Despite active military operations in Ukraine, the civilised world is already discussing plans for the country's reconstruction after the victory. After all, a well-prepared process and a clear vision of necessary steps will make it easier to implement large-scale projects aimed at restoring the country to normalcy. During the Ukraine Recovery Conference 2023, held on the 21st and 22nd of June in London, the Ukrainian government and businesses presented their strategic vision for post-war reconstruction and modernisation of the country. Western policymakers and businessmen (especially from the G7) had the opportunity to form impressions regarding these plans and consider investment possibilities.
Andriy Tymoshenko, Head of Strategy and Operations Management Consulting practice at KPMG Ukraine, told Mind how to do this as efficiently and quickly as possible.
According to the conclusions articulated at the conference, the overall macroeconomic situation in Ukraine can be considered controlled. Since the beginning of the full-scale war, Ukraine has attracted $51 billion in budget funding, and this year, $20 billion has been secured. The country and its enterprises continue to operate, with 90% of communal services being provided without interruptions, and only 4% of companies have closed. This is positive news.
The global community, however, also acknowledges the unprecedented scale of destruction. According to estimates from the World Bank and the Ukrainian Ministry of Economy, post-war reconstruction in Ukraine will require at least $411 billion. The most affected sectors by the war are infrastructure, with $35.5 billion in losses, and industry, with $13 billion in losses. The government has identified the restoration of critical infrastructure, housing, and essential social and transportation facilities as priority areas for progress.
One plans to raise the necessary funds primarily through private investments. The extensive reconstruction of a large country represents the biggest opportunity for private capital to make profitable investments and gain significant returns in the near future, the most substantial in the last 80 years.
For instance, according to data from the Confederation of Housebuilders of Ukraine, the reconstruction of only the housing stock destroyed by the war will require no less than 5.7 million cubic metres (11.9 million tonnes) of concrete, 39.3 million cubic metres (14 billion units) of bricks, and 45 million square metres of roofing tiles. To meet such demands, it will be necessary to establish robust production facilities for construction materials, with profitability rates that may be among the highest in the world.
The reconstruction of housing, roads, railways, ports, and other infrastructure in the country can only be compared in scale to the post-World War II reconstruction. Ukraine's infrastructure is set to become a vast window of opportunities for international financial organisations, banks, private investors, and contractors.
The prospect of investing in Ukrainian infrastructure and logistics appears to be a significant opportunity for international businesses to showcase their best capabilities and secure long-term projects that will ensure growth for years to come.
In London, during the Ukraine Recovery Conference 2023, Ukraine presented the initiative WebuildUkraine, aimed at uniting all international partners who are currently involved or plan to join the post-war reconstruction efforts.
History has witnessed cases where reconstruction efforts began even before the war's end. An example of this is Warsaw in 1945. Ukraine is following a similar path, with many war-damaged objects, particularly infrastructure and residential areas, being restored in real-time, without waiting for the cessation of hostilities. Of course, this reconstruction is carried out locally, and ensuring its systematic implementation after the war should be a priority for the country.
Private international investors are particularly interested in a global systematic approach. They seek reliable partnerships with developers, project and design bureaus, construction material manufacturers, and others. It is crucial to build an ecosystem of partners with stable and transparent procurement processes and corporate governance, along with clear quality control mechanisms aligned with the standards of developed countries.
In other words, Ukraine will need to continue the reforms started before the war and align its legislation with European standards at the government level. It is essential to implement the European certification system, continue large-scale privatisation, and anti-corruption and judicial reforms. To make the reconstruction process as transparent as possible, Ukraine has developed the DREAM programme, which will help track information on the restoration of damaged or destroyed objects. As government representatives point out, DREAM will allow all citizens of the country, donors, officials, and businesses to access information and monitor the implementation of each project planned for recovery.
In addition to process transparency, to attract private investments into the country, it is necessary to adhere to ESG standards (environmental, social, governance) from the design phase to the final construction step.
With each passing year, the pressure from investors regarding ESG requirements in infrastructure reconstruction will only increase. Therefore, it is worth taking care of this in advance and embedding these principles in the foundations of reconstruction projects.
In addition to global initiatives, local partnerships will be extremely important. Investors would like to see projects that create employment opportunities at the regional level and contribute to skill development in various sectors. This means that post-war infrastructure reconstruction projects should primarily be carried out with the involvement of national manufacturers. This will stimulate the Ukrainian market for goods and services, ensure the revival of production, create additional job opportunities, and have a significant impact on overall economic recovery.
International companies will seek local partners in Ukraine who have experience and understanding of the local context. However, Ukrainian companies must understand that to gain access to private sector investments, it is crucial for projects to be well-prepared and thoroughly developed.
Private investors will focus on the potential for long-term investment returns, with a time horizon of 20–30 years. They need to be certain that projects will be successful and productive, with long-term advantages. A key factor for national companies will be to convince investors that potential risks will be identified and mitigated. Everything must be thoroughly worked out and presented in a way that international investors can clearly understand the risk and opportunity distribution.
Therefore, to assess and support investment deals or establish legal entities, legal and tax consultations, and formulate strategies, Ukrainian businesses should involve professional international and national consultants and outsourcing companies.
A successful example of well-coordinated mechanisms and a properly designed reconstruction strategy is considered to be Ontario's Plan to Build. According to experts' assessments, this plan is clearly structured and has five main benchmarks, each covering specific sectors. It outlines the steps for the economic recovery of Ontario, services for workers, the construction of highways and key infrastructure, cost reduction, and preserving openness. Such a successful experience should help Ukrainian companies develop their own clear and transparent reconstruction plans.
Certainly, the country's reconstruction is only possible with comprehensive support from the world's most developed economies. And now Ukraine has it. According to the results of the conference, the EU promised to cover 45% of all of Ukraine's financing needs for its recovery by 2027, amounting to 50 billion euros. The USA declared additional assistance to Ukraine in the amount of $1.3 billion. Since the beginning of the full-scale war, Germany has provided Ukraine with nearly 7 billion euros. France announced the allocation of 40 million euros for emergency reconstruction in 2023. Canada plans to allocate $20 million to climate change projects. Japan will provide $5 million for humanitarian needs. Norway announced the allocation of $7.4 billion to Ukraine as part of a five-year support package, and so on.
Various countries are introducing more and more mechanisms to support businesses. The United Kingdom announced that over the next three years, they will provide credit guarantees to businesses of $3 billion. Additionally, France is implementing risk insurance mechanisms for French companies interested in investing in Ukraine. This instrument is already operational in Germany, Poland, and the USA.
The international community initiated the establishment of war risk insurance for private investors in Ukraine. The EBRD, the EC, Switzerland, Norway, Ukraine, and TaiwanBusiness (Taiwanese Technical Cooperation Fund) signed a statement of intent to cooperate in rebuilding the private insurance market in Ukraine.
Furthermore, the EBRD and development financial organisations from around the world signed a Memorandum of Understanding, creating the foundation for cooperation in joint investments in Ukraine, primarily in the private sector. The G7 countries support Ukraine's aspirations to become a member of the EU as quickly as possible.
The Ministry of Economy of Ukraine (together with BlackRock, McKinsey, and J.P. Morgan) announced the creation of the Ukraine Development Fund (UDF). The UDF will focus on attracting capital from the public and private sectors to rebuild the post-war economy through mixed financing.
Overall, it can be said that there is tremendous interest in Ukraine, cooperation with Ukraine, and businesses from Ukraine. The main task for both businesses and the government is to create the most favourable conditions for such cooperation.