Executive
Perspectives

War in Ukraine:
Global Update&\\
Perspective on Reconstruction
BCG Global Advantage, Financial Institutions, Social Impact,
Public Sector, and Travel, Cities & Infrastructure Practice Areas
Prepared: 21 Feb 2023 – Confidential: Limited DistributionPrepared: 21 Feb 2023 – Confidential: Limited Distribution

Introduction to this document
The war in Ukraine (UA) is above all apolitical, social and humanitarian crisis…

The scale and duration of the war has had aprofound economic impact, both within Ukraine
and globally.
The one-year mark provides an occasion to reflect
on the growing extent of physical and economic
damage to Ukraine and the scale of rebuilding
required.

It is the duty of political, societal, and businessleaders to navigate through this crisis. The intent
of this edition is to document and analyze theimpact of the war over the past year and to
discuss the reconstruction of Ukraine.
The situation surrounding Ukraine is dynamic andrapidly evolving - this document reflects
information and analysis as of 21 February 2023.
It is not intended as a prediction of future eventsand is shared only as a resource for BCG and client
conversations.

Copyright © 2023 by Boston Consulting Group. All rights reserved.

As we enter the second year of war, it is impossible
not to reflect on the enormous loss and suffering it
has wrought. The top priority for all continues to be
the safety and security of people.

2

Prepared: 21 Feb 2023 – Confidential: Limited Distribution#1 Global impact (Mar 3)#2 Supply Chain (Mar 11)#3 Energy (Mar 18)#4 Finance (Mar 24)#5 Risk (Mar 31)#6 Industry (Apr 14)#7 Refugees (Apr 27)#8 Scenarios (May 16)#9 Consumer Sentiment (May 26)#10 Energy Transition ( June 15)#11 Food Crisis ( July 14)#12 Future of Trade (Nov 3)3

Copyright © 2023 by Boston Consulting Group. All rights reserved.

This edition follows 12 prior Executive Perspectives on Ukraine in 2022

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Summary | Global impact - Year at a glance
War impact
on Ukraine

Refugee crisis grew worse as the year progressed• 27M Ukrainian citizens directly affected, incl. 13M refugees and internally displaced; 300k+ casualties
Impact of war exceeded initial expectations• "Immediate" victory has not materialized for Russia, impact now cross-sectoral and well beyond Eastern Europe

Economic
impactGlobal economy averted recession in 2022 but most growth forecasts dampened for 2023
• World GDP 2023 growth forecast at 2.1%, Eurozone at 0.2%, US at 0.6%, Russia GDP to contract by 3%
Most nations faced significant inflation, with pressures easing into 2023
• High energy and commodity prices were among the factors causing 9.8% global inflation in 2022; forecast is 7.3% for 2023
After initial spike, most commodity prices eased, but many stabilizing at higher levels• Most agriculture, metals, energy prices now between 2022 max level and pre-2022 average; some products trending up (e.g., nickel)
Europe survived immediate energy crisis and cut Russia gas reliance• Diversified imports (esp. to US LNG), spent €800B on energy subsidies, fast-tracked LNG infrastructure, cut back on consumption
Multiple waves of sanctions by Allies, approaches evolving to raise impact• 6k+ sanctions actions by 20+ countries; EU's 10 packages comprise diverse measures -- price cap on oil now taking effect

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Sanctions

Russia's trade is seeing a shift away from West toward large emerging markets (EMs)• Gas exports sustained at high prices, but large advanced economies importing 37% less in non-energy; EMs picking up trade flow
Companies took actions to exit Russia market or reduce exposure• 1k+ major companies in most sectors have reduced Russia presence

Implications& scenarios

Profound second- and third-order impacts• Fundamental impact on food security, LNG, defense industry, EU fiscal health; plus, disruptive impacts (e.g., space travel)
Most scenarios will require reconstruction by Ukraine and Allies• Five major scenarios across escalation / de-escalation

4

AGENDA

Global economic impact of the war in Ukraine
Ukraine reconstruction & strategic rationale forbusinesses to engage
Copyright © 2023 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global Update &Perspective on
Reconstruction

Implications for leaders5Prepared: 21 Feb 2023 – Confidential: Limited Distribution

13M Ukrainians still displaced, but meaningful return trend observed
Movement from borderto European countries

Flow of Refugees (M people)
1%

Indicative view of refugee flows thru
February 8, 2023

<1%
1%

X% of the estimated~8M refugees stilloutside of Ukraine

1%

Net Outflow<1%

Canada

2%

Asia

0.4%

Australia

<0.1%

1.5

0.7

5.5

4.7

4.6

-3.0

-3.2

-2.6

May-Jul

Aug-Oct

Nov-Jan

8.2

10

31% 1

<1%

1%

2%

23%
12%

1%

6%
1%

1%

-1.2

Internallydisplaced

-5

1%

3%

Feb-Apr3.3

Out of UA
Into UA

2%

1%

27M

Population directly affected by war(living in stranded areas, refugees,
internally displaced, injured and killed)

13M

Refugees + internally displaced people

300k+

Casualties (UA civilians and soldiers)2

1%

2%

1%

5

0

5M

1%
3%

1.7

<1%

<1%
2%

<1%

1. Including forced migration and travelers from occupied territories; 2. Based on estimates of civilian & military killed & wounded in UA & RU | Note: Actual number might
be slightly lower as the crossing are not counted as per "unique" person, however at this point it is uncertain whether the return is permanent or temporary. Note:
Indicative view; onward travel from directly neighboring countries (particularly PL, HU, SK) and hence also inflow to not directly neighboring countries (particularly DE, IT,FR) might be higher than stated. Source: UNHCR (archives); IOM; interviews with NGOs; Government websites and statistics; CEPR; NYT; BBC; OHCHR; BCG analysis

6

Copyright © 2023 by Boston Consulting Group. All rights reserved.

