Our contribution to Ukraine's recovery and reconstruction

Though Russia’s full-scale invasion has significantly impacted the Ukrainian economy and led to increased poverty, Ukraine’s GDP increased by 4.8 percent in 2023 – a positive development compared to 2022, when the country’s GDP decreased by 29 percent. Ukraine is being reconstructed while the war is ongoing. Schools, hospitals and other types of infrastructure in the country’s calmer regions are being continuously repaired and rebuilt.

An extensive amount of investment is needed to reconstruct Ukraine. According to the World Bank, the EU, the UN and the Ukrainian government, the cost of reconstruction and recovery is estimated to be EUR 393 billion. The private sector will play a crucial role in the Ukrainian economy’s perseverance. Small and medium-sized enterprises need access to capital to maintain and grow businesses, create jobs, secure access to products and services as well as to generate important export revenue.

Swedfund’s experience of operating in high-risk conflict areas with both investment activities and feasibility studies can support Ukraine’s recovery and economic resilience. In 2023, we made investments in the country’s private sector and facilitated infrastructure projects in the public sector through the Project Accelerator.

Ukraine has a well-educated labour force, a strong industrial base to build upon and a resilient private sector. According to a report by the European Bank for Reconstruction and Development (EBRD), more than half of the country’s small and medium-sized enterprises have maintained or increased their level of activity compared to pre-war levels. Merely six percent have been forced to close. A good example is the IT-sector that quickly adapted and grew by six percent during 2022.

In 2023, Swedfund invested in small and medium-sized IT companies in Ukraine through the fund Horizon Capital Growth Fund IV together with several other development finance institutions. The investment provides growth capital to a sector with high competence and potential to create conditions for increased export revenue, hard currency inflows and job creation, especially for young people. President Zelenzky attended the signing ceremony and highlighted the importance of investors like Swedfund who demonstrate that investing in Ukraine is possible.

By setting out clear requirements as an investor, the fund’s sustainability work is being strengthened in areas such as anti-corruption and human rights.

In June, Swedfund, EBRD and a large number of other development finance institutions signed an agreement to establish a co-investment platform for Ukraine aiming to scale up investments through coordination and risk sharing. The agreement also creates more efficient ways of working by having one development finance institution represent the others, providing a simplified process for Ukrainian counterparts. It will be increasingly important to quickly and effectively scale up investments. The investment in Horizon and establishment of a Ukrainian investment platform are both good examples of how development finance institutions can provide capital that is long-term and willing to accept risks.

During the year, Swedfund’s Project Accelerator has been active with feasibility studies and project preparation in Ukraine to assist the country in the construction of infrastructure such as energy, water, heating and waste management. Feasibility studies are particularly useful in the Ukrainian context since they can be used to both build critical infrastructure during the war as well as lay the foundation for sustainable reconstruction for when the war is over.

In 2023, a joint action plan was signed with the Ministry of Infrastructure Development, which builds the foundation for collaboration with Ukrainian municipalities and cities. The needs are enormous, partly as a consequence of the destruction of critical infrastructure in the war.

The action plan enables a more structured and well-coordinated collaboration with Ukrainian municipalities and cities, where the Project Accelerator intends to provide support by funding feasibility studies and project preparation efforts in areas such as energy, heat, water and waste management.

2023 saw the launch of several projects within the framework of this collaboration. One example relates to water supply in three cities, including access to clean drinking water, the development of new water sources and the upgrading of a water treatment works. Feasibility studies have also been funded to analyse the modernisation and green transition of the energy supply network in the city of Mykolaiv and how sewage systems in a number of other cities could be implemented. The projects are an important prerequisite for strengthening Ukraine’s compliance with relevant EU rules, thereby contributing to the country’s future application for EU membership.

In 2023, the Project Accelerator received earmarked funding totalling MSEK 50 for projects in Ukraine. Eleven projects have been initiated and several other environmentally sustainable and financially feasible projects are under preparation. Taking these aspects into account in feasibility studies can benefit Swedish companies that tend to compete on quality, sustainability, cost, life expectancy and knowledge transfer.