Ukraine’s Recovery: The Private Sector’s Role and Three Hurdles to Clear

The cost of recovery and reconstruction in Ukraine is now estimated at more than $500 billion. The private sector could make a meaningful contribution to supporting this recovery— if three key hurdles are addressed: security, institutional reform, and human capital. This was the central takeaway from a Citi Institute workshop held with clients and colleagues including Stephanie von Friedeburg, Head of Public Sector Banking at Citi, and Alex McWhorter, Chief Country Officer and Banking Head for Citi Ukraine. Citi has been active in Ukraine for more than 25 years and is the only global bank with a presence on the ground.  

Private sector opportunities in Ukraine’s recovery  

The ongoing war in Ukraine has caused severe societal and economic damage. The cost of recovery and reconstruction is now estimated at $524 billion over the next ten years.¹ This sum is more than 2.5x Ukraine’s pre-war GDP and almost twice the aid allocated to Ukraine by Europe and the U.S. since 2022.² 

Research from the International Finance Corporation (IFC) shows that private capital could make a substantial contribution, potentially meeting between a sixth and a third of Ukraine’s reconstruction needs.³ A recent survey of companies operating in Ukraine also underscores strong interest in participating in the country’s economic revival.⁴  

The private sector could support three core dimensions of the recovery effort. Together, these three areas represent where private companies can have the greatest near-term impact.  

1. Private companies can deliver the physical reconstruction of Ukraine. For example, they can build and operate essential infrastructure, particularly in energy and telecommunications, and provide services such as construction and demining.
2. The private sector can support economic reinvigoration by investing in pockets of innovation like battlefield-tested defense technologies and helping small and medium-sized enterprises grow through financing or joint ventures.
3. Companies can advance societal rehabilitation as their investment creates jobs, including opportunities for veterans and returnees. They can also help reskill the workforce for a modernized economy. 

Overcoming the Three Hurdles

Companies could contribute to reconstruction in several ways. For example, private firms could build and operate damaged infrastructure on commercial terms, particularly in energy and telecoms. While public funds will likely remain essential for demining and reconstructing public buildings and homes, private contractors will also play a major role.  

Economic reinvigoration presents another avenue. As NATO countries increase defense budgets, Ukraine’s military manufacturing capabilities and innovation ecosystem could support exports and generate revenue. While Ukraine’s economy has focused on the country’s natural resources, Alex McWhorter notes that “there are deep pockets of innovation, including in battlefield-tested defense technologies.”  

All of this would contribute to rebuilding human capital and reviving communities by creating jobs and reskilling veterans and returnees. New opportunities for work could also create a more inclusive labor force, bringing in lower-participation groups like women and older people.  

However, opportunity alone is not enough. Unlocking the full potential of the private sector requires overcoming three challenges.  

Security and Stability

Peace and security are imperative. Investors are acutely sensitive to the risks of conflict and political instability. World Bank data shows that foreign direct investment inflows to Ukraine plummeted from almost $8 billion in 2021 to $0.2 billion in 2022 following the full-scale war. This echoed declines after the Maidan Uprising in 2013 and the annexation of Crimea in 2014.  

Without a stable operating environment, it is difficult to imagine private capital flowing into Ukraine at the necessary scale.  

Institutional and Legal Reform

Peace alone will not unlock investment. Even before the invasion Ukraine had structural barriers to foreign investment which the U.S. State Department notes persist despite ongoing progress,⁵ including weak governance standards, vulnerabilities in the anti-money laundering framework, burdensome tax and customs systems, and the prominent role of state-owned enterprises which can distort competition.  

Institutional reforms that support a pro-business environment and reduce barriers to investment are essential. These are long-term efforts, but several near-term steps could help boost investor confidence and bank lending capacity. These include recognition and enforcement of US/EU court decisions, improved arbitration mechanisms, and a dedicated commercial court.

Some reforms have already been undertaken, and the EU accession process sets a roadmap for Ukraine to further modernize its institutional framework.    

Human Capital constraints

Finally, Ukraine faces a significant shortage of labor. As Alex McWhorter explains, “one of the biggest challenges that we see companies in Ukraine facing today is a lack of human capital as mobilization, mental health concerns and displacement all impact the availability of workers with the right experience”.  

This is no surprise: 49,431 civilians have been either killed or injured,⁶ 5.7 million Ukrainian refugees remain abroad, and a further 3 million have been displaced internally.⁷ Mental health is a major issue. The demographic challenge of population ageing was mounting before the war.  

While the private sector can contribute to cultivating Ukraine’s human capital, much else is required. For instance, the effective provision of mental health support and other services together with the reintegration of both veterans and returnees will be critical enablers of economic reinvigoration, physical rebuilding, and the private sector’s contribution to each.

Ukraine’s recovery is a monumental task. There is an opportunity for the private sector to play a major role in the recovery—but this cannot be taken for granted, and a concerted effort to unlock the potential of private investment will be required. Stephanie von Friedeburg notes: “Rebuilding requires partnerships across government, civil society and business in Ukraine and support from the country’s allies.”