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Newsletter #16 Reconstruction Ukraine - September 2024

Dear readers,

After the summer break, we are delighted to share the latest news with you and keep you updated on the main efforts in the reconstruction of Ukraine.

In this edition, you will learn about the progress Ukraine has made in demining, as well as discover statistics on landmines and their impact on the Ukrainian economy. You will also learn more about how the opening of the Croatian demining company's office will help speed up the clearance of mine-contaminated territory in Ukraine.

We will also explore how the Ukrainian government is facilitating reconstruction, delving into updates on government programs and learning more about the financial tools available to businesses in Ukraine.

Next, we will dive into the international community's efforts in reconstruction, particularly new funding from the EBRD, the World Bank, and various partner countries, including the USA, the UK, and Switzerland.

Finally, we will highlight unique Ukrainian startups that have attracted foreign investment and learn about the historic deal with a French businessman that was finalised this September.

Enjoy the read!

Ukraine Reconstruction: Key Figures

• Ukraine’s demining efforts

Demining liberated territories remains a top priority in Ukraine’s reconstruction efforts and the restoration of activities in de-occupied areas. Clearing these regions of explosive devices is essential for the resumption of business operations and the return of citizens to normal life. On 5 September, the Tony Blair Institute for Global Change and the Ministry of Economy of Ukraine published a study ‘From Economic Recovery to Global Food Security: The Urgent Need to Demine Ukraine’, which examined the consequences of mine contamination of the territory of Ukraine for the Ukrainian economy and its impact on global food security. According to the study:

• 25% of the country, or more than 139,000 square kilometers of Ukrainian land needs to be surveyed
• $34.6 billion is needed to fully demine Ukraine according to the World Bank, it is estimated that between $50 million and $200 million will be needed for the non-technical survey (NTS), $8.95 billion will be spent on the technical survey (TS) and an estimated $25.5 billion will be used to fund land clearance
• $2.8 billion per annum is needed to return to use 80% of land in need of surveying within ten years
• mines and ERW in Ukraine cost Ukraine more than $11 billion in gross domestic product per year, equivalent to roughly 5.6 % of GDP in 2021
• 28,000 square kilometers of agricultural land has been abandoned across Ukraine as a result of landmines and other impacts of the way

The full study is available via the link.

However, Ukraine is making significant efforts to demine its territory. In January 2024, the plan for surveying agricultural lands was set at 512,123 hectares. The Ministry of  Economy reports that during the first half of 2024:

• 171.7 thousand hectares of agricultural land were surveyed
• 156.6 thousand hectares of land were returned to economic exploitation
• 690 pyrotechnic groups and 3,707 sappers were involved in humanitarian demining and operational response, as well as 82 mechanical demining machines
• 43 operators were certified, 52 operators were in the process of certification

Source: Tony Blair Institute for Global Change, Ministry of Economy of Ukraine, World Bank

Key developments for Ukraine’s Reconstruction

• The Ministry of Economy of Ukraine together with KSE presented a handbook on attracting investment in business

On 16 September, the Ministry of Economy of Ukraine together with Kyiv School of Economics (KSE) presented the handbook “Financial Instruments for Business: Programmes of international financial organizations, Ukrainian banks and insurance companies”, which contains detailed information on the financial programs available to Ukrainian businesses.

This handbook will be useful for small and medium-sized enterprises, large corporations and international investors. It collects and analyses all relevant support programs for Ukrainian businesses in the first phase of the implementation of the Ukraine Investment Framework. The total program is valued at €9.3 billion.

This handbook contains answers to the most common questions that business representatives have, including a description of the available financial instruments, instructions on how to obtain them, including information on how and where to apply. The next phase of the UIF will develop new instruments to finance projects in Ukraine. The European Commission will start accepting applications for Phase II from IFIs/DFIs on 30.09.2024.

This means that there will be new applications from international financial institutions with new projects to finance Ukrainian businesses. These projects will be reviewed by the European Commission on a quarterly basis until July 2025.

This guide is based on an in-depth analysis of over 100 financial products offered by 34 financial institutions. According to KSE's estimates, around EUR 2 billion of financing is currently available to businesses.

You can access the handbook via the link.

Source: Ministry of Economy of Ukraine, Kyiv School of Economics

• The launch of a new digital tool to facilitate doing business in Ukraine

On 19 September, the Unified State Electronic System of Permits (eDozvil) was launched. The eDozvil project operates as part of the eEntrepreneur service on the Diia portal. The Government decided to launch eDozvil at a meeting on 5 July 2024. Entrepreneurs will be able to quickly submit applications and receive permits, pay for administrative services, clarify information about their company, etc. The Ministry of Economy is planning to digitize the 8 most popular permits and licenses first.

