About the author: Edward Price is a Director at Ergo, a global information, consulting and forecasting company. A former UK trade officer, he also teaches at New York University’s Center for Global Affairs.
Ukraine is fighting two wars. One against Russian aggression. The other against the Soviet economy. If she wins both, Ukraine can join the West.
I learned that last month at a meeting with senior Ukrainian officials in Kiev. Supporting Ukraine is not only moral, it is wise. Should it win its two wars, Ukraine can offer Europe and the West a wealth of future economic benefits, from energy to agriculture. To achieve this, Kiev needs continued support – and understanding – as it defies Russia and reshapes its domestic economy.
Oleksandr Gryban, Ukraine’s Deputy Economy Minister, told me the country is fighting corruption, working to ensure the rule of law and trying to make business rules more transparent. In this way, Ukraine is very similar to other Eastern European economies, with one big difference: “We tackle all this in times of war,” he said.
Ukraine’s ultimate goal is to join the European Union. And in the face of the pressures of war, Gryban says, “We deserve some special conditions for joining the EU.” Ukraine’s membership of the European Union would be a very good thing. But corruption remains a serious problem and the country does not yet meet Council of Europe standards.
Advertisement – Scroll to Continue.
Valeriia Radchenko, head of the Communications and Information Policy Department at the National Agency for the Prevention of Corruption, laid out the problem. “Elderly Ukrainians grew up in the USSR. For them, a certain level of corruption was necessary to survive,” she said. She wouldn’t put it that way, but the implication is clear: bribes and some degree of embezzled funds are normal. Radchenko is aware that complaints about Ukrainian corruption in the media have become commonplace. But that is no reason to write off the country: “More reporting on corruption does not necessarily mean more corruption. It means more democracy and more openness.”
Meanwhile, Ukraine has another, far more pressing money problem. The country has a structural deficit, in December 2022 it was 16% of gross domestic product. Even before the war, Ukraine was the poorest country in Europe. But it still offers both free medicine and free education to its citizens. Yesterday’s communist obligations have created a capitalist deficit today. Griban again:
“I can tell you that at least 50% of our state budget is covered by taxes – army spending is a separate issue, that data is classified – but whatever the government needs for budget spending is about 50%. The other 50% is funds to bridge donor budget deficits.”
Advertisement – Scroll to Continue.
Meanwhile, Ukrainian officials estimate that the country lost about 30-35% of its GDP in a year of all-out war. Forget the western F-16s that Ukraine keeps asking for. Kyiv needs international capital.
“We can’t keep asking for money,” Gryban said. “We want to show the G7 that we know how to spend the money they send us.” Ukraine’s solution is to promote its investment potential with a platform called Advantage Ukraine.
President Volodymyr Zelenskyy announced this initiative in September. Since then, the platform has evolved into a tool for international debt financing. It recently submitted its first investment projects to the US International Development Finance Corporation for consideration. Total investment picked up so far? $430 million.
Advertisement – Scroll to Continue.
Not a bad start. But not enough.
Duncan Spinner, head of Ukrainian operations for Prevail, a private sector intelligence firm, helped me navigate the country. I asked him about the prospects for reconstruction.
“Previous conflict experiences show that countries, and therefore companies and investors, should not wait until hostilities have ended before beginning economic recovery,” Spinner said. too right. Just look at Germany in 1918. Spinner is involved in the case, although since 2022 he has built a number of Ukraine partnership teams to support market entry and mitigate risks.
Advertisement – Scroll to Continue.
“It’s important to start planning now,” he said.
The corruption problem may deter some investors. But the leaders of Ukraine still make the field. Farid Safarov, Ukraine’s deputy energy minister, waves his hand. “Corruption is the legacy of the USSR. But if older people die, so will it,” he said.
Ukraine deserves a chance to prove it when they are not under fire. But Safarov also thinks the West should look at the war in financial terms. It’s a great return on investment, he says. “Every dollar you spend defending Ukraine is, say, 10 that you don’t have to spend later defending yourself.” And if Ukraine falls, the rest of Europe will face a flood of refugees. Atrocities in Russian-controlled territory show what happens to Ukrainians who stay behind. A large number will have no choice but to flee.
Advertisement – Scroll to Continue.
For decades, the West has invested in a vision of Russia that has failed. We wanted gas and oil. And we wanted peace. Now that money is gone. And so is peace. Only Ukraine offers us a better offer.
“If the West keeps defending Ukraine, you get a two-for-one deal. Immediate fossil fuels to wean Russia and an important contribution to the eventual energy transition,” said Deputy Economy Minister Gryban.
And he’s right. Ukraine has natural gas in abundance. And in a Herculean effort, Ukraine recently said it could resume electricity exports despite Russian attacks. This is a proof of concept for the future. Besides, Ukraine is also a natural political partner of the West. “The DNA of Britain, Europe and America should be free,” Safarov said. Such is Ukraine. Taken together, this results in the largest strategic investment opportunity of the 21st century to date. We should support them while we still have the chance.
Opinions like this are written by writers outside of the newsrooms at Barron’s and MarketWatch. They reflect the perspective and opinion of the authors. Send suggested comments and other feedback to [email protected]
Comments are closed.