As Ukraine launches its critically important military campaign to expel Russian forces from its territory, it is time also to begin an economic counteroffensive to begin building a better Ukrainian economy able to power it through the war and pave the way for eventual EU membership. 

That will be the task for the Ukraine Recovery Conference (URC) that holds its latest meeting in London on June 21-22.

Past conferences – such as Lugano in July 2022 and Berlin in October 2022 – have offered shared principles for reconstruction, but no concrete programs and structures. This year’s must be different. It should produce key deliverables to be implemented on an ongoing basis, rather than waiting for the next annual conference to take place.

The greatest and most urgent need is for a URC permanent executive that is focused exclusively and intensively on Ukraine’s economic recovery. The G7 has already established the multi-donor coordination mechanism, which is currently co-chaired at a senior technocratic level by the European Union (EU), the United States, and Ukraine, and supported by a small staff in Brussels. This mechanism should be upgraded under the auspices of the URC, which has a wider base than the G7. 

The goal should be to create a consistent, high-level, and highly active mechanism to promote the implementation of ideas and programs for Ukrainian reconstruction, and so fill the gap between the annual recovery conferences. While programs would still be executed by the various national and multinational stakeholders through their own mechanisms, such an executive would focus these efforts, provide greater coordination and consistency, and seek to pair resources and capabilities with evolving needs in Ukraine. 

For example, one of the most pressing needs at the moment is a clear prioritization of reconstruction goals, and the development of a pipeline of finance-ready projects. An executive could work directly with Ukrainian authorities and international financial institutions to address these needs.

This permanent executive should be chaired by a senior European statesman, such as a former prime minister, and augmented with board members (or senior advisors) who would be high-ranking nationals of various stakeholder states, from G7 and non-G7 countries alike. Individual states should follow France’s lead and appoint a senior (ideally ex-Cabinet) coordinator for Ukraine reconstruction, reporting directly to the president or prime minister.

An executive director and support staff should be hired to conduct day-to-day work, perhaps building on the already-established EU-led staff in Brussels. It could also take advantage of Ukraine’s National Investment Council, which has already been established by the European Bank for Reconstruction and Development (EBRD.) All this would only require a modest amount of new funding, ideally provided on a voluntary basis by supportive states.

To inform the work of such body, a standing Private Sector Advisory Council – made up of international and Ukrainian businesses – should also be established. No one is better placed to advise both the international community and the Ukrainian government on obstacles to investment and policies that need to be adopted than those who with their own resources are trying to invest in Ukraine.

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The UK is rightly focusing on the role of the private sector in Ukraine’s economic recovery. Public funding will never provide sufficient funds, or be self-sustaining enough, to rebuild Ukraine as a whole and nor should it be. There will not be a single fund handed over to Ukraine for the Ukrainian government to use at its discretion for reconstruction projects. This will have to be a joint effort.

International public funding is appropriate to cover humanitarian aid, infrastructure investment, demining, war-risk insurance, and other public goods. But it will be private investment, based on sound business models, that will create jobs, self-sustaining economic growth, rising GDP, and higher tax revenue for Ukraine’s national budget. Public funding is best used to leverage greater flows of private investment.

Yet two key factors deter many investors from putting their resources into Ukraine right now: concerns about security and about the effectiveness of Ukraine’s rule-of-law. Both must be addressed. 

Investors worry about security both in a microsense (the risk of war damage to a single investment) as well as a macro sense (the guarantee of Ukraine’s future as a sovereign, rule-of-law driven, secure country.) 

In the microsense, the URC should outline a system of war-risk insurance to cover investments where normal private insurance drops off. In the immediate term, this can be through the Multilateral Investment Guarantee Agency (MIGA) at the World Bank. Though currently modest in size, MIGA could be beefed up with substantially more funding.

Ideally, the currently frozen $300bn or so of Russian Central Bank assets could be placed in a trust fund and used as a pool of funds to guarantee an insurance program. The funds would be unlikely to be drawn upon – and if so, only to compensate for damage caused by Russian military action in Ukraine. In the medium term, the EBRD can establish an even larger fund for providing war-risk insurance for investors in Ukraine. 

Finally, and perhaps most importantly, development finance and credit guarantee agencies from individual states should provide insurance to investors from their own nations. Because governments would be assisting their own national businesses with investments, these programs could be even larger and more politically sustainable in the long run than providing public resources to multinational mechanisms. 

In the macro sense, there will be no economic recovery without security for Ukraine as a whole. Investors need to know that Ukraine will be a secure, sovereign and independent state. This kind of security concern must be addressed through a system of strong, credible security assurances for Ukraine — something that is already intense discussion among NATO allies and Ukraine. The best assurance is a clear pathway for Ukraine to obtain NATO membership itself, which seems increasingly inevitable. It is difficult to imagine Ukraine being admitted to the EU without it also becoming a member of NATO. 

It is vital that any interim security assurances be articulated as soon as possible — for example, at the Vilnius NATO Summit in July 2023 — in order to establish investor confidence in Ukraine’s long-term economic recovery.

The other major factor of concern to investors is a lingering worry about the rule-of-law in Ukraine. Investors are conditioned to be cautious, given Ukraine’s history of corruption, oligarchs, and a tainted judiciary. To address this, Ukraine needs to proactively adopt European laws, regulations, and implementation standards — the EU acquis — as quickly as possible. It should express such a commitment at this year’s URC, and the EU should offer to provide all possible means of technical assistance to Ukraine in implementing such reforms while maintaining a forward-leaning posture on Ukraine’s eventual EU membership. 

Adopting the EU acquis is essential not as a matter of conditionality, to warrant foreign aid from governments and multilateral institutions, but to give confidence to the private sector and attract substantial levels of foreign investment.

Typically, nations take a slow approach to adopting the EU acquis to avoid sudden and heavy transition costs. Due to Russia’s war, however, Ukraine is already going through a major shock to the economy. The risks of a speedy approach to adopting the EU acquis are far lower than not doing so, and then failing to attract the levels of investment needed to jump-start the economy. 

As with past Ukraine Recovery Conferences, this year’s conferences will no doubt showcase extraordinary solidarity and support for Ukraine.  But this year, it is time not only for words but for action. 

Ambassador Kurt Volker is a Distinguished Fellow at the Center for European Policy Analysis. A leading expert in US foreign and national security policy, he served as US Special Representative for Ukraine Negotiations from 2017-2019, and as US Ambassador to NATO from 2008-2009.   

Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

Europe's Edge
CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America.
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