Importance of private investment for post-war rebuilding of Ukraine

Importance of private investment for post-war rebuilding of Ukraine

Attracting substantial, long-term private investment will be central to the recovery. Private investment, from both foreign and domestic sources, will be needed to rebuild not just businesses’ factories and other facilities, but also for infrastructure (railways, ports and motorways), and social infrastructure (hospitals, education facilities).

As of October 2022, according to KSE estimates, the total amount of direct documented damage to residential and non-residential real estate, other infrastructure amounted to more than $127 billion (at replacement cost). The largest share in the total volume of damages belongs to residential buildings (40% or $50 billion) and infrastructure (28% or $35 billion). Innovative private financing can contribute to rebuilding and improving the quality of Ukraine’s housing stock. In general, reconstruction may be based upon green logistics concepts. Existing infrastructure facilities and those in need for repair and modernization could be brought under an integrated service system under which freight transport will travel fewer, shorter routes and use environmentally friendly logistics systems to ensure green growth in the country by creating jobs, reducing environmental pollution, ensuring sustainable resource use, proper waste management, and introducing renewable energy-powered vehicles.

A stronger role for foreign direct investment (FDI) is likely to be central to the recovery. According to Financial Times, construction, renewable energy, financial services, transport and ICT account for over 60% of the value of greenfield investments in Ukraine since 2003. Prioritising foreign investments in these critical sectors, for which Ukraine has proven to be an attractive investment destination, will help accelerate recovery process. Reconstruction opens vast investment opportunities primarily for building materials producers, logistics and EPC companies. Furthermore, with a view to energy independence issues, Ukraine is likely to attract significant investment in renewable energy sector.

Before the full-scale Russian invasion of Ukraine, almost 20% of workers were employed in the agricultural sector, and the share of the sector in the country’s GDP was 11%. Armed aggression pointed to the most vulnerable points of the agricultural sector – the lack of export products diversification. The solution is to reduce the export of raw materials and enhance agro-processing industry in Ukraine. Furthermore, the export potential of the machine-building sector of Ukraine remains quite significant. Ukraine’s pharmaceutical industry has great potential, combining intensive output growth and investments in R&D. A major growth driver is import substitution, building a strong case for international pharma companies to increase investment through the purchase of existing players or building their own manufacturing in Ukraine.

Improving the business climate would support existing firms’ investments in rebuilding, and encourage new innovative start-up to rejuvenate Ukrainian economy.

Ukraine has undertaken significant reforms to improve its investment and business environment in recent years. Key reforms include improving corporate governance requirements, simplifying establishment and licencing procedures, addressing competition issues, making public procurement more efficient and transparent and reinforcing anti-corruption architecture. Despite the war time Ukrainian small and medium-sized businesses continue to recover, restore jobs, create inventory and expand its customer base. Overall, Ukrainian business has proven that it is quite resistant to challenges and ready to work and invest even in the current conditions. In Ukraine, the most promising and progressive sector is the IT industry. According to NBU data, for 9 months of 2022, the IT sector provided 5,5 billion US dollars in export earnings with 13% export increase.

Therefore, Ukrainian start-up companies have proven their resilience even in wartime conditions, and impressively continue to develop. A greater dynamism among new start-ups is expected to support Ukrainian strong recovery and a more diversified economy. Besides, IT technologies hold immense potential for logistics transformation in Ukraine and its positioning as a global IT hub. Despite the war risks, there are many niches and attractive areas for investment in Ukraine. Cheap assets, relatively inexpensive but skilled labour force, significant demand for certain goods in the future can give excess profits. In order to relatively quickly enter the Ukrainian market after the end of the war, it is necessary to start studying the environment and implementing investment projects in Ukraine as soon as practicable. Overall, reconstruction offers a unique opportunity to upgrade Ukraine’s productive capacity and attract foreign capital in modern technology. This will lay the foundation for long-term growth, and facilitates Ukraine’s tighter integration into the global economy.

Thus, the implementation of investment-attractive projects will become an integral part of the recovery plan, its driving force in terms of the development of entrepreneurship and the involvement of foreign and Ukrainian business in regional and global supply chains.

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