In the Wake of Lugano Conference. The event featured Dmytro Lyvchfrom the Centre for Economic Recovery, Nataliya Melnyk from Bendukidze Free Market Centre and was moderated by CASE Ukraine Executive Director Dmytro Boyarchuk.
Keynote points of the discussion and abridged expositions of speaker reports are published below.
Keynote Points:
The Ukraine Recovery Conference 2022 became a platform to discuss the recovery of Ukraine. Among its key results was the meeting of the Ukrainian party with international partners in the format that widely represented tools and mechanisms that might be used for the recovery plan.
The Conference was intended to find a way and agree about the ways in which to move and to give the start to the use of tools for country recovery and renovation after winning the war.
Many programmes on recovery architecture, economic, social and infrastructure sectors as well as environment protection and green energy development were suggested.
The reforming of the country towards free market, democracy and digital transformation envisions implementation of designed initiatives; however, the biggest issue is the one of how to lead the strategy all the way to its implementation, introduce work principles and specific actions.
The damage dealt to Ukraine roughly amounts to USD600 billion. The announced amount required to rebuild the country stands at USD750 billion for the next ten years. However, it is currently not possible to calculate the total scope of damage and the growing deficit of the national budget.
The recovery of the economy has to begin primarily with the rule of law and macro-financial stability, which should result in sectoral transformation of the economy.
It is necessary to ensure economic freedom via de-regulation, privatisation, digitalisation and access to markets.
Foreign investors will only come if conditions are safe; hence, it is important to solve the matter of war risk insurance.
The recovery and rebuilding process belongs to the scope of responsibility of the government and the civic society. Due to the high level of distrust among the international community, the development process will need the government, businesses and the civic community involved.
The recovery programme should be viewed as a common cause with all of us are stakeholders – the future will depend on it.
Transcript of discussion (for the full video of discussion please follow the link)
The Ukraine Recovery conference 2022 that took place on 4 and 5 July in Lugano, Switzerland, featured Ukrainian government representatives, international partners and Ukrainian civic society representatives. Let us discuss the outcomes of the event that can be expected in terms of reforms and recovery.
– What was the conference about, who the participants were and what topics were brought up?
Dmytro Lyvch
It was the fifth conference. This year it was renamed into Ukraine Recovery Conference 2022. The event was intended as a platform to discuss post-war recovery of Ukraine. The two days saw lots of different formats. The key panel discussion featured the government of Ukraine, business and civic society representatives, also international partners who were able to discuss a variety of topics related to recovery, among them the architecture of recovery (how the financing would be provided, what mechanisms and tools would be used), economic recovery (how to restore the economy), social and infrastructural recovery, as well as recovery with a focus on environment protection and green economy and green energy development.
Besides, two important civic society events were organised. The Swiss-Ukrainian community coordinated a parallel event at which business representatives could discuss important recovery factors.
I am sure a recovery is not only about the government and international partners but also about Ukrainian businesses and civic society. The challenge is unprecedented enough for us to be unable to face it without the private sector.
– What it’s the reform agenda for Ukraine? Is there a vision of it of sorts, or it is still the process of being conceived?
Nataliya Melnyk
There were lots of experts from our government: the announced number was at 2,500. 24 groups, some comprising civic society representatives, spent two months working on analytics that resulted in 24 recovery-related volumes – more than 2,000 pages in total. CSOs, both present in Lugano or involved in this practical work, plan to work in this direction. It would make no sense to analyse the work because it has not reached the analysis phase yet as the intent has been to see practical steps. As the implementation of government programmes has not been a complete success, we would rather talk about specific things.
In the wake of Lugano one can describe it as follows: it was an event meant for our foreign partners, potential investors; it was a nice show. Not fully comprehensible in some aspects: why are we now talking about recovering the country having not won the war yet? I do not support this view; yes, not everything is okay on the frontline, the war is not going to end soon, it is necessary to work to support the AFU doing unimaginable things, it is necessary to support our diplomats doing titans’ work, and we all are working for the victory. Therefore, we need to be ready for this victory moment.
