Could the West At Least Help Ukraine To Insure FDI Against Political Risks?

.

Andreas Umland

About Andreas Umland

Andreas Umland, Ph. D., is Senior Research Fellow at the Institute for Euro-Atlantic Cooperation at Kyiv, and General Editor of the book series „Soviet and Post-Soviet Politics and Society“ published by ibidem Press at Stuttgart. Andreas is a political scientist, historian and Russian interpreter, specialising in contemporary Russian and Ukrainian history.

The West cannot protect Ukraine militarily, but it could partially compensate Russia’s targeted subversion of the Ukrainian business and investment climate through a well-publicised and liberally operating guarantee fund aimed at insuring FDI against political risks. This would concern mainly Ukrainian regions threatened by military destruction (as has occurred in the combat zones), arbitrary expropriation (as has occurred in Crimea) and coercive measures enforced by the threat of force (as has occurred in the separatist-controlled Donbas areas). The local impact, model function and signal effect of increasing foreign investment in Ukraine’s hinterlands would accelerate the country’s modernisation and integration into the global economy.

This would particularly help eastern and southern regions in the vicinity of Russian regular forces, irregular commandos, and secret service units that by their mere presence – not to mention their covert or overt activities – are scaring investors away. The difficulty to attract and retain foreign investors and the subsequent economic depression in these predominantly Russian-speaking regions will create an explosive social situation. The city of Mariupol, for instance, is of great importance to Ukraine from both economic and military point of view.

The provision of foreign investment guarantees by public actors is not an unknown instrument in international development. One of the World Bank’s subdivisions, the Mutual Investment Guarantee Agency, focuses primarily on this issue. The U.S. and other Western countries have national government-supported schemes that insure foreign investment of their corporations in politically unstable world regions. However, most of them involve a more or less substantial premium to be paid by the investor, and are thus increasing the companies’ costs of economic engagement in anyway volatile contexts. Berlin’s so-called Hermes Cover export credit guarantees play an important role in Germany’s economic relations with partners in politically instable countries, including those in the post-Soviet space. Yet, the Hermesbürgschaften have not been of much help so far, in relation to the economic recovery of post-revolutionary Ukraine.

The European Union should be highly interested in the flow of investment to Ukraine because the repercussions of the alternative would be grave. Continued economic depression in Ukraine would necessitate a continuous flow of financial support from the West, and mean increased illegal immigration of desperate Ukrianians into the EU. The positive effects of FDIs would include creation of new jobs and higher government tax revenues. Moreover, publicly insured direct investment, particularly in southern and eastern Ukraine, would create a close link between Western financial interests and future destabilising activity by Russia — a connection that should have a calming influence on the Russian-Ukrainian conflict.

Moscow would run the risk that investors, owners or insurers affected by Russian military activity, paramilitary actions or secret service operations in eastern Ukraine would attempt to recover financial losses incurred via international courts. The foreign real estate and valuables of Russian governmental companies or organisations in the home countries of aggrieved corporations or affected guarantee funds would be threatened with seizure. Future reimbursement operations could follow the example of currently ongoing attempts to restitute, via court orders, the losses incurred by the shareholders of Mikhail Khodorkhovsky’s YUKOS Corporation that was fraudulently broken up and seized by the Kremlin.

Insuring, free of costs for private investors, against political risks of FDI could beneficially interact with other developments that should improve Ukraine’s business climate. By 2016, the Association Agreement should be fully ratified, and the Deep and Comprehensive Free Trade Zone between Ukraine and the EU will start operating. Hopefully, by then, also Kyiv will have met all conditions of the Visa Liberalisation Action Plan, and thus secure free travel of Ukrainian citizens to the Schengen Zone.

Ideally, at its 2017 Eastern Partnership summit, the EU would offer Ukraine, Moldova and Georgia a conditional and long-term, but unambiguous accession perspective.

RELATED Ukraine Needs the European Union’s Moral Support To Complete Its Reforms And Integrate With Europe

_______________

The views expressed in this opinion editorial are the author’s own and do not necessarily reflect Emerging Europe’s editorial policy.

