How to rebuild Ukraine: visions of London Recovery Conference

Ukraine will receive money for reconstruction only if its use is transparent, investments are inviolable, and there is no corruption or pressure on business

As part of the URC-2023 Ukraine Recovery Conference held last week in London, our government officials presented strategic directions for post-war reconstruction and modernization. According to First Deputy Prime Minister of Ukraine - Minister of Economy of Ukraine Yulia Svyrydenko, successful reform of key sectors will help boost the national GDP to $1 trillion in 10 years. This figure is fantastic compared to the current $150 billion. The Ukrainian participants of URC-2023 recognize that it will not be easy to achieve this goal and that it can only be done through joint efforts. Therefore, the key prerequisites for rebuilding the country and attracting investment are considered to be joining NATO and the European Union, which will guarantee security for us and investors, access to large markets, and the inevitability of institutional reforms.

In more detail, the experts talk about ensuring the rule of law, the inviolability of private property, and the independence and impartiality of the judiciary. And not only about the high level of rejection of corruption, but also about its maximum eradication. After all, if our international partners see at least a few million disappear from the common "bank," no one will give us any more money, no matter if we ask them with a bored or a happy face.

THE RESCUE "MAGNIFICENT NINE", OR PRIORITY AREAS OF RECONSTRUCTION

According to the vision of Ukrainian government officials, which was shared with the URC-2023 participants, Ukraine's development in the coming years will be determined by nine areas.

1. The largest construction project of the century

Ukraine's recovery will require the development of local production of building materials and equipment. "In the field of construction and engineering, the current investment portfolio consists of 32 projects worth $30.8 billion," said Yulia Svyrydenko.

It is planned to raise the necessary funds (and there will be many more such projects) primarily through private investment. After all, it is unlikely that Ukraine will be able to pay for, for example, the installation of technological lines for the production of gas blocks at the expense of grants received from partners or expensive external or internal financing raised in the commercial debt markets. This is a field of activity for private capital, which can count on good earnings in the near future. After all, we are talking not only about the enormous need for funds and materials (and hence the constant high demand) to rebuild a country that has been destroyed by war, large in area and potential, but also about the possibility of supplying these goods to the neighboring European market. What can we say about the prospects of integrating our market into the European one...

According to the Confederation of Builders of Ukraine, at least 3.9 million square meters of glass, 5.7 million cubic meters (11.9 million tonnes) of concrete, 39.3 million cubic meters (or 14 billion pieces) of brick, and 45 million square meters of tiles will be needed to rebuild the war-damaged housing stock alone. All this is in addition to the usual average annual consumption of such products. And we are only talking about rough estimates.

To meet these needs, we will need new powerful construction materials production facilities that will pay for themselves quickly, and don't go to a fortune teller. Experts have no doubt that with proper government support from Ukraine and minimization of security risks (more on this later), the rate of return on investment in this industry will be among the highest in the world.

2. Development of energy, including "green" energy

According to Yulia Svyrydenko, in addition to electricity, Ukraine will produce "green" hydrogen and actively use agricultural waste to produce biomethane.

"The growth of the industry will also stimulate the production of the necessary equipment and ensure a green industrial transition. In the energy sector, the current investment portfolio consists of 36 projects worth $25 billion," the First Deputy Prime Minister informed the participants of URC-2023.

During the conference, a Memorandum of Energy Partnership was signed between the Ministry of Energy of Ukraine and the Foreign and Commonwealth Office of the United Kingdom.

"Cooperation with British partners will allow us to modernize our energy system and strengthen its resilience to military threats, as well as create the basis for the development of green energy. In the near future, the Ukrainian energy sector will receive additional resources to repair and restore damaged infrastructure under the program," assured Minister of Energy of Ukraine Herman Halushchenko.

The memorandum envisages the creation of a new "InnovateUkraine" Green Innovation Challenge Fund of £62 million. The funds will be used for energy innovation projects that will accelerate the reconstruction and restoration of Ukraine's energy infrastructure.

The conference also discussed strengthening the coordination of diplomatic efforts of the G7+ group and international development and trade organizations to increase investment in support of Ukraine's Energy Strategy until 2050, the future National Energy and Climate Plan, and national recovery priorities. As a reminder, Ukraine's ambitious goals are to at least sevenfold increase electricity production, almost as much increase in oil production, and fourfold increase in gas production. At the same time, the country wants to become a gas exporter to Europe, supplying up to 66 billion cubic meters of "blue fuel" annually.