There are many rather specific steps not known in the planning. There are many correct things but the question is how this is going to be implemented and within which timeframe as many of the things mentioned about post-victory Ukraine need to be done already now. Similar matters were included in some promises but then we have to return to the rather painful topic of rule of law in the country – or rather of the lack thereof. Here we hear a promise of SAP head being already selected to be nominated already in July. With such benchmarks we will be able to see quite soon if the government is really ready to switch from nice words to specific matters. A small matter but a wonderful development if done in July because the process of SAP head selection has been dragging on for two years. It will be a good signal to both international partners and to us too, in order for us to understand the promised concrete things will be put in practice. If not, then this will be a completely other case, a different situation. I am sure this will make a good start for all of us to start working and to convince ourselves the nice words will turn into reality – the reality that will be truly human-centric, not the government-centric one that, at least, I seemed to see in the part of the programme I had a chance to acquaint myself with.
– The event did draw media attention. Is it already possible to speak about some conference results or it is still to early for that?
Dmytro Lyvch
The main conference results were the meeting of the Ukrainian delegation with international partners in the format of broad dialogue and the discussion of the tools and mechanisms that might be applied to the recovery plan.
I fully agree that in the past 30 years Ukraine has seen lots of plans, strategies, ideas and thoughts around how to reform our country in the spirit of free market, democracy, green and digital transformation. Many good ideas and initiatives have been implemented but the biggest problem is to see how the strategy can be brought to full implementation.
The conference was meant to kick-start the dialogue; we have to agree on aspects of the vision of our country after the war and ways in which we will work on it. There are many factors that will affect this. We may not know specific timeframes or future tally of damage. At this moment we only can agree as to how we are going to calculate damages and prove them in courts against the RFU as well as on how we are going to obtain reparations. These are the important tools we need to implement in the country.
That is, first of all, we need to agree on principles and only then proceed to implementation and realisation. Factors will affect selected strategies or tools. There is currently no clear information as to whether the sea ports will be de-blockaded or control risk insurance mechanisms employed, but talks were already held at the conference about the need for us to ensure war risk insurance with a view of uncertainties about the situation and its duration and given Ukrainian businesses need resources for their operation.
There are indeed multiple ideas as to whether we need to start the recovery already now or it would be better to wait for until after the victory. I support the idea that we are fighting indeed on the military front – which is the primary task now – but also on economic and diplomatic fronts but the recovery of the economy needs to start now. It is necessary to ensure access to financing, markets, human capital, know how, which is of crucial importance for us.
Ukraine has to stand in this fight that has been going on for a long time and who knows when will end – but it will end sooner or later and there will be the bright future for the Ukrainian economy. Such conferences are intended for finding a way and agree on how to move along the way.
– One of the key matters at the conference was the mechanism to finance the recovery. From a view of civic society representative, how this should happen?
Nataliya Melnyk
In an ideal setting, the rebuilding is not the end in itself. When we talk about the rebuilding, we do not mean everything was nice before the war. It would be great to unleash our potential: the scope of work is much bigger than mere rebuilding.
The matters of recovery need to be reviewed in a narrower sense as all our organisations and rank-and-file Ukraine nationals are tracking the inflicted damage and loss. Your organisation, the CASE, wonderfully researches matters of damage to roads, infrastructure, the amount of money and time needed for the recovery.
The amount we will need in the coming ten years for recovery that was announced at the conference stands at USD750 billion. An interesting amount; still, there are multiple unknowns as we have no idea how big further destruction might be. Already now the experts call the damage in equivalent of USD600 billion. With this in mind, and keeping the tab at the catastrophic national budget deficit, which may well reach USD35 billion, the USD750 billion for the recovery of Ukraine looks rather optimistic. It is rather the amount for today with just a forecast of the budget deficit by the end of this year. There still remains a big question as to whether the war ends by the end of the year and even bigger one of what will be here after it ends.
After this war we will see a lot of people dependent of the state: war veterans, affected nationals who lost their provider, or home, or work, or limb etc. Respectively, huge amounts will be needed to assist those in need of it for at least some time. We do not have the money for this.
On the matter of reparations: it is a rather time-consuming process. We do not know the amounts we may receive and we will require some substantial international assistance on that. Surely, the reparations will be won not in Ukrainian but international courts. The amount of USD750 billion mostly comprises grants and next loans. Investments will make a smaller proportion (around USD250 billion) of it, and we would want more of them in Ukraine. As these will be private money, they will signal to the international community, international businesses that Ukraine can be invested in, that is has prospects and – nonetheless important – safe.
