More than three years have passed since Russia’s illegal full-scale invasion of Ukraine began in February 2022, leaving the country with $524 billion expense for damage repair over the next ten years – and the price tag is still on the increase.
As US President Donald Trump demonstrates unwillingness to impose severe sanctions against Russia, the Russian Federation continues to strike civilians and Ukraine’s businesses, also advancing on the front line.
But despite deadly strikes, Ukraine has already been working on rebuilding amid the hostilities, especially in the cities liberated from Russian forces in the Kyiv region.
Ukrainian companies are investing hundreds of billions in new private assets – but they aren’t rushing to collaborate with the government for recovery projects, despite high demand in the state-run sector of reconstruction.
“Businesses aren’t showing much enthusiasm about getting involved in the recovery programs. Although, formally, no one really admits this outright, since potentially there’s a lot of money that could be earned,” Ukraine’s Deputy Business Ombudsman Tetiana Korotka told Kyiv Post.
The key reason is the sluggishness of Ukraine’s authorities, as they need to “run as fast as they can, just to stay in place,” Korotka said. Another issue is local legislation in construction is still not fully up to date on the latest innovations, and, additionally, Ukraine lacks the needed workforce and is short on large-scale investment opportunities.
Efficiency within the Ukrainian government is needed now more than ever, but the authorities are failing to demonstrate this even at the project design stagе, Korotka said. For now, it seems that Ukraine’s president or the government are in no rush to fix these problems.
Outdated rules, workforce gaps, and sluggishness of Ukrainian officials compound the slowing of Ukraine’s recovery. But it’s not only the government – local firms face expensive loans and poor governance, while foreign investors remain wary without clear guarantees.
What could derail Ukraine’s reconstruction plans?
H2:Ukraine has ideas for recovery – but not mature projectsThe recovery projects include hundreds of requirements for new housing, infrastructure, defense construction, factories, communications, on national and local levels.
Only some of these endeavors are included in “Unified portfolio of public investment projects” – the roadmap of projects that are funded in Ukraine’s state budget and international financial institutions. But Ukraine needs billions of dollars more to build a new economy after the war ends.
Ukraine ian officials have ideas that could potentially boost recovery, but forming them into feasible projects takes time nobody wants to spend, Korotka told Kyiv Post.
“They can’t formulate it in detail, but conceptually they can sketch it out in five minutes. Like: “Here’s a nice, tall bridge that allows certain cargo ships pass through – done in five minutes,” she said.
Ukraine’s Deputy Business Ombudsman Tetiana Korotka. Source: Business Ombudsman Council of Ukraine.
But to secure the necessary paperwork and create a specific project, more details have to be outlined. It has to be clear where the land plot boundaries are, who the land owners are of the various properties and the assets present, the technical requirements for the future construction, and what risks are involved.
The devil is in details: building bridges in Chernivtsi, western Ukraine, and Kharkiv which is 40 kilometers away from the Russian border are two completely different construction processes.
“It’s one thing to build a structure in Chernivtsi; it’s another to build in Kharkiv, where you first have to clear mines and prepare the site,” Korotka told Kyiv Post.
Ukraine’s land ownership is often confusing for an outsider – and that’s just one case when paperwork gets daunting.
Due to various reasons, including the vestiges of the post-Soviet legacy, change of ownership, sometimes corruption, the land plots may sometimes belong to different owners – local authorities, central government bodies, and/or private owners. An investor needs to spend weeks to consolidate numerous land plots into one and ready the land for construction.
This ownership issue is often the very first problem any investor in Ukraine tackles when looking for areas of their future constructions. But there’s more.
H2:Regulations are outdated and restrain any innovation
Kyiv wants to “Build Back Better,” implementing more innovative construction to build modern facilities, Korotka said.
Ukrainian construction laws have evolved since the Soviet era, but in recent decades the pace of innovation in the sector has outstripped the legal framework, leaving many new solutions without clear pathways for implementation.
This will mean that any innovative ideas in construction might be stalled since there are no regulations to offer a legal framework for them, stalling the project implementation and creating corruption risks.
“Even if the world’s best infrastructure company comes to help us, for a lot of money – and the money will be there – they still can’t proceed and implement an innovative idea,” Korotka told Kyiv Post.
