Even a child in Ukraine can nowadays quickly identify the air alert sound, showing you the shortest way to the shelter in the neighbourhood. This is the new “normality” since the beginning of Russia’s brutal war against Ukraine. A war against Ukraine’s state and nation, its people’s independence, democracy, and liberty.
Living in the war reality, under constant shelling, missile attacks and other threats, Ukrainians understand the value of “safety and security”. That’s why the civil security agencies of Ukraine put all their efforts into making people’s lives safer.
Being on the ground, the EU Advisory Mission (EUAM) Ukraine sees the unprecedented challenges their national partners face daily throughout Ukraine, including the liberated areas.
EUAM Ukraine’s Head of Mission (HoM), Rolf Holmboe, visited the Ukrainian South to meet counterparts from Odesa, Mykolaiv, and Kherson regions and get the latest update on challenges and developments in the area, on 9-11 January 2024.
Support in restoring Policing and Rule of Law in the Liberated Areas
When in the South, Rolf Holmboe, met partners from Mykolaiv and Kherson regions involved in restoring policing and the rule of law in the liberated territories, which is among the Mission’s priorities, including the senior management of the regional police, and the Prosecution Office and authorities.
The Head of the National Police in Kherson region, Ihor Korol, explained to the Head of Mission how difficult it is to operate in liberated Kherson city. “The police officers are heavily overloaded with work. Operating under constant shelling, they usually have no adequate rest or recuperation”. The high-risk environment in Kherson made the National Police and other civil security agencies move many facilities down to the basements of the buildings. The extremely high mine contamination of the area, considering the limited number of specialised personnel and equipment, is currently also a huge risk. Despite it all, Kherson and Mykolaiv police officers and prosecutors deal with international crimes daily and, thus, require special equipment and armoured vehicles while working at the scene.
Rolf Holmboe conveyed to the Ukrainian partners about the EU’s commitment to further support for overcoming the many challenges they face while investigating and prosecuting war crimes, and ensuring a safe environment in liberated territories. The Mission, said Holmboe, will continue providing strategic advice, specialised training, necessary equipment and engaging more international partners for the purpose.
Solidarity lanes and Integrated Border Management
The regular Russia’s attacks on the Odesa region, particularly the ports, have the effect of depleting resources and harm infrastructures as aimed at hitting Ukraine’s export potential. During a meeting, with Rear-Admiral Oleh Kostur, the Head of the Regional Marine Guard Directorate, and Oleh Kiper, the Head of the Odesa Military Administration, on 10 January, Rolf Holmboe discussed the possibilities of cooperation, as well as urgent needs to improve the counterpart’s capacity to ensure sustainable operation of Ukrainian ports in Odesa and Danube Delta.
Support for Ukrainian security future: working with police universities.
On the last day of his visit to the South, EUAM Ukraine’s Head discussed challenges and prospects of police education in Ukraine at the Odesa State University of Internal Affairs with rector, the colonel Dmytro Schvets. The сolonel highlighted how much attention is paid to creating practical skill sets for future police officers. They visited the specialised classrooms for the training on domestic violence cases, interviewing children, court hearings, tactical medicine, shooting range, mediation centre, and also the University Museum.
Rolf Holmboe and Dmytro Schvets shared their views on ongoing joint activities and plans in a friendly atmosphere. “The University professors and the students appreciate the constant support of EUAM Ukraine’s Odesa Field Office. We can see your representatives almost every day in the corridors of our University,” underlined the police colonel.
EUAM Ukraine strives to support Ukraine in raising its capacity to ensure a safe and secure state for its citizens, despite the war realities.
Flags of Ukraine fly in front of the EU Parliament building on the first anniversary of the Russian invasion, in Brussels, Belgium February 24, 2023. REUTERS/Yves Herman/File Photo Purchase Licensing Rights
BRUSSELS, June 6 (Reuters) – The Group of Seven countries and the European Union are considering how to use profits generated by Russian assets immobilised in the West to provide Ukraine with a large up-front loan now and secure Kyiv’s financing for 2025.
BASIC CONCEPT
Around 260 billion euros of Russian central bank funds are frozen worldwide, most of it in the EU. The funds generate 2.5 billion-3.5 billion euros a year in profit, which the EU says is not contractually owed to Russia and therefore represents a windfall. The idea, championed by the United States, is to use this profit as a steady revenue stream to service a large loan of $50 billion that could be raised on the market. Russia says any diversion of the profits from its frozen funds would amount to theft.
TIMING
Senior European officials say an agreement to go ahead with such a loan at a June 13-15 summit of the G7 — the U.S., Canada, Japan, Britain, France, Germany and Italy — would send a powerful signal of unity behind Kyiv on the eve of an international conference on Ukraine in Switzerland. It would also ensure Kyiv has financing for all of 2025 no matter who wins the U.S. presidential election on Nov 5th.
