{"id":15468,"date":"2023-07-28T09:43:50","date_gmt":"2023-07-28T09:43:50","guid":{"rendered":"https:\/\/sceptical.scot\/staging\/?p=15468"},"modified":"2026-04-18T19:34:30","modified_gmt":"2026-04-18T19:34:30","slug":"ukraines-recovery-needs-public-and-private-investment","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2023\/07\/ukraines-recovery-needs-public-and-private-investment\/","title":{"rendered":"Ukraine\u2019s recovery will ‘take a village\u2019 of international actors"},"content":{"rendered":"\n

Seventeen months on from the Russian invasion<\/a>, its army continues to impose heavy losses on Ukraine. The human casualties, economic devastation and physical destruction have already reversed Ukraine\u2019s post-Soviet progress. Its fully-fledged reconstruction will take more than just a cessation of the fighting.<\/strong><\/p>\n

Ukraine and the European Union have begun developing measures to rebuild the economy and infrastructure. But these do not amount to a long-term recovery strategy. Ukraine is fighting for survival against an old, \u2018realist\u2019 power, while seeking to transcend Russia\u2019s sphere of influence to join the Europe<\/a> of universal values. This is costing it dearly.<\/p>\n

Ukraine will need \u20ac383 billion over ten years<\/a> to recover from the damage induced only during the first year of the war. This sum\u2014which does not account for the Nova Kakhovka dam destruction<\/a> in June\u2014amounts to nearly three times Ukraine\u2019s 2022 gross domestic product.<\/p>\n

\"\"<\/a><\/p>\n

Last month, Ukraine presented a nationwide reconstruction roadmap<\/a>. In turn, the European Commission proposed to commit \u20ac50 billion<\/a> in grants and loans to Ukraine\u2019s recovery by 2027. There is a mutual understanding that, on their own, public funds will not be enough to rebuild Ukraine. Only a quarter of the reconstruction expenditure is required for sectors traditionally financed<\/a> by public spending, such as public building reconstruction and demining. The private sector would need to take on the rest.<\/p>\n

Market drawbacks<\/h2>\n

Ukraine needs a sustainable cessation of fighting to attract investment. A stable ceasefire alone is however not a sufficient condition for successful recovery. It is estimated to require<\/a> \u20ac170 billion in foreign direct investment (FDI) and \u20ac325 billion in domestic private investment to implement its reconstruction projects. To attract these funds, Ukraine needs to fix above all three main market drawbacks.<\/p>\n

A shortage of (re)insurance offers<\/em>: a sustainable insurance market is a precondition for long-term reconstruction. Insurance encourages<\/a> long-term planning and innovation by spreading risks over time through transfer or pooling. Ukraine\u2019s insurance market is however not fit to fulfil these functions. Even before the invasion, it lagged behind Europe\u2019s. In 2015, insurance policies covered only 10-15 per cent of risks in Ukraine, while the most developed countries have a 90-95 per cent<\/a> insurance-density rate.<\/p>\n

After Russia\u2019s 2014 annexation of Crimea, most of the 20 largest international private insurers stopped<\/a> providing coverage in Ukraine. In 2022, this became complete<\/a> under war-exclusion clauses. Reinsurance firms simply imposed<\/a> a blanket moratorium. The United K<\/a>ingdom, Germany<\/a> and France<\/a> are designing ad hoc<\/em> war-insurance mechanisms<\/a> but this scattered, bilateral approach cannot replace a comprehensive insurance market.<\/p>\n

Limited access to SME financing<\/em>: before 2022, Ukraine\u2019s small and medium enterprises amounted to<\/a> 99.9 per cent of the business population. Despite their economic significance, Ukrainian SMEs tended however to have only a short-term horizon for planned investment, opting to finance it using domestic savings. As a result, the gap between demand for and supply of SME financing grew<\/a> in 2016-21 from \u20ac9.3 to 10.3 billion, even as the EU was deliberately increasing its SME financing in Ukraine.<\/p>\n

Russia\u2019s war has additionally depleted business savings and reduced the availability of bank loans and equity. Interest rates for corporate loans denominated in the national currency sit at <\/a>around 20 per cent, in foreign currencies at 8-9 per cent.<\/p>\n

