Ukraine — Après Guerre le Déluge

The Ukraine Recovery Conference in London on June 21-22 emphasized the need for large amounts of private sector investment in post-war Ukraine. According to the World Bank, reconstruction in Ukraine will cost a monumental $411bn,  which is widely viewed as a conservative estimate. Some estimates suggest the final figure could be “trillions.”

The reconstruction effort will be a long haul To attract investment, Ukraine will need to enact market reforms even as it continues to face numerous physical security risks.

But there are also unparalleled opportunities, which the Ukrainian government has been highlighting in a recently launched platform called Advantage Ukraine.

For that reason, companies entering the Ukrainian market while hostilities continue may be rewarded in the longer term, having established their early commitment.

First, Ukraine has a resilient and thriving tech sector, despite the ongoing war. It has a very young and educated workforce, with 40% of the 25-plus population having some kind of tertiary education.

While Ukraine’s GDP shrank by over 30% last year, its tech industry is the only export-focused economic sector that saw growth during Russia’s invasion. IT exports from Ukraine tripled to nearly $7bn in 2022.

Combine Ukraine’s technology resilience with a highly educated youth bulge, and you have a recipe for an Eastern Europe advanced tech cluster.

US-based companies are among those seeing the potential. Horizon Capital, a US private equity firm, won backing from dozens of major development institutions for its $254m Ukraine tech-focused investment fund.

The country is also abundant in natural resources. Ukraine has a rich supply of graphite, titanium, nickel, manganese, and magnesium. It also produces large amounts of iron and steel.

The German Mineral Resources Agency has encouraged German mining companies to invest in this sector, as there is an abundance of rare earth metals and minerals that will prove vital in creating stable supply chains for EU companies.

Rare earth metals are not the only resource Ukraine has in abundance for manufacturing. It also possesses a large amount of oil and gas, enough to give it the third-largest known gas reserves in Europe.

The amount of oil and natural gas reserves in Ukraine is made even more remarkable when considered in tandem with the fact that it also has Europe’s largest gas storage capacity.

In addition, the World Bank estimates that Ukraine has an offshore clean energy potential of 250GW in the Black Sea, while its onshore production capabilities are close to 320GW. Compare that with its current installed generating capacity of around 60GW.

Most of the country’s current wind capacity has either been destroyed or is in occupied territory. This means that if land can be reclaimed, and investors can be patient, Ukraine will potentially produce more renewable energy than the EU.

Ukraine’s riches extend beyond its human potential and raw materials. It has Europe’s largest farming areas and the most fertile soil.  

Thanks to its black soil, which covers more than half the landmass, cereal grains and oilseeds grow easily. This type of soil also makes agricultural capacity resistant to the negative impacts of climate change, meaning that even as the Earth warms up, crops will grow just fine.

With all these options, the country seems a very attractive location to do business, the war notwithstanding. So how can companies mitigate the physical risks, and what steps can Ukraine take to ensure a better-functioning democracy, rule of law, and market reforms for investors?

Post-war Ukraine will be rife with physical security risks: unexploded ordnance, dilapidated structures, destroyed logistics, and landmines just to name a few things.

The obvious solution would be for companies to utilize the World Bank’s Multilateral Investment Guarantees Agency for war-risk insurance. This multilateral fund has official donors from the UK, Norway, and the European Bank for Reconstruction and Development (EBRD), to name but a few.

In the short term, companies may also carry out frequent stress tests of roads, buildings, and other structures to understand their vulnerabilities.

Beyond the physical risks, Ukraine also has a history of corruption. It needs improved policies and implementation, such as its January anticorruption campaign, when allegedly dishonest corrupt government officials were replaced.

Another way Ukraine could stamp out corruption is by turning the post-war country into a cashless economy. To that end, companies like BlackRock are ready to donate a philanthropist’s $500m and help turn Ukraine away from a cash-based economy by targeting sectors such as energy, agriculture, and technology.

Finally, the country needs to guarantee that its investors will see a return on the money they will spend in the country.

This means market-friendly laws or reverting to arrangements that had been put in place prior to the war and the imposition of martial law.  

JPMorgan and BlackRock are both slated to advise on the Ukraine Development Fund, which seeks to gather a large amount of funds from private and public sector investors towards rebuilding the economy and to give investors the confidence they need to make the decision to assist.

Lastly, capped energy prices will need to end, and the government will have to gradually bring them closer to those on European markets, effectively sending a strong signal to investors that the country is ready to offer attractive returns, guaranteed by solid institutions and minimal red tape.

Evan Booth Bibisi is a CEPA Business Development Intern and graduated from Penn State’s School of International Affairs in December 2022. He has previously interned at the National Consortium for the Study of Terrorism and Responses to Terrorism and has an interest in Western and Eastern European economic and energy policy.

Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. The views expressed are her own. 

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.