Last year it was Ukrainian President Volodymyr Zelensky’s wife, Olena Zelenska, who was the undisputed star of the World Economic Forum (WEF) in Davos, drumming up support for the country’s fight against Russia’s invasion. Her husband’s role was limited to addressing the forum by video link.
This week in Davos, business leaders, politicians and the wider global great and good were all keen to be photographed with Zelensky himself, present in the Swiss ski resort to ensure that Ukraine stays at the top of the global agenda.
Huge crowds followed the Ukrainian leader wherever he went, a sure sign that his star quality—and widespread sympathy for Ukraine’s cause—remains intact.
The most of exclusive of all talking shops, WEF has seen a prominent Ukrainian presence for several years, a presence which predates the Russian invasion of 2022. The Ukraine House—backed by Horizon Capital, one of the largest private equity firms in emerging Europe—is now a feature of Davos, its original role as a showcase of Ukraine’s investment potential now supplemented by the need to galvanise support for Ukraine—both in terms of mobilising resources for Ukraine today and in its future recovery, renewal and revitalisation.
While the resilience of the Ukrainian economy in the face of Russia’s brutal invasion has been as impressive as the resilience of its people and armed forces, Ukraine’s hard-won economic stability is currently under threat again as the government faces a large budget hole and its two biggest allies and sponsors— the United States and the European Union—have so far failed to agree on extending more aid.
At Davos, Zelensky made a direct plea to global leaders and CEOs, both for immediate support and for long-term investment: “Strengthen our economy and we will strengthen your security,” he said, adding, “If anybody thinks this is just about Ukraine they are fundamentally mistaken.”
Ukraine’s cash crunch
Following a drop in GDP of almost a third in 2022, the first year of war, Ukraine’s economy is expected to have recovered well in 2023, with strong growth of around 4.8 per cent.
Forecasts for 2024, while conservative, reflect a nation that has adapted relatively well to the exigencies of war and the complexities of a global economic landscape in flux. It has been able to reroute exports through neighbouring countries, providing a boost for the agriculture sector, while continuing to develop knowledge-based service exports such as IT. Its banking sector has also been impressively resilient.
The economy is expected to continue to grow in 2024, by around 3.6 per cent in a testament to the country’s economic adaptability but also the financial support of international partners.
However, Ukraine is facing an immediate cash crunch. The country’s 2024 budget needs 43 billion US dollars in international aid, a large portion of which remains unsecured. The country’s reliance on external assistance underscores the importance of continued support from international partners to maintain macroeconomic stability.
In the US, the Joe Biden administration has struggled to get Congress to approve a 60 billion US dollars aid package for Ukraine in the face of opposition from Republican lawmakers. In Europe, Hungary is currently vetoing a package for Ukraine worth 50 billion euros.
EU leaders, who in December gave Ukraine the green light to begin accession negotiations, will meet in Brussels on February 1 to again try and pass the package—which needs the unanimous support of all 27 member states. Ahead of the extraordinary summit, Hungary has floated two key demands in exchange for lifting its veto: splitting the package into four annual tranches, which would allow it to block the cash at a later stage, and extending a deadline for it to spend its Covid-19 recovery funds, currently frozen by the EU over rule of law concerns.
After meeting with Zelensky in Davos, European Commission President Von der Leyen suggested that the bloc would find a way to approve the package, with or without Hungary.
“My personal priority is to have an agreement by all 27 countries. And if this is not possible, we are prepared for an agreement by 26,” she said, adding that Ukraine needed “predictable financing” throughout 2024 and beyond.
“Ukraine can prevail in this war. But we must continue to empower its resistance,” von der Leyen said.
The longer-term outlook hinges upon the evolution of the war
Longer term, Ukraine’s economic outlook largely depends on the course of the war, the inflows of foreign funds and the evolution of exports. Under the assumption that conditions are in place for reconstruction efforts to start from the beginning of 2025, real GDP growth is projected pick up to 6.1 per cent, according to the European Union’s latest forecasts.
Nevertheless, real GDP is set to remain roughly 20 per cent below pre-war levels.
In a scenario where Ukraine emerges from the war victorious, the prospects for economic recovery and growth are brighter. A win would likely lead to a surge in foreign investment and aid, accelerating reconstruction efforts. The lifting of blockades on ports and restoration of trade routes would revitalise exports, particularly in the agricultural sector. The IT sector could experience a boom as global confidence in Ukrainian tech talent is reinforced.
Under these conditions, GDP growth could potentially exceed current projections, fostering a period of economic renewal and expansion.
Conversely, if Ukraine is forced to accept a peace deal with significant concessions, the economic outlook becomes more complex.
Such a scenario could lead to prolonged instability, reduced foreign investment, and a slower pace of reconstruction. The uncertainty could dampen the growth prospects of various sectors and lead to a more cautious approach from international financial institutions. GDP growth in this scenario would likely be lower than current projections, and the economy could take a longer time to recover to pre-war levels.
The US Special Representative for Ukraine’s Economic Recovery Penny Pritzker, who met with Zelensky in Davos, says that there are still many questions “about what’s possible today versus what’s definitely possible in the future when you’re postwar”.
“Global business should actively explore the investment opportunities the country offers,” she said.
Some investors already appear ready to do so. On January 17, Rostyslav Shurma, an official at Zelensky’s office, said that a Ukraine reconstruction bank being set up by Kyiv with help from BlackRock and JPMorgan Chase has at least 500 million US dollars in committed capital and could be ready to launch in five to six months with close to one billion US dollars.
Long-term, much more will be needed. According to the World Bank, the cost of Ukraine’s reconstruction and recovery has grown to 411 billion US dollars.
Photo: World Economic Forum.
