European governments must step up efforts to incentivise the private sector to invest in Ukraine to fund the war-torn country’s significant recovery and reconstruction needs, a senior EU official said on Tuesday (16 July).
Pierre-Arnaud Proux, deputy head of the inter-institutional unit coordinating Ukraine’s relief and reconstruction at the European Commission, noted that the €50 billion in funds pledged by the EU under the bloc’s Ukraine Facility to support Kyiv’s reconstruction falls well short of the country’s estimated investment needs, which hover right below the $500 billion mark.
“What is important is to […] try to leverage and make sure that we can get the private sector on board because public resources alone will never make it,” Proux said during an online event organised by the European Policy Centre (EPC).
“[Ukraine’s] needs are enormous,” the EU official said.
Proux noted that the €7 billion offered to Kyiv under the Facility’s Ukraine Investment Framework, which aims explicitly to boost private sector investment, could generate an additional €40 billion in private funds. He added that an additional €1.4 billion pledged at the Ukraine Recovery Conference in Berlin last month could leverage a further €6 billion in private capital – leaving Ukraine with a net investment gap of hundreds of billions of euros.
“We are very far from [meeting Kyiv’s investment needs] with our Ukraine Facility and with our Ukraine Investment Framework in particular,” Proux said, adding that the EU’s efforts to boost private investment nevertheless represent a step in the right direction.
The Ukraine Facility, proposed by the European Commission in June 2023, provides €50 billion to support Ukraine’s reconstruction from 2024 to 2027.
€7.9 billion in funds have already been disbursed under the Facility, with the first payment made in March this year.
A joint report by the United Nations, the World Bank, the Ukrainian government, and the European Commission published in February estimated the total cost of rebuilding Ukraine to be $486 billion (€446 billion).
Russia’s recent ramping up of attacks on Ukraine’s energy infrastructure means that the figure is now likely to be substantially higher.
Trying to engage financial sector heavyweights
Anna Derevyanko, the executive director of the European Business Association, which represents 900 international and domestic businesses based in Ukraine, said that companies face several obstacles to investing in the country – including regular power outages, lack of access to capital, acute labour shortages and ever-present security concerns.
“When companies are just reading news, obviously they are scared,” she said. “And that’s why basically they need to be really very brave, actually, to try to discover what could be done in Ukraine.”
Derevyanko’s comments come amid Ukrainian President Volodymyr Zelenskyy’s repeated efforts to woo private investors since Russia’s full-scale invasion in February 2022.
“Business investment is so necessary,” Zelenskyy told business leaders at a closed-door session in Davos in January. “To bring peace closer, we need you in Ukraine to build, reconstruct, and restore our lives. Each of you can be more successful with Ukraine.”
Over the past two and a half years, Zelenskyy has also met with representatives of numerous major Western investors, including US banks JP Morgan and Goldman Sachs and BlackRock, the world’s largest asset manager.
His government is currently locked in negotiations to avoid defaulting on $20 billion in debt owed to multiple private creditors – including BlackRock – next month.
Experts have noted that a default would severely hamper Kyiv’s ability to leverage funds on Western capital markets once the war is over.