The Economist - UK (2022-04-16)

TheEconomistApril16th 2022 BriefingThewarinUkraine 21

Ukrainianrefugees,dailyoutflow,’







200

100

0

Feb Mar Apr

Source:UNHCR

*Includespeoplecrossingtheborder

betweenRomaniaandMoldova

Crimea

Russia

,

Belarus

,

Romania

,

Moldova

,

Slovakia

,

Hungary

,

Poland

,,

UKRAINE

Arrivals from Ukraine*, February 

    th to April 

th 



 200 km

Russia’s withdrawal from the north

of Ukraine raises the possibility that

refugees might soon start to return

home to the capital and its surrounding

areas. But for now the exodus continues,

if at a much reduced rate.

Refugees

World food prices, -
=
160
120
80
2020 2021 22

ously  be  larger  now;  but  the  benefits  de­
mining brings will be substantial.
Rich in its farmland, Ukraine will prob­
ably be able to feed those in need. Shelter is
another  matter.  A  tracker  put  together  by
the Kyiv School of Economics puts the val­
ue of destroyed housing at $29bn. Rebuild­
ing damaged infrastructure and industrial
facilities will cost even more—as will deal­
ing with the problems caused by lost pro­
duction,  a  lack  of  maintenance  and  miss­
ing  investment  in  the  stock  that  escapes
destruction.  A  study  published  by  the  wi-
iwin 2020 found that, in the five years fol­
lowing the invasion of Donbas in 2014, this
sort of depreciation of assets made up 60%
of  $9.5bn  in  total  war­related  infrastruc­
ture  losses.  Apply  a  similar  surcharge  to
the  Kyiv  School’s  estimate  of  $50bn  in
damages  due  to  the  destruction  of  power
plants, factories, bridges and roads and the
estimate of a $119bn rebuilding bill recent­
ly  suggested  by  Ukraine’s  prime  minister,
Denys Shmyhal, may not be far off. 
Ukraine’s  government  has  already  set
up a recovery fund, and its various minis­
tries  are  putting  forward  proposals  for
what  needs  rebuilding.  With  the  govern­
ment  already  heavily  indebted  and  the
economy  badly  damaged  much  of  the
money needed will have to come from out­
side.  The  idea  of  using  frozen  Russian  as­
sets has been floated by various people, in­
cluding the head of Ukraine’s central bank.
In  its  absence  money  will  have  to  come
from Western governments, international
organisations and private investors.

The  difficulty  is  that  the  Ukrainian

economy  has  long  been  dominated  by

crooks.  The  oecdthinks  that  Ukraine  has

made its process for tenders more compet­

itive  since  2014,  but  things  are  still  less

than  completely  kosher;  the  imfhas  re­

peatedly  urged  the  government  to

strengthen  its  anti­corruption  framework

and the rule of law, most recently last year.

And  this  time  the  contracts  will  be  much

larger.  The  ceprsuggests,  in  part,  the  use

of  framework  agreements—standing  con­

tracts in which firms undertake to deliver a

certain  product  to  the  government  for  a

fixed price—to make it easier for both cen­

tral  and  local  municipalities  to  procure

things reliably and transparently. 

Old rope and oligarchs

The problems with the economy that lead

to  worries  about  where  reconstruction

money will end up go deep. In 2019 gdpper

person  was  lower  than  in  any  of  the  27

countries  in  the  eu:  less  than  half  that  in

Bulgaria, less than a quarter that in Poland.

Indeed  in  real  terms  it  was  lower  than  it

had  been  at  the  fall  of  the  Soviet  Union,  a

damning  testament  to  the  long­standing

lack  of  reform  (though  the  war  in  Donbas

from  2014  on  was  also  a  factor).  Many  of

Ukraine’s  1,500  operational  state­owned

enterprises are loss­making or barely prof­

itable.  Political  support  for  difficult  re­

forms  will  be  crucial  to  make  reconstruc­

tion  a  success.  It  might  help  that  the  gov­

ernment seems to see the process as an op­

portunity  to  make  the  economy  more

modern  and  competitive,  with  cheaper,

greener energy and more it. 

Past  reconstructions,  meanwhile,  sug­

gest  that  success  could  also  come  from

closer  integration  with  Europe,  as  hap­

pened with West Germany decades ago. Po­

land’s rapid growth is also often attributed

to integration: in the 15 years after it joined

the euin 2004, a period during which it re­

ceived  over  €160bn  in  assistance,  its  gdp

per person increased by more than 80%. 

Ukraine had already been turning west­

ward. The share of its exports going to the

eu rose from roughly 30% in 2014 to 36% in

2020,  while  the  share  going  to  Russia  fell

from 18% to 5.5%. One way to encourage re­

forms  would  be  to  make  them  a  require­

ment for further integration into European

markets and supply chains—say, through a

path to eumembership. “The beauty of ac­

cession  [to  the  eu]  is  that  it  would  create

consensus  within  Ukraine  about  the  end­

point of a painful reform process and lock

in  the  direction  of  the  reforms,”  argues

Beata Javorcik of the European Bank for Re­

construction and Development.

None of this will be easy. Reforming en­

trenched  institutions  requires  political

will.  The  longer  the  war  continues,  the

more  damage  is  wrought  upon  Ukraine,

and  the  harder  the  task  of  reconstruction

becomes. Nor will any amount of spending

ever make up for the horrors of war. But if

Ukraine  looks  like  an  unlikely  candidate

for a Wirtschaftswunder,its reconstruction

could, if well planned and carried through,

ensure a brighter and stronger future. n