MAIN OPTIONS
Senior European officials say discussions are increasingly focusing on two options depending on who would borrow the money for Ukraine, with different details to be sorted out depending on the choice.
U.S. BORROWS TO LEND TO UKRAINE
Under one scenario, supported by a majority of EU countries, the United States would raise the money on the market and the European Union would give Washington assurances the windfall profits would be available to service the U.S. borrowing.
The advantage of this option is that it is quick and that it would not create any new obligations for European countries in terms of joint debt — an important consideration for a group of EU countries led by Germany.
The main problem is the extent and form of the assurances needed by Washington, and who would guarantee, and in what part, the repayment of such borrowing, especially if there is a Ukrainian debt restructuring or changes in interest rates that could upset initial calculations.
Many EU governments want G7 countries to participate in the risk-sharing, possibly proportionately to the size of their GDP.
Because the Russian assets are frozen in Europe under a sanctions regime that has to be unanimously renewed by all 27 EU governments every six months, Washington is concerned a veto from Hungary, which is close to the Kremlin, could cut off the money. It wants to see the sanctions regime changed accordingly.
Diplomats said Hungary wants the issue of the leveraging of the profits to be discussed by EU leaders on June 27-28.
EU BORROWS TO LEND TO UKRAINE
The other general option is that the EU borrows the money for Ukraine on its own, guaranteeing the repayment of bonds with money from the EU budget.
The main advantage is that the whole process stays in-house: the EU can use the windfall profits as it wants and there is no need to change the sanctions regime to bypass Hungary because a loan under the EU’s Macro Financial Assistance framework is agreed by qualified majority, not unanimity.
The downside is that the process would be long because it would need the consent of the European Parliament. A new European Parliament will only be elected on June 9th and constitute itself in July before a summer break for all of August. Getting parliamentary consent would therefore take many months.
The other drawback in the eyes of some EU countries is that this option would place all the risk associated with the borrowing on EU countries, making them jointly responsible for repayment, an idea particularly disliked in Berlin.
Speaker Penny Pritzker U.S. Special Representative for Ukraine’s Economic Recovery; Former U.S. Secretary of Commerce; CFR Member
U.S. Special Representative Penny Pritzker discusses ongoing Ukraine recovery and reconstruction efforts, having just returned from three trips to Ukraine in six weeks, including joining the Secretary of State in mid-May. She will also outline U.S. priorities for supporting Ukraine in advance of the Ukraine Recovery Conference on June 11-12 in Berlin.
FROMAN: Well, welcome, everybody. My name is Mike Froman. I’m president of the Council. And it’s really a great honor to convene this meeting, both because of the importance of the issue—reconstruction of Ukraine—but even more so because of our guest, Penny Pritzker, who I had the pleasure of working with, well, for years, actually, in the Obama administration and even before.
She is the president’s special representative for Ukraine’s economic recovery. It’s a position she brings an immense amount of experience to, both from having been in government but, very importantly, being a very successful businessperson and entrepreneur as well. Having set up really dozens of businesses and invested in them over the years and brings a real private sector eye to the challenges of rebuilding Ukraine’s economy and society, as well. I had the pleasure of working most closely with Penny when she was the secretary of commerce. And I saw from a ringside seat just how she elevated that role to a whole new—a whole new level, in terms of both the span of work, its effectiveness, and the importance to the U.S. government.
So it’s a pleasure to welcome my friend Penny Pritzker. She’s going to give remarks for a few minutes, and then we’re going to have a conversation and open it up to questions. Please welcome Penny Pritzker. (Applause.)
PRITZKER: So I’m really honored to be here today. Thank you. Mike, thank you very much. First, thanks for the warm introduction and, frankly, for being such a great partner. We worked for years together and your tireless efforts to find solutions for many of our global challenges is really something that I always appreciated. I really felt like we had a true partnership working in government. And thank you for your friendship as well.
I want to thank also the Council community for hosting me today. I’ve been a proud member of the Council on Foreign Relations for years. And I was a former board member. And it’s a real privilege to have the opportunity to speak with you all today. You’re really a group of doers and committed to our planet’s collective peace and economic security. So it’s a pleasure to be able to come and talk about a subject near and dear to my heart. I’m also particularly grateful to the European brain trust here at CFR—Charlie Kupchan, Liana Fix, Thomas Graham, and, of course, Ambassador Stephen Sestanovich, whose work on behalf of the United States regarding the newly independent states of the former Soviet Union back in the ’90s still bears huge influence today.
