The reconstruction of Ukraine will cost around $500 billion.

Supporting Ukraine in winning the war and securing a prosperous future are two sides of the same coin. Rebuilding efforts and the mobilisation of donors are already underway, as the recent Ukraine Recovery Conference in Berlin shows. For European politicians, the reconstruction of Ukraine is important — far beyond ensuring the war-time resilience of the economy and society. It is being planned with an eye on Ukraine’s long-term development and EU accession process. It is thus viewed as an investment in European stability and security.

The scale of the devastation and the financial needs of war-torn Ukraine are enormous and will grow the longer the war lasts. The World Bank estimates it at nearly $500 billion — roughly the GDP of Austria and more than triple the amount of Ukraine’s pre-war GDP. The physical destruction of cities and infrastructure comes with disrupted market activity and vastly increased risks for investors. This presents the Ukrainian state and its international allies with a huge financial challenge.

Reconstruction should be planned with the green transition in mind, both to make the Ukrainian economy sustainable and to facilitate alignment with the EU Green Deal.

Already now, the Ukrainian state-led war economy is extremely dependent on external support. Much of the current aid, as well as future financial pledges, come not as grants, but loans. These will have to be paid back and will add to the mounting debt. Already today, 70 per cent of Ukraine’s debt is owed to foreign donors. In August, a two-year debt payment freeze expires. While Western creditor states (including Germany and the US) have agreed to extend the freeze until 2027, private creditors (like the world’s largest asset manager BlackRock), which hold about a fifth of the country’s debt, are pushing Ukraine to resume the interest payments. This leaves Ukraine with little time to either restructure the debt, extend the moratorium or face a default.

Donor institutions such as the IMF have acknowledged the perils of unsustainable debt and the resulting fiscal austerity that harms people and suffocates economic growth. Debt relief should therefore be seriously considered from the outset of the reconstruction. As much future aid as possible should come in the form of grants.

People-centred recovery

The reconstruction of social infrastructure is no less important than the physical one. Ukraine’s recovery must focus on the people and the critical sectors of a stable, resilient society — those catering to people’s needs, such as education, child care, social security and healthcare. Spending on childcare and education will be crucial to the inclusion of women – who do the unpaid care work and are therefore not available to the labour market – in the workforce. Investment in social housing will be indispensable, given the scale of residential housing destruction as a result of Russian bombings. Overall, government spending in the social sector is a high-return investment with a multiplier effect that generates domestic demand and contributes to the stable, resilient society that is the backbone of successful reconstruction.

People will be crucial for the reconstruction effort. More than 6 million citizens have left Ukraine, leading to a 12 per cent decrease in the labour force. Only a socially stable country will be attractive to those who consider returning. While guarantees for businesses investing in Ukraine are being discussed, there is no such discussion about guarantees for returnees. Facing a declining population and workforce, Ukraine desperately needs both soldiers and workers. Hundreds of thousands of people, mostly men, are serving in the army and are not available on the labour market. Most companies are experiencing staff shortages. At the same time, about half of the labour force is inactive, and unemployment is high. Many men do not seek formal employment out of fear of being drafted.

Reconstruction should be planned with the green transition in mind, both to make the Ukrainian economy sustainable and to facilitate alignment with the EU Green Deal. Investment in clean energy will be key, as will efforts to decentralise energy production (Ukraine has a larger number of smaller power plants) to make it less vulnerable to Russian strikes. Donors and foreign investors could help Ukrainian companies that lack skills and human capital, and attract state-of-the-art technology, including advanced zero-emission technologies.

‘Building back better’ made in Ukraine

Throughout the war, Ukrainian companies in most sectors have lost market share to competitors from the EU. This is not surprising for an open economy in wartime conditions, but it needs to change if reconstruction is to be just and socially balanced. Ukrainian companies should be in the driver’s seat. Therefore, the revival of the industry should be the primary task of the Ukrainian state, along the lines of ‘building back better, made in Ukraine’. If the state provides regular orders to local companies (in both the defence and the civilian sectors) and supports them with subsidy programmes, it will secure future domestic growth, create jobs and help the private sector to cope with the shocks of war.

The Ukrainian government needs to find a balance between protectionism and opening up to the liberalised EU market, while the EU should find a way to compensate those actors likely to lose out.

