Beyond the Ukraine Facility: De-risking private investment to reconstruct Ukraine and strengthen Europe

Ukraine offers significant potential for private investors, thanks to its affordable and well-educated workforce, abundant natural resources, agrifood base, and a dynamic tech and defence sector. However, both real and perceived risks — including wartime insecurity, legal uncertainty, and weak investor protection — continue to deter investment.

A larger, specialised de-risking instrument could go a long way in unlocking the private investment needed for Ukraine to face its current challenges and develop into a prosperous democracy ready to join the EU. It would also help the EU to better leverage the economic potential of Ukraine for its competitiveness and economic security.

European public assistance is critical to this. The EU Peace Facility has provided over €11 billion in military support, and the €50 billion Ukraine Facility launched in 2024 is set to support Ukraine through 2027 in line with the Ukraine Plan in its resilience, recovery, modernisation, and EU accession efforts through macro-financial aid, technical assistance, and a dedicated investment framework. Moreover, there have been various bilateral support programmes.  

Yet the challenge is vast. Just for recovery and reconstruction, the World Bank estimates investment needs of $524 billion over the next decade. At the same time, financial support from the United States has been reduced and further aid remains uncertain, while the new US-Ukraine raw materials deal does not provide concrete investment guarantees. Altogether, Ukraine’s investment needs far exceed what European public budgets can provide.  

Private capital must, therefore, play a central role—not only in financing civilian infrastructure such as energy systems, transport, housing, digital networks, and healthcare—but also in driving innovation across strategic industries, including defence. This investment is essential for Ukraine’s resilience, modernisation, and progress towards EU membership. 

At the same time, Ukraine offers significant potential for private investors, thanks to its affordable and well-educated workforce, abundant natural resources, agrifood base, and a dynamic tech and defence sector. However, both real and perceived risks—including wartime insecurity, legal uncertainty, and weak investor protection—continue to deter investment. 

The Ukraine Facility’s investment framework: Promising, but too small  

To support Ukraine’s recovery and development, the EU’s Ukraine Facility includes an investment framework with a €9.3 billion guarantee aimed at mobilising up to €40 billion in public and private investment. Based on the InvestEU model, it operates through an open architecture which means that implementing partners like the European Investment Bank (EIB), national promotional banks (NPBIs), and international financial institutions (IFIs) use the EU guarantee to finance projects in Ukraine and attract additional private investment. 

While some projects such as renewable energy initiatives have already been successfully supported, the framework’s financial volume remains insufficient to de-risk investment at the scale required. Less than a year in, only €1.6 billion remains unallocated, but disbursement has been slow due to the lengthy due diligence processes and challenges faced by Ukrainian recipients in meeting high standards required by the EU. 

Moreover, while the framework has backed Ukrainian projects, it does not offer adequate de-risking for European foreign direct investment (FDI) in Ukraine. It lacks dedicated instruments such as political risk insurance, while a first call for expressions of interest from European companies received more project proposals than the current budget can support. 

This is a missed opportunity. European companies setting up shop in Ukraine will be essential for integrating the country into European value chains and supporting its long-term economic growth. The successful experience of Poland illustrates the transformative potential of such investment: since the 1990s, direct investment by European automotive, manufacturing, and banking firms played a pivotal role in modernising Poland’s industrial base, increasing productivity, boosting exports, and generating employment.  

Finally, the framework does not include support in defence technology and industry, a domain where both the EU and Ukraine could most benefit from enhanced cooperation.  

EUSIF: A coalition of the willing for more de-risking of private investment 

To address these shortcomings and mobilise more private finance, a larger, dedicated Europe–Ukraine Strategic Investment Facility (EUSIF) should be established.  

Technically, such an instrument could extend the existing investment framework in the Ukraine Facility. But, given the urgency to ramp up support for Ukraine and political obstacles to further expand EU budget-based instruments—especially considering potential vetoes by some member states such as Hungary—a more viable option may be an off-budget facility backed by a coalition of willing EU member states in the spirit of a supranational avant-garde. It should be open to like-minded partners such as the UK, Norway, Switzerland, and Türkiye, and potentially others like Canada and Japan, who may prefer to contribute to a larger, more effective joint initiative, rather than setting up smaller bilateral programmes with limited derisking power.2 Participating states would provide capital commitments and ideally take up joint debt through a special-purpose vehicle. Russian frozen assets could be considered as collateral EUSIF should be aligned as much as possible with the Ukraine Facility’s investment framework. It could partly rely on the Ukraine Facility’s pipeline, risk assessment protocols, and implementing partners.  In case of success, EUSIF could attract additional EU members, and eventually be fully integrated into EU structures.  

Focus on common priorities for maximum attractiveness 

To improve the case for such an instrument, it should be designed to maximally benefit potential EUSIF contributors and Ukraine. Investment should therefore follow three overarching goals:  

1. Support Ukraine’s self-reliance, reducing long-term dependence on international aid. 

2. Deepen Ukraine’s economic integration with the rest of Europe to unlock growth on both sides—with a focus on facilitating FDI from EUSIF countries. 

3. Strengthen European competitiveness, strategic autonomy, and security by prioritising high impact sectors of mutual interest. 

Priority sectors would include energy (grids, renewables), transport (rail, logistics hubs), digital infrastructure and tech, agri-food systems, and critical raw materials essential for Europe’s supply chain resilience and green and digital transitions.  

Particular emphasis should be placed on developing Ukraine’s defence industry—for example, drone startups—and integrating it into European value chains. EUSIF could support the commercialisation and scaling of battlefield-tested defence innovations and promote cooperation between Ukrainian and European firms. This would strengthen innovation in Europe’s defence industry and help Ukraine scale up its defence sector. 

A wider set of risk alleviation instruments and investment incentives  

Similarly to the Ukraine facility's investment framework, EUSIF should rely on implementing partners like the EIB, national banks, and international financial institutions to invest under an EUSIF guarantee and crowd in more private investment.  

EUSIF-backed financial instruments should include loans, equity, blended finance, and first-loss guarantees for investors in Ukrainian projects and companies, and for European companies setting up operations in Ukraine. EUSIF-backed loans could be pooled and securitised into diversified portfolios that can be sold to institutional investors as “Ukraine Recovery and Growth Securities”, bringing in additional financial fire power and freeing up bank balance sheets for further investment.  

Ideally, EUSIF would also include an equity instrument providing anchor investments to help set up funds investing in strategic sectors in Ukraine, drawing in further private financing. 

To support FDI of European companies in Ukraine, EUSIF could back export credit agencies to mitigate the significant political risk involved in investing in Ukraine. To further incentivise investment under EUSIF, participating states and Ukraine could agree to some form of harmonised preferential tax treatment.  

EUSIF should also rely on a clear anti-corruption framework, making guarantees contingent on good governance in the framework of Ukraine’s progress in implementing its recovery and reform plan for EU accession. 

Finally, an Investment Advisory Hub could function as a one-stop shop offering pipeline development support, technical assistance, and matchmaking between Ukrainian project developers and European investors.  

This larger, specialised de-risking instrument could go a long way in unlocking the private investment needed for Ukraine to face its current challenges and develop into a prosperous democracy ready to join the EU. It would also help the EU to better leverage the economic potential of Ukraine for its competitiveness and economic security.  

Philipp Lausberg is a Senior Policy Analyst in the Europe's Political Economy programme at the European Policy Centre.

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