Rebuilding Ukraine: EU Funding, Investment Framework, and Business Opportunities

European Business Association, together with Global Business for Ukraine, held a special event «Insights for Business from Ukraine’s Future Summit» to discuss the conclusions of the Summit, the Investment Framework signed on the eve of the Summit, and explore the opportunities to finance business projects.

Vsevolod Chentsov, Head of the Mission of Ukraine to the European Union, highlighted cooperation between Ukraine and the EU to support Ukraine during the war and rebuild the country. The focus is not just on surviving the war but also on development and building resilience. Opportunities exist in the defense sector and renewable energy to invest in Ukraine's future. Rebuilding infrastructure requires a shift away from coal-based generation towards smaller, more efficient options combined with renewables. International organizations and member states are working to streamline financial aid and help Ukrainian businesses develop bankable projects. The goal is to utilize resources efficiently and rebuild Ukraine in a way that promotes long-term growth.

An important point is that Ukraine needs to go beyond the current EU facility and explore other opportunities for funding, such as existing EU programs, bilateral instruments offered by EU member states, and co-production with European companies. The speaker stressed the importance of integrating Ukrainian businesses into the broader European economic landscape. This will open up more opportunities for Ukraine in the long term. A key challenge mentioned in Chentsov's speech is the communication gap between the Ukrainian government and businesses. Businesses are not always aware of or sure how to access the available funding. Another concern raised is the issue of corruption and ensuring transparent use of funds. The speaker acknowledges this concern and suggests that the government needs to address it.

Anna Yarosz-Friis, Director of Ukraine Service, DG NEAR, European Commission, discussed the European Union's support for the Ukrainian economy, particularly a 50-billion-euro facility. This includes over one billion euros in guarantees and around 400 million euros in grants. The focus is on quick delivery and improved access to finance, particularly for small and medium-sized enterprises in Eastern and Southern Ukraine. This funding will be delivered through various implementing partners and is expected to have a positive impact in the second half of 2024 and beyond.The speaker also mentions the EU's focus on improving the regulatory environment in Ukraine. This includes supporting reforms recommended through the enlargement track and the Ukraine plan. The Ukraine plan, in particular, is seen as a comprehensive growth strategy for Ukraine with a focus on improving the business environment and addressing labor shortages.

Gabriel Blanc’s, Team Leader - Reconstruction of Ukraine, European Commission, speech was focused on the investment arm of the facility, the Ukraine Investment Framework. This framework utilizes grants and guarantees to make investments in Ukraine more attractive. The speaker highlighted several benefits: lowering collateral requirements for businesses, reducing investment costs, providing cash back for companies investing in EU-compliant technologies, and reducing interest rates. These benefits are offered through partnerships with international financing institutions and Ukrainian banks. The speaker emphasizes that this financing is "additional," meaning it offers better conditions than what the market currently provides.  This is achieved by considering factors beyond just interest rates, such as loan terms and collateral requirements. Moreover, at least 15% of the support will be specifically directed towards SMEs.

Also, Blanc talked about the financial guarantee program offered by the EU to support investment in Ukraine, particularly in renewable energy. The speaker highlighted that the program provides up to 7.8 billion euros in guarantees through International Financial Institutions (IFIs) to private companies. These guarantees can cover various risks, including commercial risk and regulatory instability, making it more attractive for companies to invest in renewable energy projects.The speaker emphasized the urgency of investing in energy security for Ukraine, especially in light of the upcoming winter and potential continued disruptions caused by the war.

Karol Tofil, Head of International Partnerships Offices, BGK, talked about a loan guarantee program in Ukraine supported by the EU. The program is implemented with KredoBank and aims to assist SMEs. A key benefit of the program is that it allows banks to finance projects in risky areas (red zones) where they wouldn't normally lend. The program also offers reduced collateral requirements. The loans can be combined with Ukrainian government programs that subsidize interest rates. The average interest rate for the EU program is not given, but it is implied to be lower than market rates due to EU subsidies. The program is currently focused on operational short-term loans to help businesses survive and rebuild after the war. It is open to both Ukrainian and non-Ukrainian companies. The program is seeing high demand in the agricultural sector and is now expanding to include small industrial companies.

Marion Hoenicke, Head of Division Lending Eastern Neighbours and Central Asia, European Investment Bank (EIB), acknowledged that traditional lending methods by banks are risky due to the war. To address this, the EIB offers risk-sharing instruments to take on some of the financial burdens from banks. This allows banks to provide loans to micro, small, and medium enterprises at lower interest rates and with reduced collateral requirements. Hoenicke emphasized the importance of supporting underserved areas like the "red zones" and young or relocated businesses. She recognized these are the most vulnerable businesses but crucial for Ukraine's future. The EIB representative clarified that it works indirectly through local partner banks and doesn't directly interact with SMEs. They choose partner banks based on their commitment to supporting micro, small, and medium enterprises and ensuring preferential loan terms are passed on.

Arthur Zagorodnykov, Deputy Chairman of the Board, First Ukrainian International Bank, PUMB, highlighted some positive economic indicators in Ukraine, including low inflation, a growing economy, and strong international reserves. Ukrainian banks are also commended for maintaining services throughout the war. Despite these positive signs, the speaker argued that private banks are struggling to access funding from IFIs. This lack of access puts them at a disadvantage compared to state-owned or foreign banks. The speaker provided statistics to support their claim, stating that only one private Ukrainian bank has existing programs with IFIs. He argued that private banks have strong financial indicators and are ready to cooperate with IFIs.

Taras Kachka, Deputy Minister of Economy of Ukraine – Trade Representative of Ukraine, talked about the importance of business-to-business cooperation between Ukraine and the EU for economic integration. The speaker argued that B2B cooperation is more effective than government-to-government interaction in identifying and resolving trade issues. He highlighted several examples of how a lack of understanding between businesses caused problems, such as confusion over customs classifications and differing company practices. The speaker emphasized the need for more Ukrainian companies to participate in EU trade shows and learn from their European counterparts. This will help them integrate into EU supply chains. He also stressed the importance of ongoing communication between businesses and governments. This will ensure that problems are addressed efficiently and do not become politicized. The speaker concluded by expressing optimism about the future of EU-Ukraine economic relations, despite the challenges at the Polish-Ukrainian border. He believes that B2B cooperation will continue to grow and drive integration.

Olga Michelot, Co-Owner, Helios Strategia, explained that her company's credit line was cut off by a Polish bank after the full-scale invasion began. This is even though the company has a good credit history in Ukraine. The speaker argued that Polish banks are reluctant to lend to Ukrainian businesses because they perceive them as high-risk. She proposed a system of equivalence, where a good credit history in Ukraine would be recognized by Polish banks. The speaker also highlighted the positive experience of Ukrainian businesses using credit bureaus in Ukraine and proposed exchanging credit history information with foreign banks.

The European Business Association and Global Business for Ukraine would like to thank Helios Strategia, Ukrainian Voices, and the European Commission for organizing the discussion. We also thank the speakers for contributing to the development of Ukraine's economy.