The war in Ukraine appears to be drawing to a close and Central and Eastern Europe's infrastructure capabilities – or lack thereof – will soon be thrust into the global spotlight, ready or not. 

The reconstruction of Ukraine will undoubtedly be one of the biggest undertakings of the 21st century. Current estimates already exceed €486bn though many (including the European Investment Bank's former chief, Werner Hoyer) have suggested the final figure could easily be north of  €1 trillion. Given its geographical proximity and high stakes commitment to supporting Ukraine’s effort, CEE will inevitably play a critical role: both in investing directly in Ukraine and serving as the gateway to facilitate reconstruction. 

Infrastructure will be key, and CEE needs to brace itself to meet this historic challenge. The scale of the challenge is daunting: CEE faces an estimated infrastructure gap of over €500bn compared to Western Europe. Perhaps unsurprisingly, the further east you go, and the closer to Ukraine's border, the worse the infrastructure becomes. 

As someone who has regularly travelled to Ukraine over the past three years, I am often astounded at the poor highway networks connecting Ukraine to the region. It is difficult to picture that routes such as the E50 highway, which connect Slovakia to Ukraine, will soon bear the weight of this historic reconstruction effort. Yet this is precisely what must happen, and recent news that the European Bank for Reconstruction and Development (EBRD) has allocated €267mn to repair the M-06 highway (the Ukrainian stretch of the E50) is a step in the right direction. 

However, infrastructure challenges extend far beyond highways. Rail networks, ports, energy, renewables, digital infrastructure — CEE lags behind on almost all these metrics, despite the looming task ahead. Above all, the region lacks interconnectivity, with countries and industries remaining segmented — a major challenge considering the coordinated effort reconstruction will require.

The solution requires a two-pronged approach. First, CEE must modernise its financing mechanisms. A recent white paper by UK-based Amber Infrastructure, which manages the Three Seas Initiative Investment Fund, reveals a stark contrast in infrastructure funding between CEE and Western Europe. Take pension funds, which in many Western Europe countries allocate around 10% of their assets to infrastructure projects. In CEE, countries restrict their pension funds to minimal infrastructure investment — as low as 1% in countries like Romania and Bulgaria. Even in more developed systems, such as Czechia’s pension funds, which manage €25 billion in assets, a predominantly conservative strategy is maintained with 73% in debt securities and minimal infrastructure allocation. Why shouldn’t domestic investment vehicles such as pension funds and insurance companies invest back into the region’s development?

Second, the international investment community must recognise both the urgency and opportunity present in CEE infrastructure development. With proper regulatory frameworks and investment structures, infrastructure investments can offer what institutional investors seek: stable, long-term returns, predictable cash flows, and natural inflation hedges.

And indeed, there are encouraging signs that this urgency and opportunity are being recognised. According to Invest Europe, funding originating outside Europe surged from 9% in 2022 to 21% in 2023. Some CEE countries are showing remarkable progress, with Lithuania and Estonia achieving cumulative infrastructure investment increases of 157% and 114% respectively over the past 15 years.

Yet this progress must accelerate dramatically. The current reliance on EU funds and national budgets needs to be supplemented by increased private sector participation, particularly from domestic institutional investors. The regulatory environment must evolve to enable greater infrastructure investment from local pension funds and insurance companies, which currently find themselves unable to compete with foreign investment.

The geopolitical shifts on the horizon may well prove to be the catalyst needed to drive this change. Whether peace negotiations materialise sooner or later, one thing is certain: the region's infrastructure capabilities will play a crucial role in Ukraine's eventual reconstruction. The question is whether CEE will be ready when that moment arrives.

The region, with its population of over 110mn and combined GDP approaching €2.5 trillion, has the potential to transform this infrastructure gap from a liability into an historic opportunity for regional development and cooperation. The time to act is now — the future stability and prosperity of both Ukraine and Europe may depend on it.

Jozef Hrabina is a geopolitical risk consultant and founder of GeopoLytics. With a background in academia and the commercial sector as it relates to international relations, his research and work deal with the interplay between geopolitics, geoeconomics, and trade, and how they impact strategic security and great power relations in the 21st century. He also analyses the stability of multipolar systems, particularly in Eurasia. The views contained in this article are the author’s alone.