Ukraine reconstruction may receive $500 mln boost from investor backing, focusing on construction industry – KSE study

The construction industry in Ukraine has a great opportunity to contribute towards the recovery and growth of the country's economy in the aftermath of war. However, achieving this will require the joint efforts of the government, businesses, and international allies.

The study, titled "Structural Changes and Challenges in the Construction Industry of Ukraine: Analysis and Forecasts," was conducted by the Kyiv School of Economics in partnership with the European Business Association.

One of the survey's key findings is that reconstruction requires private investment. Currently, Ukraine is aware of 500 million dollars in investments in the construction industry, but is this sufficient?

The World Bank reports that the reconstruction and rehabilitation of Ukraine will cost a total of 486 billion dollars. However, according to Olena Shuliak, the head of the Verkhovna Rada Committee on the Organization of State Power, Local Self-Government, Regional Development, and Urban Planning, around 65 billion dollars will be needed solely for construction materials to restore part of the country's infrastructure mentioned in the World Bank reports.

Most of the necessary building materials can be produced in Ukraine, which would be more cost-effective than importing them. This would also lead to the creation of more jobs and an increase in government tax revenue. According to a meta-analysis of literature and expert opinions in the industry, the share of domestically produced building materials in total consumption in Ukraine is over 90% and can be maintained even with an increase in construction. Cement, concrete, metal structures, bricks, glass, and thermal insulation materials are some of the country's most commonly used materials for reconstruction.

 "Current investments are crucial, but additional billions are needed to restore Ukraine's infrastructure and economy. It should be noted that the investments, in particular, will contribute to developing domestic production capacities, creating new jobs, and supporting the economy," Maksym Nefyodov, director of innovative solutions at the KSE Institute, said.

Preparing domestic capacities for the production volumes required for reconstruction will take time and considerable investment.

The Kyiv School of Economics experts noted that several large international companies have already announced their investment projects in Ukraine.

• The most promising is the Irish manufacturer of building materials CRH, which owns three cement plants in Ukraine under the CEMARK brand and has already invested $80 million in Ukraine during the full-scale war. In 2023, the company signed a mandate letter with the EBRD regarding the joint acquisition of assets of Italian Buzzi in Ukraine. The deal is valued at $100 million. It is currently being considered by the Antimonopoly Committee of Ukraine (AMCU).
• Kingspan, another Irish construction materials company, intends to invest $300 million in the Searsha (Irish: Liberty) project. They expect that a production campus in the west of Ukraine will be operational by 2026.
• Investors are putting their money into the construction industry and Ukrainian businesses. In 2022, the development company City One Development began building a glass factory in the Kyiv region. The only other similar plant in Ukraine, located in Lysychansk, was destroyed back in 2014. Since then, Ukraine has relied on imports to meet the demand, with 75% of the products coming from Russia and Belarus before the full-scale invasion. The estimated cost of the City One Development project is 100 million euros, and construction is expected to take several years. The company has also announced plans to build another similar plant by 2025.

The total investment in the production of recovery materials at these three plants is 500 million dollars. However, as noted by the study's authors, this may not be enough, as part of this amount still depends on the AMCU's decision. The study's final results will be published in July 2024.

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According to reports, YouControl has made significant improvements to its "Tender Analysis" tool to efficiently screen tender participants and reduce corruption risks in procurement, specifically in reconstruction. Timely inspections can promote transparency and effective use of public funds in procurement.