Let me start by talking about the situation on the ground in Ukraine today. On the battlefield, there is no doubt that the past months have been difficult, with the delays in our security and economic assistance leading to a situation in which Ukraine has lost ground in the war. That’s really undeniable. Since March 22 of this year, Vladimir Putin really doubled down on his cruelty, stepping up his attacks on Ukraine’s energy infrastructure; laying siege to Ukraine’s beautiful second city, Kharkiv; and seeking to break the psyche of the Ukrainian people. He has intensified his shelling of hospitals, schools, homes, around the towns of Chasiv Yar and of Vovchansk, which are near Kharkiv.
And he has positioned 30,000 troops just over the Russian border—in Russia, but right over the border from Kharkiv, in an apparent preparation for a further assault. These attacks have forced more than 10,000 residents from the oblast to flee their homes and created an eight-gigawatt energy generation gap this summer. He depends upon his dark alliances for these attacks, with Iranian drones, North Korean artillery, and Chinese satellite imagery all contributing to the death, destruction, and needless suffering that we are witnessing. So without a doubt, these are sobering facts.
And yet, amid the dark headlines, I’m here today to talk about why there is real reason for optimism towards Ukraine due to the facts and trends that we see, and which the media does not often capture. As we head towards Ukraine reconstruction conference in Berlin, which will occur in about three weeks, it’s important that we not just take advantage of these trends, but that we take heart from them. They show our belief in Ukraine’s future is not only based on a—it’s not based on a Pollyannish fantasy, but based on the reality as we see it at play.
I’ve traveled to Ukraine five times since being named President Biden’s special representative for Ukraine’s economic recovery in September, and most recently I was there two weeks ago. And I’ve seen the trends with my own eyes. What we see is that with our help, Ukraine can and will win this war. And today, I’d like to explain why we believe it will, and describe a few key things that must happen on the economic side for that victory to take place.
First, militarily. Though the supplemental was delayed, Ukraine is now getting what it needs. In the last thirty-one days since President Biden signed the supplemental legislation, the United States has flooded the zone with weapons and equipment, including couple billion dollars in munitions, including air defense systems, ammunition, armored vehicles, small arms, and other equipment. The democratic world is also there with us. The Czechs are leading a European effort to rush 500,000 artillery rounds to Ukraine. The U.K. has just announced a new multiyear military package. Germany is supplying a new Patriot system. Australia is providing a new air defense system of its own. And Ukrainian-manned F-16s will be flying over the airspace within months, provided by the Europeans.
Ukraine is wasting no time that putting this wave of support into action. And its difficult, but absolutely necessary, new conscription law which just went into force will help it ensure it has troops necessary to defend itself. This is, of course, on top of the huge success Ukraine has seen in the Black Sea, where it pinned back Russia’s fleet, and its overall success in the battlefield, where it has by and large held a much larger force at bay along front lines that are over 600 miles long.
Economically, we’re also seeing Ukraine take important strides forward. Take Ukraine’s defense industrial base. The number of drone manufacturers has grown from nine to over 200. Cyber, robotic systems, and demining expertise are skyrocketing. And data from the battlefield is helping Ukraine’s defense industries reduce the time for development of new technologies from years to weeks, with concrete impacts on the battlefield effectiveness. As the drone manufacturer Brave1 says, Ukraine is, and I quote, “where the technologies of victories are born.”
American defense CEOs would agree. They literally marvel at the innovation of Ukraine’s defense production, sometimes combining different technologies, precision missiles, drones, armored vehicles, with American, Soviet, and European parts, to create whole new systems. It is this kind of creativity that is putting Ukraine’s defense companies at the leading edge of modern warfare technology. In fact, three American defense companies are working right now with their Ukrainian counterparts, and us, to coproduce low- and medium-caliber munitions made in and for Ukraine. Another is working on the very first joint venture between an American and Ukrainian defense company. The United States wants to unleash more joint Ukrainian-American defense production on Ukraine’s soil. That’s why we just announced a $2 billion first of its kind Ukrainian defense enterprise fund that will provide more financing for production, repair, and maintenance.
The bigger economic picture is also encouraging. Despite Russia’s war and having 17 percent of its territory occupied, Ukraine’s GDP grew 5 percent in 2023 and is on track to grow another 4 ½ percent this year. Investment is up 17 percent, tax revenues surged 25 percent in January, and more than 37,000 new businesses were registered in Ukraine in 2023—more than the number in 2021 before the war. American companies beyond the defense sector are helping coauthor this recovery. McDonald’s added more stores in Ukraine and served over 100 million Ukrainians just last year, sourcing 70 percent of its beef, dairy, vegetables, and sunflower oil from inside Ukraine. ADM and Cargill are investing in agricultural projects and reinvesting profits back into Ukraine’s rich, black soil. So things are happening. That’s why there are over fifty American companies that are going to be in Berlin for the recovery conference to talk about their investments and even expansions in Ukraine.