<1%

<1%

0 - 100
100 – 1,000
1,000 – 2,000
2,000 – 4,000
Over 4,000

USA

4.3

<1%
1%

Refugees per 100,000
inhabitants indestination country

CumulativePrepared: 21 Feb 2023 – Confidential: Limited Distribution

Impact of war continues to broaden, well beyond initial expectations

Broader impact

Narrower impact

Duration

Weeks

MonthsRussia &Ukraine

Sectoralscope &
materiality

Energy,Metals,Agrifoods
3 Mar 2022

Central & Eastern EuropeEUe.g., Autos, Semis

Mar – Nov 2022

Current Reality

Decades

Russia announces "decisive andimmediate" action to remove gov't inKyiv, predicts victory within weeks1

Protracted stalemate which mostpolitical and military experts believe
will persist

GlobalLimited geographic scope and direct
economic impact, few 2nd order
impacts

Broad/deep sanctions regime,
NATO+ allies military assistance,
2nd order impacts (growth, inflation)

Whole
economySmall subset of commodities withhigh share of Russia/Ukraine supply
to suffer shortage, volatility

Near-crisis in energy and agrifoods,
impacts on wider range of sectors,incl. T&L, machinery, defense, retail

Years

Days

Geographic
scope &
materiality

Initial Expectation

NATO+

Many sectors

20 Feb 2023

1. Putin states before airstrikes begin that Russia is taking "decisive and immediate action" to remove Ukraine's leaders. Experts interviewed by Izvestia, as reported by Russia's TASS News
Agency, believed that the Russian military could complete the operation in five days.| Source: TASS, Wall Street Journal; BCG analysis. Note: BCG does not provide legal or regulatory advice.

7

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Interrelated
dimensions

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Summary snapshot | War impacts continue to be felt in global economy
Macro Outlook

Commodity Prices6

World Bank

2021

2022

Leading FIs

2023F

ActualJan'22
Forecast

Actual3

Feb'23
Forecast

GlobalEuro Zone

5.9%
5.3%

4.1%
4.2%

2.9%
3.3%

2.1%
0.2%

US
Russia

5.9%
4.8%

3.7%
2.4%

1.9%
-3.5%

0.6%
-3.0%

Ukraine

3.4%

3.4%2

-33.0%

2.0%

2023F

Interest
rates+/- vspre-warInflation4

GlobalEuro Zone
US
RussiaUkraine

2021

2022

ActualActual5

Forecast

6.8%
2.8%
4.7%
6.7%
9.4%

9.8%
9.1%
8.0%
13.2%
20.2%

7.3%
6.7%
3.5%
5.1%
13.5%

Commodity
Crude Oil ($/bbl)
Gas ($/MWh)
Coal ($/t)
Wheat (€/bu)
Rapeseed (€/t)
Nickel ($/t)
Palladium ($/oz)

Jan 3 '22
79.0
80.4
157.5
274.0
728.5
20430.0
1826.0Feb 6 '23
81.0
58.1
252.0
288.5
549.8
29110.0
1579.4

Change
3%
-28%
60%
5%
-25%
42%
-14%

Deep Sea Cargo Port Calls

Deep Sea Cargo Bosporus(Avg. #/day)7

Straits Transits (Avg. #/day)7

Pre-War Current ΔCW(Jan '22) (Jan '23) PreWar

Pre-War Current ΔCW(Jan '22) (Jan '23) PreWar

Ukraine3.1

1.1-64% N-bound

8.2

7.6

-7%

Russia

21.4

22.3

4%

8.2

7.9

-3%

S-bound

Sanctions & Policy Actions
Year-in-review• 6K+ sanctions actions taken to date by US, UK, EU and other allies• EU has issued 9 sanctions packages, planning the 10th – inclusion ofprice caps on energy in 8th package an important step
• Sanctions now imposed by 20+ countries beyond EU, but still uneven• Some sanctions require more time to demonstrate effect, if any

Cumulative # Sanctions8 in-place

10,601

3,430

496
Individuals Companies Other entities

Corporate Actions in Russia Market9+2.5 pp+3.0 pp-2.0 pp+15.0 pp

Commodity price (actual, $)

372
Exit

498
Keeping Options
Open for Return

164

165

221

Reducing Current Operations

Holding Off New
Investments/Development

Remain in Russia/Continuingbusiness-as-usual

1.GDP forecasts from World Bank and FIs per Bloomberg database (15-56 FIs per forecast period). Source for actual GDP figures for 2021 changed from Bloomberg to World Bank since the previous edition. 2. Ukraine 2022 GDP forecast - World Bank, October ’21 report. 3. Values are
World Bank estimates from 2023. 4. Consumer price % change, pa, average – Economist Intelligence Unit. 5. 2022 values for the Eurozone, Russia and World are Economist Intelligenct Unit’s estimates. 6. S&P Capital IQ 7. Deep Sea Cargo: oil tankers MR & up, bulkcarriers
Panamax & up, containerships 3,000+ TEU, VLGCs, LNG carriers 60,000+ cbm & PCTCs 6,000+ ceu. Clarksons Research (https://www.clarksons.com/) Clarkson Research Services Limited (“Clarksons Research”). © Clarksons Research 2021. All rights in and to Clarksons Researchservices, information and data (“Information”) are reserved to and owned by Clarksons Research. Clarksons Research, its group companies and licensors accept no liability for any errors or omissions in any Information or for any loss or damage howsoever arising. No party may relyon any Information contained in this communication. Please also see the disclaimer at https://www.clarksons.net/Portal/disclaimer, which also applies. No further distribution of any Information is permitted without Clarksons Research’s prior written consent. Clarksons Researchdoes not promote, sponsor, or endorse the content of this communication 8. Total sanctioned actions worldwide, excl. Russia, incl. duplication. Source: corrective.org 9. Yale Chief Exec Leadership Institute8

Copyright © 2023 by Boston Consulting Group. All rights reserved.

