The Economist - UK (2022-04-16)

CostofdamagetoUkrainianinfrastructure

Estimated,Febth-Aprth,$bn

Source: KyivSchoolofEconomics

Housing

.

Roads

.

Airports,ports

andrail

.

Healthcare.

Schools.

Military

Other

.

.

The damage to Ukraine’s infrastructure

sofar has been put at more than $50bn,

according to a new estimate from Kyiv.

Theeconomy is devastated, so it will

needa lotofoutsidehelp.Littlehasyet

beenpledged.

World food prices soared to another

record high, as fears grew about the

impact of a poor harvest in Ukraine,

sanctions on Russia, and a shortage of

potash, a key ingredient of fertiliser,

from Russia and Belarus.

Damage to Ukraine Food prices

World Bank estimate of the reduction

in Ukraine’s GDP this year.

45%

20 Briefing The war in Ukraine The Economist April 16th 2022

Economic costs

The builder’s bill

W

hen the devastating war ended, the

country  resembled  a  wasteland.  Its

industrial  infrastructure  had  been  flat­

tened  by  air  raids  and  its  great  cities

bombed out with terrible loss of life. Rus­

sian­led forces occupied the east, with mil­

lions fleeing their brutality. But West Ger­

many’s  economy  recovered  strongly  after

1945,  in  what  would  soon  be  coined  the

Wirtschaftswunder(economic miracle).

The  parallels  are  hardly  precise.  Uk­

raine was not the instigator of the war cur­

rently laying much of it waste. It may end

up being the victor, and even if it does not

its devastation will not be as total. Never­

theless,  rebuilding  will  be  a  monumental

task. The war waged by Vladimir Putin has

not  only  claimed  thousands  of  lives  and

displaced  millions  of  people,  7.1m  inter­

nally,  4.6m  abroad.  It  has  laid  waste  to

homes  and  hospitals,  bridges  and  ports.

With  no  end  to  the  hostilities  in  sight,

more destruction will surely follow. 

Researchers  from  the  Centre  for  Eco­

nomic Policy Research (cepr), a network of

economists,  have  used  data  on  property

damage,  figures  on  the  country’s  capital

stock  and  historical  analogies  to  estimate

the overall cost of what will have to be done

to rehabilitate the country after the war at

€200bn­500bn  ($220bn­540bn).  The  up­

per  bound  is  over  three  times  Ukraine’s

pre­war gdp; the lower number is roughly

four times the eu’s foreign­aid budget. 

As  the  war  continues,  the  damage  will

increase and the economic wherewithal to

put it right will be eroded as the economy

contracts.  Electricity  consumption,  a  rea­

sonably reliable proxy for economic activi­

ty,  is  currently  down  by  around  a  third

compared with a year ago. The Vienna In­

stitute for International Economic Studies

(wiiw),  a  think­tank,  reckons  that  the  re­

gions directly affected by the war account

for about 29% of Ukraine's output, and that

in those areas economic activity has more

or less ceased. According to a survey by the

central  bank,  30%  of  firms  around  the

country  have  stopped  producing  entirely

and  another  45%  have  reduced  their  out­

put. The World Bank reckons that gdpwill

contract by 45% this year.

The  challenge  is  vast.  Yet  the  way  in

which reconstruction happens, and the re­

forms that accompany it, will be just as im­

portant  as  the  money  spent.  In  principle

such sums could do more than just restore

Ukraine  to  its  status  quo—a  good  thing,

since that status quo was corrupt and dys­

functional (see previous article). But if re­

building  is  to  transform  the  Ukrainian

economy  into  something  more  open  and

dynamic a lot will have to change. 

At the moment, the government is try­

ing  to  limit  the  damage  where  it  can.

Around  $7bn  in  loans  and  financial  aid

from the West has just about kept the pub­

lic finances afloat. In an interview with the

Financial Times, Ukraine's finance minister

put  the  fiscal  deficit  at  $2.7bn  for  March

alone,  and  projected  monthly  losses  of

$5­7bn in April and May. 

Despite  this,  various  sectors  of  the

economy  are  getting  bespoke  help.  Farm­

ershave been given 20bn hryvnia ($675m)

with which to buy inputs and seeds for the

planting  season  now  getting  under  way.

Manufacturers  can  apply  for  help  to  relo­

cate within the country. With Russia block­

ading Ukraine’s main export route through

the  Black  Sea,  the  government  is  working

with the euto make trading by land easier.

For all this, the post­war economy will

be a lot smaller than the pre­war economy

was even as it faces new challenges. One is

clearing  affected  areas  of  landmines  and

other explosive debris. Before the invasion

of February 24th Ukraine’s defence minis­

try  estimated  it  would  cost  €650m  to  de­

mine the Donbas region, which was invad­

ed by Russia in 2014. The figure will obvi­

B ERLIN

The Ukrainian economy is in tatters and much of its infrastructure wrecked.

Setting things right could cost half a trillion dollars