Unstable access to the EU single market<\/em>: following Russia\u2019s invasion, the EU fully liberalised trade<\/a> with Ukraine until June 2024, although it subsequently reintroduced import restrictions on some grain and seeding materials. This limited opening neither supports the EU\u2019s commitment to Ukraine\u2019s reconstruction nor helps investors plan for the long haul. It also contradicts studies demonstrating that a country\u2019s accession to the single market has the second largest positive impact<\/a> on FDI inflows\u2014only EU membership surpasses that, with a 60 per cent increase in investment.<\/p>\n

Long-term strategy<\/h2>\n

The \u20ac50bn Ukraine facility proposed by the commission has three planks<\/a>: support Ukraine\u2019s financial sustainability, incentivise investment and provide technical assistance. It signals an important shift from short-term, emergency relief to a medium-term recovery framework. It will not however suffice to guarantee stable recovery. To shift to a long-term strategy, the EU should ramp up its assistance mechanisms for Ukraine\u2019s insurance market, SME financing and access to the single market.<\/p>\n

Insurance mechanisms<\/em>: the European Bank for Regional Development and the commission, among others, last month agreed to \u2018explore the possibility\u2019 of a Ukraine Recovery Guarantee Facility<\/a>. If it goes ahead, this would facilitate access to war-risk corporate insurance, with an initial focus on trade and international shipping.<\/p>\n

In the next 15 years, four-fifths of Ukraine\u2019s \u20ac500 billion foreign and domestic investment will require<\/a> insurance. EU-supported insurance mechanisms should thus expand beyond protecting trade in wartime. Two types of (re)insurance mechanism should be introduced: for flagship projects in the economically prioritised sectors and \u2018pocket-sized\u2019 policies for SMEs. An insurance facility for Ukraine should also cover, in addition to war, the risks of political violence.<\/p>\n

SME financing mechanisms<\/em>: the EU needs to ensure Ukraine\u2019s recovery plan prioritises SMEs. Tailored supports need to focus on enhancing the availability of funds for those industries contributing the highest value<\/a> to national output: retail and services (including logistics), industry and agriculture.<\/p>\n

Medium- and long-term assistance should be clearly geared towards the eastern-Ukraine regions, which have suffered the greatest war damage and will require the largest investment incentives. The EU should design an adjustment mechanism for any Ukraine facility to revise its allocations at any given time in 2024-27.<\/p>\n

Access to the single market<\/em>: Ukraine cannot be expected to turn into an investment magnet without guaranteed full access to the single market. The EU should suspend all barriers to Ukraine\u2019s exports for the long term. The next step could be accepting Ukraine into the European Free Trade Association<\/a>. This is no substitute for EU membership but would represent a tool for Ukraine to attract investment, while progressing along its EU-accession path.<\/p>\n

Unimaginable sacrifices<\/h2>\n

Since February 2022, Ukraine\u2019s war losses have cancelled out decades of progress. Its recovery will \u2018take a village\u2019 of international actors to step in and assist. By \u2018outsourcing\u2019 security risks from Russia beyond its borders, the EU had reaped peace dividends and enjoyed significantly reduced defence spending\u2014but those times have passed<\/a>.<\/p>\n

Ukraine is now making unimaginable human and economic sacrifices in its commitment to Europe. Helping the country fully to recover and become an EU member state will serve as a geo-strategic investment in the sustainable security and economic performance of the continent.<\/p>\n

First published by Social Europe <\/a>based on a longer paper<\/a> for the Jacques Delors Centre (Berlin)<\/em><\/div>\n
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Featured image of Bucha by rbc.ua via Wikimedia Commons<\/a> CC BY-SA International 4.0. Image of Kyiv housing block by \u00a9Olexiy Samsonov \/ Kyiv City State Administration,<\/em><\/div>\n
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“Ukraine is now making unimaginable human and economic sacrifices in its commitment to Europe. Helping the country fully to recover and become an EU member state will serve as a geo-strategic investment in the sustainable security and economic performance of the continent.”<\/p>\n","protected":false},"author":410,"featured_media":15473,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[421],"tags":[],"class_list":["post-15468","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-international"],"_links":{"self":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/15468","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/users\/410"}],"replies":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/comments?post=15468"}],"version-history":[{"count":1,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/15468\/revisions"}],"predecessor-version":[{"id":18487,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/15468\/revisions\/18487"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/media\/15473"}],"wp:attachment":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/media?parent=15468"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/categories?post=15468"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/tags?post=15468"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}