There were questions on the credit rating of Ukraine even before the war, and the understanding that our northern neighbour is not going anywhere and that the prospect of its return in the future remains rather high has scared off investors. On the other hand, we now have a unique opportunity of luring foreign investors into Ukraine because the matters of rebuilding and recovery after the injustice of horrendous scale can be a good incentive for many investors to have a closer look of us and think: ‘Why not? It would be, first of all, an investment and secondly, a charitable assistance.
This is why Ukraine is now on the radar of a many individual and company, and it is completely on us how we are going to use the opportunity. Simply inviting international companies into Ukraine is not enough – they would have come to us by themselves if felt it as necessary, promising or lucrative. The fact they have not till now should nudge us to think we did not offer them something they need. Lot has to be done now to not just invite foreign investors but to convince them they have to come out here.
– At the press conference, Prime Minister Denys Shmyhal presented a certain variant of a money disbursement decision-making mechanism. How close this one might be to the final version of it?
Dmytro Lyvch
As of now, the matter of coordination platform establishment has been tabled. There are multiple variants of how this could be arranged. Some lively discussions around recovery matters have been happening in the past four months; various institutions, think tanks, international partners and the Ukrainian party have been working on a range of documents.
A similar situation is with international partners: foreign institutions, governments and private investors planning to join the recovery of Ukraine. The support packages announced by the European Union are impressively high. Ukraine has confirmed its European integration intents and has finally been granted the status of an EU candidate, which I congratulate everyone with, but this is yet to mean something for the country.
The architecture that has been currently suggested, it is a living thing, which can change; and we need to account for initiatives and ideas of many a partner. The recovery is not only about the European Union; it is also about our partners: the United States of America, Canada, Great Britain, Japan, South Korea. All of them are supporting Ukraine, and we are quite thankful for this unprecedented level of support – but let me go back to USD750 billion. I do not think it is the final figure and an end in itself. We need to be clear to ourselves about the economy of Ukraine to contract in 2022, by different estimates, between 35% and 45%. We need to understand the national budget deficit will further increase. As we also have to comprehend there are expenditure items in the national budget – defence, social support measures – that are guaranteed and will also grow so for our country to continue servicing its national budget as a sovereign nation it will have to urgently provide for relevant level of macro-financial support from international partners. We also need to think how to optimise the budget, reduce the proportion of state redistribution via the economy and increase the GDP. The amount of USD750 billion is not only about direct investments and injections in the form of grants and loans but also about how we are to build the economy.
We will not be able to bring the investments-to-GDP ratio to 50%-60% in a snap of the fingers. The 25%-30% ratio is generally a rather good indicator to mean a rather fast-paced growth.
We must not forget about the access of Ukrainian businesses to overseas markets; we must think about creative solutions; we must replace Russia on the market it has traditionally been a strong player on. Ukrainian companies can be far more competitive.
We need to think how to attract private investments. There has always been a strong competition worldwide around FDI placement. If we as a country are agents able to offer new, innovative solutions to the world or the EU, then we will be able to compete for money. The world economy has changed and we need to rather proactively work in this direction – then the recovery will be not only about restoration but also modernisation.
No, everything was not okay or ideal before the war. We would want our economy to grow faster, for people to have more opportunities for self-realisation, for them to have decent living standards, for enterprise initiative to have a chance of sprouting through improved rate of economic freedom.
The analytical materials for the conference designed with involvement of the Centre for Economic Recovery have information and analytics for each of the panels. In the economy-related materials we focus on economy recovery to start primarily with economic freedom and macro-financial stability. Only then it may be possible to think about access to money, markets, know-how and only after that, about sectoral transformation of the economy.
We have to think now how a modernised Ukraine’s economy would look. If we are to achieve some result that will be different in principle, we need to start doing something differently; we cannot continue like we had before and expect some other results, the economy does not work like this. That is, we really need to increase the level of economic freedom, to think and to do things related to the rule of law. We need to ensure the economic freedom via deregulation, privatisation, digitalisation, access to markets. We need to give businesses a chance of growth: the economy of Ukraine deserves it and has a huge development potential.
We have to start the renewal already now; we cannot miss this chance. We must support now the working businesses and create environment for new ones. This will be a guarantee of success and then we will be able to talk about USD750 billion – or trillion? The figure is of no relevance, it’s principles and approaches that count.
– What are your impressions of the conference? Did it live to your expectations, or superseded them? Please share your views
Nataliya Melnyk
In a rather subjective way, I regarded the conference as a good quality show for the target audience of international partners and potential investors, an event with good presentations. As a starting point it is okay; but we would like to see more specifics. We will be able to see it rather soon, in autumn, when a huge donor conference will convene: there we will understand the performance of Lugano conference and hear how our international partners and investors are really ready to invest.
