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Throughout the 2010s, reconstruction efforts were often regarded as “white elephant” projects that seemed to oscillate between government waste and post-colonial superciliousness. It’s understandable: Between 2004 and 2014, about $220 billion was spent on Iraqi reconstruction; Afghanistan required at least $141 billion, some of that in noble pursuits; and Libya might need over $130 billion. As U.S. troops left Kabul in the summer of 2021, reconstruction was almost synonymous with Byzantine procurement, inflated costs and a litany of engineering mishaps.
And now there is the recent global conflict surrounding Ukraine. War zones are not the best places to conduct accounting, but estimates of the cost of rebuilding range between $114.5 billion and the $750 billion requested by Ukrainian officials at the Ukraine Recovery Conference. Somewhat more recently, the figure of $1 trillion was floated by the European Investment Bank’s president.
All of this is to say that there is an enormous opportunity for growth in Ukraine today.
When Reconstruction Works
If the aforementioned lost decade of reconstruction did impair a painful lesson, it is that reconstruction happens in a context, and part of that context is determinable by private enterprise. It is, after all, the case that part of the initial optimism about Iraq and Afghanistan was an extrapolation of experiences in Japan or Western Europe after World War II and South Korea after the Korean War. All were, by most standards, astonishing successes.
And a lot cheaper: The cost of the entire Marshall Plan for 17 European countries was less than the amount spent in Afghanistan alone.
What might have been overestimated by U.S. officials was the degree to which these were successes of U.S. government policy as opposed to domestic private enterprise getting a hand-up rather than a hand-down. For example, Toyota might have been saved from near bankruptcy by U.S. military contracts, but it was Toyota itself that used market access, engineering talent and modern production to become a slice of Japan’s GDP. South Korea’s chaebols might have been helped by U.S. demand, but they transformed South Korea not by following U.S. advice to focus on exporting low-value-add raw materials, but by independently focusing on technology transfers and development.
The Context
With that in mind, Ukraine’s reconstruction might be the start of a remarkable growth story.
Certainly, Ukraine ranked 122nd in Transparency International’s 2021 rankings, near Zambia and Gabon. The Zelensky Administration’s pre-war approval stood at 24.7%, lower than Viktor Yanukovych when he was forced to flee the country. Around the same time, 60% of Ukrainians reported a pessimistic outlook for the country. It’s hardly a surprise: Its GDP in 2021 stood at 58% of 1989 levels. Understandably, none of the reasons for that have actually changed.
But there is significant scope for optimism, foremost from private business.
Much like the reconstruction of Western Europe and East Asian nations, the Ukrainian reconstruction will happen in the context of global GVC re-polarization and “friendshoring.” Ukrainian people themselves are well positioned to take advantage of that: With a higher proportion of graduates than France’s, open doors in most commercial capitals and a mobilized diaspora, it is not hard to envision reconstruction inflows hydrating business growth.
Making It Happen
It is in that context that I can wholeheartedly recommend Romania and Moldova as launching pads for Ukrainian reconstruction.
What will ultimately decide the trajectory of Ukrainian reconstruction beyond the booster rockets of aid is the degree to which the momentum provided by business and trade overpowers the gravitational pull of extractive business practices, government sinecures and patronage networks that have held Ukraine back so much that 42% of GDP vanished.
A NATO and EU member approaching Schengen Area membership, Romania is both home to one of the largest Ukrainian diasporas and has precisely the land trade routes that Ukrainian business needs to grab this opportunity with both hands.
Best Practices For Businesses Looking At Reconstruction
As Ukraine looks to rebuild in the aftermath of war, there are several steps that businesses in the country can take to position themselves for success. One critical step is to begin building a network of potential business partners and suppliers, especially in Europe, before the reconstruction efforts even start. This will enable businesses to hit the ground running and take advantage of opportunities as they arise.
Additionally, it is important for businesses to invest in understanding the politics (and the political risks) of the European Union and how to navigate its complex institutional system, as the EU will likely be a key partner for Ukraine in the post-war context.
Finally, businesses should focus on tapping into the expertise, investment and network of the Ukrainian diaspora, which can provide significant benefits. Rather than simply trying to bring back those who left after 2014, businesses should consider more imaginative ways to involve the diaspora in the new, successful Ukrainian story.
Takeaway
For better or worse, the Ukrainian reconstruction will mobilize perhaps the greatest inflow of funds in the country’s history. Looking back 10 years hence, the difference between those funds taking the way of post-war Afghanistan or Marshall Plan Western Europe will be made by private businesses and private entrepreneurs. Ukraine has all that it needs in place for the latter road to be taken.
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