07.09.2023

‘Build back better’ must be part of our agenda for Ukraine

Peace by Piece · Issue 04

Supporting Ukraine in winning the war and ensuring its prosperous future are two sides of the same coin. The rebuilding efforts already under way are an important first step. For European politicians, the importance of Ukraine’s reconstruction goes beyond humanitarian concerns. Ukraine’s EU accession is increasingly being viewed as an investment in EU stability and even sustainable peace.

Rebuilding Ukraine is a gargantuan challenge that will require the joint efforts of governments and private capital. But it must not be allowed to turn into a foreign investors’ free-for-all. Three things should be prioritised:

(i) Avoiding a debt trap

The scope of devastation is enormous. World Bank estimates put the financial cost at 400 billion USD. Much of the current funds and future financial pledges are not grants, but loans. This mounting debt must eventually be paid back. Donor institutions such as the IMF have acknowledged the perils of unsustainable debt. Fiscal austerity, the traditional remedy, harms people and suffocates economic growth. Debt relief should therefore be given early and serious consideration.

(ii) ‘Build back better’ implemented by and for the Ukrainian people

Reconstruction should focus on the needs of the Ukrainian people, and Ukrainian companies should be in the driving seat. Government spending in sectors such as education, child care, social security and health care is properly understood as an investment and a demand multiplier that helps to sustain a stable, resilient society. ‘Build back better – made in Ukraine’ entails donors prioritising local firms and making them primary contractors. In the sectors most in need of reconstruction, such as residential housing and infrastructure, Ukrainian firms have the necessary manufacturing capacity (for example, cement and steel). Local contracting will generate domestic demand and attract returnees. Money will remain in the economy, not be siphoned off by foreign contractors, foreign workers, and imported building materials.

Investors can provide support and help guide the process in a socially balanced way. They can help Ukrainian companies acquire state-of-the-art technology and implement European standards. This will make Ukraine’s future EU accession process a lot smoother.

(iii) Oversight

A National Development Agency should be set up to ensure that all funds reach the people and to oversee reconstruction. Especially in the early phases, elements of protectionism and state dirigisme should be considered for the Ukrainian economy. This would enable it to find its feet in a protected environment before exposure to the liberalised EU market. Foreign donors should initially focus on capacity-building for agency employees to facilitate the new agency’s absorption of unprecedented amounts of money, as well as to attract foreign capital and know-how, where needed, and to plan, carry out and monitor large-scale projects. Furthermore, capacity-building in local administrations fosters ownership on the ground and eases implementation. Corruption must be combated relentlessly, with donors lending a hand through capacity-building, monitoring and accountability mechanisms. Achieving these aims should be viewed as an investment in EU accession and linked to debt relief.

About Peace by Piece

Peace is one of the major achievements on the European continent after 1945, yet it is barely being mentioned anymore. When it is, it is all too often accompanied by a connotation of appeasement and defeatism. That shouldn’t be the case. Peace is one of the most precious achievements for humankind. But building it and sustaining it requires effort, ideas, political will, and perseverance. However far out of reach it may appear, peace should nonetheless serve as the long-term aim of politicians in Europe. This series of comments provides ideas for a new European Security environment able to provide the basis for a more peaceful future in the face of new challenges.

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