A folyamatos oroszországi megszállást követően – amelyet 2022 februárjában indítottak – Ukrajna hatalmas kihívással szembesült gazdaságának és társadalmának újjáépítése és modernizálása terén. A megszállás súlyos károkat okozott az infrastruktúrában, az épületekben, a megélhetésben, valamint emberi áldozatokkal is járt. Az újjáépítés és a helyreállítás teljes költsége 411 milliárd dollárra becsülhető (383 milliárd eurónak felelő összeg), amelyhez 10 éven keresztül köz- és magánforrásokra lesz szükség.
Ez a jelentés összefoglalja az újjáépítés és modernizálás kulcsfontosságú kérdéseit, valamint a Visegrádi 4 régió szerepét, amelyet a 2023-as Council of Slovak Exporters’ Visegrad 4 Business éves rendezvényén mutattak be, Prágában, Csehországban.
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1. Introduction
In the face of Russia’s ongoing invasion of Ukraine, launched in February 2022, Ukraine is facing a massive challenge of rebuilding and modernizing its economy and society. The invasion caused severe damage to Ukraine’s infrastructure, buildings, and livelihoods, as well as human casualties and displacement. The total cost of reconstruction and recovery is estimated at US $411 billion (equivalent to €383 billion), which will require public and private funds over 10 years. Ukraine has received significant support from the international community, especially the European Union, which considers Ukraine a candidate country and a strategic partner. The EU has proposed to set up a new Facility to support Ukraine’s recovery, reconstruction, and modernization, with up to €50 billion in grants and loans for 2024-2027. The EU has also been leading the economic reform and recovery efforts, as well as providing humanitarian, emergency, and military assistance. The United States has been a key ally of Ukraine, providing security and diplomatic support, as well as financial and military assistance. The US has spearheaded the efforts to deter further Russian aggression and to facilitate a peaceful resolution of the conflict. The US has also been involved in the coordination of the donor community and the implementation of the recovery and reconstruction projects. Finally, most of Ukraine’s neighboring countries in the eastern neighborhood have been Kyiv’s stern allies, expressing their solidarity and support for Ukraine, providing financial, military, and humanitarian aid, energy supplies, and political backing. The V4 region’s socio-economic landscape has been severely affected by the war, as they have hosted large inflows of refugees, and their local economies have suffered double-digit inflation, soaring costs of living, declining real incomes, and tightened financing conditions, in addition to energy link security threats from Russia. The region’s countries have also been active in regional cooperation and integration initiatives, such as the Three Seas Initiative and the Eastern Partnership, which aim to enhance the connectivity and resilience of the region. Against this background, the transatlantic alliance and Ukraine’s neighborhood will continue playing a key role in Ukraine’s post-war rebuilding. This report summarizes key issues in rebuilding and modernizing post-war Ukraine and the Visegrad 4 region’s role in it, as put forth at the 2023 Council of Slovak Exporters’ Visegrad 4 Businessiii annual event in Prague, Czechia.
2. Main Challenges to the Reconstruction of Ukraine
In charting a course for Ukraine’s future, the international community must pursue a comprehensive approach to Ukraine’s rebuilding, focused on security, integration, economic recovery, and social cohesion.
One, ensuring territorial integrity and sovereignty remains a paramount concern for Ukraine. The nation must safeguard its population from further Russian aggression and destabilization. Moreover, concerted efforts are required to address humanitarian and security issues in the occupied territories of Crimea and Donbas. A focus on the well-being of internally displaced persons and refugees is equally crucial, requiring comprehensive and compassionate initiatives. Two, the reconstruction and modernization of Ukraine’s economy are imperative, given the historical challenges of corruption, mismanagement, and underinvestment. Structural reforms are a linchpin for success, necessitating improvements in governance, robust anti-corruption measures, reinforcement of the rule of law, enhancement of the business environment, and diversification of the energy sector. Mobilizing domestic and foreign resources, along with attracting private investment, will be pivotal in financing ambitious reconstruction and recovery projects. And three, Ukraine must actively cultivate a sense of national unity and identity while championing democratic values and human rights. Addressing political and social divisions, as well as historical and cultural grievances, is crucial to thwart external exploitation. Engaging in inclusive dialogue and reconciliation efforts with all segments of society, including ethnic minorities and civil society, is essential for fostering lasting political and social harmony.
In synthesizing these three pillars—security, economic recovery, and social cohesion—Ukraine can pave the way for a resilient, united, and prosperous future. Each dimension is interlinked, necessitating a holistic and integrated approach to navigate the challenges posed by external threats and internal divisions. The success of Ukraine’s journey toward stability and growth hinges on the strategic implementation of these measures, both in the immediate and long-term context.
