At 47, Tymofiy Mylovanov is not just an economist immersed in his mathematical models and his equations. The president of the Kyiv School of Economics is also a committed man. This former Minister of Economic Development, Trade and Agriculture (between August 2019 and March 2020) was teaching at the University of Pittsburgh when the conflict broke out. He then decides to return to Ukraine. Since then, he has been followed on Twitter to tell his daily life and that of his students, launch fundraising campaigns to save his school, align the arguments on the effects of economic sanctions on Russia and on the need to fight against corruption. in Ukraine to attract foreign investment. With his teams, he points out the damage caused by the war as closely as possible. Interview.
L’Express: In its latest forecasts, the International Monetary Fund estimates that Ukraine’s GDP will probably shrink by 34% in 2022. What state is the Ukrainian economy in one year after the outbreak of the war? Do you fear a continuation of the recession?
Tymofiy Mylovanov: In fact, I will not speak of a recession in the proper sense of the term. The current contraction is not linked to any reversal of the cycle, but to Russia’s decision to destroy entire cities (Kharkiv, Mariupol and Kherson), water infrastructure and energy supply facilities, in order to bring about a total collapse of Ukraine.
If the gross domestic product has fallen by a little more than 30% as estimated by the IMF, it is ultimately not such bad news! In reality, we anticipated much more – around 50% -, given the violence of the war. But the economy is showing unimaginable resilience. Outside combat zones, stores, shopping centers and restaurants are equipped with generators. Most companies have “backups” of their IT systems in place in case of cyberattacks. Those who export have found new trade routes or new customers in record time to sell some of their products. The damage is considerable, but new opportunities are also created. For the rest, everything will obviously depend on the evolution of the conflict. If a form of positional warfare sets in, then we can continue to rebuild part of the facilities and a rebound is possible. On the other hand, if the fighting continues, frankly, it is difficult to anticipate any stabilization. In any case, we will remain in a war economy. The international aid that is flowing in regularly keeps our heads above water and we have to be very precise about the amounts we need.
Which sectors are the most affected today?
All those who were very dependent on exports such as metallurgy, machine tools and agriculture. In eastern Ukraine, the manufacturing sector is at a standstill. Since the start of the war, we estimate that at least 64 large and medium-sized businesses and nearly 3,000 stores have been destroyed.
Precisely, do you have a broader estimate of the destruction linked to the war?
It’s hard to say because the “bill” changes every day and, at the same time, we are rebuilding facilities. At the end of December, we had estimated the total destruction at 137.8 billion dollars, or the equivalent of two thirds of the nominal gross domestic product for the year 2021. This is obviously considerable. The damage caused to the housing stock is estimated at 54 billion dollars. In just ten months of war, 149,300 residential buildings were damaged or destroyed, including 131,400 private homes and 17,500 apartment buildings. The cost of destruction of infrastructure is approaching 35.6 billion. At the beginning of January, of the 150 damaged bridges, viaducts and main roads, a passage had however been restored in 78 places. It is also estimated that 593 pharmacies, 330 hospitals and 595 state and local administrative buildings have been destroyed or seized. And I will end this count with the damage caused to the education system: nearly 3,000 schools were affected, including 865 kindergartens.
Agriculture is one of the strengths of the Ukrainian economy and the war has deeply disrupted world grain markets. Will spring sowing be able to proceed a little more normally than last year?
Depending on the type of cereal, cultivated areas could decrease by 10 to 20%, because a significant part of agricultural land – between 30 and 40% – is contaminated by mines. Ukraine has become the most mined country in the world! Farmers have also planned to substitute certain crops for others, whose yields per hectare are higher. Sunflower in particular should be preferred.
Tymofiy Mylovanov
© / Kateryna Lashchykova
How much do you estimate the cost of rebuilding the country?
Several amounts are mentioned. Our experts from the Kyiv School of Economics estimate that the amounts needed for reconstruction approach 550 billion dollars when the World Bank has a lower estimate of 350 billion. In reality, it all depends on what you take into account. Our costing includes both the direct effects related to the destruction, but also the indirect effects such as under-investment, job losses, etc.
Do we need a “Marshall plan” for Ukraine in order to finance reconstruction?
We must first ensure that Russia pays in the form of compensation. It will take time, but it is possible to seize, for example, the 300 billion dollars of foreign exchange reserves of the Central Bank of Russia which are frozen today. The second source of funding is international aid. Not everything can come from States and major international institutions like the IMF or the World Bank. Private money must be mobilized in the form of direct investments and technology transfers.
But how to secure these private investments?
This is what is at stake because the risks are numerous. The first is market risk: there, large internationalized companies know how to cover it. Then there are those caused by war. International organizations and States must develop insurance and guarantee systems, otherwise companies will not come. Finally, the third type of risk is related to problems of governance, lack of transparency and corruption here in Ukraine. There, it is up to the current government to take action. President Zelensky has held very clear positions, changes are underway and institutional decisions will be taken. This is extremely important, otherwise the money we need will not arrive.