Ukraine’s push for speedy rebuild faces obstacles

Vienna Insurance Wiener Versicherung Gruppe AG

23/06/2023 10:57

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Pierre Briancon
       LONDON, June 23 (Reuters Breakingviews) - Ukraine wants
foreign donors to start investing without waiting on the
country’s recovery. International donors have already promised
dozens of billions of euros to help the country rebuild, but
President Volodymyr Zelenskiy would now like real money for real
projects. He has a case, but rushing could also compromise the
country’s long-term recovery.
    “Better small than late” is the mantra of Kyiv officials
urging donors to start investing in concrete projects. They have
form. Since the war started in February 2022, Ukrainian
politicians and engineers have been rebuilding fast, almost in
real time, the power stations, bridges, pipelines and roads
damaged by Russian bombs. And the foreign loans and grants that
finance Ukraine’s $3.8 billion monthly fiscal shortfall this
year only help pay for the wages of soldiers and teachers, or
the welfare payments that have rocketed since the beginning of
the war.
    In the four years from 2024 to 2027, the EU estimates
Ukraine’s needs at some 110 billion euros ($120 billion), with
60 billion euros of fiscal deficit financing, and 50 billion
euros of “fast recovery” spending. Europe has already pledged to
finance 45% of that sum, or 50 billion euros. Other donors such
as the U.S. or Japan are expected to follow suit.
    The money is there, and most governments at a conference
this week in London promised they would support Ukraine for “as
long as it takes”. It’s easy to see why Kyiv wants to start the
long-term reconstruction effort now. It would anchor investment
pledges in real factories and infrastructure projects. It would
put foreign experts, engineers, managers and consultants on the
ground in the war-torn country. It might boost the morale of the
Ukrainian population. And it could even send Russia another
signal that the war it is waging is against Europe.
    Donors can however point out that there is little precedent
for rebuilding a country still in the throes of war. Possible
ways to reassure investors about the current military risk
include schemes such as war-damage insurance coverage. While a
new framework announced in London by governments including
Britain and France lacked details, it has already been supported
by insurers like Aon  AON.N , Lloyd’s and Vienna Insurance Group
 VIGR.VI .
    The World Bank’s Multilateral Investment Guarantee Agency is
already providing such coverage in the form of political risk
guarantee to investors and lenders. Whether through MIGA or
nation-based schemes, private insurers could be offered
incentives to extend their coverage, protected by an umbrella of
public guarantees. In Ukraine, the system would offer the added
benefit of transferring to western banks, insurers or
governments claims to recoup the money from Russia, whenever
that becomes possible.
    It may take time, however, to devise such complex coverage.
In the meantime, rushed investment decisions could deter others
if they turn sour and are taken as an example of everything that
can go wrong when investing in Ukraine. And international donors
need first to coordinate their aid and investment plans - which
they have only recently started to do. Ukraine has a point when
it wants to start rebuilding, but fast could also be the enemy
of best.

    Follow @pierrebri on Twitter
    
    CONTEXT NEWS
    Ukrainian President Volodymyr Zelenskiy, in a video address
to the delegates of the Ukraine Recovery Conference held in
London on June 21 and 22, urged international organisations and
allied governments to spring into action beyond their pledges of
aid for his war-torn country. “We must move from vision to
agreements and from agreements to real projects,” he said.
    The European Union earlier this week pledged another 50
billion euros in grants and loans to help Ukraine in the years
2024 to 2027, which Commission President Ursula von der Leyen
said would cover 45% of the country’s needs over the four-year
period.

 (Editing by George Hay and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  BRIANCON/ 
SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe
 | pierre.briancon@thomsonreuters.com; Reuters Messaging:
pierre.briancon.thomsonreuters.com@reuters.net))