Ukraine on the path of the post-war reconstruction

Ukraine on the path of the post-war reconstruction

With the one-year anniversary of Russia’s full-scale invasion of Ukraine approaching and fighting still raging, officials in Kyiv are nonetheless looking toward post-war reconstruction

With the one-year anniversary of Russia’s full-scale invasion of Ukraine approaching and fighting still raging, officials in Kyiv are nonetheless looking toward post-war reconstruction, a task that experts say will be extremely onerous and require vast levels of international support and major changes within Ukraine itself.

The size of the task is daunting. For a full year, Ukraine has been hammered by Russian artillery and missiles, much of it intentionally aimed at vital elements of the country’s infrastructure.

In a report issued in January, the Kyiv School of Economics estimated that as of December, the war had damaged or destroyed 149,300 residential buildings, including 131,400 private houses; 17,500 apartment buildings; and 280 dormitories. More than 3,000 educational institutions, from preschools to universities, were damaged or destroyed, as were hundreds more hospitals, religious institutions, cultural facilities and more.

In addition, the Ukrainian government estimates that 160,000 square kilometers of its territory, an area roughly the size of Tunisia, is potentially contaminated with land mines and other unexploded ordnance that will need to be cleared.

Huge financial burden

Estimates of how much it will cost to rebuild the country vary, but last year Ukrainian President Volodymyr Zelenskyy warned that the price tag would likely top $1 trillion and increases every day the fighting continues.

Jonathan D. Katz, a senior fellow at the German Marshall Fund of the United States, told that while the funding will come from a mix of sources, potentially the most important effort will be giving the private sector the confidence to invest money in the recovery effort.

“You're going to have bilateral donors, international financial institutions and other multilateral instruments that will be used to support reconstruction recovery,” Katz said. “In addition to those donors, the private sector is going to be critical. You're going to need to have the type of economic support from the private sector, including direct foreign investment, that will support the type of economic growth [needed] in Ukraine.”

Investment bank tapped

The Ukrainian Ministry of Economy this week signed a memorandum of understanding with U.S. investment bank JPMorgan Chase under which the bank will advise the government on how to finance the enormously expensive task of reconstruction.

JPMorgan Chase, with expertise in capital markets and contacts with major investors, is expected to establish connections between Ukraine and private investors interested in financing the rebuilding and modernization of the country. It will also advise the Ukrainian government on managing its finances and stabilizing its economy.

“We are proud of our long-standing support of Ukraine and committed to doing our part to lift up the country and its people," Jamie Dimon, chairman and CEO of JPMorgan Chase, said in a press release issued by the Ukrainian government."The full resources of JPMorgan Chase are available to Ukraine as it charts its post-conflict path to growth."

Speaking to a summit of more than 200 international investors organized by the bank, Zelenskyy began making the case for foreign direct investment.

"I understand very well that doing business and investing cannot be beneficial to only one party,” he said. “We want you to invest in Ukraine and earn money.”

Tackling corruption

One major stumbling block facing Ukraine as it contemplates a future recovery is the persistence of corruption within the government. It was a known problem before the invasion, but even in recent weeks, senior government officials have been charged with misusing funds and were dismissed.

“Historically, there's been a real issue with corruption in Ukraine,” Brian Cavanaugh, former senior director for resilience policy with the White House National Security Council, told. “The oligarchy system has hampered economic growth on the whole. That's one area that they're going to have to demonstrate progress.”

Cavanaugh, now a senior vice president at advisory firm American Global Strategies, noted that one of the hurdles for Ukraine as it tries to join the European Union is the lack of transparency in the government’s bookkeeping, making audits difficult and unreliable.

He said he expects Ukraine’s work with JPMorgan Chase will include putting systems in place that will help both international donors and investors feel confident that money is being spent where the government says it will be spent.

“As they look to demonstrate that aggressive growth in the financial system, auditability is going to have to be a primary factor,” Cavanaugh said.

Avoiding waste

Another major challenge for Ukraine will be making sure aid money that flows into the country does not flow into the pockets of foreign aid workers, nongovernmental organizations, contractors and others, said Patrice McMahon, a professor of political science at the University of Nebraska-Lincoln, who has studied post-conflict reconstruction programs.

“What we have seen in every post-conflict reconstruction and in lots of other contexts is that most of the money goes back into the pockets of people from North America or Western Europe, rather than people on the ground,” McMahon told.

Historically, she said, many post-conflict reconstruction projects are less effective than they could be, because instead of relying on local on-the-ground organizations, they bring in far more expensive teams from overseas.

McMahon said there is already a “robust volunteer social movement” in Ukraine and encouraged potential reconstruction donors to identify them in advance.

“We need to find out who the actors are, how they work together, what sectors they are involved with, and make sure that money is channeled directly to those organizations,” she said.

Reasons for optimism

Nancy Qian, a professor at Northwestern University’s Kellogg School of Management, argues that there is good reason to be optimistic about Ukraine’s future, and that European countries, especially, should commit themselves to the reconstruction of their neighbor.

“Winning the actual armed conflict is only half the battle, maybe even less than half the battle, because [conflict with Russia] will just happen again if Ukraine doesn't have a strong and functional economy,” Qian told. “Having economic stability is a prerequisite for political stability, which is a prerequisite for social stability.”

Qian said for Ukraine’s neighbors, investing in Ukraine’s future is tantamount to investing in themselves.

“If they want a strong European Union, they want a strong Ukraine,” she said.

As one of the region’s largest countries with vast natural resources and a well-educated population, Qian said, Ukraine has the potential to be a major economic engine for the region.

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