GDP Forecasts1

Supply Chain Metrics

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Global economy underperforming pre-war forecasts, 2023 continues trend

GDP Growth (%), Selected Regions, 2021A–2023F
Global
5.9

5.3

4.4
2.9

4
2

Russia4.2

2.1

Ukraine

4.8
3.3

3.9
2.4

3.4

2.0

0.2

0

--0.4

-2

Eurozone
forecast
signalingrecession

-4
-6

-1.0

-3.5
Russia GDP 6ppt
below pre-war
forecast, but
superior to initialexpectations

-8
-10
-12

--3.0

--2.0

-5.0

Enormous growth andasset value foregone

-14
-16
-33.0
-34
ActualJan 22

Actual

8 Feb

ActualJan 22

Actual

8 Feb

ActualJan 22

Actual

8 Feb

ActualOct 212Actual

8 Feb

2021

2022F

2022

2023F

2021

2022F

2022

2023F

2021

2022F

2022

2023F

2021

2022F

2022

2023F

ActualWorld Bank (Jan 2022)

Median/Minimum forecast, Leading FIs

1. Analysis by Carnegie Endowment, Wilson Center 2. Latest pre-war forecast (Oct 21) for Ukraine by World Bank
Note: 15 November ‘22-08 February ‘23 forecast of 27 FIs for Russia, 57 FIs for Eurozone, 36 FIs for Global, 12 Fis for Ukraine.
GDP change in 2022 are World Bank's estimates. Forecast for Ukraine for 2022 was published in October 21. Sources: World Bank; Bloomberg; BCG Analysis

9

Copyright © 2023 by Boston Consulting Group. All rights reserved.

6

Eurozone

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Most commodity prices stabilizing at higher levels than before the war
Crude oil (Brent, $/bbl.)
150

Hydrocarbons

Max since conflict

Conflict400

Max since conflict

Conflict

Coal (Newcastle, $/tonne)
Max since conflict

500

Conflict

100
250

200
50
0

19-01-01

Average '21: 70

20-01-01

21-01-01

22-01-01

Average '21: 47
23-01-01

Rapeseed (MATIF, €/tonne)
1,000

Food

Natural gas – (TTF, €/MWh)019-01-01

20-01-01

21-01-01

22-01-01

23-01-01

Wheat (MATIF, €/bu.)

Max since conflict

500

019-01-01

250

Average '21: 552

0

Max since conflict

250

5,000

50,000500

Max since conflict

Average '21: 221

Aluminum (LME, $/tonne)

Max since conflict

Max since conflict

0

3,500
2,500

25,0001,500
Average '21: 18447

023-01-01

0

Nickel (LME, $/tonne)

Average '21: 2392

22-01-01

250

0

2,500

21-01-01

Average '21: 238

Palladium(NYMEX, $/troy oz.)
Metals20-01-01

Corn (MATIF, €/tonne)

750
500

Average '21: 134

500
0

Max since conflict

Average '21: 2469

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Europe has avoided immediate energy crisis, at significant cost of ~€800B
EU Gas supply and demand, 2022 vs. 2021

Price paid by EU

Billion cubic meters equivalent

452
64

2021

50

16

411

50
105
473

21

-14%

370

Mix of demand and supply levers

-14%

112

• Efficiency and warm winter dampen
demand

104

234

43
23

Imports Imports
RU-piped RU LNG
7Imports Imports EU output
RoW- RoW LNG
piped
51

46

1. Inferred as difference between supply and demand
Source: GasMarketCube; BCG analysis(4)Supply21

Storage1 Demand Power

62

(41)

• Russia gas imports reduced by 73 bcm,
from 38% to 19% share of EU imports• Bulk of diversification via US (LNG),
UK, Norway, Netherlands (pipeline)

-17%
103

110

2022

(80)

EU RePower ambitions directionally met

125

46

59

• Policy support for >80% storage level

+71%

-57%

• High gas prices offset by price caps,
payments to households, tax cuts

111

+28%

Differential

41

183
139

• EU energy subsidies near €800B

Demand1

Direct Directuse
useIndustrial Com.
(21)

(7)

90

21

Direct
use
Res.