By the way, many experts consider these figures to be the least realistic of all the plans presented in London. Experts remind that over the past decades, the country has failed to implement any of the announced programs, such as the 20/20 Strategy for the Development of the Gas Production Industry. They also recall the not-so-successful experience of cooperation with the world's well-known producers Shell and Chevron.

Nevertheless, the authorities believe that achieving the goals of the Energy Strategy until 2050 is quite realistic and estimate the total investment need at $400 billion.

3. Ensuring global food security

The emphasis will be on the technological component of production. The task is to ensure deep processing of more than 50% of products and full utilization of waste. According to Svyrydenko, an investment portfolio of 18 projects worth $700 million is already ready.

On the sidelines of URC-2023B, Ukraine also presented its Agricultural Development Strategy for the next ten years. "The document provides for full vertical integration with the production of the necessary material and technical resources and means of production. It also envisages an increase in grain and oilseed production to 150 million tons in 10 years, as well as an increase in domestic processing and production of livestock and horticultural products. The total investment portfolio amounts to USD 57 billion," said Taras Vysotskyi, First Deputy Minister of Agrarian Policy and Food of Ukraine.

The strategy, among other things, provides for the resumption of irrigation of agricultural land affected by the Russians' explosion of the Kakhovka hydroelectric power station.

Also, during the conference, the Ministry of Agrarian Policy and the "Organic Ukraine" NGO presented the opportunities for domestic producers of organic products, which are actively displacing some "conventional" food from the EU and UK markets.

4. Integration into the EU infrastructure

The Government is convinced that Ukraine needs to reorient transport flows from the post-Soviet to the trans-European network and modernize them. The investment portfolio in this area includes 30 projects worth $6.5 billion.

In general, the opportunities for investing in Ukrainian infrastructure and logistics are almost limitless. In London, Ukraine presented the "We build Ukraine" initiative, which is intended to unite all international partners involved or planning to join the post-war recovery. "We are laying a solid foundation on the path to victory. While Russia is trying to destroy our infrastructure, we are rebuilding, defending ourselves and planning the future of Ukraine," commented Mustafa Nayyem, the head of the State Agency for Reconstruction and Development of Infrastructure. The initiative's priorities include restoration of housing, energy, social, transport and critical infrastructure, demining, and support for the private sector.

"Infrastructure development is one of the key tasks," said Danylo Hetmantsev, chairman of the Verkhovna Rada Committee on Finance, Tax and Customs Policy.

"Just 10 years ago, annual losses from poor road quality were estimated at 3.5% of GDP. The railroad is in an extremely deteriorated state - from track facilities to traction and railcars. The cessation of exports by sea immediately exposed bottlenecks at the land border," the MP reminded. According to him, it is also important to continue the practice of opening new border crossing points, which was launched last year. Another important area is to expand the potential of the Danube ports.

Hetmantsev cites the port of Izmail as an example: "In less than six months, the volume of cargo transshipment reached 9 million tonnes, which is more than in the whole of 2022. We have an agreement with IFC to attract investments to upgrade the fleet of the Ukrainian Danube Shipping Company (by the way, last year it made a profit from operating activities for the first time since independence and paid UAH 146 million in dividends to the budget). We are looking forward to the accelerated development of the ports being privatized."

A separate topic is rapid recovery projects, for which Ukraine has so far managed to find only half of the necessary resources (the total estimated need exceeds $14 billion). At the same time, as the participants of the Conference constantly emphasized, it is important for Ukraine not only to restore everything "as it was," but also to modernize it, make it better and more modern. In particular, the government plans to undertake a comprehensive restoration of water supply and heating systems throughout the country and invites the private sector to cooperate with utilities operating in this area. "It is necessary to restore heating and water supply systems not only in the affected regions, but everywhere, because we are using communications that have remained since the Soviet Union. Accordingly, together with our partners, we want to modernize them," said Oleksandr Kubrakov, Deputy Prime Minister for Restoration of Ukraine - Minister for Communities, Territories and Infrastructure Development of Ukraine.

