KYIV. May 16 (Interfax-Ukraine) – Ukraine’s five-year recovery period after the war will require additional investments of about $50 billion a year due to the inflow of foreign capital, including private, such a scenario was outlined by the European Bank for Reconstruction and Development (EBRD) in the Regional Economic Prospects report published on Tuesday
“For swift recovery, foreign capital inflows need to reach $ 50 billion a year for five years. A swift recovery is not the norm. Historically, most economies emerging from an armed conflict neither enjoy 25 years of lasting peace afterwards nor recover to their pre-war trend level of income per capita, even in the long term. But, the report says, 29% of economies do achieve their pre-war trend level of gross domestic product (GDP) per capita within five years,” the bank said.
“For Ukraine to recover within five years, its economy would need to grow by 14% a year throughout that period. This would raise average GDP to $ 225 billion from around $ 150 billion in 2022, in constant prices,” the report says.
Before the war, moderate levels of investment in Ukraine were mostly financed by domestic savings. Inflows of capital amounted to just 3% of GDP a year from 2010-2021. And foreign direct investment typically drops substantially after a conflict and takes a long time to recover. When domestic savings were low, foreign financing helped sustain a number of investment booms, including in central and Southeastern Europe in the 2000s,” according to the document.
“In Ukraine’s case, doubling its levels of investment (as a share of GDP) would require a major increase in the country’s absorption capacity, including governance structures needed to design and contract out complex projects. It would also require appropriate financing. In this scenario, the difference between the required levels of investment and the available domestic savings would likely need to be covered by external financing (net inflows of capital), to the tune of 20% of GDP or $ 50 billion per annum,” the report says.
“The EBRD report also stresses the importance in earlier post-conflict reconstructions of an appropriate balance of private-sector and public-sector involvement, along with the important role played by external assistance from bilateral and multilateral agencies,” it said.
“Private and public investment tend to be highly complementary, in the post-conflict situation and more generally. Beyond financing, the private sector contributes much-needed technological expertise, management know-how and a focus on cost-efficiency. In addition to the energy-efficient industrial capital stock and agricultural machinery, the private sector can make an important contribution to rebuilding housing stock as well as transport, energy and municipal infrastructure, provided that individuals and firms have adequate access to finance, “the bank said.
“The EBRD has committed to investing EUR3 billion in Ukraine in 2022-2023, supporting the real economy to ensure the lights stay on and the trains keep running in wartime, and stands ready to play a key role in reconstruction when circumstances allow,” the bank said.