At Ukraine Recovery Conference this year, partners pledged billions but war risks still loom

Ukraine’s businesses were well represented at the Ukraine Recovery Conference (URC) in Rome last week, and while they are generating interest among global investors, there’s still one issue holding up the cash flow: risks.

This year, the URC yielded over $4 billion in pledges from governments, banks, and businesses for Ukraine’s reconstruction. Some of the private sector deals included a $3.7 million investment into Ukrainian defense tech firm Tencore and a $200 million deal with American firm White Star Real Estate for an industrial park in Bucha, Kyiv Oblast, signed with the UkraineInvest platform and the Bucha City Council.

Large programs were also announced, including the EU’s flagship mega fund to mobilize 10 billion euros in investments, with 2.3 billion euros in agreements already signed. More details were revealed about the U.S.-Ukraine Reconstruction Investment Fund, particularly that its developers want more than just American companies to invest through it.

This looks good for Ukraine’s languishing investment climate, but the majority of investments are coming from players already active in the country rather than fresh faces. To propel Ukraine forward, partners at the URC laid out plans for derisking programs to bring in investors watching from the sidelines.

Ukraine remains at a level seven on the OECD risk classification, the highest level alongside countries like Russia, Afghanistan, and South Sudan. While a flood of foreign investment is unlikely to happen during the full-scale invasion, attracting capital during the war is crucial to keep the country's businesses and economy afloat.

"Getting the risk gradient right about Ukraine and then aligning that with the risk appetite for non-existent participants is still the challenge," John Denton, Secretary General of the International Chambers of Commerce (ICC), told the Kyiv Independent on July 11.

"Trust needs to be insured — and the reason trust becomes so important is because the absence of trust is leading to some of the challenges with the pricing of risk."

De-risking Ukraine

With a larger number of businesses visible compared to previous years, the fourth URC repositioned Ukraine from a charity case to a business case, Andy Hunder, president of the American Chambers of Commerce, told the Kyiv Independent on July 11.

"If all roads lead to Rome, then all investment roads now lead to Ukraine," he added.

While there is an increasing engagement from the private sector in Ukraine’s reconstruction, fears over corruption, the rule of law, and the war hinder the influx of capital, said Denton.

Protection against these risks was on the agenda for organizations attending the conference. For example, the International Development Finance Corporation (DFC), the U.S agency jointly developing the Reconstruction Investment Fund, stressed that it will amp up war and political risk insurance.

In the case of the ICC, the organization announced a working group of export finance agencies to help reconstruct conflict areas, including Ukraine. Denton previously told the Kyiv Independent in the lead-up to the URC that it’s important to involve export credit agencies in closing private sector deals, but that they need to provide 100% risk coverage, which many don’t.

"We're bringing together all the players effectively and seeing it as a problem to be solved," Denton told the Kyiv Independent on the sidelines of the URC.

"I think there's clear identification of some of the areas that need to be addressed in order to build confidence and therefore trust as well."

Due to the risks, large international financial institutions are the main investors in Ukrainian businesses. The European Bank for Reconstruction and Development (EBRD), which has already signed over a billion euros this year, announced more deals at the URC, including a 50 million euro loan to courier service Nova Poshta and a $25 million loan to food retailer Varus.

The EBRD has also seen demand from banks for risk-sharing programs to encourage foreign investment. On July 7, the European bank launched the largest ever credit risk sharing facility with Ukraine’s state-owned PrivatBank at 185 million euros alongside a 89 million euro program with Ukrgasbank, which will unlock some 900 million euros in new loans.

"We are taking the risk and then sharing it with the commercial banks on a 1 to 3, 1 to 4 —  and it's also helped by incentive grants and by first-class risk guarantees from the EU and others," EBRD Ukraine’s head Arvid Tuerkner told the Kyiv Independent.

Another European bank, the European Investment Bank (EIB), is addressing the insurance gaps through a 300 million euro program with export credit agencies, which was implemented this year. The program is so popular that it is oversubscribed with 480 million euros in demand, and the bank signed with 10 more export credit agencies at the URC, including from Denmark, Germany, France, Italy, and the Baltic States.

The popularity is a good sign that European countries want to export to Ukraine and facilitate trade relations, even while the full-scale invasion is ongoing, EIB President Nadia Calvino told the Kyiv Independent on July 10.

"This is important as a basis for the accession process to the European Union. And when there are closer ties between European companies and Ukrainian companies, this is a strong basis for the (reconstruction) process once the war is over," she said.