‘Building back better, made in Ukraine’ also means that donors and foreign investors should prioritise local firms when allocating funds and make them primary contractors. As many goods as possible should be procured from Ukrainian producers. Foreign companies should be encouraged to pursue localisation and form joint ventures with Ukrainian companies. As much funding as possible should go to small- and medium-sized enterprises. Ukrainian companies have the manufacturing capacity (e.g., cement, steel) in the sectors most in need of reconstruction, such as residential housing and infrastructure. They are also competitive in the defence, food, garments and medical sectors. Local contracting and localisation will generate domestic demand, provide jobs and attract some returnees. It will generate higher and more sustainable growth because money will stay in the economy rather than leaving the country through foreign contractors or, worse, foreign contractors using foreign labour and imported building materials.

There are worries that if Ukraine rebuilds its industry, it could become a competitor for the EU. This may be true in the short term, but it overlooks the long-term benefits. Consider Europe’s experience with the Marshall Plan after the Second World War: It enabled the rise of the European industry, which became a rival to the American one. But in the long run, the US benefited from an economically strong Europe, just as the EU will eventually benefit from a strong Ukrainian economy. In the big picture, the Ukrainian government needs to find a balance between protectionism and opening up to the liberalised EU market, while the EU should find a way to compensate those actors who are likely to lose out (protests by Polish and French farmers could be a harbinger of distributional conflicts).

National Development Agency

Reconstruction requires strategic planning, oversight and donor coordination. A dedicated National Development Agency could be set up to ensure that funds reach the people and to align reconstruction with EU accession.

When large amounts of aid flow into a country, the state’s capacity to absorb the funds becomes key. Part of the foreign assistance to Ukraine should focus on building the capacity of the agency’s employees to ensure that the institution can absorb unprecedented amounts of money, attract foreign capital and know-how where needed, and plan, execute and monitor large-scale projects.

To facilitate coordination, donors should consider channelling more aid through multilateral channels (e.g. through EU or EBRD funding) rather than bilateral channels. The reason is that a multitude of bilateral projects, with their respective requirements and monitoring standards, can put a strain on authorities charged with implementation on the ground, so that, in the worst case, local actors might be scared away from using the money at all. Their time should primarily be spent on project planning and implementation, not on the bureaucracy of managing aid funds.

Capacity building in local administrations can foster local ownership and ease implementation. As government contracting is highly susceptible to corruption and can affect both Ukrainian and foreign firms, fighting corruption will remain crucial. It is therefore rightly prioritised by Zelenskyy’s government and should be supported by donors through capacity building, monitoring and accountability mechanisms.

Source: IPS

Former Prime Minister of North Macedonia Dimitar Kovačevski and Albanian Prime Minister Edi Rama together with European Commission President Ursula von der Leyen.

Drawing lessons from the enlargement of the European Union is tricky. The key elements have always been different enough: the geopolitical contexts, the internal challenges of the candidate countries, the EU and its enlargement process itself — making the ‘lessons learned’ approach often frustrating and misguiding. In spite of all the diversity, reforms and geopolitical turmoil, there are certain elements of the EU enlargement process that remain relevant, instructive and vital. And maybe, just maybe, Ukraine can observe them most clearly in the Western Balkans.

The observations in this article are based on my experience as someone who was directly involved in all the stages of North Macedonia’s turbulent EU accession and who is closely following the Western Balkan’s integration dynamics. Twenty years after the EU Thessaloniki Summit offered EU membership to the Western Balkans, the results are disappointing: two countries are negotiating without significant success (Serbia and Montenegro), two countries are in the early stages of negotiations (North Macedonia and Albania) and one is a candidate country (Bosnia and Herzegovina). We should therefore be humble and think twice before offering advice to Ukraine.

Still, as Nelson Mandela taught us: ‘We never lose. We either win or we learn.’ It is safe to say that when it comes to enlargement, the countries of the Western Balkans have learned a lot. Here are some of those lessons we have learned the hard way.

Geopolitical enlargement is back

Even before the horrendous Russian aggression against Ukraine, the EU was reiterating that ‘a credible enlargement policy is a geostrategic investment’. Yet, these political messages did not convert into any tangible progress in the Western Balkans until the war in Ukraine broke the inertia and increased the ambition for enlargement, both geographically and dynamically. A new momentum was confirmed with the decisions to open accession negotiations with North Macedonia and Albania (July 2022), Ukraine and Moldova (December 2023) and the candidate status of Bosnia and Herzegovina (December 2022).

Truth be told, geopolitical enlargement is back because it never went away. The European Union itself has been a geopolitical endeavour, born during and as a result of war, and each wave of EU enlargement was geopolitically tied to the need for peace and stability, with the 2004 ‘Big Bang’ accession of the countries of Central and Eastern Europe being the most obvious example.

But geopolitical arguments alone will not be enough. To be successful, EU enlargement must also remain transformational.

