A woman looks at her phone while sitting in near-darkness in Kherson, in southern Ukraine, November 2023. (Ed Ram/The Washington Post)
KYIV — Western financial institutions are backing a telecom deal for Ukraine of over $400 million, the largest investment in its private sector since Russia’s full-scale invasion and a rare glimmer of hope for the country’s battered economy.
Deeply enmeshed in a war marked by missile strikes, lack of electricity and a scarcity of workers, Ukraine is still a long way from attracting significant international investment, but officials at the European Bank for Reconstruction and Development described the latest deal as a vote of confidence in the country.
The EBRD and the International Finance Corporation announced last week that they were each providing a long-term loan of $217.5 million to a consortium of investors, led by the NJJ telecom holding company, owned by French billionaire Xavier Niel. Previous loans to Ukraine from the EBRD have been in the range of $40 million to $50 million.
“There are challenges — but there are also opportunities” in investing in Ukraine, EBRD President Odile Renaud-Basso told The Washington Post. “In the long term, investing in the country makes sense.”
The deal comes as Ukraine prepares for a winter in which heat and electricity could be severely restricted, as Russian missiles and drones regularly hammer the country’s cities. The country also labors under a perception — some say unfairly — that it is a haven for corruption.
Ukraine’s economy shrank by nearly a third in 2022, the first year of the war, with large portions of the country destroyed or under occupation, and battles raging in Ukraine’s industrial east and agricultural south. Although growth returned in the past two years, it has been modest.
The deal that the EBRD and IFC are helping finance merges Lifecell, Ukraine’s third-largest mobile provider, with the Ukrainian fixed-telecom network Datagroup-Volia. Last month, Niel and the other investors paid $524 million for Lifecell, which was owned by the Turkish mobile company Turkcell.
The new company, Datagroup-Volia-Lifecell, will improve the resiliency and speed of the mobile network, EBRD officials say — important developments during wartime, when reliable forms of communication are crucial.
The telecom deal, along with its international financing, is a positive sign, said Tymofiy Mylovanov, head of the Kyiv School of Economics.
“If [investors] see that others are buying, that’s social proof or business proof that someone has done their due diligence, the regulatory framework worked out, the financing is there — that you can buy things in Ukraine and you can invest in Ukraine,” he said. “And frankly that’s exactly what Ukraine needs — it needs some confidence.”
The deal had been in the works since 2021 but was suspended when the war broke out — only to be revived in 2023, Renaud-Basso said. In April, a Kyiv court lifted a freeze on the 20 percent of shares that Russian oligarch Mikhail Fridman held in Turkcell, allowing the sale of Lifecell to go forward. Fridman, who is under sanction by the Ukrainian government, did not receive any money from the sale, consortium members said at the time.
However, given Ukraine’s current economic realities, the investment is being made more with an eye toward the future, said Holger Muent, EBRD director of telecommunications, media and technology.
“The risk the investor is taking is really with the perspective to having an asset that will then grow when the war ends and the economy stabilizes and starts growing,” he said.
In the meantime, Ukraine’s economy requires large amounts of outside help to stay afloat. The country receives billions in Western financial aid each year. This goes to paying for health care, pensions and other nonmilitary expenditures, allowing the government to spend all its tax revenue on defense.
As the costs of the war have mounted, Ukraine’s government has struggled to pay its bills, with a $12 billion hole in the budget projected for the end of this year and $15 billion next year.
However, some relief may soon be on its way. The European Parliament will vote this month on a loan of up to $38 billion backed by the windfall profits of Russian assets frozen in Europe.
The Ukrainian parliament also passed last week the largest tax increase since the war started, potentially funneling billions of dollars to the state budget.
Few outside investors are jumping into the Ukrainian market now, however. Most of the money being spent is coming from companies that were already involved before the war, local business people say.
“Whoever is doing well keeps investing,” said Aivaras Abromavicius, a former Ukrainian economics minister who is chairman of the board of the Agro-Region company. He said his company has repaired a grain elevator north of Kyiv that was bombed in the first months of the war. He has also bought trucks, railcars and electric generators at different points over the past two years.
“Business has adapted to extremely challenging situations, but the biggest ones are just the physical safety of your assets and your employees,” he said. “Second is the loss of personnel to the military ranks. We have an enormous amount of vacancies in the company that are very difficult to fill because the labor market is shallow.”
But for major expenditures, investors want someone to provide insurance or share the risk — something that is hard to come by in a country engaged in the biggest European conflict since World War II. The loans from the EBRD and IFC are partly guaranteed by the French government and the European Commission, but most investors do not receive such insurance.
“Imagine a board meeting somewhere outside Ukraine, and management comes up with a proposal to make a substantial investment in Ukraine, without having any prior presence in Ukraine,” Abromavicius said. “I mean, who’s going to vote for such a decision?”
Corruption and a weak judiciary are additional risks.
Ukraine has created a slew of independent anti-corruption bodies. Since the beginning of the war, officials have opened a number of high-level anti-corruption cases and carried out arrests, including against the country’s chief justice for allegedly taking more than $2 million in bribes — proof, they say, that the government is cracking down on graft.
Western officials say Ukraine has taken great strides in recent years to battle corruption. But they say much more must be done — in particular reforming an inefficient and sometimes corrupt judicial system — if Ukraine wants to join the European Union and NATO.
“It’s wartime — locations are being hit by missiles and it’s not big encouragement to come into the country and invest,” said a European diplomat, speaking on the condition of anonymity because of the sensitivity of the issue. “If the situation is not okay with the legal system being able to sort out problems quickly enough, then that’s an additional burden.”
To be sure, there is money to be made in Ukraine, with some of the opportunity a direct result of the war: Besides agriculture and telecoms, the country’s defense and construction sectors are booming. But the potential to lose it all is also ever-present.
“It’s a land of opportunities,” said the European diplomat. “But, of course, you can get burned here easily also. You have to be very careful.”
