The war in Ukraine is far from over. Yet the reconstruction of the country and its financing are already subjects of concern for the West. Destroyed roads, razed cities, damaged infrastructure, humanitarian crisis… President Volodymyr Zelensky assessed the economic losses caused by the Russian invasion, its strikes and its bombardments, at 600 billion dollars, during a videoconference organized by the wall street journal, on May 3. The Ukrainian government estimates that it needs $5 billion a month to keep the country’s economy running. “It’s a low range, analysis for L’Express Anne-Sophie Alsif, chief economist for the consulting firm BDO France. The addition could double by next year if the conflict continues”.
For its part, the European Bank for Reconstruction and Development (EBRD) expects this year to see a massive contraction of 30% in the Ukrainian economy. The World Bank is even more pessimistic: it anticipate – 45%“but the extent of this contraction will depend on the duration and intensity of the war”, she specifies.
Who will be able to finance this aid and by what means? How best to rebuild a country dependent on fossil fuels, mostly supplied by the Russian enemy?
Seize Russian Assets
The Ukrainian government believes that it is first Russia that must pay for the damage it has caused. Some countries, like Canada, have already decided on radical measures concerning Russian assets, frozen in retaliation for Moscow’s aggression. US President Joe Biden asked Congress at the end of April to give him the possibility of confiscating the assets of the oligarchs blocked in the United States to use them for the benefit of Ukraine.
This solution is pushed by the government in kyiv, which on May 13 called on the members of the G7 (United States, Canada, Japan, France, Germany, Italy, United Kingdom and European Union) to follow this example. “Russia must pay politically, economically but also financially,” insisted Ukrainian Foreign Minister Dmytro Kouleba.
Such a response is also envisaged by the European Union. Charles Michel, the President of the European Council, said he was in favor of confiscating Russian assets for redistributing them to Ukraine. However, the laws of the 27 countries, all different, could be an obstacle. In particular with regard to the property of private individuals and companies. Because unlike the assets of the Russian Central Bank, expropriations are subject “to legal standards which we cannot ignore at the political level”, pointed out Christian Lindner, the German Minister of Finance.
For Anne-Sophie Alsif, it would be a “very strong politically” gesture, because the sum of the assets would not be enough to make up for the losses caused by the war. On the other hand, this could create a precedent in law and “frighten other foreign investors who have interests in Western countries”, she warns. And forcing Russia to pay the bill, through condemnations or treaties as has been the case in the past, would not be more effective. “If we present a note to Moscow, we cannot expect to receive anything,” notes the economist.
And global organizations
In the first line, public donors will be the main source of funding. The IMF has already approved emergency aid amounting to 1.4 billion dollars (about 1.2 billion euros) and has pledged to help the reconstruction effort when the war is over.
The World Bank is also, moreover, one of the main vectors for the reconstruction of countries after conflicts. However, no announcement has yet been made, and according to Anne-Sophie Alsif, “nothing will be announced until the conflict is over. The World Bank will set up non-concessional loans, it that is to say, loans at an interest rate below market rates”, assures the specialist.
The European Bank for Reconstruction and Development (EBRD), for its part, raised one billion euros in mid-May at its annual general meeting. These funds will be deployed in addition to the two billion euros of a “resilience fund” which had already been released at the start of the Russian invasion. Aid from public donors will initially be aimed at the population and health issues, as well as infrastructure and transport, the most costly aspects of reconstruction.
Support from Europe
Other means have already been implemented to help rebuild Ukraine. In April, Charles Michel announced the establishment by the EU of a solidarity fund “for the immediate support and reconstruction of a democratic Ukraine”. Member countries are expected to agree on the modalities at a summit on May 30, while the mode of financing remains unclear.
Moreover, during an international donor conference organized by Poland and Sweden with the participation of the European Union to set up this fund, more than six billion euros were collected. The President of the European Commission Ursula von der Leyen announced, on this occasion, a donation of 200 million euros for the displaced people inside Ukraine.
On Wednesday 18 May, the European Commission proposed “new macro-financial assistance” to Ukraine. This represents an amount “of up to 9 billion euros in 2022”, in the form of loans. The European Union has already mobilized nearly 4.1 billion euros to support the country in the economic and financial fields, according to the European executive. Of which €1.2 billion in macro-financial assistance and humanitarian aid. The EU has also provided military aid of 1.5 billion euros, to which must be added another tranche of 500 million.
On the other hand, if the European Commission considered, on Wednesday, the option of a new common loan within the EU inspired by the post-Covid recovery plan to finance the reconstruction of Ukraine, Germany does not is not declared in favour.
Private investors
“The purpose of this aid from traditional public donors is not to enrich the country, only to rebuild”, emphasizes Anne-Sophie Alsif. This is where private investors come in. “As we have already seen in countries that have emerged from war, such as Iraq, large companies will try to position themselves in the areas of energy, transport and infrastructure. There will be competition to win jobs. markets,” she continues. To facilitate these investments, public banks will provide a guarantee. “This will attract private investors who will take over from public aid,” she says.
The Ukrainian president has already appealed to these investors to come and set up in the country once the war is over. “We will be able to restore everything that was destroyed and you can contribute to our recovery. Take advantage of this possibility for your companies, build offices in kyiv, launch the work of your companies in Ukraine and you will have access to the largest market in Europe of more than 40 million people,” he told Western entrepreneurs.
But rebuilding will take time. In the short term, with regard to schools, hospitals and all infrastructures, “we can estimate it at around ten years”, agrees Anne-Sophie Alsif. And to arrive at the same situation as before the war, “it will take much longer”.