Other

(15)

(0)

• Change in power fuel mix (coal +9%,
solar +26%, wind +11%)• China factory lockdown frees up LNG• Rapid LNG infra buildout (e.g., +4-5
floating terminals in Germany <1yr)
11

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SupplyPrepared: 21 Feb 2023 – Confidential: Limited Distribution

Global coalition increasing sanctions on RU; EU packages steadily evolving
Q1'22

Sanction actions1 by imposing government

Type

2,099

26%

1,490
7%
16%
4%
17%

1,183
1% 4%
11%
15%

1,155
22%

52%
40%

US

2

56%

CH

Q1’22

903
4% 1% 1%
37%

68%

UK

Q2’22

12%
14%

57%

EU

AU

Q3’22

Q4’22

719
10%

4%
8%

3

Q2'22

4

Package
2

4

5

6

7

9

10

Technology
controls

1

2

4

5

7

8

9

Financial &
FDI

1

3

4

5

6

9

1

4

5

7

9

10

61%
18%
JP

Q1’23

• At least 17 other sanctioning countries imposing
measures, across Asia-Pacific, LatAm, Africa, andex-EU Europe
1. Tracked by https://correctiv.org, as of 11 Feb 2023.
Sources: Correctiv.org, Peterson Institute for International Economics

Trade bans

Logisticsbans

5Media &
services

4

6

Curbs onenergy

6

8

9

5

6

Q3'22

7

Q4'22

8

9

Key elements

1

Individual

9%
22%

1

Q1'23

10 expected

Impact on Russia• Travel bans and financial sanctions on Putin and family,
senior gov't and military officials, oligarchs, and military
personnel involved in Bucha/Mariupol atrocities• Potential to isolate/ divide Russian
elites• Restrictions on semiconductors, quantum computers,other ICT products• Drone engines and dual-use technology• Limits access tostrategic tech
inputs• Removal of 10+ RU financial institutions from SWIFT• Full transactions ban on select Russian banks and SOEs
• Exclusion of Russian entities from EU public
procurement, investments in mining• Not all RU FIs
covered, manytransactions still
feasible• Import ban for products incl. gold, coal, wood, fertilizers,
seafood, liquor, import restrictions on iron and steel• Export bans on jet fuel, inputs for Russian energy sector,
luxury goods and other products• Reduces Russia
export revenue• Limits access to
key inputs• Prohibition on Russian vessels from accessing EU ports• Prohibition on Russian and Belarusian vehicles fromusing EU roads• Reduces ability toship products, butother options exist• Broadcasting suspension for 7 Russian media outlets• Prohibition on provision of credit-rating services, polling
and advertising services• Mainly symbolic
assertion of EU
values• Eventual ban on Russian crude oil and petroleum
products, with limited exceptions• Price cap on imports of Russian oil• Targets Russia key
source of foreign
currency revenue

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Tally of sanction actions

12

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Russian exports shifting to emerging markets, imports down in most sectors
Trade with Russia by major economies1 by value ($B), 2022 vs. 2021 (Mar-Dec)
Russia exports | Declining to advanced economies except for gas,
surging to emerging markets in all major categories
Advanced

Emerging

131

31
Energy

+106%
96
10
46
4
36

47

41
1
2021

36
1
2022

71

NonEnergy

14

18
2021

-65%
Gas
Crude oilIndustrial
goods

+22%

26
15
14
13
11

Refined oil
Other2

Autos

79

28
7

41
6 6
2

6
2022

2021

5

9

9
11
2021

96
10
13

59
10

5

61

7

7

34

30

9
2022

16

8

2021

38
35
2022

Chemicals

9
9

9
12
2022

Hi-techMetals &commodities

Healthcare exports
sustain 2021 level

Healthcare,consumer,and other

-6%

-33%

Metals & Mining
Other

Machinery

Moderate "backfill" of adv'd
economies in Autos

Primarily timberand diamonds
Agri

Chemicals
51
12

+58%

6

57

1 13
2022

1 6
2021

-37%
94

Emerging

Prices high,volumes down

47

61

Advanced

8

35
13
14

2021

23
13
3 8
2022

28
19

3

6
2021

26
16

Healthcare
4

6
2022

Consumer
Other

1. Advanced economies comprise US, EU, UK, Japan, Korea; emerging markets comprise China, Turkey, India Brazil, Indonesia. Together these countries account for ~3/4 of Russia trade in 2021. Data
compiled from trading partner sources due to lack of Russia data availability 2. Includes coal, petroleum products, electrical energy. Source: IHS Markit; BCG analysis

13

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-3%
134

Russia imports | Plummeting from advanced economies except for
healthcare, growing from emerging markets in industrial goods

Prepared: 21 February 2023 – Confidential: Limited Distribution

Second- and third-order impacts of conflict | Fundamental

LNG market shift

Food security

Russia share of EU gas
imports halved from 38%
to 19% in 2022, while EU
imports of US LNG rise by143%

Number of hungry people
around the world rosefrom 282M to 345M in
2022

Europe LNG prices
elevate to Asian levels forfirst time

Note: Select examples, not exhaustive
Source: BCG Analysis

Defense industry
expansion

EU fiscal healthUS will spend a record
EU energy policy$858B on defense in 2023 response costs ~€800B,
shielding households andFrench military budget for businesses from higher
2024-2030 set to be 40%
gas prices
Ukraine conflict has
higher than for 2019-2025
increased fertilizer prices,
May reduce EU capacity
NATO+
Alliesmilitary
with knock-on effects forto spend on other policy
assistanceto
Ukraineset
initiatives and increase
harvest volumes and foodtoincrease
spending
prices, as well as reducing
debt financing costs
further
global supplies of corn
and wheat

Geopolitics inbusiness

Sanctions/tradecompliance now a top
corporate concern
Sudden emergence andimpact of "unlikely"
conflict has raised
geopolitical risk to top of
corporate agendas

14Prepared: 21 February 2023 – Confidential: Limited Distribution

Second- and third-order impacts of conflict | Disruptive

Foreign aircraft
stranded

500+ foreign owned
aircrafts worth ~$10B at
risk of re-registration due
to new Russian laws andforeign sanctions
Could lead to large
revaluation for aircraft
leasing industry

