FDI development during the war: dynamics, structure, and drivers
At the forthcoming Ukraine Recovery Conference (URC) in Rome, key decision makers, stakeholders, experts, and business leaders will convene to exchange views and coordinate efforts aimed at supporting Ukraine’s economic recovery and reconstruction. As with last year’s conference held in Berlin, the agenda will encompass four thematic dimensions, one of which is the business one. Policy makers continue emphasising the critical role of foreign direct investment (FDI) in Ukraine’s economic recovery.
In the lead-up to the Rome conference, we have undertaken an assessment of the current trends, and key drivers influencing inward FDI flows to Ukraine. According to national data, inward FDI flows have amounted to USD 8.3 bn since 2022. From a microeconomic perspective, each investment made by a foreign enterprise in a country at war represents a courageous commitment. However, from a macroeconomic perspective, the current level of FDI is insufficient to address the scale of the recovery challenges. Accordingly, increasing the investment attraction will be a key priority for discussions at the URC and beyond.
Background
On 10/11 July, Ukraine and Italy will host the fourth URC since the start of Russia’s full-scale war. While Ukraine’s economy has firmly returned to growth, following a sharp contraction in 2022, restoring economic output to pre-war trend levels remains a long-term challenge. To accelerate the country’s growth trajectory, policymakers consistently highlight the need for targeted measures to attract FDI. In this context, we have assessed the current development of FDI inflows to Ukraine and examined its key driving forces.
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According to data from the NBU, inward FDI flows totalled USD 8.3 bn between 2022 and 2024. From a microeconomic perspective, this number reflects a degree of confidence among international investors in Ukraine’s future economic potential and illustrate courageous decisions by certain companies. However, from a macroeconomic standpoint, average annual FDI inflows have amounted to only 1.6% of Ukraine’s GDP since 2022, a number that falls short of what is required for Ukraine’s economic recovery, and well below the pre-war level.
What are the drivers?
A closer examination of the FDI statistics reveals that the majority of FDI is not attributable to new equity capital transfers from parent companies abroad to their subsidiaries in Ukraine. Rather, a substantial portion of FDI stems from the reinvestment of earnings. Between 2019 and 2021 (i.e. pre-war), they accounted for approximately 59% of total FDI. This trend has continued during the war: between 2022 and 2024, the share has slightly increased to 61%. On the one hand, it is remarkable that foreign enterprises continue operating profitably in Ukraine. On the other hand, this dynamic also underscores the limited scale of new foreign companies entering the market.
However, the increase in equity capital inflows is a positive development worth mentioning. They increased from USD 0.4 bn in 2022 to USD 0.9 bn in 2024.
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Inward flows by countries
Between 2019 and 2021, the majority of inward FDI to Ukraine originated from five key source countries: Cyprus, the Netherlands, Switzerland, the United Kingdom, and Germany, accounting for 62% of total inward FDI flows. It should be noted that a portion of these flows may be attributed to so-called “roundtripping”, which “refers to the channelling abroad by residents of local funds and the subsequent return of these funds to the local economy in the form of direct investment“ (NBU, 2025, Link). The NBU (2025, Link) estimates the share of roundtripping at 24% of total flows between 2010 and 2024, particularly related to transactions from Cyprus, the Netherlands, and Switzerland.
Since the war, source countries have become more diverse. The mentioned top-5 countries’ share declined to 41%. FDI from Germany are negative due to negative reinvestment of earnings, while there is increasing investment from countries like Austria, the US, Poland or France. Furthermore, investment by Saudi companies of more than USD 217 m in 2024 are worth mentioning.
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Inward flows by sectors
A further shift has been observed in the sectoral composition. Prior to the war, FDI flows were relatively evenly distributed between the industrial and services sectors. Since the beginning of Russia’s war, however, there has been a marked shift towards investment in services. Of the 17 subsectors for which data are available (excluding “public administration and defence” and “other services”), only five have recorded higher inward FDI flows since the war than during the pre-war period. All of these belong to the services sector.
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Before the war, the top three subsectors attracting FDI were mining, financial services, and manufacturing. Since the war, these have been replaced by trade, financial services, and ICT – all of which are service-related sectors. For a deeper understanding of the key importance of FDI for economic recovery and growth, which has often been stressed by key policy makers during the war, we empirically test the causality relation.
We consider the time period between 2019 and 2024 for the 17 subsectors and indeed find support for this hypothesis.
Policy implications and outlook
This result highlights the key importance of policy measures to attract FDI for Ukraine’s recovery. Currently, statistics show relatively moderate volumes of FDI inflows during the war. “Fresh” equity investment has been limited since the war, even though there is a positive trend observable. This result indicate that foreign companies remain still hesitant, given the risky environment. Therefore, the upcoming URC provides a significant opportunity to further discuss policy measures to improve investment attraction.
For example, reforms and the EU accession process were a key driver for FDI in Ukraine’s neighbourhood countries in the past. Besides that, already now expanding Ukraine’s access to the EU common market before full membership will also positively influence foreign companies’ willingness to invest.
Moreover, security risks can be insured by public guarantee schemes. Currently, only a very limited number of countries offer schemes for their companies’ investment in Ukraine during the war. A new scheme insuring all new investments (domestic and foreign) would be a game changer. All these issues will focus prominently in particular in the business dimension, one of the four thematic dimensions of the URC.
This newsletter is based on the Policy Briefing “FDI inward flows into Ukraine: Dynamics, structure, and drivers during wartime”.