5. Extraction and processing of minerals and critical minerals

As you know, Ukraine has the largest reserves of lithium, titanium, and significant deposits of other minerals in Europe, which are needed to produce batteries, electric vehicles, and other equipment, as well as to provide fuel for nuclear power plants. The investment portfolio here includes 10 projects worth $3.6 billion.

To develop already explored deposits and search for new deposits of lithium and other "metals of the future," the country needs large investments and modern technologies. To this end, it is planned to open lithium sites (and there are already at least four of them - "Shevchenkivske", "Polokhivske", "Dobra" and "Kruta Balka") to international and national investors under production sharing agreements. "The Dobra" lithium deposit (associated metals include tantalum, niobium, rubidium, tin, and cesium) could be the first step.

"Ukraine's lithium reserves are insufficiently explored and require further exploration. Geological exploration, extraction of raw materials and further processing of the final material require millions of dollars in investments and modern technologies. This is due to the geological characteristics of the deposits. In Ukraine, lithium can only be extracted by mining. To do this, mines need to be built and ore needs to be enriched to marketable products. This can be realized with the involvement of foreign companies that adhere to the mining culture and know that this is a long-term business," explains Dmytro Kashchuk, Development Director of Geological Investment Group and Chairman of the EBA Subsoil Use Committee.

6. Leadership in the green industrial transition

Ukraine will produce green steel, aluminum, and fertilizers without using coal and natural gas. The use of environmentally friendly transportation, primarily river and rail, will become more active. It is also expected that the share of electric vehicles on Ukrainian roads will gradually increase to 60%.

"By providing institutional, financial and technological support for green (carbon-neutral) metallurgy in the course of reconstruction, Ukraine has a chance to become one of the world's leaders in the industry," said Yuriy Ryzhenkov, CEO of "Metinvest" Group, at a briefing at the Media Center Ukraine - Ukrinform.

"Today, the whole world is moving towards decarbonization and green steel production. And Ukraine (unfortunately, because of the war) has the opportunity to start from scratch and do everything right. That is why metallurgists, equipment manufacturers, and their customers attending the specialized event held as part of URC-2023 expressed interest in implementing such plans as soon as possible. After all, this is an opportunity for real change, which, with proper institutional, financial and technological support, can bring Ukraine to the forefront of the global steel industry," Ryzhenkov said.

He is convinced that foreign partners also understand this: Ukraine is bound to become part of the European Union, so it needs to be rebuilt as an integral part of the EU and European production chains. That is why they are also interested in taking advantage of the advantages that Ukraine has: significant reserves of iron ore, trained specialists who know how to work, and access to renewable energy sources. All this, the industrialist believes, will help our country become competitive in the EU markets in the production of green steel.

7. Stimulating startups and entrepreneurship

According to Yulia Svyrydenko, Ukraine's industrial development will require new technological solutions, which, combined with the digitalization of the economy, will stimulate the development of the IT and R&D sectors.

At the conference, the Ministry of Community, Territorial and Infrastructure Development presented the DREAM digital platform, which will help track information on the reconstruction of damaged or destroyed facilities.

"DREAM allows all citizens of the country, our donors, officials, and businesses to have access to information and monitor the implementation of each project in the recovery plan. That is, you can see what money was used, how it was used, and at what stage of implementation a particular project is. Due to the fact that DREAM corresponds to other registers, it is as full of information as possible," Olena Shuliak, chair of the Parliamentary Committee on the Organization of State Power, Local Self-Government, Regional Development and Urban Planning, head of the "Servant of the People" party, explained in an interview with "Ukrainian Radio".

8. Ensuring professional and social development for everyone

The task is to create conditions for the return of Ukrainian citizens and ensure their comfortable life in Ukraine. Minister of Social Policy Oksana Zholnovych presented the Social Development Strategy at the Conference. "Ukraine's reconstruction is impossible without people. Unfortunately, every day Ukrainians face challenges that cause them physical, mental, economic and social losses. Millions of our citizens are already in need of support and recovery," Zholnovych said. Among the key vectors and priority projects in the work of the Ministry of Social Policy, Zholnovych named the digitalization of all social solutions, building a new system of social support, developing family forms of education, creating a prosthetics hub in Ukraine, and supporting the resilience of families and the elderly.