Note: Select examples, not exhaustive
Source: BCG Analysis

Regional
remittance flows
at risk

Remittances of foreign
workers in Russia as a %of GDP are 30% in
Tajikistan, 28% in
Kyrgyzstan, 12% in
Uzbekistan
In the region, remittanceflows are vulnerable to
Russia economic
slowdown forecast for
2023

Seafarers in short
supply~14.5% of world's
seafarers come from
Russia and Ukraine
Ukraine decided in
September 2022 to allow
its seafarers to leave thecountry despite wartime
restrictions, to free up
vital manpower for
Ukrainian grain exports
and the wider global
shipping industry

Russian tourism
down

Space
voyages disrupted

90% drop in Russian
tourists to Europe in 2022,with major impact on
Greece and Spain

Suspension until 2026 orlater of the ExoMars
program, which relies on
Russian cooperation

Key reason is increasing
flight time/cost due toneed to fly transit flights

Roscosmos refuses tolaunch some European
commercial satellites

Drop in Russian tourism
removes $7B from global
tourism spend

European launchers
depend on Vega engines
made in Ukraine –production now disrupted
15

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Most scenarios imply need for Allies-supported reconstruction effort

Potential conflict evolutions

Balance of military power, andchoice of tactics and weapons
Sanctions & policy actions by"West," and Russia's response

Fall of Ukraine

Russian forces control full country

Military
conflictceasesMilitary aid & support fromthird countries ("West" & other)
Peacemaking (bilateral, multilateral or third-country brokering)
Domestic political & economic
conditions in Russia• Sanctions remain indefinitely• Sustained isolation of Russia• Re-build by Russia

David defeats Goliath• Sanctions remain indefinitely• Major re-build required by Allies

Freeze in-place (Korea 2.0)

• Certain sanctions lifted• Major re-build required by Allies

Ukraine repels Russian forces
Negotiated peace / de facto partition
No end in sight (Afghanistan 3.0)

Military
conflict
persists

Key impacts for businessProtracted stalemate
Global spillover

Further conflicts in other theatres• Sanctions remain indefinitely• Significant socioeconomic impact• Sustained isolation of Russia• Major re-build required by Allies• Sanctions expand to othernations engaged in aggression• Major re-build required by Allies

Global scenarios required to go beyond war evolutions and navigate an uncertain medium term
Source: BCG analysis. Note: These analyses represent only potential scenarios and are not intended as a prediction or forecast.

16

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Main factors driving conflict

AGENDA

Global economic impact of the war in Ukraine
Ukraine reconstruction & strategic rationale forbusinesses to engage
Copyright © 2023 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global update
Perspective on
Reconstruction

Implications for leaders17

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Summary | War impact on Ukraine & reconstruction opportunities
Economic
impact on
UkraineUkraine economy contracted by ~30%, or ~$60B, in 2022
• Severe impact across all sectors: industry and retail/services GDP declined by ~60% and ~45% respectively

Reconstructionneeds

Estimate required funding up to ~$800B, with most immediate needs of ~$150B• Allied governments and IFIs expected to provide ~2/3 of financing, with private sector contributing the remaining

Damage highest in the East, West/Central regions with scale to become a foundation for future recovery• Less affected West/Central regions contributing ~2/3 of pre-2022 GDP

Reconstruction possible in some regions even during a lower-intensity protracted conflict• Power grid in continuous repair, ~500 km of rail reconstructed with improved connectivity to the West
Global enterprises critical for reconstruction to co-fund and execute• Given limitations of local businesses, most acute needs in logistics and industrial sectors (e.g., construction, materials)
Some players restored their UA operations, several starting to build-out capabilites & announcing new investments• E.g., Nestlé to invest ~$43M in a new noodles production site, Kingspan to invest $214M in new building technology campus
Strategic
rationale forbusinesses toengageStrategic rationale exists for long-term engagement in Ukraine• 43M population, significant STEM talent pool, cost competitive, proximity to EU
Key FDI challenges remain, but Allies and IFIs working to address them
• Structure & financing of the reconstruction programs to help tackle challenges with rule of law and connectivity to EU
Regional & global trends could be favorable for Ukraine• EU-UA relations boost, RU backfill, decarbonization, near-shoring

Implications

Leaders should evaluate and act according to the fit of their organizations' objectives with reconstruction effort

18

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Private sector
participation

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

UA economy shrank by 1/3, driven by industry and retail/services decline

GDP by sector and expected decrease, $B
200
Agriculture

12%

Industry &Construction2

27%~125-155~13%~17%

Public Defence,
Education, Health

44%

16%
2021

-45%

Select consequences of the warof agricultural land
affected by the war

30%

Industry

80% reduction in metallurgy & mining production

Energy100%

Retail &Services

50% of SMEs stopped or substantially reduced operations

Logistics

65% of seaport capacity blocked

Municipality

housing units
130k
damagedof domestic refining
capacity destroyed

90%

reduction in grain
exports

Agriculture

-30%1

-60%

Retail & Services3

Key sectors

40%

decrease ofelectricity production

~35%

~35%
2022e

of Ukrainians lack
33% access to drinking
water

1. EIB, -33% according to World Bank; 2. Including Metallurgy, Manufacturing, Energy; 3 incl. Logistics | Source: EIBxBCG
Supporting UA: A Study on Potential Recovery Strategies for UA; KSE; public sources (e.g., IEA); expert interviews; BCG analysis