Starting in September, entrepreneurs will be able to register a declaration of compliance of their material and technical facilities with the requirements of labour protection legislation on the Diia portal. From now on, businesses will be able to submit the declaration conveniently and quickly in one click, and the eDozvil system will automatically check and register it. It is expected that in October, the system will also have the function of obtaining a conclusion that gives the right to extend the deadline for settlements for export and import operations.

Once the filing process is transferred online, businesses will be able to proactively address application deficiencies. If the document attached to the application does not meet the requirements, entrepreneurs will promptly receive comments from the Ministry of Economy via Diia. This will allow them to quickly eliminate deficiencies and avoid the need to re-submit the application.

The eDozvil project is implemented by the Ministry of Economy of Ukraine in partnership with the Ministry of Digital Transformation of Ukraine and funded by the European Union under the EU4DigitalUA project, implemented by FIIAPP.

Source: Ministry of Economy of Ukraine

• The Government of Ukraine granted foreign companies the opportunity to obtain permits for construction activities

On 6 August 2024, the Ukrainian government allowed foreign companies and organizations operating in Ukraine through separate divisions and permanent establishments to acquire the right to carry out construction activities without the need for a traditional construction license. This decision applies to construction projects that are classified as objects with medium (CC2) and significant (CC3) classes of consequences.

To obtain the right to engage in construction activities, companies must submit a declaration of economic activity to the licensing authority free of charge without the need to obtain a construction license.

The adoption of this act will improve the regulatory framework for foreign companies in Ukraine. In particular, it will allow representatives of Polish companies in Ukraine to work on the arrangement of checkpoints on the Ukrainian-Polish border.

The new regulation will be in effect for the duration of martial law.

Source: Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine

International Benchmark

• Croatian demining company opens representative office in Ukraine

On 12 September, the Croatian company DOK-ING, a leading manufacturer of humanitarian demining equipment, opened an office in Kyiv. The opening ceremony was attended by high-level political figures such as Prime Minister of Croatia Andrej Plenković and First Vice Prime Minister of Ukraine and Minister of Economy of Ukraine Yulia Svyrydenko, as well as representatives of the diplomatic corps, NGOs, international organizations and companies involved in the reconstruction of Ukraine.

DOK-ING Ukraine will act as a focal point for collaboration, easing communication between the Ukrainian government, foreign stakeholders, non-governmental organisations, local partners and others.  The company has already delivered 44 robotic demining systems, which helped to clear nearly 12 million square metres of contaminated land and neutralise over 5,600 landmines and other explosive remnants of war.

By the end of this year, DOK-ING will have delivered 67 robotic demining systems overall since the start of the full scale invasion and will have trained more than 200 specialists to operate and maintain them.

Over the next two years, DOK-ING plans to expand its research and development efforts in Ukraine and wants to be a part of the solution for a sustainable and prosperous Ukrainian future. DOK-ING plans to expand its activities in Ukraine beyond demining, including the protection of critical infrastructure and collaboration with the Ukrainian defence industry.

The opening of this office is extremely important for the reconstruction of Ukraine, as it will not only facilitate demining and save lives, but also create new jobs, generate additional budget revenue, and support the economy of Ukraine.

Source:  DOK-ING, Ministry of Economy of Ukraine

• Ukraine and World Bank sign $415 million agreement to improve education in Ukraine

On 11 September, the Ministry of Finance of Ukraine, the Ministry of Education and Science of Ukraine and the World Bank signed agreements to raise funding under the project “Lifting Education Access and Resilience in Times of Need” (LEARN) worth USD 415 million. The Lifting Education Access and Resilience in Times of Need (LEARN) program is designed to improve overall safety conditions in schools, provide free transportation for vulnerable students, train teachers, purchase textbooks, and strengthen education sector management.

This initial financing for the LEARN program includes $235 million from the International Bank for Reconstruction and Development (IBRD) Advancing Needed Credit Enhancement for Ukraine (ADVANCE Ukraine), $150 million from the International Development Association (IDA) Special Program for Ukraine and Moldova Recovery, and $30 million from the Ukraine Relief, Recovery, Reconstruction and Reform Trust Fund (URTF).

The Programme will be implemented using the financial instrument “Programme-for-results (PforR)”. Upon achievement and verification of the results set out in the agreements, the loan and credit funds will be transferred to the general fund of the State Budget.

Source: World Bank, Ministry of Finance of Ukraine

• US and UK announce new aid packages for Ukraine

On 11 September Foreign Secretary of UK, David Lammy, together with US Secretary of State, Antony Blinken visited Kyiv to demonstrate their support. This is the first joint visit by the UK Foreign Secretary and the US Secretary of State to Ukraine, which underlines the unwavering support for the State. 

