“Buy when the cannons are firing, and sell when the trumpets are blowing” is an expression attributed to Nathan Rothschild, one of the most successful investors and financiers in the 19th century’s Europe. Although the aphorism itself is sometimes perceived as a sign of unbridled passion for profit, there is a cold business calculation behind this principle. It is precisely this approach that could play the life saver for the Ukrainian economy.
During the twenty months of full-scale war, Russia has destroyed a huge amount of infrastructure across various sectors of the economy. According to the World Bank’s estimates, in the first 12 months of the war alone, direct damage to Ukraine amounted to more than $135 billion. The most affected sectors include housing (38% of the total damage), transportation (26%), energy (8%), trade and industry (8%), and agriculture (6%). The frontline oblasts — Donetsk, Kharkiv, Luhansk, Zaporizhzhia, Kherson, Mykolaiv — as well as the de-occupied regions (Kyiv and Chernihiv Oblasts) were affected the most.
The World Bank estimates that the total cost of reconstruction and rebuilding the devastation will exceed $411 billion, 2.6 times Ukraine’s expected GDP in 2023.
In my opinion, the only way to the country’s full independence, recovery and prosperity is economic self-sufficiency. This can only be achieved by creating a strong economy, attracting investment and concentrating value-added production in Ukraine. The key question facing the Ukrainian Government today is: How can we achieve this? What needs to be done?
I truly believe that the best time to invest in Ukraine is now. Despite continuous shelling, despite the full-scale war, despite everything that may seem too great a risk. And there are several reasons for this belief.
First. Companies are already investing in Ukraine
In spite of the war, Ukraine is already attracting significant investment from companies across the world (Germany, Turkey, USA, Israel and many others). The amounts of investment are quite different, from tens of thousands to hundreds of millions of dollars. It is important to note that most of these companies had previous experience in Ukraine before the full-scale invasion and are investing in the development or expansion of already functioning production. Here are some examples of such investor companies:
- ArcelorMittal, the second largest steel company in the world, invested $120 million in Ukraine in 2022 and plans to invest another $130 million by the end of 2023.
- Turkish construction giant Onur Group has been granted a special permit for graphite ore mining at the Burtyn Deposit in the Khmelnytskyi Oblast and plans to invest $50 million in this project during the first stage (total investment amounts to about $200 million until 2030), while the project is scheduled to launch in 2023–2024. The Group is also about to invest almost $260 million until 2025 in wind farms in the Zakarpattia and Lviv Oblasts. In total, Onur intends to invest about $500 million until 2030.
- The Irish Kingspan Group plc is currently launching an investment project worth more than $200 million. Developing a construction technology campus in the Lviv Oblast, which comprises 6 production areas, including the manufacture of advanced insulation materials and solutions for centralized heating, has been planned.
- Turkish company Baykar — a manufacturer of Bayraktar TB2 combat drones — will invest $100 million in three projects in Ukraine. In particular, the construction of a drone factory will be completed in 18 months.
A separate point worth mentioning is the comprehensive assistance from the European Union. A number of international events took place this fall, where EU representatives once again stressed that they would continue to support Ukraine in its fight against Russian aggression.
- During the 6th German-Ukrainian Economic Forum, it became apparent that German companies favor active involvement in the reconstruction of Ukraine. Despite the war, German businesses have already applied for investment guarantees from the federal government for 30 more projects.
- Speaking at the Kyiv International Economic Forum, Vice President of the European Commission Valdis Dombrovskis stated that the EU would provide Ukraine with $18 billion in 2023 as part of macroeconomic financing programs.
That is to say that the process of investing in Ukraine is already quite active.