19

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Economy changes - overview

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Damage highest in the East, regions driving ~2/3 of pre-2022 GDP less affected

GDP contribution by region andthe level of disruption by war activities

24%

9.4%

Kyiv City

Kyiv

Chernihiv

Kharkiv
Sumy

Dnipropetrovsk

Contribution to GDP by Region
before Feb '221

Luhansk0-3%

Zhytomyr

3-5%

5-9%

>9%

Donetsk

Lviv

Active war zone

OdessaMykolayiv

Level of disruption by war activities

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Zaporizhzhya

Major destruction
Substantial disruption

KhersonModerate disruption(all remaining regions)

1. 2020 regional GDP data, excluding territories temporarily occupied after 2014 invasion - Crimea and a part of Donetsk and Luhansk. In 2013, those regions contributed 3.7%, 10.8%, 3.6% respectively
Source: EIBxBCG Supporting Ukraine: A Study on Potential Recovery Strategies for UA 01/23; Verkhovna Rada on GDP; State Statistics Service of Ukraine; BCG analysis

20

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Three steps on the journey to reconstruct and transform Ukrainian economy
Humanitarian Aid & Resilience
Reconstruction

Today

Humanitarian Aid & Resilience

Resolution1
Depending on the de-escalation trajectory(Cold War, negotiated peace, victory of Ukraine)

Reconstruction

EU Single Market
alignment

Transformation & Modernization

Humanitarian aid

Review of war damage

Stronger role of private sector, esp. SMEs

Securing military supplies

Estimation of critical reconstruction needs& identification of funding sources

Increasing share of modern industries/services

Ensuring macro-financial stability

Facilitation of private sector participation
Reinforcement of strategic rationale for int'lbusinesses to engage in the long-term
Focus of this Executive Perspective

Green transformation (beyond reconstruction)
Political & economic reforms... and more

Note: Incrteasnig # of UA reconstruction-focused international conferences and forums: URC 2022 (Lugano; 07/22), Ukrainian Infrastructure Forum (London; 12/22), Rapid Recovery of Ukraine(Luxembourg; 01/23), Rebuild Ukraine (Warsaw; 02/23) | Note: Ukraine has defined a 3-stage recovery plan with Resilience, Reconstrution and Transformation & Modernization phases | 1. Illustrative
scale, not based on duration or resources | Source: NRC Ukraine's National Recovery Plan 07/22; BCG analysis

21

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War outbreakTransformation & Modernization

Ongoing active
stage of conflict1

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Strategic assumptions for an early and successful reconstruction effort

Anti-air protectionof regions awayfrom the frontline

Strong engagementof financial
institutions

Strengthened ties
with neighbors andglobal actors

Not only areconstruction, alsoa transformation

Acceleratereconstruction to
jumpstart UA
economy, quick
actions vital to enable
recovery of alreadylong-disrupted
disrupted local
businesses

Strengthen protection
measures (e.g., denser
anti-missile coverage)
to increase stability
even if peace is
not achieved in
the short-term

Leverage IFIs andbanking sector toensure transparency,
legal protection andproper risk
management

Strengthenties to neighboring
countries (e.g.,throughlogistics and value
chain integration);
attract private sector
investments

Increase rule of law toprotect investors;
rebuild in spirit ofgreen transformation

Source: BCG analysis; World Bank; GUS Poland

Lessons from
history leveraged
Take advantage
of lessons learned
through transition to
full market economy
after CEE breakup with
RU in the 90's - esp. PL(similar size, economic
structure, 30Y GDPCAGR of 4.1%)

22

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Accelerated
reconstruction
effortPrepared: 21 Feb 2023 – Confidential: Limited Distribution

Allied govts & IFIs to provide a bulk of funding, reducing risks for business
Estimated required funding at up to~$800B, with most immediate needs of~$150B

Allies & IFIs expected to provide a bulk of financing and to reduce risk for private capital(e.g., legal protection, favorable financial instruments)

Distribution of financial needs by priority and domain, $B

Distribution of financial needs by source, $B~420

Initialreconstruction
focus~750-825

~33%

~215

IFIs’ and Allies’ select declarative commitments and support as of Feb'23~750-825
Estimated private
sector fundingneeds~$100B total3 mobilized and budgeted for military &economic support~€50B assistance made available by EU

High
Impactneeds1

Mediumpriorityneeds1Lower
priority
needs

Total
fundingneededTotal funding needs ~equally split
between 2022-2025 (55%) and 2026-2032 (45%)
Rebuilding infrastructure
Green energy & environment

Economic & social~66%
Estimated IFI
financingTotalfundingneededMore than $18B of assistance, incl. up to $880M forreconstruction efforts4 being mobilized~€6.5B of financing provided and committed, aiming toraise up to ~€100 B for reconstruction~$1.3B of emergency assistance, with $14-16B expected
later via 3-4-year lending program

1. EIB classification (abbreviated & simplified): high impact - jumpstarting the economy, addressing accute needs; medium impact - restoring UA economy to the pre-2022 state; total funding needed includes
the holistic transformation effort to EU-aligned economy; all est. excluding "Defense and security topic"; 2. Based on NRC Ukraine's National Recovery Plan and EIBxBCG report; 3. Excluding $13B of support
provided through World Bank; 4. World Bank's RELINC project and URTF, incl. envisaged funding; | Source: NRC Ukraine's National Recovery Plan 07/22; EIBxBCG Supporting Ukraine: A Study on Potential
Recovery Strategies for UA 01/23; Reuters; EU Council; EIB; World Bank; CRFB; BCG analysis