During the visit, David Lammy announced a package of aid to Ukraine that includes £242 million announced for 2024-2025 for immediate humanitarian, energy and stabilisation needs, as well as to support reform, recovery and reconstruction. These funds will provide support to the most vulnerable people in Ukraine, as well as support for longer-term economic, reconstruction and energy needs. The Foreign Secretary of the UK also announced the intention to deploy $484 million worth of loan guarantees for World Bank lending before the end of the year, to bolster Ukraine’s economic stability.

For its part, the United States has announced new aid worth more than $700 million. The aid will be used to support Ukraine's energy infrastructure, provide vital humanitarian assistance to Ukrainian internally displaced persons and refugees, and support demining operations.

Source: U.S Department of State, GOV.UK

• EBRD lends €70 million to Ukraine’s Nova Post

The European Bank for Reconstruction and Development (EBRD) is lending €70 million to Nova Post, Ukraine's leading postal and courier delivery operator, to finance its investment programme in 2024.

The EBRD's financing is provided under the Ukraine Investment Facility for Municipal Infrastructure and Industrial Resilience (UIF MIIR). It will be provided in hryvnia or euros and is accompanied by a first loss guarantee covering 10% of the EBRD loan amount.

The company will use the funds to support future growth in its courier, express and parcel delivery business by expanding its luggage locker network by a quarter to operate 24/7, renovating hundreds of post offices and terminals, developing its branch network and building more than 600 safety capsules and shelters at its facilities across the country. In addition, the EBRD's technical support will help to improve human resources policies, re-employment pathways and workplace support systems for some 3,500 employees currently serving in the army and other veterans returning to civilian life.

Arvid Turkner, Managing Director of the EBRD in Ukraine and Moldova, notes that the goal is to implement the company's long-term development strategy, which includes transforming the customer service model and ensuring the safety of employees and customers during the war.

Source: European Bank for Reconstruction and Development, InVenture

• Ukraine receives EUR 70 million from CEB under HOME project  

On 6 September, Ukraine received €70 million from the Council of Europe Development Bank (CEB) as part of the "HOME: Compensation for Destroyed Housing” project. This funding is the first tranche of the two to be provided by the end of 2024.

The funds will be used to finance housing certificates as a direct assistance mechanism, allowing citizens to receive compensation for housing destroyed as a result of attacks. The main final beneficiaries include military personnel, people with disabilities and large families.

The project is being implemented as part of the eVidnovlennia service (state aid programme for the restoration of damaged housing triggers) and it is expected to compensate more than 2,000 housing certificates, enabling around 5,700 Ukrainians to receive compensation for their destroyed housing.

Source: Ministry of Finance of Ukraine

• EBRD unleashes €690 Million Financing for Ukraine's critical industries

The European Bank for Reconstruction and Development (EBRD) is introducing new guarantees to support Ukraine's banking sector, unlocking €690 million in new financing for critical industries during the war.

The Bank is extending unfunded portfolio risk-sharing facilities to PrivatBank, Ukrgasbank, KredoBank and Bank Lviv. Through this initiative EBRD will partially cover the banks’ credit risk on new loans to Ukrainian businesses with the support of the European Union’s Ukraine Investment Framework (UIF).

The EBRD will cover the credit risk on new loans worth up to €400 million issued by PrivatBank, €150 million issued by Ukrgasbank, €100 million issued by KredoBank, and €30 million issued by Bank Lviv. The EBRD's new guarantees enhance lenders' risk-taking ability, enabling them to finance Ukraine's critical industries, ensuring food security and preserving livelihoods amidst the economic impact of war.

Up to 20 percent of the lenders’ respective covered portfolios will be allocated to financing long-term investments by micro-, small- and medium-sized enterprises (MSMEs) in EU-compliant technologies and equipment, under the EU4Business-EBRD Credit Line with incentives, enabling modernization and improvement of their business assets.

Within the portfolio risk-sharing instruments, PrivatBank and Ukrgasbank will enable new lending worth €175 million and €150 million, respectively, under the EBRD’s new Energy Security Support Facility (ESSF), which aims to facilitate energy security investments in Ukraine.

The EBRD remains Ukraine’s largest institutional investor, which has deployed more than €4.5 billion in the country since 2022 and has secured agreement for a further €4 billion capital increase to continue lending at these levels in wartime, with the potential for more once full reconstruction begins.

Source: EBRD, PrivatBank, Ukrgasbank

• Switzerland provides CHF 58.7 million to Ukraine for digital transformation

On 18 September, Mykhailo Fedorov, Minister of Digital Transformation of Ukraine and Felix Baumann, Ambassador of Switzerland to Ukraine, signed a memorandum of cooperation in the field of systemic digital transformation of Ukraine.