9. Ensuring internal security and protecting NATO's eastern border

As Yulia Svyrydenko assured, Ukraine's security will continue to be guaranteed by a powerful army of more than 500,000 troops and a developed defense sector.

However, it is clear that with a neighbor like ours, this alone will not be enough to ensure the full security of Ukrainians, their property and investments. In this regard, the key thesis of almost all Ukrainian participants of UKR-2023 was an appeal to international partners after the war not to delay decisions on inviting Ukraine to join the North Atlantic Alliance and the European Union.

Speaking in London, European Commission President Ursula von der Leyen acknowledged that "Ukraine has accelerated its reform agenda with impressive speed and resolve."

"The Conference welcomed the Commission’s oral update on Ukraine’s implementation of the seven recommendations of its EU candidate status. The Conference welcomed the development of the OECD Ukraine’s country programme. The Government of Ukraine reaffirmed its commitment to strengthen the capacity and operational independence of key anti-corruption institutions, including the National Anti-Corruption Bureau and the Specialised Anti-Corruption Prosecutor’s Office. The Government of Ukraine has implemented legislation in the field of justice, media, protection of national communities, as well as countering vested interests and money laundering. The Government of Ukraine reiterated its commitment to reform and its aspiration to start EU accession negotiations this year," reads the final Joint Statement of the Co-Chairs of the governments of Ukraine and the United Kingdom, who organized the Recovery Conference.

"GLOBAL WARMING" OF THE INVESTMENT CLIMATE

One of the practical outcomes of the URC-23 was the partners' promises to support Ukraine's recovery financially. We are talking about both non-repayable and loan assistance, as well as government loan guarantees. The proposed amounts are serious. This includes multi-instrument multi-year support from the European Commission through the mechanism of attracting grants, loans, investments and technical assistance - a total of 50 billion euros. In total, our country can count on $60 billion in additional support.

However, everyone is well aware that this resource will not be enough even for the physical restoration of everything destroyed by Russia, not to mention the infrastructure modernization needs that both our government officials and foreign friends are talking about. For comparison, estimates made even before the Russian attack on the Kakhovka hydroelectric power plant suggested that more than $410 billion would be needed to rebuild the Ukrainian economy. The dam explosion increased this amount by several billion more. Hundreds of millions of dollars worth of damage to our economy - primarily infrastructure and housing - is incurred every week as a result of Russia's constant attacks. And unfortunately, this will continue until the war is over.

Undoubtedly, new members will join the international coalition to restore Ukraine, or our key partners will announce additional investments more than once. But their resources are not unlimited: due to Putin's aggressive policy, the whole world is suffering from economic turmoil and needs funds to solve its own problems. And after the war, the flow of non-refundable financial support for Ukraine (an objective process) will almost dry up. The possibilities of credit borrowing will also be limited, at least until the risks of further Russian attacks on Ukraine are eliminated through the security guarantees mechanism. Moreover, we ourselves understand that we cannot take out loans indefinitely, otherwise our great-grandchildren will not be able to pay off their lenders.

That is why the need for private investment comes to the forefront, so that global businesses can make good money (preferably better than elsewhere) while rebuilding Ukraine.

"It's no secret that Western governments' funds, i.e. taxpayers' funds, will not be enough for such investments (investments in Ukraine's development). Not even the money we can theoretically receive in the form of compensation from the aggressor state will be enough. Therefore, only private capital can become the most important source of investment in Ukraine's qualitative recovery and rapid economic growth," explains Igor Mazepa, CEO and owner of Concorde Capital.

It is important that nearly 500 companies from 42 countries with a total asset value of over $5.2 trillion representing 21 sectors of the economy have already signed the Ukrainian business compact, pledging to support the recovery and reconstruction of our country.

"Companies from all over the world have agreed to work with Ukraine to help realize its enormous potential in priority sectors, including energy, technology, infrastructure and finance, and to share their expertise in developing the Ukrainian private sector. The UK and Ukraine have created a new digital platform for finding business partners. From now until the URC24 in Germany, international partners will work to launch new business-to-business initiatives to build and develop partnerships with the private sector of Ukraine," the Joint Statement on the results of the Conference reads.

Another important event that took place on the sidelines of the conference was the presentation of the Ukraine Development Fund (UDF) project, which was developed by BlackRock asset management company and JP Morgan Bank.