While all this is important and it’s positive, we cannot be naïve about the challenges Ukraine faces. And these are not just challenges on the battlefield. We do believe Ukraine can and will win, with support of a huge coalition on Ukraine’s side. But we have to be clear eyed about what it will take for the country to win not just the war, but also set itself up for the future. So let me describe what I think it will take. To win for the long term, there are five essential elements the Ukrainians, together with the international community, must tackle head on. Elements that must be at the center of our discussions at the Ukraine recovery conference in Berlin.
They include air defense systems needed to protect the border and over major population centers. A culture that embraces rule of law and rejects corruption. A government that has the capacity to define bankable projects for investment and provide cohesive cross-ministry planning. A global marketplace offering risk management tools that will make investment decisions easier. And, finally, sufficient capital, especially the use of Russian sovereign assets, to finance this vision. Taken together, these five elements can be rocket fuel that powers not just Ukraine’s true economic recovery, but also its journey to become a prosperous, democratic, independent country integrated into the EU and NATO, which is exactly what its people crave.
So let me lay out each of these a little—in a little bit greater detail, as each are key U.S. priorities as we head to Berlin. First, air defense. Just look at Kyiv. When you look at Kyiv, you can see what the future can hold for Ukraine. So you get off the train from Poland and you find a bustling European city that has thriving industry, kids going to school, parents going to work, folks going shopping, a bustling nightlife, and even regular traffic jams. It’s become—(laughs)—it’s become Ukraine’s economic beacon, made possible by the protective umbrella of air defense. The same is starting to happen in Odesa. In order to generate breakout economic activity, create jobs that draw back the Ukrainian diaspora, and attract private sector investment, it’s essential that we and our allies figure out how to provide sufficient air protection to Ukraine’s centers of commercial activity, like Kharkiv, Dnipro, Lviv, and beyond. Security is essential to attracting large-scale investment. We all know that, but it is—takes a lot of work to make it a reality.
Second, Ukraine’s defenses against corruption must be just as strong as its military defenses. Eight in ten Ukrainian say they believe more must be done about corruption. And we must help them. This means a judiciary protected from outside interference. This means a press free from political influence or pressure. This means digital customs and other tax collection systems. This means an independent, empowered, well-resourced anticorruption investigators, prosecutors, and judges. This means strengthening the rule of law for everyone. So when I speak to American CEOs, particularly those in the most crucial sectors like defense and energy, the first point they raise with me, after asking about the war, is always the need to fast track reforms and address corruption. American taxpayers and Congress also justifiably demand reform.
I’m pleased to report that Ukraine’s made progress on its reform agenda, including making some very tough decisions. In just the last six months, for example, Ukraine has passed legislation regarding asset declaration—so, think of its politicians declaring the assets they own—antimonopoly regulation, judicial discipline reform, and corporate governance. I truly believe these efforts, and more, are essential to change the culture in Ukraine. But they will ultimately be just as much a part of the Zelensky government’s legacy as winning the war itself. He understands fighting corruption is linked to Ukraine’s secure, prosperous, Western future. So this requires not just changes in laws, but a fundamental systems and cultural change.
Meanwhile, even as we support Ukraine to strengthen its defenses and deepen its reforms, we need to help Ukraine set up the ability to prioritize and prepare projects for investment and reconstruction. The estimates to rebuild Ukraine by the World Bank are around $500 billion. There has never in history been such a significant need. To do this successfully and efficiently, coordination will be essential. So just think, unlike the Marshall Plan where one actor, the United States, was driving the reconstruction of many countries across Western Europe, this is a case where many countries, businesses, people, are driving reconstruction of one nation—Ukraine. Obviously, that makes coordination more challenging, though it allows us to bring to bear unprecedented amounts of funding, creativity, expertise, and experience to the challenge.
What we need now is to lash Ukraine’s ingenuity to a cross-ministerial process that will prioritize and prepare the country for reconstruction. It’s essential to power the country into the future. It’s essential to attract investors and significant capital. It’s essential to having sufficient resources, labor, raw materials, and more to actually build the Ukraine of the future. This mechanism needs to be several things at once—Ukrainian led, community driven, and nationally coordinated. At the same time, it must also be internationally backed, grounded in data, and supported by the best global engineering and planning prowess the world has to offer.
It’s a tall order, but creating this capability is essential. If we can get these pieces in place and ensure cross-ministerial political consensus around the right structure, plan, and people, then Ukraine can realize a robust recovery. The mechanism can do many things—establish reconstruction goals, identify and prioritize investments, determine financing, ensure the availability of sufficient inputs and resources, set standards, and guarantee Euro-Atlantic level of openness and transparency. These are all things both Ukrainians and the international community are going to want and need for sufficient investment to occur.
