London, Riga Western governments want to channel as much money as possible from private investors into the reconstruction of Ukraine. That is the goal of an international donor conference in London that begins this Wednesday. “The vision of the private sector to help the country rebuild and recover must match Ukraine’s prowess on the battlefield,” British Prime Minister Rishi Sunak said ahead of the Ukraine Recovery Conference.
Great Britain, along with Ukraine, is hosting around 1000 delegates from more than 60 countries. There are also around 100 company representatives. On Tuesday, the EU Commission promised 50 billion euros in new financial aid spread over several years. This should motivate both state and private donors to do more.
“The public funds are not enough for reconstruction,” said the German delegation, led by Foreign Minister Annalena Baerbock (Greens) and Development Aid Minister Svenja Schulze (SPD). But there is great interest, especially among German companies, in long-term commitments in Ukraine.
How can risks be mitigated?
But the risks are enormous, as the blasting of the Kachowa dam in early June made clear once again. Not only the dam was destroyed, but entire cities below the dam.
Governments are now trying to mitigate these risks with state default guarantees for exports and investments. From the British side, the idea of ”war risk insurance” was brought into play, which is intended to reduce financial losses from direct acts of war. The big banks and reinsurers are supposed to organize it.
On the German side, however, the implementation of war risk insurance is considered “difficult”. Greater chances are given to the so-called “Ukraine Business Compact”. International companies that are involved in the reconstruction of Ukraine can register there. In individual cases, safeguards can be organized by states.
Another form of security is organized by the European Bank for Reconstruction and Development (EBRD). In February, the EBRD and the Multilateral Investment Guarantee Agency (MIGA) agreed on a $200 million package that will also benefit Ukraine. “The MIGA-EBRD partnership will facilitate necessary trade finance in Ukraine … at a time of mounting economic pressures and heightened geopolitical risks to trade, supply chains and essential imports,” said MIGA Vice President Hiroshi Matano at the time. The EBRD also wants to invest around three billion euros in Ukraine by the end of 2023 in order to advance reconstruction.
The interest of private investors has been aroused. The two US financial institutions JP Morgan and Blackrock want to work with the government in Kiev to set up a “reconstruction bank” through which public start-up capital will be smuggled into projects that are then to be co-financed by private investors.
Kyiv promises to fight corruption
Countries such as Great Britain or Denmark initially want to concentrate their financial aid on so-called “flagship projects” in order to create the most attractive conditions possible for the companies there. In Berlin, however, they don’t think much of it. “That’s not our approach,” said one diplomat. It would be better to support the central government in Kiev.
At the same time, people in Berlin want to make sure that aid money doesn’t get bogged down by corruption. “Reconstruction must be accompanied by a reform process in Ukraine, and the rule of law, transparency and the fight against organized crime are very important here,” said circles of the federal ministries involved.
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The government in Kiev knows this. “The role of the government has increased significantly since the full-scale Russian invasion,” said Volodymyr Zelensky’s economic adviser, Alexander Rodnyansky. This is a “natural development” in every major conflict.
After the victory, however, one must “return to our agenda of economic liberalization. The country’s recovery process will be neither easy nor successful if the private sector is systematically crowded out by the state.
US transfer frozen funds
Before the conference, calls were again made to make the frozen assets of wealthy Russians and the Russian central bank abroad available for reconstruction. The US already transferred a first tranche of confiscated Russian assets to Ukraine in May. Canada has simplified access to assets of sanctioned Russians.
The Ukrainian government wants Europe to follow suit. “It must be Russia that is held accountable and must pay,” Vladislav Vlasiuk, Zelensky’s sanctions adviser, said in an interview with the British weekly Observer. “The assets that are in the UK and in other countries are easily accessible,” he stressed, “we want these to be confiscated and sent to Ukraine for reconstruction.”
In London, however, people are skeptical. “The associated legal problems are very complex,” said British government officials. The topic will therefore not be brought into focus at the conference, even if the political demand for reparations payments is justified. The EU is also struggling with this.
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Despite several initiatives, the government in London is still finding it difficult to freeze the assets of Russian oligarchs in Great Britain in the first place. The trusts in particular are not sufficiently covered by the government’s “Economic Crime and Corporate Transparency Bill” and continue to serve as a hiding place for “dirty money”, criticizes the London “Committee for Legislation Against Moneylaudering in Properties by Kleptocrats” (ClampK).
Ukraine aims high
The money was urgently needed. Estimates of how much money Ukraine needs are in the hundreds of billions of dollars. The President of the European Investment Bank (EIB), Werner Hoyer, even spoke of more than one trillion. The sum is probably higher than what the USA made available for the reconstruction of Europe with its Marshall Plan after the Second World War.
According to the UN, rebuilding the Kachowka dam and the associated hydroelectric power station alone will cost more than a billion dollars.
According to the German delegation, Ukraine will need around 14 billion dollars this year. In Kiev, short-term needs are estimated to be four times higher.
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This is also due to the fact that the Ukrainian government is pursuing more ambitious goals. By 2032, the country aims to achieve an annual growth rate of over 7 percent, attract more than $750 billion in investments, rank in the top 25 in the World Bank’s Human Capital Index and emit CO2 emissions by 65th of 1990 levels reduce percent.
How much of this can be implemented will also depend on the German government, which has already promised to host the next donor conference for Ukraine next year.
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