"This is a successful mechanism that has a chance to become an effective financing tool. The fund's strategic goal is to mobilize private capital. It is to attract at least $50 billion in investments over the next 5 years (from $20 billion in infrastructure, from $10 billion in energy, from $9 billion in manufacturing and trade, from $7 billion in agriculture, from $1 billion in IT)," said Danylo Hetmantsev.

Business Ombudsman Roman Washchuk admits that during the International Conference on the Restoration of Ukraine, foreign investors were really interested in projects in our country.

"The conference in London exceeded my expectations, but they may not have been too high after last year's experience in Lugano, where everything was very vague at the level of general principles. One of the big differences is the active presence of the business itself, including foreign businesses," he said on "Ukrainian Radio".

An insurance system adequate to security challenges will help Ukraine take full advantage of new opportunities, and international partners should assist in its formation (including by providing guarantees and funds). During the URC-2023, there were many clear signals that our country will not be left face to face with this problem. In particular, the War Risk Insurance Framework Program was launched.

In a statement, the co-chairs of the London Conference announced that partners had declared their support for the World Bank's Multilateral Investment Guarantee Agency (MIGA) Ukraine Reconstruction and Economic Recovery Trust Fund. The United Kingdom announced an additional contribution of £20 million, while Japan had already contributed $23 million. Additionally, MIGA announced the signing of an expanded Memorandum of Understanding with ProCredit Bank, resulting in a total amount of guarantees reaching €40.85 million.

And the European Bank for Reconstruction and Development has started working on a pilot war risk insurance scheme. The Ukrainian government, in turn, has pledged to increase information exchange with the insurance industry.

FIGHTING CORRUPTION: FROM DEMONSTRATIVE ONE-OFF ACTIONS TO SYSTEMATIC WORK

The next step (or rather, such steps are needed now, even before the war is over) should be a real fight against corruption. So that we can talk not about isolated cases of arrests of corrupt officials "red-handed," but about a systematic and uncompromising fight against this phenomenon-with no exceptions, no division into "friends and foes," "near and far." "Western investors need to be convinced that their investments will not be threatened by a corrupt official, law enforcement officer or judge. After all, Russian propaganda has created the image of the most corrupt country in Europe. And not entirely without reason, as there are many cases when a foreign investor has faced arbitrariness of the Ukrainian authorities. Each such case is happily reported by the Western media. Moreover, even hardened Ukrainian businesses are ready to flee the country amid the arbitrariness of the security forces," says Mazepa.

At the same time, a local investor is a litmus test, a signal to foreigners that it is safe to invest and make money here. "In other words, it will be extremely difficult to attract foreign money here in the absence of local investors," concludes the head of Concorde Capital.

Hlib Kanevsky, head of the expert organization StateWatch, agrees with this assessment:

"There are serious problems in the way of investment - weak and corrupt judicial and law enforcement branches of government. If we don't seriously take up the staff rehabilitation and reform of these bodies, there will be no investment. And this is a direct threat to the country's economic (read: all) security in the postwar years."

According to Martyna Bohuslavets, executive director of the Institute of Legislative Ideas, the key conclusion after the London conference is that billions of dollars and euros of aid will cost us serious anti-corruption steps.

"In order to prevent Kyiv from taking one step forward and two steps back, on the eve of the London conference, the G7 made a statement with clear deadlines: by September 30, Ukraine must restore declaration and public access to the register of declarations, reporting of political parties, and strengthen the capacity of National Anti-Corruption Bureau (NABU) and Special Anti-Corruption Prosecutor's Office (SAPO). Despite the friendly and supportive tone of the speeches, international partners, including business, are nodding in favor of strengthening the fight against corruption and accelerating reforms. The emphasis is on the judiciary," reminded Bohuslavets.

The transparency of the distribution of funds is also under control. After all, the activities of commissions and funds are not always public, and Ukrainians can learn about most expenditures after the fact. It will not be possible to inform international partners retroactively. So we have a general conclusion that we hope will be clearly understood by the responsible agencies and individuals: The London conference on Ukraine's recovery is not about self-praise and not about dividing the "skin of the unkilled bear" (money promised by partners). It is about internal efforts and reforms that will help us fully utilize the support and resources of our friends from around the world for the post-war Ukrainian renaissance.

Vladyslav Obukh, Kyiv