RELATED ARTICLES

History as Destiny? Institutional Erosion in Ukraine and Poland

The Long Tail of Global Expansion

Resignation in Ukraine: War, Revolution, Crisis — Some Things Never Change

Emerging Europe Live
CEE: The Outsourcing Destination

Poland’s Unicorn, Slovakia’s Flying Car and the Future of Europe

Belarus 2020: Turning the Vicious Circle Into an Upward Spiral

A Bosnian Referendum Shows Russia’s Influence in the Balkans—As Well As Its Limits

Fiscal Policy Predictability in CEE — It’s Time for Change

Measuring Growth of Societies with GDP Alone Shows an Incomplete Picture

Europe Needs To Be More Proactive In Embracing Armenia

Will a Two-speed European Union Side-line the Visegrad Four?

The CEE Region Is Making Advances in Prioritising Waste-to-Energy Projects

January Kicks Off an Exciting Year for Emerging Europe

CEE — Do We Need a Launch Pad For Our On-Site Tech Intelligence in the Silicon Valley

Are Labour Shortages Driving Economic Growth?

United or Divided? Europe in the Face of the Challenges of Tomorrow

People Power Reminds the Government of the Rule of Law

Czech Republic Renaming Has Real Economic Costs

The Morawiecki Plan Promises a Brighter Future for Poland

Where’s My Cheese? – The GREAT British Food Tour 2014

Cheese Shop

Business Moving Forward with Cautious Optimism — Can Investors Win the Confidence Game?

Not All Quiet on the Eastern Front

Macedonia’s Controversial Coalition Government

SKOPJE MACEDONIA emerging europe

A Positive and Modern View of Entrepreneurship

Finalising the DCFTA is Expected to Bring Multiple Benefits to Ukraine

Emerging Europe Business Mixer in London

Big Fish, Small Fish, Where to Fish? On the Eve of the Fourth Industrial Revolution

European Volatility Makes Economic Development Slower for Ukraine

Poland: Is it Ready, and is it Time to Adopt the Euro?

The Global Outsourcing Industry — the Rise of the Phoenix

The Sharing Economy Could Bring New Business Models to CEE

Prepare for a New Europe

The EU’s Benign Neglect Of Eastern Europe

We, the Post-Communist Generation, Have the Skills to Rid of the Past And Create Our Own Future

International Women’s Day — Let’s Take Action And Then Celebrate

The Competitive Edge in Central and Eastern Europe

SOFIA BULGARIA - MAY 5: View of the Ivan Vazov National Theatre in Sofia on May 5 2016. Sofia is the largest city and capital of Bulgaria.

The Netherlands’ Objection to the Ukraine-EU Association Agreement could be Costly to Europe

Old Fashioned Skulduggery Overshadows the Elections in Moldova

How Will Poland Approach the Brexit Negotiations?

A New Division Between Eastern And Western Europe?

Central and Eastern European Consumers Are Joining the Global Trends for Change

Europe at Odds over OPAL and Nord Stream 2

Will the New Five-day Visa-free Regime Encourage More Visitors to Belarus?

Global Expansion in the Digital Age

The Right to Water: Who Can Change Today’s Situation?

The GREAT London Food Scene

Bakery in London

The Capital Markets Union: a New Beginning in the European Financial Sector?

Romania Surviving the Waves of Recent Political Tsunamis in Europe

The EU’s Choice: Fundamental Reform Or Disintegration

Changing Perspectives and Showing That True Romania is a Vibrant Innovative Country

Brexit: Let’s Learn the Lesson and Hope a Better Europe Will Arise

Bulgaria Needs a Reform-Oriented Government to Take Full Advantage of its EU Membership

bulgaria emerging europe

China: A Giant That Is Hard to Crack

Falling into Old Ways in 2017? Ukraine’s Struggle for Functioning Economic Institutions

Hungary’s Nationalist Assault on Free Enquiry

victor orban ceu

Poland’s Confusing GDP Growth

Let’s Stop Wasting Time Redefining our Place in Europe

LGBT in CEE — A New Acceptance Is Being Born From Migration

Are There Differences Between How Tax Regulations in Poland and IAS Treat Intangible Assets?

After 25 Years of Restructuring, the Romanian Power Sector Is at a Crossroad

Polish Tax Laws — Fighting a Winning Battle Against Tax Evaders

Ukraine’s Reputation for Cheap Labour May Not Ring True in the Long-term

Examining How a Strong Swiss Franc Could Single-Handedly Topple Poland’s Economy

Breaking With Imitations of the Past

Outsourcing in Germany: Stop Talking at and Start Talking to

The Voice of European Business Must Be Heard Loud and Clear by Brexit Negotiators

EBRD Emerging Europe Outlook On Croatia

Leave a Reply

Your email address will not be published. Required fields are marked *