From the standpoint of my think tank, the conference has absolutely no effect on our activities and plans as both CASE Ukraine and other partner organisations are going to work further to see changes we want in Ukraine happen. It is good to have a chance of referring to certain things voiced at the conference but the event had a different purpose. We followed it, looked at the texts prepared in two months by experts – now we make conclusions of our own and boost our activities making everything we can to see the bright tomorrow come as soon as possible. Many things can – and have to – be done already now without waiting for an official end of hostilities. This is what our role of representatives of the think tanks involved in economy, growth and economic freedom matters is about.
Dmytro Lyvch
Our role has been to assist the Swiss government as well as the government of Ukraine in providing the conference with documents so that its participants are able to acquaint themselves with panel topics. As for me, the conference was quite a success and probably the biggest of all the five arranged in the framework of the Ukraine Reform conference. The level of preparation of all the parties: the government, the civic society, businesses and international partners was exceptionally high. We need to understand though this is just the beginning, a draft plan, which needs to be discussed, and we will be defending the principles underlying our coordinators. All of us want to live in a democracy with free market economy; all of us want economic freedom. Because of this, a great deal of work is waiting for us in terms of discussion of the future, search for options and tools to make it real.
For the past 30 years, implementing the charted plans was a huge problem. There are tons of intellectual potential around the recovery plan that dozens of think tanks, educational institutions and international partners are working on; however, we all need to think about practical things – how to kickstart the recovery. At the same time, we need to think about first-hand things to be done to save the economy, provide decent living conditions for the population and, most importantly, win the war.
– How would you comment why the agenda opts for ‘human capital’ and ‘economic complexity’ as key indexes instead of, say, global competitiveness index or that of economic freedom?
Dmytro Lyvch
The matter of indexes to choose is rather partial; it would be easy to declare the aim of, e.g., per capita GDP of USD15 thousand and a certain level of human development. Actually, indexes allow us to take into account success factors.
In support of the economic complexity index, I would add that Ukraine now needs to think how to diversify portfolios and develop economically. At the same time, I am a rather staunch supporter of the economic freedom index. The information and analytical materials prepared for the conference – you can have a look of them – do focus on economic freedom indicators.
As regards the global competitiveness index, I am not sure it is the most innovative and performing indicator nowadays (though I would also aim at improving it).
– Will the experience of using the Marshall plan to rebuild Europe and particularly, Germany, in the 50ies be used? What checks will be used against corruption in the government and oligarchic influence on programme funds’ appropriation avenues?
Dmytro Lyvch
Our organisation plans to publish a big survey of international experience with about 15 case studies from various countries. We offer these models for discussion; they were also included in the analytical documents for the conference. Unfortunately, these documents are not government’s official prospective action plan.
On the second question: the important moment now is to set up a platform that will be audited on a daily basis by a Big Four company (Deloitte) and fully report to donors. Similar ideas should possibly also apply to the fund to be established for the coordination platform. We do not know this yet, there is not enough detail. We expect concrete approaches to how this will be implemented to be ready by autumn. A combination of success components like: first, a vision of a good quality plan; second, institutional capacity; third, the funding. Each of the three must be as transparent and as accountable as possible – this is rather important as it is one of the recovery principles.
Nataliya Melnyk
Regarding experience: it will be definitely taken into account both by the government and civic sector. There are already consultations going on specific recovery projects for cities in Ukraine. Consultations are held with cities most affected during the WW2. We are talking practical things here: some countries are already taking over the responsibility for the rebuilding of individual regions in Ukraine. A lot of what Europe had to live through will be taken into account.
Regarding transparency: corruption is among the key topics at Lugano conference. It is not going anywhere because we are still to have some specific mechanisms to be launched in response to the threat. One good idea here would be: rather than ‘money first, action to follow’ principle, facilities should be linked to specific projects we are implementing. It should be rather for the second-phase programme, not as money we urgently need now. We are already too dependent on international assistance. Painful as it is to recognise, we need to be fully conscious about the many things that depend on us ourselves. We must not lose this international support or harm ourselves in the sense of prospects. Civic sector responsibility is of great importance as the government cannot fully control itself. We already have the experience of organisations able to track the spending of both public funds and the international one coming into the country. I would thoroughly consider this experience looking at the high level of distrust among the international community to how money is spent. The distrust and concerns should be dispersed by all possible means.
