Industry leader proposes PKO funding model

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African peacekeepers have seldom, if ever, been deployed on a fully self-sustained basis, i.e. with troops, equipment, support systems, and their own command, says Ivor Ichikowitz, executive chairman of the Paramount Group.

Ichikowitz says this is because the scale of the investment required is often beyond their reach.

In addition, the UN peacekeeping system is structured in such a way that the highest levels of reimbursement is for contingents that are fully equipped and self-sustainable.

“This effectively locks out the low-income countries from playing a bigger role, and from growing their technical defence capabilities,” he told defenceWeb`s Peacekeeping Africa 2009 conference.  

Countries not engaged in armed conflict, or not facing an identifiable threat cannot easily justify the procurement of modern equipment in the face of overwhelming socio-economic needs.

“So, clearly, African countries face particular challenges, and the system of reimbursement employed by the UN does little to assist them,` Ichikowitz adds.

The nub of the problem, he says, is funding.

Using an unnamed African country where Paramount has done business as a case study, Ichikowitz says they set out to create a funding scheme for equipment acquisition that complied with international norms and standards but did not rely on foreign banks.

“We commenced negotiations with the Ministry of Finance, and focused on what they could realistically accommodate. We discovered that for the Finance Ministry a normal credit agreement with a foreign bank would comprise more than a thousand pages of documentation.

“We devised funding agreements of less than thirty pages. The bureaucracy required to deal with a thousand-page document renders it virtually undoable: the number of signatures on a thousand pages is hard to imagine, so we came up with one that requires only three signatures: from the Minister of Defence, the Minister of Finance, and the Attorney General to confirm its legality.  

“This little innovation, just in itself, took projects that had previously been outside the realm of possibility, and made them implementable,” Ichikowitz added.

“The next problem to deal with was the piecemeal building of a system,” he continued. “We realised that this was never sustainable, and to solve it we designed systems that were turnkey, could be delivered all at once, were fully operational, integrated, and answered to the requirements of the client.

“In short, it was a complete solution, and it worked. The technology was appropriate for the requirement; they were fully equipped for the mission, and could once again take their pride of place among the peacekeeping nations of the world.

“This may all sound rather simple, but for a nation struggling to maintain its capability, it is extremely difficult: and for a private defence company such as mine, it requires a great deal of effort and experience to develop the required expertise.”

Ichikowitz says African governments need to have practical long term solutions that are both successful and affordable.

“As you might know, United Nations reimbursements only continue for as long as the equipment is operating. This is a trap for many developing countries: they deploy troops and equipment, but do not have the ability to support and maintain their equipment in the peacekeeping theatre: it very quickly becomes inoperable, the reimbursements stop, and often it is not cost-effective to even move this equipment back to base,” he says.

“So when funding a package over time, as we do, you run the risk of not being paid if your equipment does not work. By creating long-term maintenance provisions, however, we are able to ensure dispatch reliability, and ensure the viability of the funding package. Governments, through their Ministries of Finance, are therefore confident that they can rely on the reimbursements to cover their payment obligations.

“This might sound like a neat way of closing the circle, and often it is; but we have to be aware that there are serious pitfalls in the peacekeeping system,” Ichikowitz warns.

“There is much talk in UN circles about finding new, more reliable ways of financing peacekeeping missions; but the reality is that there is no mechanism by which governments can match their expenses (i.e. outflows for the payment of equipment and services) with the reimbursements they receive from the UN. This can create a crisis of major proportions.

“How do we solve it?We break down the repayments into small, affordable sums that can be secured out of operating cash-flow.A typical quarterly repayment, against say a $50 million project financed over five years, would be $2.5 million dollars a quarter.

“There are very few countries on the continent that cannot find two-and-a-half million dollars a quarter to pay for a major defence acquisition. So this is a collaborative process.

“When Ministries of Finance ask for our term sheet, we sometimes puzzle them by saying ‘explain your cash flows, and then we will create a term sheet for you.` Never before have they heard that little innovation.

“What it does is open the door to credit for countries that have not otherwise been able to obtain it.Countries that have never been able to satisfy the credit requirements of commercial banks, and have relied either on donor funding or concessionary credit, suddenly find themselves in the unfamiliar situation of being able to afford the solution they want, Ichikowitz says.