The Russian-Ukrainian war is not only a humanitarian tragedy but also an economic disaster for Ukraine. The losses from the conflict are staggering: tens of thousands of lives lost, millions of people displaced, and hundreds of billions of dollars in infrastructure and property damage.
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Massive reconstruction efforts will be required after the war to rebuild what has been lost. However, with the challenge of reconstruction comes a unique opportunity – to rebuild the country's economy on a new foundation, one that is not dominated by oligarchs and corruption.
Prior to the war, Ukraine was plagued by the dominance of oligarchs in the economy. These powerful individuals controlled many critical sectors, such as energy, finance, and media, using their influence to engage in corrupt business practices, maintain monopolies, and capture the political and regulatory system.
This state of affairs prevented foreign investment from flowing into the country, stunting economic growth and depriving Ukrainians of opportunities. By capturing the state, the oligarchs kept the country weak and vulnerable – not to mention the prominent role many of them played in promoting Russian influence and keeping Ukraine susceptible to it.
The war, however, has dealt a significant blow to the oligarchs' business empires, damaging their assets and reducing their wealth. According to Forbes Ukraine their losses stood at $16.5 billion at the end of 2022. Just the direct losses for the industrial enterprises of oligarchic conglomerates have been estimated by the Center for Economic Strategy to number about $4.5 billion. By some estimates, up to 70 percent of Ukrainian oligarchs’ wealth has been wiped out.
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This presents a rare opportunity for Ukraine to rebuild its economy on a more equitable, non-oligarchic foundation. Instead of relying on the corrupt practices of the past, Ukraine can attract proper investors, particularly foreign ones, to become the main players in the country's economic future. Not only would this secure prosperity for all Ukrainians, but also clean up the country’s politics of undue vested interests and cut the traditional channels of clandestine Russian influence.
To achieve this goal, the post-war reconstruction model must be tailored to attract private foreign investment. Private equity funds from Western jurisdictions are the most obvious candidates to invest in Ukraine's post-war environment and they’re the first entities that potentially could replace the oligarchs as the largest economic agents.
Clearly there is already some interest from this sector, despite the war ongoing and prospects for its end-date being uncertain. Nevertheless, given the risks that Russia generates for any kind of investment in the region, the attraction of private fire investment should be built into the very economic model of post-war reconstruction from the very beginning.
Reconstruction funds should be used both to insure the investors against war and political risks and to allocate funds directly to the private equity funds on a competitive basis. If capital allocation is left purely to the public sector, the reconstruction is unlikely to generate enough economic momentum and will most likely fail.
The institutional environment must also be tailored towards high quality investors who take part in reconstruction efforts. They should be able to operate under British or EU law – the precedent already exists in Ukraine, with the current privatization legislation already allowing British law to be used for dispute resolution.
Reforms of Ukraine's notoriously bad business environment should be rejuvenated, as there is no alternative to reforms in shaping the investment climate in the medium to long term. Finally, decentralized allocation of reconstruction funds to local communities would also be beneficial, allowing communities to partner with private sector players and compete for projects.
Rebuilding Ukraine’s economy on a new foundation via a successful post war reconstruction will be a huge challenge. Nevertheless, it gives the country a unique opportunity to emerge from the conflict with a new and better economic future.
By attracting foreign investment and reducing the influence of oligarchs, Ukraine can build a more prosperous and equitable society for its citizens. The correct model for post war reconstruction has to be established and agreed upon by all the main stakeholders before that war ends. The time for action is now.
The views expressed are the author’s and not necessarily of Kyiv Post.
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