Therefore, the assumption that the war in Ukraine would accelerate the enlargement process and create an enlargement appetite among the member states was neither new nor unfounded. Some of the traditional critics of enlargement are evidently concerned about the security of Europe and might withdraw their usual enlargement reserves in times of war, while enlargement supporters gain additional arguments to call for the ‘bigger picture’ to trump petty interests.

But geopolitical arguments alone will not be enough. To be successful, EU enlargement must also remain transformational. While the European Union needs to address its own enlargement challenges of how to reward progress and sanction regression, the accession countries need to focus seriously on the reform agenda and demonstrate commitment, knowledge and result delivery.

Within the accession countries, the process involves a myriad of different transitions and is fraught with multiple political traps. Liberalising the economy and reforming the regulatory framework while strengthening institutions and fighting corruption sounds complicated enough. Add political pluralism and social divisions, and the mix becomes volatile. Nevertheless, it has to be done, usually while juggling different priorities and conflicting interests.

Technical knowledge and political skills

When North Macedonia started its EU accession process, it was a country recovering from the consequences of the wars in the former Yugoslavia and its own internal ethnic conflict. The EU emphasised peace and stability, which translated into political reforms, minority rights and decentralised government. Based on their Balkan experience, expectations were running low. Therefore, nobody really welcomed our EU membership application. It took three years of political and organisational commitment, high motivation and teamwork to convince EU officials and technocrats that we were serious and ready. Macedonia was the first of the Western Balkan countries to become an EU candidate solely because we did not ‘put all our eggs’ in the geopolitical ‘basket’, but delivered beyond expectations on several reform fronts.

During the two decades of EU enlargement to the Western Balkans, the region has gone through revised methodologies, different regulations, a plethora of acronyms (SAP, HLAD, JHA, CFSP, to name but a few) and endless matrices and templates. Only highly knowledgeable and well-trained experts can navigate these stormy waters. Selecting, training, empowering and retaining the technical experts is the most valuable investment that an acceding country can make.

Macedonia started to invest in its EU experts back in 2003 by dispatching young civil servants to the best European universities for master’s degrees in various EU fields and promoting them (upon completion) throughout the public administration. Several generations of well-educated and networked civil servants have practically led the process in its early (very successful) stages, creating an excellent image for the country both at home and among EU partners.

Acceding countries need an honest assessment of the different positions at home and in the European Union: the supporters, the opponents, the bystanders, the undecided.

The enlargement process requires technical knowledge and expertise, but the process itself is hardly technical. It can only succeed if it is driven by strong political will and leadership, creating broad and sustained support. Therefore, respect and support your experts (at home and abroad), trust their advice, make use of their knowledge — but demand leadership and (preferably) consensus from your elected officials. They must be serious, determined and united under the banner of EU membership.

One of the most important skills in politics is the ability to ‘scan the room’ — if you can’t ‘read’ who your ally or opponent is, you’re wasting your time there. The same applies to the enlargement process. Acceding countries need an honest assessment of the different positions at home and in the European Union: the supporters, the opponents, the bystanders, the undecided. Each group merits appropriate attention and engagement. Don’t turn your opponents into enemies and don’t take supporters for granted.

Most importantly, don’t overlook vested interests and don’t underestimate the risks of bilateral disputes with EU member states. In most cases, it is better to deal with them as they arise, in order to prevent them from transforming into a veto. Just learn from the trauma of North Macedonia’s two vetoes (first by Greece, then by Bulgaria) and don’t delay difficult decisions.

It’s a marathon

European officials strongly praise Ukrainian endurance and enthusiasm during these turbulent times. They stress the motivation, drive and keen interest of its representatives at the negotiating table. This is indispensable — no major transformation is possible without vast reserves of enthusiasm. However, be wary of high expectations turning into sudden disappointment.

The accession process will be a marathon even in the best-case scenario. Make sure that the country paces itself and plans accordingly. Those who prepare for a sprint will suffer from burnout and may turn from ardent supporters to cynical sceptics. The accession process is not a smooth ride; it has its ebbs and flows, moments of victory and periods of despair. But the acceding countries must stay the course, maintain focus and preserve internal cohesion.

The geopolitical earthquake that shook Ukraine, the EU and the world has created a momentum for the previously lethargic EU enlargement. But this momentum won’t last forever. The EU accession countries that are smart, dedicated and take advantage of the ‘strategic opening’ will become new EU members within the next 10 years. The rest will have to live with the current limbo situation: being next to Europe, but not part of it. Be smart — choose wisely.

Source: IPS