23

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~155

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Reconstruction possible even during a lower-intensity protracted conflict• Significant pre-2022 supply chains functioning inwestern/central Ukraine

Dnipro
0.9M

Lviv
0.7M

• Improving connectivity with the EU and the wider
world, e.g., ~500 km of rail reconstruction,
continuous power grid repair

Intense fighting continues in eastern Ukraine andbordering regions:

Kharkiv
1.4M

Kyiv
2.9M

• Lviv is only 70km from the border with the EU
single market• While residual war risk remains, improved
defenses & distance from the front line meansthat these can be managed

Eastern regions have higher war risk, greaterlevels of damage, and less early potential forreconstruction

Mykolaiv
0.5M
Odesa
1M

Donetsk
0.9M• Russia continues to occupy Crimea and most of
the four Eastern regions• Economic infrastructure in Donetsk & Luhansk
destroyed in 2014, not operational since• Substantially higer reconstruction needs for the
Eastern regions, however it is unlikely to start
unless deescalation is achieved

Major cities
Population
Regions to be considered for investment inearly reconstruction stage

Focused investment activity possible
mindful of military risk

Considerable risk – focused investments to beclosely discussed with UA, scaling possible
once the conflict cools down / ends

Source: ISW; expert interviews; BCG analysis based on State Statistics Service of Ukraine data and media reports

Active war zone - no investment advised
unless circumstances change

24

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Western / central regions have lower war
risk and are key to Ukraine's economy –reconstruction possible in some areas

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Resuming operations in Ukraine
In September 2022 resumed production of Skoda for UA local market
in Solomonovo plant (Western UA), almost reaching pre-2022 levels
In September 2022 resumed operations focusing on Kyiv andWestern regions

Decoupling Ukraine operations from Russia-centric structures
Removed UA from RU-centric regional organizational and supplychain structures, moved to newly formed Poland, Baltics & Ukraine
Copyright © 2023 by Boston Consulting Group. All rights reserved.

A number of private
sector players restored
Ukrainian operations;some began scaling
capabilities

In December 2022 started to export crops from Ukraine's 2022
harvestScaling pre-2022 capabilities
PKO BP, one of the few EU-based (PL) banking groups with Ukrainian
subsidiary announced an expansion of UA-focused capabilities tosupport corporate clients in their participation in the reconstruction

Source: company websites and press releases; Bloomberg; NYTimes; BCG analysis

25

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Planned investments
In June 2022 announced the investment of $214M in a new
Building Technology campus in Ukraine
In December 2022 announced the investment of ~$43M in a newnoodle production site in Western Ukraine, aiming to growits regional hub for food & culinary products up to 1500 employees
In January 2023 announced $35M investments in rebuilding Ukraine
agricultural sector, aiming to boost seed processing capacity
In February 2023 expressed interest in continuing investments in
UkraineDedicated financing vehicles for reconstruction

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Private sector actors
announcing newinvestments andlaunchingreconstruction-focusedfinancing vehicles

In September 2022 raised $125M from international investors toback Ukraine’s high-growth tech and export-oriented firms
A. Forrest

In November 2022 announced $0.5B seed investment in a $25B
fund for reconstruction of primary infrastructure
Announced $40M round for the development of Ukraine-focuseddebt and equity funds, targeting SMEs

Source: company websites and press releases; State Property Fund of Ukraine; USAID; BBC; FT; BCG analysis

26

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

International partners needed in all sectors, especially in logistics & industry
Reconstruction effort likely to drive up
prices of construction raw materials

Industry | Building capacity in reconstruction-oriented materials, in line with green transformation principles
Logistics | Increasing transport capacity to EU economies, securing and increasing sea transport capacity,esp. through routes to Constanta port (RO)

~9-33
Steel,

M tonnes

Fuel | Increasing transport of refined fuels and reconstruction of domestic refining capacity

Cement,M tonnes

~11
10
2021

Reconstructionneeds~28-255
Float glass,
M m2

0
2021

Energy | Grid and generating capacity repair and improvement

Reconstructionneeds~14-125

Agriculture | Investments in harvest storage, processing, and sowing; supporting military with recovery ofland areas (removal of land mines)
Municipal | Wide-scale reconstruction of housing units, restoration of water/sewage networks & power
connectivity

13
2021

Construction | Reorientation towards reconstruction, international companies likely to be essential to ensure
effective use of reconstruction and recovery funds
Retail and services | Supporting liquidity through capital investments/M&A, compensating
for lost domestic demand & supply

21

Reconstructionneeds

Expected needs (annually, depending on reconstruction pace)
Capacity destroyed in 2022

Source: NRC Ukraine's National Recovery Plan 07/22; 2022 World Steel in Figures; BCG analysis

Current capacity of UA domestic production

27

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For a number of sectors, key investment needs are already definedPrepared: 21 Feb 2023 – Confidential: Limited Distribution

Opportunities and challenges exist for long-term engagement

Market size

• 130K STEM graduates
annually, more than in
PL, DE, or FR• Total population of
43M (4x larger thanmost regional peers)• 250k developers(leading IT hub in CEE)

• 7th largest European
country (similar to PL)

Cost
competitiveness• Labor cost 3x times
lower than in PL• Electricity cost forbusiness customers
16% lower than in PL• High convergencepotential with CEE• Significant talent lost
due to war
Challenges

Source: BCG analysis• Reduced buying power
per capita due to war• Geo distribution of
population in flux due
to war• Short-term rise intransport costs until
new infrastructurecompleted• Labor shortages may
increase wage costs