3. The Current State of the Ukrainian Economy
Ukraine’s economy is an emerging, lower-middle-income, mixed economy that has been severely affected by the ongoing conflict with Russia and the COVID-19 pandemic. This invasion has caused staggering losses to Ukraine’s people and economy, setting back 15 years of development gains, and increasing poverty, with an additional 7.1 million Ukrainians now living in povertyv. According to the World Bank, Ukraine’s GDP contracted by 29.1% in 2022 and is expected to grow by 2.0% in 2023 and 3.2% in 2024vi. However, the country faces a $43 billion budget deficit for 2024 and will need to rely more on foreign aid and its resources. Donor resources channeled through the World Bank, for instance, have been essential for Ukraine’s public service delivery, essential repairs, and private sector activityviii. But Ukraine’s V4 neighbors – notably, Poland, Slovakia, and, Czechia – have also been at the forefront of international aid as evidenced by the total bilateral aid commitments to Ukraine as a percentage of donor gross domestic product (GDP) between January 24, 2022, and May 31, 2023.
Turning to the Ukrainian private sector performance, the country’s small and medium-sized enterprises (SMEs), 85% of exporting SMEs have continued their operationsix. Notably, 46% of SMEs forced to suspend activities have resumed operations, and an additional 38% anticipate a return to pre-war levels within two years. Moreover, 20% of entrepreneurs have availed themselves of grant programs, showcasing efforts to secure financial support. The vast majority of Ukraine’s SMEs accept non-cash payments, and 7 out of 10 companies, in addition to their direct activities, plan to participate in the country’s recovery programs.
Turning to trade, in 10 months, Ukraine’s total exports of goods reached $82 billion, nearly mirroring the corresponding figure from the previous year, which stood at $81 billionx. However, despite this apparent stability, the export trajectory is set on a declining trend due to trade restrictions imposed by neighboring countries and compounded by logistical challenges. On the import side, the country primarily imported goods from China ($8.4 billion), Poland ($5.5 billion), and Germany ($4.1 billion). The key imported product categories included machinery, equipment, and transport at $16 billion, chemical products at $9.3 billion, and fuel and energy products at $8.7 billion. On the export front, Ukraine’s major trading partners were Poland ($4.1 billion), Romania ($3.3 billion), and Turkey ($2 billion). The top three exported goods were food products, amounting to $17.7 billion, followed by metals and metal products at $3.3 billion, and machinery, equipment, and transport at $2.5 billion.
Despite this resilience, Ukrainian businesses encounter multifaceted challenges, emanating from missile attacks on assets, health concerns, a severe weakening of economic activity and consumer demand, and infrastructure issues, such as access to electricity, water and heat supply, and mobile communications. The lack of staff emerges as a significant hurdle for medium-sized businesses, constituting 35% of their primary challenges. Ukrainian SMEs have been also challenged by the lack of financial resources for development (45%).
International support in financing plays an important role in the development of Ukrainian business. According to the Government Portal, Ukrainian businesses have received more than EUR 4 billion from international partners. Private businesses have received assistance in the form of direct financing, credit risk sharing and guarantees, grants, donor assistance, and war risk insurance. Projects worth EUR 2.7 billion are underway and limits for another EUR 1.5 billion have been signed. Assistance comes from a variety of sources, including the European Bank for Reconstruction and Development, the European Investment Bank, the International Finance Corporation (IFS), KfW – a state-owned bank of the German Government, and USAID – the United States Agency for International Development.
4. The Post-War Reconstruction of Ukraine as a Security Imperative and Business Opportunity
Despite the full-scale war, Ukrainian businesses continue finding ways to remain profitable, grow, and innovate, driven by cost advantage, superior quality, and originality of their products abroad. Representatives of the Ukrainian business community remain optimistic, with 73% of them planning to scale their businesses, of which 19% are already implementing such a strategy. In particular, companies plan to expand the range of goods and services (32%), open new sales outlets and increase production volumes (31%), develop digital channels (31%), and expand sales abroad (16%).
But as Ukraine embarks on the thorny path towards its recovery, reconstruction, and modernization, it will need to rally around a shared vision, which it can ‘sell’ and obtain international partners’ buy-in to facilitate collaboration, including in the V4 business sector, which can help with mobilizing investments and innovation. As such, the reconstruction of Ukraine is also a business opportunity for Ukraine’s V4 neighbors, as echoed throughout the 2023 V4Business conference.