Second. Investment in Ukraine can be insured
Major international financial organizations are currently developing programs to guarantee investments and insure against military and political risks when investing in Ukraine So far, the EBRD (European Bank for Reconstruction and Development), MIGA (Multilateral Investment Guarantee Agency, a member of the World Bank Group), the U.S. International Development Finance Corporation (DFC), USAID, the French state insurance company Bpifrance Assurance Export, along with the governments of such countries as Germany, Denmark, and Poland, have stated their willingness to insure these investments. It is also known that some major funds and private investors have already decided to participate in the reconstruction of various sectors of Ukraine’s economy.
Third. Ukraine has proven that it is capable of delivering on its business commitments in the context of war
Today, our country is extremely dependent on the financial, humanitarian, and military support from foreign partners, primarily the United States, the EU, and the United Kingdom. And despite our allies’ assurances of their unwavering support until victory, certain concerns exist. And they are not unfounded. Firstly, no matter what anyone says, there is banal fatigue from war. Twenty months into the hostilities, we can already feel its manifestations. Secondly, we see new global problems emerging globally, such as the war in Israel, which are bound to shift the focus of Western allies away from Ukraine. All this only increases global economic turbulence.
Nevertheless, our country continues to discharge its obligations to international partners in the most responsible manner. By way of example, EU countries and the U.S. continue to order IT services from Ukrainian companies. Compared to the pre-war 2021, growing volumes of IT exports in monetary terms could be observed across certain quarters.
Ukraine continues to export agricultural and metallurgical products to EU and Asian countries. Our main trading partners today include Poland, Romania, China, Turkey, and Germany. In the first 8 months of 2023, exports from Ukraine amounted to about $24.5 billion, which is already more than 85% of what it was a year earlier.
Even at the height of war and in the midst of massive infrastructure destruction, the IMF still projects Ukraine’s GDP growth at 2% in 2023. A business partner capable of standing its own ground and fulfilling contractual obligations in this environment would be interesting for any investor.
Fourth. Even with all the damage caused by Russian aggression, basic indicators show that Ukraine still remains an economically attractive major European country.
We are still the largest country in Europe, one of the world’s key suppliers of agricultural products, also boasting a well-developed mining industry. No one can take this away, not even Russian aggression. Our economy has recovered quickly from the COVID pandemic. Our university graduates are among the world’s top programmers. The housing market remains one of the most potentially appealing in view of its relatively low prices, large capacity, and high demand for quality housing. Mineral deposits, an extensive highway network that was just beginning to come into shape shortly before the full-scale invasion. In terms of basic economic indicators, we remain among the most attractive countries in the world.
To ensure such guarantees in reality, Ukraine needs reforms, primarily in the judicial, anti-corruption, and law enforcement fields. I am confident that implementation of the proposed list of priority reforms provided by the United States at the end of September 2023 will greatly help our country advance in this area.
This list of reforms imposes strict deadlines between 3 and 18 months and is a necessary precondition for continued U.S. military and financial support. They concern in particular the functioning of anti-corruption bodies (SACPO, NABU, NACP), the High Council of Justice, the judicial branch in general, supervisory boards of state-owned enterprises, the Ministry of Defense of Ukraine, and all security agencies.
During the war, various foundations and organizations managed to hold dozens of conferences dedicated to attracting investments in the reconstruction of Ukraine. Most of them intend to start operations only after the active hostilities are over. Together with foreign investors, the Government plans to fund energy efficiency of residential buildings, upgrade of water treatment facilities, and dozens of other investment programs. According to officially announced estimates, the overall projected range of investments is between $150 billion and $350 billion. These are colossal amounts for Ukraine. However, all this is going to happen after the war, after our victory. For a far-sighted investor, knowing in advance that an influx of investments is about to happen in a certain industry or country in the near future, it would make more sense to start investing now, even before the general economic indicators start to grow.
It should be pointed out that the war is not the only thing that scares away investors. Ukraine needs systemic changes to attract investment. The State should provide guarantees to all investors, meaning that their assets are protected, private business is not isolated, tenders are held transparently, no one has preferences, and all taxes are paid to facilitate defense and development of the country.