– Do you think Ukraine has enough professional HR, particularly, corporate management professionals?
Dmytro Lyvch
Sufficiently enough, yes, and the number will grow. There are quite a lot of corporate governance schools, good corporate management cases and good companies, both private and public, in Ukraine. I think it surely won’t be a problem.
– What solutions to protect money from embezzlement and imitation have the partners suggested?
Dmytro Lyvch
This is what Natalia talked about. Generally, grant and loan facilities come against specific requirements that must be met to have the money transferred to the account and used for initiative implementation.
Nataliya Melnyk
Soon we are going to see more specifics, more specific ideas and mechanisms. These matters are tracked, it is simply too early to talk about specific things now.
– Attracting investments is more important for us now. We are more or less clear now as to how to work with grantors, and have quite a nice experience about it. Is there anything of importance we would need to know and account for when collaborating exactly with investors?
Dmytro Lyvch
Rule of law, risk insurance. War risk is the biggest factor for investors now. The risk has been with us since 2014: the war began back in that year, not on 24 February. Ukraine was already attracting investments in war risk conditions; it is just the risk has materially growth now. Therefore, a mechanism of how insure against this risk needs to be designed with involvement of international partners, the government, experts, the civic society and businesses. Only then will we be able to compete, which, unfortunately, cannot be achieved now.
Nataliya Melnyk
In this section we spoke about the importance for Ukraine to join the NATO because investors will feel more protected in a NATO member country. An unrealistic prospect for now. Therefore, it is necessary to consider alternative measures: bilateral, trilateral international agreements able to provide at least some surety for a potential investor. Some might become guarantors; there are different mechanisms that need to be meticulously looked into because we could attract much more capital than we have been since 2014.
There is an additional threat that, even after the end of this phase of the war, we may find ourselves in a similar situation in the future. With a view of that, we can talk about Ukraine to become a strong, successful nation with unleashed potential exactly owing to its national security in place. Then we will be in a much better position to defend ourselves. It will surely take a lot of time but it is additional motivation for all of us. The people that we lost could return home because the outflow that is happening now is simply catastrophic.
– Have they considered a kind of plan B for the case of a protracted (3 to 5 years-long) war and are there ways to resuscitate the economy in wartime conditions that could be used already now?
Dmytro Lyvch
I am sorry to say I heard nothing of that type of discussion in the scope of the conference but can confidently state that scenario-based modelling has been going on – before the conference, at its moment and afterwards. Various scenarios are reviewed by the Ukrainian side and international partners will join us.
Nataliya Melnyk
If we are to really face an active protracting war, the only option will be to transition to war-time economy, which will entail rather substantial changes in it. In this case there will be even greater dependence on our foreign partners as regards the financing as our national budget deficit will only grow. This is about staples, the most urgent types of payments – even salaries to our servicemen. That is, we will become increasingly dependent on the money from overseas tax payers, and this will quite complicate the situation for us.
– Has the AR of Crimea been included in the recovery effort, or it is considered separately?
Dmytro Lyvch
At least, in the documents we prepared for the conference the Crimea was considered a part of Ukraine. We have never changed the position: the Crimea remains our territory like it was a part of Ukraine in 2014.
– Will Ukraine be able to implement a Marshall plan of its own or it will end in a nice presentation and smart videos as before? Where could one find the text of the Ukraine Recovery Programme?
Dmytro Lyvch
For the plan, please visit the Ukraine Recovery Conference 2022 web site (https://www.urc2022.com) as well as https://recovery.gov.ua where all the programmes have been presented.
Whether Ukraine is able to implement its plan will depend only on me and you. I would avoid saying it depends on the government or international partners; it depends on each of us and on the work we have been performing at various fronts. It is only for us, the Ukrainians, to decide how the plan is going to be implemented.
Nataliya Melnyk
I fully agree: the programme must be perceived not just as a specific 2,000-page documents. The recovery operation/campaign in Ukraine is our joint task where all of us are stakeholders because the future of us and our children will depend on it. One cannot step aside here; everyone has to chip in because there are tons of work ahead. It is simply necessary to split responsibilities for some rather specific things and to do everything we can so that targets we set for the economy of Ukraine are achieved. The price of inaction is too high today.