Critical to Ukraine realizing its forward-looking economy and its dream of being part of the EU is how it develops its overall energy, transportation, and communication infrastructure. For the country to have decentralized energy generation and storage, utilizing gas, nuclear power, and renewables, for it to have rail, roads, ports, shipping, and air transportation, as well as for to have digital and ICT communication systems, all seamlessly linked to the EU, to the single market, and the global economy, will require the kind of coordinating effort that I am describing here.
Without a cross-ministerial mechanism to coordinate the planning, engineering, resource management, and financing of these foundational investments, it’s not going to be possible for Ukraine to achieve its vision outlined in the Ukraine plan and elsewhere. We, governments and the private sector, must work together with Ukraine to broaden its private sector and, frankly, its public sector absorptive capacity. This is going to take hard work, feasibility studies, technical engineering, and business plans. But it will help ideas and concepts become realizable projects that can and will draw investment. Helping Ukraine build out this absorptive capacity is essential and will increase the number of bankable projects—something that is sorely needed.
Fourth, Ukraine’s full-scale recovery will also require that we help the private sector manage risk. And, yes, this too is already happening. The U.S. Development Finance Corporation, DFC, is active and expanding its political risk portfolio for Ukraine. The European Bank for Reconstruction and Development, EBRD, is leading the development of a facility to provide coverage against war-related risks. The private sector is also involved. Marsh McLennan’s unity facility, for example, is a $50 million war risk insurance program covering ships transporting grain through the Black Sea. It’s one of the main reasons Ukraine’s Black Sea export routes have now expanded to prewar levels, hitting 13 million tons of exports in April alone.
But more must be done. Ukraine’s insurance premium market is just 3 percent—just 3 percent—of Poland’s. We are pushing for new lines of war risk insurance, for energy, cargo, land transportation, and elsewhere. In fact, in Berlin we plan to announce ways to put new capital to work to provide war risk insurance for small- and medium-sized businesses. We all know that without a robust insurance market, robust investment is not possible.
Finally, we have to tap into new sources of capital that can finance the public and private sector reconstruction. On the private sector side, we must find ways to unlock more catalytic and working capital. The thirst is there. One major American bank has added seventy-five new business clients, a 15 percent increase in its client base, since February of 2022. But Ukraine needs so much more. To meet the needs, there needs to be more lending through banks, through the international financial institutions, and elsewhere at interest rates that recognize the risk but yet also make investment profitable.
In addition, for Ukraine’s reconstruction there’s one crucial step that must be taken as a moral, legal, and practical matter. Russia must be made to pay. Our Congress has given us the power to seize Russian assets in the United States, understanding what Putin—understanding that what Putin has destroyed, Russia should and must pay for the rebuilding. And we intend to use this power, working with the G-7 by pulling forward profits and interest on frozen assets, which is a first step. This can and will unlock billions of dollars and send a powerful message to Putin that time is not on his side. So taken together, these five efforts can provide the basis for Ukraine’s economic recovery and its economy of the future. These are workstreams on which we must focus in Berlin. They are essential to fortify Ukraine’s remarkable and underappreciated un-breakability.
So as I close, I want to talk about the story of a company called Esper Bionics that makes artificial limbs. And I visited them two weeks ago and Kyiv. There’s a Ukrainian soldier named Valera Kucherenko, who came for Esper’s help after he lost both of his hands to a grenade attack last October. They gave him two bionic hands. And Valera has said that he was glad the prosthetics were made in a way that would allow him to return to the army to continue fighting for his country. When Ukrainians lose their hands, they build new ones and return to fight. And that is what is happening all over the country across the economy at this very moment. It’s just incredible.
That is what I have seen personally over and over again. So when we say that Ukraine can and will win with our help, it’s Valera that I think about. The country is literally full of Valeras, not grabbing headlines but using every ounce of their determination and ingenuity to fight and to win. And we must help them. Thank you very much.
During Paris Arbitration Week, HKA hosted a panel that considered the options for compensation for damages loss or injury open to victims of Russia’s invasion of Ukraine.
The panel was timely as the Register for Damage for Ukraine (“the Register” or “RD4U”) was on the point of opening (and now has opened) for the receipt of certain claims. The Register which sits in the Hague was established within the framework of the Council of Europe (and with support of others including the USA and Canada) to provide a structure for recording claims for compensation arising from the invasion. The Register is precisely that: a register to provide a permanent record of the loss and injury suffered. Its mandate does not extend to assessing the validity or value of claims or order any compensation payments.
This will therefore necessarily be part of a wider compensation mechanism the form of which has yet to be decided – although one could contemplate some form of compensation commission and fund perhaps not dissimilar to the United Nations Compensation Commission (“UNCC”) process following the First Gulf War. Under that process, 6 categories of claim were established labelled A (individual harm) to F (government). Claims were submitted to the UNCC in Geneva and assessed by them with payments made from a fund established using a percentage of Iraq’s oil revenues, The UNCC’s work was substantially concluded by 2005 – some 14 years after the war- with awards totalling over $52bn to over 1.5million successful claimants. This was of course only possible with the agreement of Iraq to the funding process.
