Peace in Ukraine will depend on one crucial thing

The real gain in foreign commercial opportunities will be through investment in a revitalised nation, where reconstruction has delivered a broad-based and unifying peace dividend that will resolve many of the country’s pre-war challenges, writes Fergus Drake

Sunday 26 February 2023 14:30 GMT

No less a prize than Europe’s ongoing prosperity and security depend on it (AFP via Getty Images)

All wars end in negotiations, as India’s former prime minister Jawaharlal Nehru once said. But a large part of those negotiations, in modern war at least, lies in securing a pathway to reconstruction and recovery.

Even as Ukraine continues to live through trench warfare and constant bombardment in Russia’s year-long invasion, negotiations have begun to secure the country’s restoration. Yet it is vital that the necessary factors for success are hardwired into this emerging reconstruction plan.

Certainly, the cost of emergency relief and the restoration of basic services is set to be huge. In early December last year, the World Bank costed the damage caused by the Russian invasion since February 2022 at $525bn to $630bn, and damage has only accumulated since then. The list of destruction is immense: 25,000 kms of roads, 320 bridges, 800 hospitals and hundreds of thousands of homes have to be rebuilt.

It is a level of carnage unseen in Europe since the Second World War, prompting conferences – from July last year in Lugano, in October in Berlin, and this upcoming June in London – to forge a reconstruction programme that can generate a resurgence in Ukraine’s industrialisation and investment.

Yet, as officials work to piece together the successes and failures of similar plans in Iraq, Afghanistan and Bosnia, it is only too clear that repairing the physical damage cannot alone induce an economic recovery, after the slump in GDP typically delivered by war.

In Bosnia, where nearly four years of strife reduced real GDP by 78 per cent, eight years of comprehensive reconstruction saw the country still running at 28 per cent below its pre-war GDP levels. Key limitations in its progress, analysts suggest, were its persistent foreign aid dependency, and its poor governance.

In Ukraine, where in the first year of war GDP is estimated to have fallen by more than 40 per cent, it is essential these very same constraints are removed in order to accelerate the return of the country to prosperity.

While President Zelensky has resumed the battle against corruption that he was voted into office to wage, the problem he faces is profound. Transparency International ranks Ukraine as the second most corrupt country in Europe (after Russia) with its Soviet legacy compounded by the continuing dominance of an economic elite, its own network of oligarchs, and its key interest groups.

At Crown Agents, a not for profit international development company, we have been working with the Ukrainian government for the last 25 years building internal capacity, substantially in procurement, and primarily in health, energy and defence.

Our teams have fought off Mafia connected organisations to procure over 539 million units of medicines and medical devices for the people of Ukraine, while widening the supplier base from three to 120 suppliers over seven years.

Any corruption-free procurement leads to higher quality and lower cost goods. We then built on these skills to become the Ministry of Health’s sole procurement agent for Covid-19, buying and transporting over 25 million vaccines into the country.

We also now lead key programmes building the capacity of civil society and small businesses. Based on our observations, the will exists within government to increase transparency and end the corruption that has afflicted Ukraine as part of its Soviet legacy.

Clearly a vibrant and multifaceted private sector that is beyond the control of powerful individuals, combined with a matrix of interest groups with voice and representation, will create checks and balances on the diversion of resources and a platform of support in the government’s efforts to end leakage.

A critical element in this reconfiguration of power is securing a corruption-free judiciary and the firm establishment of the rule of law, to give companies, citizens and organisations access to due process to hold officials to account.

The digitalisation of government, reliable monitoring of budgets and spending, and evaluation of the outputs and outcomes from reconstruction spending are also key necessities for a private sector take-off and strong flows of foreign direct investment.

Reconstruction planning should also be mindful of the power of restoration funds as an economic stimulant if directed at local sourcing versus international contracting.

Repairing the damage done to Ukraine must not be viewed as a commercial opportunity for the West. If 70 per cent of reconstruction funds are ring fenced for first and second tier Ukrainian companies – from architects to bricklayers and electricians – then the multiplier effect of inwards investment in jobs and service industries will be felt positively for decades.

The real gain in foreign commercial opportunities will be through investment in a revitalised nation, where reconstruction has delivered a broad-based and unifying peace dividend that will resolve many of the country’s pre-war challenges and position it as strengthened and revitalised for growth.