The Ukraine Development Fund will attract low-cost funding from other countries, donors and international financial institutions in a “blended finance” approach used elsewhere.
Leading US investment firms BlackRock and JPMorgan Chase will help Ukraine establish the Development Fund of Ukraine ( FDU ), an investment bank to rebuild the economy after the conflict with Russia.
FDUs will attract low-cost funding from other countries, donors and international financial institutions in a “blended finance” approach still used elsewhere.
These are expected to be 5-10 times larger than private investments and worth hundreds of billions of dollars. Priority will be given to areas such as infrastructure, climate and agriculture.
JPMorgan's head of debt markets for Central Europe, Middle East and Africa, Stefan Weiler, stressed that "there will be different sector funds identified by FDU as priorities for Ukraine and the ultimate goal of this plan is to maximize the participation of capital sources."
Estimates of the cost of rebuilding Ukraine vary widely. In March 2023, the World Bank, the Ukrainian government, the European Commission and the United Nations estimated that it would cost $411 billion.
Other estimates put the figure as high as $1 trillion if all economic costs are taken into account. The entire value of Ukraine’s economy before the conflict was around $100 billion.
According to BlackRock Vice Chairman Philipp Hildebrand, many of today's long-term challenges are best addressed through blended finance, and FDUs will be one such case to create an instrument that can mobilize capital at scale.
In November 2022, the Ukrainian government hired consulting firm BlackRock to determine how best to raise the massive capital needed, and in February 2023, Ukraine invited JPMorgan to join the effort based on the investor’s experience in the debt markets.
The FDU is still in the planning stage and cannot be launched before the end of the conflict in Ukraine. However, preliminary developments on the establishment of the fund will be presented at the London Conference on Reconstruction of Ukraine on June 21-22.
The size of the fund has not yet been determined. But according to experts in Europe, the fund is looking to mobilize low-cost capital from governments, donors and international financial institutions to leverage capital to attract 5-10 times more than private investments. The fund's supervisory board is expected to include international financial institutions, while investment experts will directly manage the FDU.
BlackRock and JPMorgan have offered to professionally manage the fund, although their job is to help FDU with internal oversight and early review of possible investment projects. Experts from the two investment firms are concerned not only about the risks posed by the conflict, but also about Ukraine’s corporate governance, lack of transparency, and limited capital markets.
To overcome such restrictions, the organizers plan to arrange the fund's board of directors with the participation of prominent international investors and government officials, as well as hire experts to create a corporate governance structure strong enough to allay investors' concerns about Ukraine's restrictions.
Ukraine will face a major challenge in raising investment capital after the conflict ends.
Following a similar logic, in early June 2023, the UK said it would attract investment by developing a military risk insurance program to convince investment, technology, energy and defense companies to support Ukraine's recovery with multi-billion dollar investments.
Efforts are also being made to lobby countries not directly involved in Ukraine to help it recover. Britain is trying to convince countries such as Saudi Arabia and Türkiye to join the upcoming Reconstruction Conference, believing it would be a diplomatic victory and send a signal to Russia.
According to Ukraine's Minister of Reconstruction Oleksandr Kubrakov, the direct damage to Ukraine's infrastructure due to the conflict amounts to $130-140 billion. If you take into account the direct damage to infrastructure, the economy and businesses in general, the damage exceeds $300 billion.
Mr. Kubrakov said the most severe damage in Ukraine could be restored within 2-3 years if the necessary funds were allocated./.
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