The UNCC process was also a paper heavy exercise. Thanks in part to changes in technology, the Register will record claims solely in digital form. There will also be a direct interface between the register and the Ukrainian mobile application “Diia”. To date the Register is open for one category of claim: Category A3.1 – Damage or destruction of residential immovable property. To date over 1000 claims have already been registered.
In addition, understanding the role and scope of the Register the panel also discussed the other options through which potential claimants could seek compensation. It was noted that Russia is party to more than 60 bilateral investment treaties which remain in force. Clearly these provide protections through the guarantee of fair and equitable treatment and from unlawful expropriation. Discussion of these other options is beyond the scope of this article, other than to note that a number of claims have been filed both in relation to the full invasion in 2022 but also in relation to the earlier occupation and annexation of the Crimea. Many of these latter claims are well advanced – and have found in favour of the claimants – although Russia failed to participate in them for much of the past several years. Naturally the ability to enforce any successful claims was a topic of interest (and uncertainty).
HKA contributed to the panel by undertaking a top down assessment of the economic impact of the conflict on the Ukrainian economy. To do this, requires an understanding of the evolution of Ukrainian Gross Domestic Product (GDP) but for the conflict. Given that this counterfactual scenario cannot be observed, it has to be estimated.
The synthetic control method is used extensively in economic literature to assess the causal impact of events and policy interventions. In the past, synthetic controls have been used to estimate the impact of German unification in 1990 on the German economy, and the impact on the UK economy of leaving the EU.
The synthetic control method uses data on a group of comparator countries to construct a counterfactual Ukraine GDP that evolves in a similar manner to Ukraine GDP prior to the conflict. Information on these comparator countries is then used to estimate GDP for Ukraine in absence of the conflict. The set of comparator countries we used were Eastern European countries other than post-Soviet states. Information on inflation, trade activity, and the proportion of children in secondary education is also used to improve the predictive accuracy of the estimated counterfactual. Looking backwards, the model maps Ukrainian GDP before 2014 to within 5% of the actual outturn.
Figure 1 below shows the results of the analysis both before and after 2014. The figure shows Ukrainian GDP from 2003 to 2022 and counterfactual Ukraine (labelled Synthetic Ukraine) from the same period. The decline of the Ukrainian GDP in 2014 coincides with the annexation of Crimea and the war between pro-Russian separatists and Ukraine in the Donbas region of Ukraine in the same year. The model also demonstrates that but for the annexation and subsequent invasion the Ukrainian economy will have continued to grow broadly in line with economies in Central and Eastern Europe.
Figure 1: Ukrainian GDP in absence of the Russia-Ukraine conflict
Notes: The series labelled ‘Synthetic Ukraine’ is an estimate of the counterfactual Ukrainian GDP in absence of the Russia-Ukraine conflict. This estimate is obtained using the synthetic control method. The vertical line indicates the start of the Russia-Ukraine conflict in 2014. Source: HKA calculations
The results show that from 2014 to 2022, Ukraine lost $1.46 trillion in GDP as a result of the conflict. In 2022, itself (the year Russia invaded) the results show a loss of $323 billion. In 2023, the results show a loss of $116 billion. That lost output is lower in 2023 reflects slower growth, and, in some cases, a contraction in economic activity across comparator European countries.
Conclusion
As of today, the war shows little sign of ending. Critical questions of course remain as to how any reparations process might develop. These include the scope of claims, the measurement of damage inflicted and how compensation is to be sourced and paid.
However, the Register now exists with a Board and operational secretariat – and claims are beginning to be recorded. ISDS claims are also advancing. Claims are of course developed on an accounting based approach based on lost profits of individual companies and individuals, i.e. a “bottom up” approach.
In contrast, the analysis presented above assesses the total of lost economic activity and not just lost assets and profits. The reconciliation of these two approaches appears to be central to the quantum of any post war restitution damages. However, it is perhaps instructive that through our analysis we estimate that to date, lost economic activity is already in the order of $1.57 trillion. Evidently, this is increasing daily.
On 23 May, the Southern Ukrainian Office of the European Business Association in partnership with Interlegal held a Business Talk on an urgent and extremely important for the Ukrainian business community topic – “Recovery Ukraine. Reconstruction projects in the South of Ukraine”.
The panel of speakers included CEOs of leading agricultural and logistics companies from the southern region of Ukraine, representatives of international corporations, legal and consulting firms and the government sector.
Our friends and colleagues share their experiences of finding opportunities for development and growth in the third year of a full-scale war. Ambitious government investment and reconstruction projects, flexibility and adaptation to changing conditions, the restoration of production capacity and remarkable cases of companies that have managed to rise from the ashes in the face of daily challenges and total losses remind us that progress and success are possible even in the face of the worst crisis.