Firstly, Ukraine’s V4 neighbors can help Ukraine further strengthen its defense and security capabilities to deter further Russian aggression, by supplying Ukraine with weapons, ammunition, and military equipment, as well as investing in the training and development of the Ukrainian armed forces, creating a market for more than €20 billion worth of defense services and products in the long term, according to a study conducted by Garriguesxiii. Crucially, V4 can provide their expertise, equipment, and materials in construction to help rebuild Ukraine’s damaged infrastructure, buildings, and housing, and participate in the tenders and projects announced by the international donors and organizations, such as the EBRD, the EIB, and the EU, with a potential demand for more than €750 billion worth of construction services and products in the long termxiv. Furthermore, Ukraine is a major transit country for natural gas and oil from Russia to Europe and has significant reserves of coal, shale gas, and renewable energy sources. The V4 neighbors could help Ukraine diversify its energy sources and reduce its dependence on Russian gas and oil, supplying Ukraine with electricity, renewable energy, and nuclear fuel, as well as investing in the modernization and expansion of the Ukrainian energy sector. Improving its energy efficiency and developing its green energy potential would be of particular importance in that regard.
The V4 neighbors could also have a role to play in improving Ukraine’s road network and connectivity with the rest of Europe, by providing expertise, technology, and equipment to upgrade the Ukrainian roads, bridges, tunnels, and railways. The reconstruction of Ukraine could create a demand for more than €150 billion worth of road infrastructure services and products over the long runxv. Ukraine is one of the world’s largest exporters of grain and other agricultural products, moreover, and has a massive potential to increase its productivity and quality with modern technologies and practices.
The V4 countries can provide inputs, equipment, know-how, and market access to Ukrainian farmers and agribusinesses. Food security and agricultural productivity will be thus key going forward, especially provided past tensions pertaining to the exports of Ukrainian grainsxvi, and can be buttressed by mutual cooperation with V4, creating a market for more than €100 billion worth of food services and products in the long haul.
The cooperation with V4 could also extend to the IT sector, pharmaceuticals, and automotive, boosting Ukraine’s digital transformation, and innovation and reviving its auto sector – respectively – and forging further business opportunities. The IT sector is deemed particularly promising in that regard, given Ukraine’s vibrant and fast growing IT sector, with over 200,000 professionals and more than 4,000 companies, many of which work for global clients. The V4 countries could partner with Ukrainian IT firms, outsource their IT needs, and support innovation and digitalization in various sectors. Healthcare and pharma are some of the most crucial sectors for Ukraine, especially in the context of the war with Russia and the COVID-19 pandemic. The V4 region can provide humanitarian and medical aid to the affected regions, such as refugees, internally displaced persons, wounded soldiers, and vulnerable groups, support reform and modernization of the Ukrainian underfunded healthcare system, and share their experiences and best practices in implementing universal health coverage, improving primary health care, strengthening health governance, and enhancing health information systems.
The V4 countries can partner with Ukrainian healthcare providers, research institutions, and start-ups, and facilitate the transfer of knowledge, technology, and capital.
Despite the multitude of mutually promising areas for business cooperation between V4 and Ukraine, V4Business Conference participants have also voiced concerns about risks involved in doing business in Ukraine for the business community, mainly, ones about political instability, trade & supply chain disruptions, security threats, including the increased risk of cyber-attacks, corruption, bureaucracy, and legal barriers. The difficulties to enter and leave the region, as well as disruptions of transport infrastructure, damage of goods, increase of costs, and delays of trade, were particularly high on their agenda, and so were hostile actors seeking to sabotage critical infrastructure, steal sensitive information, or spreading disinformation and propaganda.
5. The Role of Innovation in Ukraine’s Modernization
Innovation may play a vital role in the war’s outcomes and emerge as a catalyst for the extensive rebuilding and modernization of Ukraine’s economy and society.
Firstly, it offers a strategic pathway towards bolstering the nation’s security and resilience against potential Russian aggression and destabilization, as Ukraine can develop and deploy advanced weaponry, ammunition, and military equipment while fortifying its cyber and information capabilities. After all, the Ukrainian military has also performed remarkably well against a much larger and initially better-equipped Russian military, in part due to the innovation of its forces1. Additionally, innovation can play a vital role in diversifying Ukraine’s energy sourcesxix. There is also reason to believe that innovation may grow even more important as the war grinds on. Finding new ways of fighting that improve the efficiency of Ukrainian smaller forces, buttressed by
continued Western aid, clever strategy, and sound force employment will be crucial in shaping the outcomes of the war.
Beyond security concerns, innovation can kickstart the post-war reconstruction of the country by providing a source of income and employment for the people who have been affected by the war, especially the youth and internally displaced persons (IDPs). For example, the software company GitLab employs over 1,300 people from 67 countries, many of whom are Ukrainians working remotely, while the online marketplace Jiji, which operates in 12 African countries, has over 500 employees in its Kyiv office. These companies can offer opportunities for skilled workers to earn a decent living and contribute to the economy.
Innovation can also attract foreign capital needed to finance the reconstruction efforts. For example, the facetracking technology developed by Looksery was acquired by Snapchat for $150 million, which was one of the largest exits in the history of Ukrainian startups. The app Reface, which allows users to swap faces with celebrities, has raised $5.5 million from Silicon Valley investorsxxi. These deals can showcase the potential and talent of Ukrainian innovators and entrepreneurs, and encourage more investors to support them.