The memorandum envisages that Switzerland, through the Swiss Agency for Development and Cooperation (SDC), will allocate CHF 58.7 million (approximately EUR 62.2 million) over 2024-2028 for the digital transformation of socially important areas of public policy and the digital development of communities. The projects will be implemented within the framework of the E-Governance for Accountability and Participation Programme (EGAP), implemented by the Eastern Europe Foundation.

The memorandum envisages reforms in healthcare, social policy, education, humanitarian demining, housing and communal services, state statistics and public administration reform. In addition, the focus is on digital development and community resilience. Under the memorandum, Switzerland will support local governments in 9 regions of Ukraine: Chernihiv, Dnipro, Kherson, Khmelnytskyi, Luhansk, Odesa, Sumy, Vinnytsia, and Volyn. The regions will receive digital tools and knowledge to improve service delivery. Other important areas of focus include funding to help Ukrainians affected by the full-scale invasion, restoring digital infrastructure, and creating an accessible and energy-independent environment for public services.

This is the third phase of such support. In total, since the inception of the EGAP Programme in 2015, the Swiss government has already allocated more than 30 million francs.

Source: Ministry of Digital Transformation of Ukraine, EGAP

Focus on private sector

• NJJ Holding completes acquisition of Datagroup-Volia and Lifecell

NJJ Holding (“NJJ”), the investment firm owned by Xavier Niel completed the acquisition of Datagroup-Volia, Ukraine’s leading fixed telecom and pay TV provider, and Lifecell, the country’s third largest and fastest-growing mobile operator. The transaction was finalized after fulfilling all conditions precedent, including obtaining the necessary regulatory approvals.

The consortium, including U.S. private equity firm Horizon Capital, will merge Datagroup-Volia with Lifecell to create a converged telecom platform for expansion, growth and investment.

The next important step will be the signing of the loan documents and disbursement of the USD 435 million joint financing package provided by the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC).

Xavier Niel stated that the closing of this landmark transaction would serve as a signal to others that Ukraine offers compelling opportunities and that the time to invest is now.  

Source: Horizon Capital, Datagroup

• Global IT company of Ukrainian origin, Intellias, acquired a UK-based IT company

On 5 August 2024, Intellias, a global IT company of Ukrainian origin, announced the acquisition of NorthLink Digital, a UK-based IT company specializing in consulting and technology solutions for the financial services and insurance (FS&I) industry.  Graham Orrell, CEO and co-founder of NorthLink Digital, is expected to lead Intellias' FS&I business development as Vice President.

NorthLink Digital has deep expertise in the financial services and insurance industry. Its clients include FinTech companies, hedge funds, and international banks. The company also provides services to clients in the e-commerce, transport, and logistics industries. Intellias is also an active player in the FS&I market, focusing on banking, payment systems, capital markets, insurance and lending. Through the combination, the companies will be able to offer additional value and expertise to FS&I clients.

This is the second M&A deal Intellias has completed in 2024. In April, the company acquired C2 Solutions, a US-based IT company specializing in digital healthcare and the development of technologies for medical equipment. 

Source: Intellias, IT Ukraine Association

• Ukrainian AI-powered media intelligence company receives a seed investment of $3 million

Osavul, an AI-powered media intelligence company, receives a seed investment of $3 million (€2.78 mln) from three European investors: 42CAP, u.ventures, and SMRK. The funds will allow the company to expand its expertise from the public sector to the private sector, applying innovative AI-based solutions to protect the reputation of brands for business.

Osavul was founded in February 2022 in response to the Russian invasion of Ukraine and aimed at tackling disinformation. The solution is capable of working with data from text, video, and audio formats across various platforms such as websites, social media, etc.

Osavul aims to use these funds to scale its operations globally, enhance its AI algorithms, accelerate its outreach, and offer new opportunities for the B2B segment.

Source: Osavul

• A Ukrainian startup has raised $2.7 million in investment to revolutionise coordinated drone autonomy with AI-powered innovation

Swarmer, a startup whose product helps to unite a group of drones in which the operator only has to select a target and authorize its destruction, has raised $2.7 million in investment. This $2.7 million seed funding round was led by R-G.AI with active participation from Radius Capital Ventures, D3 Venture Capital Firm, and Green Flag Ventures. This funding will enable Swarmer to expand the deployment of its swarm-based solutions to transform battlefield operations for democracies. 

Founded by Sergiy Kupriyenko and Alex Fink in May 2023, Swarmer develops Styx AI software that allows for the control of multiple drones at once, increasing the efficiency of a single pilot. So far, the solution can combine 10-15 drones into a swarm. The company's Trident OS and STYX AI solutions are designed to complement traditional systems by eliminating human limitations, providing an unprecedented advantage to modern armed forces.

Source: Swarmer, InVenture, Green Flag Ventures