Despite the ever-present war risks, business in the Southern Region, as the whole Ukraine, has no intention of giving up or wasting a single day for reflection. Here and now, Ukraine’s largest companies are working to rebuild and modernize. The key goal is to create a new, prosperous, modern economy in a new, modern country. An economy where every business can work and feel free and secure.
We would like to thank everyone who took the time and opportunity to attend our event and share their unique experiences. We’re sure that the stories presented at Business Talk will inspire many in Ukraine and beyond.
We look forward to the next opportunity to meet you. Follow Interlegal on social media to stay in touch!
The Estonian Parliament (the Riigikogu) adopted a law that allows using the frozen assets of Russian natural persons in order to reimburse losses caused to Ukraine by the war. 65 members of the Riigikogu voted in favour, while three members voted against, as reported on the website of the Estonian parliament.
Creation of a legal framework for use of the frozen assets – this is a complex task; a number of allied countries and international organizations are working thereon, while Estonia is playing a pioneering role here.
As reported, “Russia is an aggressor country; therefore, reimbursement of losses caused by hostilities cannot fall on the shoulders of Ukraine and its allies. Russia is responsible for causing damages, as well as shall bear this responsibility”.
In order to commence proceedings in Estonia for the use of property, Ukraine shall submit a corresponding request. Previously, Hanno Pevkur, the Minister of Defense of Estonia, announced that the idea of sending Western military personnel to Ukraine received no development either at the country level or at the EU level.
The European Union managed to reach a consensus regarding frozen Russian assets.
Funds will be remitted for the purpose of defense and restoration of Ukraine which suffered from the Russian hostilities and regular shelling, as reported by L’Echo with reference to notes by Valérie Ubren, CEO of the Belgian depository.
She highlighted that a decision on seizure of assets should be made in the next few weeks. Mrs. Urben explained: “The amount will be in the range between 87% and 89% of all after-tax income from Russian assets”.
Seizure of Russian assets: what is the difficulty? Valérie Ubren noted that seizure of Russian assets frozen in European banks could strike the financial markets.
In addition, the Belgian depository is proceeding over 100 lawsuits in Russian courts against Russian investors who demand to return funds blocked due to sanctions.
Frozen Russian assets Nearly 70% of all Russian Federation assets frozen in the West after the full-scale invasion into Ukraine are kept in the Central Belgian Securities Depository Euroclear. Their cost is equal to various securities and funds of the Russian central bank in the amount of €190 billion.
In early May 2024, the National Bank of Ukraine (NBU) announced a new wave of foreign currency liberalization measures, the most extensive since the commencement of full-scale invasion on 24 February 2024. The new package of amendments, introduced by the NBU Resolution No.56 dated 3 May 2024 (Resolution No.56), which entered into force on 4 May 2024, provides for the following liberalization measures.
1. PERMISSION FOR PARTIAL SERVICING OF LOANS OBTAINED BEFORE 20 JUNE 2023
Easing of restrictions on servicing “old” external loans obtained before 20 August 2023 is one of the most expected measures from the NBU. Pursuant to Resolution No.56, Ukrainian borrowers are now allowed to pay interest on the above-mentioned loans subject to the following conditions:
For the purpose of paying interest payments that were overdue as of 01 May 2024, under a single loan agreement, the transfer of funds may be made in an amount not exceeding EUR 1,000,000 (or the equivalent of this amount in another foreign currency) per calendar quarter (this limit will not apply to scheduled interest payments falling due after 30 April 2024)
The debt under the relevant loan agreement must not have been overdue as of 24 February 2022
The funds for such interest payments were not sourced from loans obtained from residents of Ukraine
The early repayment of interest is not permitted, as well as the postponement of maturity dates for outstanding interest payments to dates after 24 February 2022
The above-mentioned easing measures are aimed at minimizing the risk of defaults among Ukrainian borrowers and improving the environment for attracting new capital.
2. SIMPLIFIED CONDITIONS FOR REPAYMENT OF LOANS OBTAINED AFTER 20 JUNE 2023
The NBU has lifted some restrictions on the ability to purchase foreign currency funds for servicing loans from non-residents obtained after 20 June 2023. Henceforth, borrowers in Ukraine have the opportunity to freely acquire foreign currency funds for the purpose of paying interest, regardless of the term of use of such external loan. Regarding the principal amount, the requirement to repay it solely from their own foreign currency reserves applies only to short-term loans with a term of use not exceeding one year.
