the United States.
DFC CEO Scott Nathan used personal leadership to overcome internal DFC resistance by headlining a US Chamber of Commerce event in Kiev on January 31 where he announced the agency is mobilizing some $1 billion of private-sector capital to support the Ukrainian economy.
Unlike the EBRD or MIGA, the White House and US Congress can enable the DFC immediately to provide war risk insurance to private-sector investors and provide new capital and resources to those that have already invested in Ukraine, such as Cargill with its grain port in Odessa or Italy’s Atlantia/Blackstone infrastructure group becoming the future operator of Ukraine’s toll roads and airports.
President Joe Biden with the DFC, EBRD and World Bank can snatch away Russian President Vladimir Putin’s only military achievement in the fratricidal war: effectively blocking foreign direct investment in Ukraine.
Peter K Semler is the chief executive editor and founder of Capitol Intelligence. Previously, he was the Washington, DC, bureau chief for Mergermarket (Dealreporter/Debtwire) of the Financial Times and headed political and economic coverage of the US House of Representatives and Senate.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
