There’s no question that the risks caused by Russia’s aggression are substantial, including the possible destruction of assets, challenges with logistics, supply chain disruption, and constant threats to critical infrastructure.
So why should investors consider Ukraine?
Among the country’s obvious advantages are its strategic position and European Union (EU) candidacy, the most battle-hardened and capable army on the continent, a large consumer market, and abundant natural resources. Other assets include its agricultural sector, which is growing despite attacks, a thriving IT sector, well-educated and skilled human capital, and a relatively inexpensive workforce.
If these pitches sound familiar to experienced investors, there’s more. It seems that however, and whenever, the war ends, there will be very substantial Western aid and possibly seized Russian assets to help rebuild. The sums are unknowable, but given the horrendous damage wrought by Russian aggression, something in the hundreds of billions of dollars will be required. In other words, there will be contracts galore.
The government in Kyiv is seeking to create a much better investment climate. Since 2014 a series of agencies and commissions have been established to smooth the process. These include a National Investment Council under the control of the President, UkraineInvest, a promotion agency that works as a one-stop-shop to attract and support foreign direct investment (FDI), the Business Ombudsman Council, which deals with complaints about unfair treatment, and a parliamentary commission on the Protection of Investors’ Rights.
The Ukrainian parliament is working on a law on public-private partnership (PPP). The adoption of this draft law will allow the introduction of a new PPP model based on a readiness fee, which will allow the use of different sources of funding for restoration work, as well as the simplification and standardization of procedures for the preparation of PPP projects, and the introduction of an e-procurement system for such projects in accordance with EU standards.
There have been amendments on transparency, tax reductions, import duty exemptions, and preferential land ownership, as well as measures to improve the rule of law, simplify regulatory procedures, offer tax credits, and cancel more than 500 permits of various types.
A National Strategy to increase FDI by 2030 and an “investment nanny” law have been adopted, while the “de-oligarchization” law is opening new opportunities. The cleansing of the judicial system is also ongoing and progress is being made in the fight against corruption.
Ukraine is offering favorable tax conditions for IT, and research and development, and President Volodymyr Zelenskyy has referred to the possibilities in sectors like metallurgy, energy, agriculture, natural resources, technology, and military manufacturing as “the greatest opportunity in Europe since World War II”.
Kyiv has negotiated political risk insurance (PRI) with governments and leading insurance agencies in the US, UK, Germany, and Poland. Some agencies, like the US International Development Finance Corporation (DFC) and the Multilateral Investment Guarantee Agency (MIGA), also cover military-related risks for foreign investors in Ukraine.
In April, the DFC and the US Agency for International Development (USAID) signed a memorandum of understanding with the Ukrainian government to help attract investment as part of efforts to address the country’s urgent development priorities and economic recovery.
The World Bank also launched a facility, backed by the International Bank for Reconstruction and Development (IBRD), International Financial Corporation, and MIGA, which is intended to help donors support Ukraine’s work to sustain key public services, the private sector and wider efforts for recovery and reconstruction.
At the same time, MIGA has focused on providing investors with guarantees against war-related risks. Raiffeisen Bank International AG has already received corresponding guarantees for €100m ($107m) for one year while BlackRock, JP Morgan, and McKinsey are cooperating with Ukraine to attract billions more in private investment.
Unilateral initiatives by allies are also important. For example, German Economy Minister Robert Habeck announced that capital invested in Ukraine would be backed by state guarantees. Fourteen companies had taken advantage of guarantees for €280m by August when Germany extended the guarantees beyond property damage to include conversion and transfer risks associated with loans.
Bpifrance Assurance Export announced in October that it would insure French companies investing in Ukraine. The UK Government signed a war-risk insurance Statement of Intent with the European Bank for Reconstruction and Development (EBRD) and UK Export Finance has also committed to allocating up to £200m ($245m) to insure political and military risks for British investors. Poland’s state-owned KUKE Export Credit Insurance Corporation said it will provide assistance to private businesses interested in rebuilding Ukraine.
Ukraine’s parliament, the Verkhovna Rada, is also working on amendments to the law on military risks to allow the Export Credit Agency to insure investments by domestic and foreign companies.
According to the US State Department’s 2023 Investment Climate Statements, Ukraine offers significant potential opportunities, particularly for early-moving investors with a high-risk tolerance. So who is putting in the money?
Bayer AG announced an investment of €60m in its corn seed production facility at Pochuiky, 100km (about 60 miles) southwest of Kyiv, while ArcelorMittal has invested $130m in local production this year. Turkey’s Onur Group is planning to put $150m into the installation of wind turbines, while another $70m will be invested in mining graphite ore.
Kingspan Group Plc is planning to produce advanced insulation materials and solutions for centralized heating worth more than $280m, and Nestlé, Henkel, Carlsberg, and Philip Morris also have investment plans.
“I don’t want to wait for the last bullet to be fired. I want people to know now that Ukraine will enter into a golden era,” said Australian mining billionaire Andrew Forrest, who has already announced a $740m investment in Ukraine’s private sector. “It will be the highest growth economy in Europe without any doubt.”
Elena Davlikanova is a Democracy Fellow with the Center for European Policy Analysis (CEPA.) She is an experienced researcher, who in 2022 conducted the studies ‘The Work of the Ukrainian Parliament in Wartime’ and ‘The War of Narratives: The Image of Ukraine in Media.’
Halyna Yanchenko is a Member of Parliament of Ukraine and Secretary of the National Investment Council.
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.