3. LIFTING RESTRICTIONS ON IMPORT OPERATIONS
Resolution No.56 enables the free purchase and transfer of foreign currency funds for the purpose of paying for imports of any goods, works, services, etc. Prior to these amendments, residents of Ukraine were only able to pay for goods included in the list approved by the Resolution of the Cabinet of Ministers of Ukraine dated 24 February 2022 No.153 “On Certain Issues Regarding Import”. Consequently, the respective resolution of the Cabinet of Ministers of Ukraine is anticipated to be annulled in this regard.
4. PERMISSION TO REPATRIATE DIVIDENDS
Since the commencement of the full-scale invasion, foreign investors have been unable to repatriate dividends earned in Ukraine on corporate rights of Ukrainian companies to their foreign bank accounts. However, the NBU has now allowed the transfer of funds abroad for the purpose of disbursing dividends based on operational results from 1 January 2024. This relaxation does not extend to the distribution of profits accumulated in prior periods and/or reserve capital.
In addition, the repatriation of dividends is possible only under the following conditions:
The transfer of foreign currency for the payment of dividends shall be made directly to the accounts of foreign investors abroad, including through the Depository System of Ukraine
During a calendar month, the amount of repatriated dividends cannot exceed EUR 1,000,000 (or the equivalent of this amount in another foreign currency)
This easing will come into effect on 13 May 2024.
5. LIFTING RESTRICTIONS ON FUNDS TRANSFERS FOR LEASING/RENT
Resolution No.56 enables legal entities and individual entrepreneurs to transfer funds abroad to make payments under leasing/rent agreements without any additional restrictions regarding the subject and the execution date. Prior to these amendments cross-border transfers were permitted solely for the purpose of paying for the leasing/rent of vehicles.
6. PERMISSION TO TRANSFER FUNDS TO THE PARENT COMPANIES
The NBU has allowed representative offices of foreign airlines and international payment systems to make transfers in favor of their parent companies in an amount not exceeding the equivalent of EUR 5,000,000 during a calendar month.
Thus, the package of easing measures introduced by the NBU is a signal indicating positive trends in the financial system of Ukraine. These amendments aim to enhance the business environment and attract foreign capital to the Ukrainian economy. However, a significant number of the currency restrictions still continues to be in force, and therefore, foreign currency transactions will continue to undergo meticulous scrutiny to ensure alignment with prevailing regulations.
The Cabinet of Ministers canceled the resolution on restrictions of import of business services. Previously, the National Bank of Ukraine adopted a similar decision, as announced by Prime Minister Denys Shmyhal during the government meeting.
He said: “We are canceling Resolution of the Cabinet of Ministers No. 153 which limited payments for the import of goods and services. This is very important for business”.
He also noted that such liberalization will open up new opportunities for Ukrainian entrepreneurs, namely to enter new markets and to strengthen Ukrainian exports.
Shmyhal declared that such decision of the government is included in the broader policy of deregulation being currently carried out.
He added: “Over a thousand permits, licenses, and certificates governing interaction of the state and business have been reviewed. Some will be completely canceled, some will be simplified, some will be digitized”. Previously, the NBU mitigated currency restrictions for business entities making payments abroad.
The Procedure for Using Funds from the State Budget to provide State Support for the Implementation of Investment Projects involving Significant Investments was adopted at the session of the Cabinet of Ministers of Ukraine on 26 April 2024.
Conditions for receiving State Support
The total amount of state support can be up to 30% of the investment. Such support is available to investors planning to implement a project in Ukraine with an investment volume of at least EUR 12 million and a duration of up to 5 years in the following sectors: processing industry, extraction for further processing and/or enrichment of minerals, transport and logistics, education, scientific activities, healthcare, waste management, arts, culture, tourism, sports, and electronic communications.
Investors may receive several types of state support, subject to the above requirements, including:
Preemptive rights to use state-owned or municipally owned land plots;
Compensation for the costs of constructing engineering and transport infrastructure facilities, as well as costs associated with connecting to engineering and transport networks;
Tax benefits;
Duty-free importation of necessary equipment;
Exemptions from compensation for forestry production losses.
Projects must involve the development, renovation, technical or technological upgrading of the relevant investment objects, as well as the creation of new jobs. The investor must ensure the creation of at least:
10 new jobs with salaries at least 50% higher than the average salary in the region for the same type of activity;
Or 30 new jobs with salaries at least 30% higher than the average salary in the region for the same type of activity;
Or 50 new jobs with salaries at least 15% higher than the average salary in the region for the same type of activity.
The state budget has earmarked UAH 3 billion this year to support such investment projects.
Control over Investors’ Activities
The government will monitor investors’ compliance with the terms of the agreement. If the Ministry of Economy finds that the amount of funds invested is less than EUR 12 million, the investor must return the entire amount of state support received to a special account of the Ministry within one month.
If state financial control authorities establish that an investor has illegally received compensation or partial compensation, the investor must also return the entire amount of compensation received within one month.
