June 13, 2024

bne IntelliNews – KSE: funding gaps and recommendations for the Ukraine Investment Framework

The EU has set up the Ukraine Facility that is backed with the recently approved four-year €50bn support package that will provide funds for Ukraine’s reconstruction amongst other things.

Concurrently, the EU together with the Kyiv School of Economics (KSE) have launched the Ukraine Investment Framework (UIF) to study and draw up policy to most effectively carry out this work. KSE has just released its first policy paper with recommendations and identified several funding gaps that need to be addressed.

Below is the statement that prefixes the paper, which can be downloaded here.


In the Statement on the Ukraine Investment Framework, the Ministry of Economy of Ukraine emphasized that the launch of the Ukraine Investment Framework (UIF), a key component of the Ukraine Facility supported by the European Union, marks a significant milestone in expanding available financing for businesses. With a dedicated budget of €9.3bn, the UIF aims to improve Ukraine’s business financing landscape.

“The economic reforms and incentives are designed to benefit businesses. However, it is the entrepreneurs, whether large corporations, small or medium-sized enterprises, or startups, who can truly translate these reforms and incentives into real economic recovery and growth,” noted Deputy Minister of Economy of Ukraine, Volodymyr Kuzyo.

Kyiv School of Economics has conducted an in-depth analysis revealing significant funding gaps in proposed recovery investment projects. Financial support is urgently needed for small and medium enterprises as well as large national projects, particularly in sectors such as agriculture, energy, transport, green steel, and critical materials, which have high multiplier effects on the broader economy and substantial export capabilities.

To achieve the strategic goals of the Government of Ukraine, an estimated $292bn in investments over the next decade is required. However, as of May 2024, submitted project applications from both state-owned and private companies total only $148bn, with only 28% of projects ready for implementation. This leaves a substantial deficit of new projects amounting to $144bn, with the energy sector requiring the largest investment ($72.2bn), followed by transport ($27.8bn), and the agro-industrial complex ($27.1bn).

In order to overcome the existing funding gap and accelerate Ukraine’s economic recovery, Kyiv School of Economics propose additional steps aimed at optimizing financing processes, strengthening institutional capacity, and using innovative solutions.

Therefore, we urge the EU Commission to consider the following recommendations when developing programs and support mechanisms under the Ukraine Investment Framework:

1. Increase the availability of grants or tools to reduce effective interest rates through introducing blending instruments. While the tools in IFI’s proposals address the collateral issue, they do not tackle the problem of high interest rates. It’s important to develop and deploy de-risking instruments and financial support mechanisms to enhance interest rate affordability across all sectors.

2. To provide special funding programs/grants for private companies to bolster the resilience of critical infrastructure against war-related risks, including acquiring emergency equipment to sustain services in sectors such as telecommunications, energy, and medical services.

3. Implement specialized initiatives for SMEs operating in de-occupied regions and areas with high shelling risks.

4. Introduce specialized financing initiatives for industrial parks to facilitate business return, including compensation for interest rates, connection to engineering networks, and special tax regimes.

5 . Develop project financing to fund industrial projects at the initial stages, for both SMEs and large national projects, which could include grace interest periods.

6. Create a support system for startups to encourage innovation and growth by engaging private equity and venture funds, specifically in the tech sector.

7. Promote project finance and development finance to stimulate equity investments and support capital and working capital needs.

8. Involve more international and domestic financial institutions, as well as credit agencies, to diversify funding sources.

9. Extend the financing limits of IFIs to cover the gap between local banks (projects of 2.5 – 5mn EUR) and IFIs (projects over 10mn EUR), enabling funding for projects valued at 5 – 10mn EUR.

10. Enhance technical assistance and financing support for feasibility studies, specifically for critical materials and extraction industries, to ensure projects are investment-ready. Introduce measures to guarantee that technical assistance benefits the recipients, rather than serving as an additional income stream for IFIs.

11. Include Export Credit Agencies into the scope of Pillar II to facilitate the insurance coverage.

12. Enforce a no-refinancing policy under Pillar II to ensure financing is directed towards new projects rather than refinancing existing credit lines.

The implementation of the recommendations presented in the document should notably improve the Ukraine Investment Framework mechanism, expand the presence of IFIs that can contribute to the process of Ukraine’s recovery, and attract more potential participants from Ukrainian businesses to the program to implement investment projects. 

The Kyiv School of Economics (KSE) is a bne IntelliNews media partner and a leading source of economic analysis and information on Ukraine. This content originally appeared on the KSE website.

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