The World Bank says Ukraine can attract only $73bn in a “no reforms” scenario

The World Bank says Ukraine can attract only $73bn in a “no reforms” scenario
In the worst case scenario where Ukraine makes no reforms it will attract only $73bn of investment to rebuild, or 18% of the $411bn it needs to rebuild, according to a study by the World Bank. / bne IntelliNews
By Ben Aris in Berlin October 27, 2023

The World Bank has conducted an analysis of Ukraine's capacity to attract private investment, including scenarios with and without reforms, as the nation gets ready to rebuild, UBN reported on October 27.

Ukraine will face a massive need for investment when the fighting eventually stops. The World Bank estimates the cost of the damage inflicted by Russian aggression currency stands at a whopping $411bn – about twice the value of the entire economy before the war.

Experts from the International Finance Corporation (IFC) and the World Bank (WB) have a "no reforms" scenario, which reflects conditions prior to the conflict. Under this scenario, the two IFIs estimate Ukraine can attract over $73bn, or approximately 18% of the total needed.

In contrast, by embracing and accelerating economic reforms, addressing industry regulations, and deepening integration with Europe, Ukraine can potentially attract $130bn in private sector investment, equivalent to about 30% of the total reconstruction needs.

Furthermore, these reforms could pave the way for an additional $282bn in private-sector investment.

The report from these financial institutions highlights specific sectors where reforms hold significant potential:

Agriculture: Reforms in this sector could attract $30bn in private investment.

Food Products and Beverages: Approximately $16bn in private investment opportunities can be realised through reforms in this industry.

Transport and Logistics: Restoration efforts in this sector could attract $7bn, while additional needs for expansion and development may reach $41bn.

Energy and Mining Industry: Reforms in the energy sector could unlock $36bn in private investment, while the mining industry may see investments of up to $132bn.

Restoration and New Housing/Construction: The restoration of infrastructure and facilities could attract $30bn in private investment, while new housing and construction projects hold the potential for $60bn in investments.

How to raise the hundreds of billions of dollars needed to rebuild Ukraine is a pressing issue, after the EU has more or less totally written off the idea of seizing the Central Bank of Russia (CBR) frozen $300bn as legally unworkable.

The EU has proposed a €50bn four-year support programme and the US has already spent some $45bn on support, but long-term it is very unlikely that Ukraine’s Western partners will come up with sufficient funds to cover the whole $411bbn bill.

The answer has been to turn to the private sector, as was highlighted at the Ukraine Recovery conference held in London in June. But private investors are worried about Ukraine’s corruption problem that has always held back foreign direct investment (FDI). Ukrainian President Volodymyr Zelenskiy is fully aware of this and as bne IntelliNews has reported has launched the most comprehensive anti-graft programme since independence, but there is still a long way to go.

Attracting investors is a work in progress. Kyiv will present a new Ukraine Plan to the EU in November that is more detailed and will bring more investment if implemented. While the study suggests there is going to be a significant shortfall in funds needed to complete the rebuild of Ukraine post-war, every little bit helps and the more reforms Ukraine can make, the more investment it will attract.