Publication

Ukraine’s Recovery after Lugano: First Blueprints Take Shape but Quandaries Lie Ahead

on 18.07.2022

The Ukraine Recovery Conference, hosted in the Swiss town of Lugano (July 4-5), gathered a thousand participants from over 40 countries and numerous international organizations. The high-level discussion on rebuilding and modernizing Ukraine sought to lay out the principles and priorities for the recovery process ahead. Numerous questions about the modalities of support and details of the expected transformation, nonetheless, remain to be answered in the future.

The main highlight of the conference was the presentation of the draft Ukraine’s Recovery and Development Plan, which would cover the 2022-2032 period and amount to an estimated $750 billion (excluding funding for security and military expenditures). The Plan consists of 850 projects within 15 national programmes in different spheres of the economy and public life. According to Kyiv, the implementation of the Plan would be set to start in 2022 regardless of the situation on the frontline. The initial phase, which calls for $60-65 billion, includes, inter alia, demining 5% of the country’s territory, preparation of the energy system for the winter, construction of the early phases of a freight corridor to Klaipeda and the repair of twenty thousand homes and the construction of one hundred thousand new houses. Immediately after the war ends, the second, ‘fast recovery’, phase (2023–2025) should commence, encompassing 580 projects worth $350 billion. Further 270 projects focusing on the three pillars - people, economy and infrastructure – requiring funding of $400 billion, are planned for 2026–2032 (‘the long-term transformation’ phase). No details, however, are provided for the majority of the projects. The government is expected to better specify its priorities and substantiate the projects in the coming months. The suggested revenue sources, meanwhile, include assets seized from Russia and Russian oligarchs, grants and soft loans from international financial organizations and partner countries, private sector investments and Ukraine's general budgetary resources.

The Ukrainian government overall pledges to “build a new country” directed at modernization, the implementation of European integration reforms aimed at complying with the EU’s accession criteria, the introduction of green technologies and digitalization, enforcement of the rule of law and prioritization of transparency and accountability throughout the recovery process. These principles are also reflected in the adopted Lugano Declaration,which also provides for the creation of a coordination platform between partners and financial organizations.

While official speeches and power point presentations of the recovery plans generally radiated optimism, the challenges and pitfalls of the future recovery process are abundant. Partners, importantly, still need to agree on a common vision on overcoming these obstacles.

Recovery under fire?

One of the greatest quandaries concerns the timing of the start of the recovery process. Kyiv insists that recovery efforts begin immediately. Yet the safety and, hence, reasonableness of long-term investments is under question. Donors are likely to cautiously avoid committing to anything beyond supporting Ukraine’s immediate survival needs while the outcome of the war remains uncertain and the risk of further escalation high.

Any recovery plan that foresees Ukraine winning the war in half a year (a rather optimistic scenario on which the draft Recovery Plan is premised) will take different shape than a framework presuming longer-term hostilities. It is, yet, presently impossible to estimate the duration of the conflict, the territory that Ukraine will control at the end of the war and the final extent of Ukraine’s losses and their long-term consequences. Any recovery and development plans, consequently, cannot serve as anything more than preparatory sketches.

The challenges of ownership and responsibility

One of the key issues to be decided by partners concerns the optimal balance to strike between Ukraine’s process ownership and effective oversight of the implementation of the reconstruction and modernization plans. The expected inflow of large sums of recovery funding will be a defining moment that tests the capacity of anti-corruption efforts of all stakeholders – the Ukrainian government, the EU and Ukrainian civil society. The establishment of an effective monitoring system that incorporates trusted domestic and international actors and garners high-level political buy-in from Kyiv indeed poses a challenge that both sides must address.

There are also still lingering questions about the institutional capacity within Ukraine to implement ambitious recovery plans at all levels – from the top (deciding which authority should take the lead) to the bottom (finding enough qualified project managers at the regional and local levels to develop and implement a vast number of complex projects). It is apparent, however, that strategic leadership, transparent decision-making, effective vertical and horizontal coordination, local ownership and public participation will be critical to the success of building a more efficient Ukraine.

Ever-important civil society

The above challenges underscore the continuing importance of a Ukrainian civil society that has already repeatedly proven to be a critical force during other pivotal turning points in the country’s history. It now must embrace a special mission that will demand it reimagine the future of Ukraine and contribute to the development of an in-depth reform agenda at all levels, as well as overseeing its implementation. At the Lugano conference, civil society organizations presented their Manifesto, laying down their version of the recovery principles, red lines and priority tasks for Ukraine’s development. Realizing the magnitude of the task ahead, civil society actors (CSOs, business community, volunteers and others) are ready to work side by side with the government and international partners on a specific plan of action and implementation mechanisms.

Clear reform commitments ahead of money

Funding should be conditioned on the introduction of tangible reform plans – not merely pleasant-sounding declarations. The principled stand of international donors rather entails considerably higher standards in ensuring that funds are invested prudently.

The much-needed private funding will also depend on the effective transformation of the operating environment. A lack of liberalization and further delays to judicial reforms will not increase the enthusiasm of foreign investors that were lukewarm even in pre-war times.

Ukraine has formally declared its commitment to undertake long-postponed reforms – these steps will also be necessary to secure progress on the country’s EU membership path and modernize numerous elements of its economy and public life using best practices from the EU. Donors and private investors, however, will judge Ukraine’s record based on its ability to deliver results, paying particular attention to the substance of reforms and detailed investment plans. This backdrop points to considerably challenging and tedious work ahead which will require involving the best minds from Ukraine and abroad.

Once the war is over, Ukraine will be provided a unique opportunity to leapfrog into the European future and develop an innovative and carbon-free economy based on best practices and modern technologies. Whether the country harnesses the moment adequately will depend on the coordinated, well-planned and committed efforts of all actors – both within and outside Ukraine. The next recovery conferences, therefore, must pin down answers to the many questions spotlighted here.