UIF is an opportunity to attract €40 billion in investments. Minister Yulia Svyrydenko explains how to mobilise resources for the recovery and development of business in Ukraine

On May 14, the EU Council finally approved Ukraine Plan, necessary for the implementation of the Ukraine Facility programme. Its implementation will bring the Ukrainian government over €50 billion from the European Union. The Minister of Economy of Ukraine, Yulia Svyrydenko, talks about the investment tool of the program – the Ukraine Investment Framework (UIF), which Ukrainian businesses will be able to use. How will it work for businesses, who and how will be able to apply, and what kind of financing can they receive?

The needs for Ukraine’s reconstruction have already reached $500 billion. Approximately half of this amount is needed to restore production facilities and infrastructure. This poses a significant challenge. Without the support of the private sector, it is almost impossible to cover such an amount solely through the support of partners and internal resources.

For economic recovery, the creation of new production facilities, and the integration of Ukraine into global supply chains, we must facilitate the inflow of investments into the real sector. At the same time, investments are not only funds but also the exchange of technologies, innovative equipment, experience, and the strengthening of business ties. This opinion is shared by Ukraine’s international partners. Promoting investment is one of the priorities of the Ukraine Facility, a €50 billion support programme for Ukraine from the European Union.

Along with supporting the state budget and providing technical assistance to the government in implementing reforms, the programme includes another important element – the creation of the Ukraine Investment Framework (UIF), the so-called Pillar 2 of the Ukraine Facility.

This is a special investment mechanism with a volume of €9.3 billion. It is expected that thanks to various risk-sharing instruments, blended finance and grants, as well as technical assistance, the UIF will contribute to attracting about €40 billion to the Ukrainian economy in the coming years.

How the Ukraine Investment Framework will work

The goal of the UIF is to mobilise investments for the recovery and development of Ukraine. Financing within this instrument will be carried out through international financial institutions (IFIs) and bilateral development agencies that implement projects in Ukraine. This will allow for the expansion of existing and the launch of new support programmes for Ukrainian businesses.

The UIF will make IFI operations in Ukraine less risky, mobilising more of their own resources for Ukraine. How? Thanks to a new instrument within the UIF – the Ukrainian Guarantee with a volume of €7.8 billion.

The Guarantee will provide coverage for financial risks, that is, it will insure IFIs against losses they may incur by supporting projects in Ukraine. This will expand the work of financial organisations in our country since most of the existing risks will be undertaken by the EU under the Guarantee.

In practice, this means that for every euro of guarantee for insuring risks, IFIs will be able to additionally allocate €2-4 for investments in Ukrainian projects. The guarantee will cover a whole range of operations: loans (including in hryvnia), securities, capital market instruments, financing or improving creditworthiness, insurance, and others.

Thus, the Ukrainian Guarantee will become an additional incentive for IFIs and will help simplify and expand their own programmes for businesses, so that funding under the UIF will truly yield results in the next four years. As a result, more entrepreneurs will be able to receive funds.

At the same time, funding for businesses will be provided not only directly from IFIs, but also through Ukrainian partner banks, which will also be able to work more actively with businesses.

In addition to funding the Ukrainian Guarantee, another €1.5 billion under the UIF is allocated for blended finance, grants, and technical assistance for businesses. These funds will also be distributed through IFIs and Ukrainian partner banks.

Opportunities for businesses

Support under the UIF should contribute to the development of key sectors identified in the plan for Ukraine Facility: energy, agriculture, logistics, critical materials, digital transformation, green transition, and, of course, processing. There is a separate focus in the plan on the development of the processing industry.

Opportunities for businesses in these areas can be divided into four groups of instruments that will be available through IFIs and Ukrainian banks:

1. Reducing the cost of collateral when obtaining loans.

Strict requirements for the value of collateral are one of the obstacles to obtaining loans, which small and medium-sized enterprises experience frequently. IFIs will provide part or all of the collateral value, providing the business with appropriate guarantees both directly and through Ukrainian banks. Obtaining funds will become easier.

2. Reducing the cost of capital through blended finance.

For example, to implement a project, you need €5 million, but the interest on the loan makes it unbearable for the business. In such a situation, it will be possible to obtain blended financing. For example, half of the funds in the form of a loan, and the other part as a non-repayable grant.

3. Technical assistance.

Businesses will be able to receive consultations in the process of preparing applications for receiving funds, finalizing projects, and other preparatory work for investment.

4. Expansion of already available financing programmes.

Programmes from IFIs will received additional funding, and accordingly, more companies will be able to take advantage of their benefits.

New opportunities will be available for both private and public investment projects. Operations for the private sector will be initiated by IFIs, based on demand from private companies. In other words, the more actively businesses turn to IFIs and partner banks and propose projects, the more instruments international institutions will be able to implement. In the case of state projects, they will be initiated by the government.

In addition to the general focus on key sectors, the UIF provides for additional investment priorities. Within the program,15% of guarantees will be directed to support micro, small, and medium-sized enterprises, including start-ups.

Also, 20% of the total UIF budget will be allocated to green projects that contribute to environmental protection, preservation of biodiversity, and mitigation of the consequences of climate change.

When the UIF will start working

In March, the government, together with the European Commission and international financial organisations, developed the design of the programme in terms of project financing, grants, technical assistance for feasibility studies of projects, financing through Ukrainian banks by issuing guarantees, etc.

In April of this year, the UIF Steering Committee, which provides programme management, held its inaugural meeting and approved the rules and strategic guidelines. It was also decided that the signing of the first investment programmes would take place at the Ukraine Recovery Conference in Berlin. This will launch the implementation of the first phase of the UIF, which will run in 2024-2025.

The total funding for this phase is expected to be approximately €1-1.5 billion. The funds will be directed to existing IFI programmes. These organisations, together with partner banks, will offer instruments of guarantees, blended finance, and technical assistance to businesses.

The final list of participating IFIs and partner banks included in the first phase of funding, as well as the amount of funding and other details of the program, will be announced during the Ukraine Recovery Conference 2024.

The government is currently working with partners to design the second phase of the programme.

The Ukraine Facility regulation also provides that 25% of the guarantee amount (€1.95 billion) will be provided to the European Investment Bank (EIB) Group for the implementation of programmes in Ukraine until the end of 2025. If the intended funding for the EIB is not fully utilised, the remaining funds will be allocated according to the common procedure.

Currently, the EIB is one of the most active IFIs in Ukraine. In 2022 alone, its funding for Ukraine reached over €1.7 billion. Support is provided through credit lines and guarantees for new loans to small and medium-sized businesses.

In the next stages, we expect more companies to gain access to financing. We also want to involve other international financial organisations that are not yet active in Ukraine, as well as export credit agencies and Ukrainian partner banks, in the implementation of the programme.

The key to this is the formation of an up-to-date database of investment projects that Ukrainian businesses can offer to IFIs for funding. For this, the involvement of international organisations in the preparation of projects for potential clients is important.

In the public sector, a so-called Single Project Pipeline will be formed for this purpose, which will define priorities and needs for funding.

The active work of IFIs in Ukraine is important for attracting investments. We expect that the success of IFI-funded projects, the expansion of opportunities for attracting funding and reducing risks, as well as the experience of international partnership that Ukrainian companies gain, will trigger a chain reaction for increasing investment in Ukraine. Even after the work of the UIF itself is completed.

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