To scale these successes, Ukraine will be compelled to adopt and implement effective policies and regulations that encourage and enable innovation, such as protecting intellectual property rights, reducing bureaucratic barriers, and facilitating cross-border cooperation. Attracting and retaining skilled and innovative workers, researchers, and entrepreneurs from within and outside the country, and providing them with opportunities and platforms to collaborate and exchange ideas, will also be key to a sustained innovation momentum.
Foreign capital and employment notwithstanding, the rebuilding and modernization of Ukraine, which has suffered from decades of corruption, mismanagement, and underinvestment will need to be underpinned by implementing structural reforms, such as improving governance, fighting corruption, strengthening the rule of law, enhancing the business environment, and diversifying the energy sector, for the boosts in productivity and competitiveness to be meaningful and lasting. These reform efforts will also be key in advancing European integration and accession of Ukraine, which is now a candidate country for EU membership. In its reform pursuits, Ukraine can learn and benefit from the transitional experience of its neighbors, as well as from best practices and policy standards put forth by the OECD, and other regional and global initiatives and networks
that promote and support better policies.
6. Ukraine Reconstruction and Inter-Generational Change in Business
Generational change in businesses can play a significant role in the economic empowerment of Ukraine and its reconstruction, via the adoption and take-up of new technologies and innovations, embracing sustainability and social responsibility, as well as taking a proactive and participatory process in the reconstruction efforts.
⁍ Adopting new technologies and innovationsxxii: A generational shift is likely to see businesses more open to using technology in different ways, perhaps not even the ways that it was initially designed for. For example, the IT sector in Ukraine has been growing steadily, accounting for almost 11 percent of SMEs in 2019. Ukrainian IT companies have developed apps and websites for clients in the US and Western Europe, demonstrating their potential and talent. Technology can also help businesses overcome the challenges of logistics and supply chain disruptions caused by the war and the pandemic, as well as improve their productivity and efficiency.
⁍ Embracing sustainability and social responsibility: A generational change can foster a culture of innovation and creativity, which can help solve the social and environmental challenges that the
country faces. Ukrainian businesses are ready and willing to play an active role in transforming the economy, and society more widely, to build systemic sustainability that will last for generations.
⁍ Participating in the reconstruction process: SMEs will need a lot of support, including in financing and capacity building, to ensure a level playing field and a seat at the table in reconstruction plans. A generational change can help SMEs to access new markets and opportunities, as well as to diversify their products and services. For example, the Kharkiv State Aircraft Manufacturer, which has been struggling to survive since the loss of its Russian suppliers, sees a potential opportunity to attract foreign investors and to produce aircraft for defense purposes. SMEs can also contribute to the reconstruction of the infrastructure and services that have been damaged by the war, as well as to the recovery of the communities that have been affected.
7. Conclusions: The Upsides from a Successful Reconstruction of Ukraine
Sourcing themes, propositions, and insights from the 2023 Visegrad 4 Business discussions, this report has aimed to showcase the importance of reconstructing Ukraine, and the V4 region’s role in the process. It has shown that the benefits run two-way and quantified the opportunity for V4 business in the areas of defense, construction, energy, food, and connectivity, as well as other sectors, like IT, and pharma. It has then posited – in line with contributions of the conference participants – that innovation may be key in unlocking efficient rebuilding and modernization of the Ukrainian economy and society but with a caveat, which is a robust pursuit of structural reforms to make the benefits scalable and long-lasting. It has also addressed the role of inter-generational change in SMEs to this end.
All in all, the reconstruction of Ukraine is a vital strategic goal for the V4 region and a broader international community. It could contribute to the resolution of the ongoing conflict with Russia, which has claimed over 13,000 lives and displaced over 1.4 million people since 2014. By restoring Ukraine’s territorial integrity and sovereignty, the reconstruction could enhance the peace and security of the region and foster dialogue and cooperation among the neighboring countries. It could also stimulate the economic growth and development of Ukraine, which has been hampered by corruption, mismanagement, and underinvestment for decades. By rebuilding and modernizing the infrastructure, institutions, and sectors of Ukraine, the reconstruction could increase the productivity, competitiveness, and innovation of the Ukrainian economy and facilitate its integration into the V4, European, and global markets.
A successful take-up of reforms could fast-track EU membership, a key aspiration of Ukraine and its people. The reconstruction could also promote the respect and protection of human rights and fundamental freedoms, which are the core values of the EU and the West, and foster a sense of national unity and identity among the Ukrainian people, who harbor diverse ethnic, linguistic, and cultural backgrounds.
Forrás: V4Business Key Issues Paper, Authored by the V4Business Team
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