This year, Ukraine Recovery Conference 2023 in London has become one of the most significant events upon Ukraine recovery. As for its scope and importance, it managed to surpass the very first such event in Lugano. For the last year, Ukraine had to draw up conclusions following the Swiss conference, while partners had to decide how to help rebuild the country. Dmytro Natalukha, Chairman of the Supreme Council Committee on Economic Development, analyzed what Ukraine has achieved and what still needs to be worked on. 

From fire to recovery: what the West has to offer 

At the URC, partners promised to grant aid to Ukraine amounting to 60 billion USD, i.e. the largest announced scope for reconstruction of the country. 

The aid amounting 50 billion EUR until 2027 is also an absolute record, as declared by Ursula von der Leyen, President of the European Commission. The calculation is simple: Ukraine’s needs aim to cover the budget deficit of 60 billion EUR and 50 billion EUR for rapid reconstruction, with 45% to be covered by the EU. 

1. Participation and cooperation 

Ukraine’s partners have drawn up a clear aid coordination scheme for Ukraine. In late 2022, Europe also proposed to divide macro-financial assistance to Ukraine in half between the EU and other partners. 

In fact, it is a sort of economic Rammstein forum. This format is optimal for Ukraine. It allows to focus not on day-to-day needs, but on development of long-term plans. Ukraine will be able to pursue a more consistent tax policy with predetermined sources of covering the deficit. 

2. From fire-fighting to restoration 

Most previous sets of assistance are focused on stabilizing public finances. Half of the funds announced in London will be aimed at reconstruction of schools, hospitals, transport infrastructure and many other facilities. 

Apart from loan guarantees of 3 billion USD for the World Bank, Rishi Sunak, the British Prime Minister, launched the Ukraine Business Compact Initiative so that the private sector could show its support for recovery and reconstruction of Ukraine. Over 400 companies from 38 countries with a total market capitalization of 4.9 trillion USD have already joined it. 

Strategy in the form of not donations, but investments is the best formula for relations between the West for Ukraine. 

3. Taboo was lifted by using the confiscation term  

Ursula von der Leyen explained the origin of funds to be granted by the EU for Ukraine: in addition to grants and loans, these are confiscated russian assets. 

The partners cannot cover all the losses incurred due to the war, estimated by the World Bank in the amount of 411 billion USD; although London announced on a smaller amount (349 billion USD), it is still unaffordable for them. 

For example, Canada has already formed a legislative framework for working with confiscated assets of the russian federation, but their largest volume is seized by the EU. Therefore, statement on transfer of such assets to Ukraine is an important precedent. Although legal feasibility of the process is in question, its format is still unknown. 

What Ukraine offers 

Instead of one presentation in Switzerland, containing a list of demands for 700 billion UAH, Ukraine prepared much better for the conference in London, following the path of priorities: what we want in the near future and what specifically we need help from the West. 

1. Quick recovery 

The concept of quick recovery postpones a full-fledged post-war reconstruction of Ukraine, which will require significantly more resources. But it allows us to mobilize forces in support of what is necessary right now. 

The Government of Ukraine has identified five areas: 

• power supply; 

• demining; 

• housing; 

• critical infrastructure repair; 

• economic support of small and medium business. 

Prime Minister Denys Shmyhal notes, Ukraine needs 14.1 billion USD for such industries in the following year, while 3 billion USD are kept in the budget. Ukraine will be able to get it from its partners. For example, the UK will provide loan guarantees for 3 billion USD, primarily designed to unlock cooperation with the World Bank. 

2. Transparent projects 

Oleksandr Kubrakov, the Deputy Prime Minister for the Restoration of Ukraine, announced on launching the initiative called We Build Ukraine. Through DREAM digital system, partners will be able to view recovery projects. The system provides for control over all stages of launching the project, including design and audit of work results. DREAM can become a showcase that will demonstrate Ukraine’s serious intentions and level the position of skeptics. 

3. Announced targets 

Yuliya Svyridenko, the Minister of Economy, announced that Ukraine should reach 1 trillion USD in GDP within 10 years, while share of GDP redistribution through the budget should decrease to 25%. In Ukraine, ca. 50% of GDP passes through the budget, so fruitful work on changing the tax legislation will await us. 

A disappointing conclusion 

But there are still some mistakes regarding reconstruction of Ukraine. 

1. Lack of vision 

Reconstruction projects are good, but they cannot replace a holistic vision of state development. Foreigners at the URC completely misunderstood, in which country they were invited to invest. 

It is important for an investor to understand that in such a country it would be equally profitable to open a coffee shop and to produce space rocket launchers. This requires not just an estimate, but a comprehensive vision of fundamental reforms. It should contain special proposals regarding tax changes, guarantees for investors, support programs, public administration system. 

2. Expediency of programs and priorities 

Of course, the mission-oriented approach is popular. However, setting certain indicators without a sufficient logical justification looks like a Komsomol race following the plan. 

Among the priority areas of Ukraine, there was named agro-industrial complex with a plan to increase the yield of grain and oil crops to 150 million tons and 50% processing. But it is not specified anyway what exactly the processing should be: will it be enough for us to produce flour, which is not in short supply, or should we plan to develop the food industry and to produce semi-finished products. 

Target for production of 46 million tons of green steel per year does not include further plans for its use in construction of cars, airplanes or production of basic rolled metal. When most countries compete to produce batteries for electric cars, we are simply talking about mining and basic processing of lithium. 

If we analyze the government’s theses with regards to replacing goods from China and russia in the EU markets, we should offer ready-made products, and not preserve ourselves as a raw material state. Otherwise, Ukraine will be destined for the fate of a country with maximum population of 15-20 million people. 

3. The problem of rose-colored glasses 

Without answers to the previous questions, we will not see 1 trillion USD in GDP in 10 years. Although there can be discussion concerning actuality of such target (with declared methods of achievement). It is necessary to grow by 20% per year, in view of potential force majeure. When using ambitious goals, we should propose equally ambitious steps aimed to achieve them. 

Because the same 750 billion UAH announced by the government for restoration of Ukraine bear significant expenses and risks. Can we understand that investment of such costs into the country automatically turns it into one of the financial centers of the world? Do we have the structural possibility to absorb such funds and for which period? Who has resources in this amount and who is willing to take such enormous risks? 

No post-war country has been rebuilt to a greater extent by private investors yet. A significant part will be carried out by the state with business involved, i.e. through PPP and other instruments. The other part will not be extracted even by PPP; so, in such case one has to rely on grants or assistance programs of partners. These two parts will differ both programmatically and design-wise. 

Investors will take the third part, i.e. what is left and what is actually attractive for private business from the aspect of capital and risks. Considering the latter, investors will expect different presentations than Key Investor Information Document for the project. 

One should understand clearly how the state will function, why it is worth risking in money investment and how it will competitively differ from its nearest rivals. It will be beneficial for businesses and citizens, who during 1.5-year war had an opportunity to practically compare living conditions, social guarantees, and easy business-making both in Ukraine and abroad. 

Otherwise, it has no sense. That is why the Ukraine Recovery Conference 2023 leaves three dots in respect of reconstruction, but still with a plus mark. There is much work to be done and conclusions to be drawn.

https://forbes.ua/money/kontseptsiya-shvidkogo-vidnovlennya-spodobalasya-partneram-tvereziy-poglyad-golovi-ekonomichnogo-komitetu-vru-dmitra-natalukhi-na-ukraine-recovery-conference-26062023-14410

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