Business
environment

Connectivity• Allies and IFIs investingin strengthening
governance andtransparency as a partof reconstruction
programme• More proximate to EU
than most otheremerging markets• Low rule of law ratings• 3-day lead time toexport (vs. 1 day for PL)• Among highest levelsof corruption in Europe• Bottlenecks on EU
border due to lack ofstandard gauge rail
• Constrained access tosea due to RU

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Opportunities

Talent &innovation

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Changing global and regional trends with impact on UA economy

Hypercharged relationship with EU | EU being a main trade partner for UA (55%), Ukraine
officially recognized as an EU Candidate country
Example:Near-shoring | As the EU seeks to improve supply chain resilience, Ukraine’s proximity
to European manufacturers could be an advantage

EU seeking new import sources | With investment, Ukraine could increase exports of key
products such as iron, titanium and cereals, replacing Russian trade blocked by sanctions

A decarbonized economy | International reconstruction funds will focus on supporting
Ukraine's transformation to a green economy while rebuilding

Source: Literature and media review; BCG analysis

A major green steel supplier could bebuilt in the Kryvyi Rih close to the EU
borders. Ukraine already has key factors
needed to support such an investment
Access to raw materials: 6thiron ore producer globally, 90%
mining capacity near Kryvyi Rih
Copyright © 2023 by Boston Consulting Group. All rights reserved.

Infrastructure re-orientation to the West | Agreement for construction of standard gauge
railroad from Lviv to Warsaw (PL) signed in January 2023

Water supply: Large river(Dnipro) nearby
Know-how and skilledworkforce from, among
others, destroyed Azovstal
Access to low-carbon power(nuclear)

29

AGENDA

Global economic impact of the war in Ukraine
Ukraine reconstruction & strategic rationale forbusinesses to engage
Copyright © 2023 by Boston Consulting Group. All rights reserved.

War in Ukraine:
Global update
Perspective on
Reconstruction

Implications for leaders30

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Leaders should determine if organizations' objectives fit with reconstruction

Longer Term•

Consider changes to your earlier evaluations of
Ukraine, accounting for war-related disruption andalso favorable trends for operations and investment•

Embed scenario planning into your businessplanning processes. Test resiliency of businessplans, and develop contingency plans as necessary•

Integrate Ukraine westward into your EU
operations••

Ensure supplies of key products to Ukrainiancustomers by strengthening and building distribution

Understand how investments in Ukraine canenhance your global footprint and become aplatform for exports to Europe••

Identify specific opportunities in your industry toengage in reconstruction plans and scale
local/regional operations

Test local FDI conditions, starting with smaller
investments and safer options, with continual
evaluation and adaptation•

Work with IFIs on financing support needed(e.g., guarantees) to maximize your Ukraine
investments•

Engage with political leaders, IFIs, and otherpublic sector stakeholders early – to gauge policy
support for investment, risk mitigators, etc.

Source: BCG case experience & analysis

Copyright © 2023 by Boston Consulting Group. All rights reserved.

Shorter Term

31

The Motherland Monument, Kyiv, UA

Explore the topic further: EIB x BCG report Supporting Ukraine: A Study on Potential Recovery Strategies for Ukraine
32

Prepared: 21 Feb 2023 – Confidential: Limited Distribution

Teams across BCG are actively monitoring the situation
Practice Area Core Members

Project Team

Nikolaus LangManaging Director & Senior Partner
Practice Area Leader, Global Advantage
E: Lang.Nikolaus@bcg.com

Marc Gilbert
Managing Director & Senior Partner
Global Lead, Geopolitics & Trade Impact
E: Gilbert.Marc@bcg.com

Michael McAdoo
Partner & Director
Global Trade & Investment
E: McAdoo.Michael@bcg.com

Suresh Subudhi
Managing Director & Senior Partner, PracticeArea Leader, Travel, Cities & Infrastructure
E: Subudhi.Suresh@bcg.com

Mathieu Lamiaux
Managing Director & Senior Partner
Global Lead for Humanitarian Response
E: Lamiaux.Mathieu@bcg.com

Tim Figures
Associate Director
EU & Global Trade and Investment
E: Figures.Tim@bcg.com

Richard Hutchinson
Managing Director & Senior Partner
Practice Area Leader, Social Impact
E: Hutchinson.Richard@bcg.com

Franek Hutten-Czapski
Managing Director & Senior Partner
Core member, Financial Institutions
E: HuttenCzapski.Franek@bcg.com

Pawel Godek
Partner
Financial Institutions
E: Godek.Pawel@bcg.com

Saurabh Tripathi
Managing Director & Senior Partner
Practice Area Leader, Financial Institutions
E: Tripathi.Saurabh@bcg.com

Rami Rafih
Managing Director & Partner,
Global Lead, Economic Adv. of Nations
E: Rafih.Rami@bcg.com

Pawel Nogalski
Project Leader
Financial Institutions
E: Nogalski.Pawel@bcg.com

Danny Werfel
Managing Director & Senior Partner
Practice Area Leader, Public Sector
E: Werfel.Danny@bcg.com

Kasey Maggard
Global Practice Management
Executive Director, Global Advantage
E: Maggard.Kasey@bcg.com

Iacob Koch-Weser
Project Leader
Global Trade & Investment
E: Koch-Weser.Iacob@bcg.com

33

Copyright © 2022 by Boston Consulting Group. All rights reserved.

Global Practice Area Leaders

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