One such innovative idea that cannot be allowed by any Ukrainian regulations, is, for example, tall wooden buildings at the airports, Korotka said, like the wooden structures at Prince George Airport (Canada) and in Norway for the Mjøstårnet tower, an 85-meter-tall timber building.
EMBED these 3 PHOTOS in a left-right scrolling format with the caption: Wooden structures at Prince George Airport (Canada) and in Norway for the Mjøstårnet tower.
Local authorities and Ukraine’s government find it difficult to be on the same page
“When the whole country needs to pull together – or at the very least, not pull in opposite directions – because all of this shapes Ukraine’s reputation as a trustworthy and predictable partner, everyone has to row in the same boat,” Korotka told Kyiv Post.
Reconstruction projects may be funded from Kyiv or Washington – but they’re implemented locally, which means the national government and local authorities should have a common vision on the recovery. But they may not, for personal reasons, misunderstandings between different officials or corruption. This is another risk for both the state and private sector when implementing large-scale recovery projects.
Ukraine’s decentralization reform, launched in 2014 to leave more cash and power in local communities for their development, is now also giving local communities more autonomy to lead the recovery projects, but it may also backfire in case the local authorities decide to act against nationwide priorities.
Decentralization reform in Ukraine increased trust in local governments by some 17% in communities that received more power after the launch of the reform, according to a research by scholars Helge Arends, Tymofii Brik, Benedikt Herrmann, Felix Roesel. Communities took responsibility for maintaining local services – from schools and libraries to healthcare centres and fire departments.
The reform also became Ukraine’s key to withstand Russia’s full-scale invasion in February, 2022, according to the scholars.
“The increased level of trust through decentralization reform may explain the critical role hromadas [the name of the administrative unites that were formed after decentralization reform started – Kyiv Post] played in building resilience during the 2022 invasion, as empowered municipalities backed by strong trust of their citizens can work more effectively,” the scholars wrote.
The flip side of this is the abuse of intense trust in local communities, that may be used for personal goals of local politicians or because local communities see things differently than the national government. This is a risk for the future recovery, but Ukraine saw them come into life in the past.
Back in 2020, when Ukraine was hit by COVID-19 pandemic, Ukraine’s government split the countries between the red, yellow and green zones, depending on the spread of the virus.
Ukraine’s government was concerned by a massive wave of infections in Kharkiv, Ternopil and Lutsk, marking them as “red zones” – the one with a severe spike of COVID-19. But the local authorities’ representatives refused to obey the requirements of the “red zone”, like halting public transport, to stop a spike of the infection, despite the government’s order.
At that time, Ternopil’s mayor Serhiy Nadal stated the government’s order was based on one tiny town with a spike of infection, so marking the whole zone red was incorrect, DW reported. It was unknown why then-Kharkiv mayor Hennadiy Kernes did not obey the decision. Ironically, Kernes died in 2020 from COVID-19.
But the ex-Kharkiv mayor was also known for his cronyism and corruption. Kyiv Post sources in the city said that once any entrepreneur intended to open a business, there was an obligation to pay a 20% bribe from revenues to the mayor. Was political populism and covering corruption the reason why Kernes refused to obey the government’s orders? He did not comment on the reasons back then.
When it comes to investments, such corruption risk or a simple misunderstanding with local politicians may stall construction.
“The excavation will take place in a specific region, the pipeline will be laid in a specific location, and people will be hired locally in specific communities. All this rebuilding actually happens on the ground, the whole country needs to pull in the same direction,” Korotka told Kyiv Post.
Ukraine’s president Volodymyr Zelensky has a solution to the problem, though – establish the institution of a prefect, which was planned within the decentralization reform back in 2014, Korotka added.
The prefecture institute is supposed to prevent the adoption of formally correct but essentially absurd decisions from the local governments. If any local government imposes a decision that contradicts nationwide legislation, the prefect is supposed to have the power to stop such decisions.
Implementing the prefecture institute was in discussions before Russia’s full-scale invasion, but they stalled as Ukraine entered wartime. Part of the reason lies in imposing martial law, which keeps the president’s power on the grounds with the help of military administrations – bodies designed to coordinate warfare decisions delivered from the capital.
But yet it is unknown whether Zelensky, Ukraine’s parliament or the government will return to finalizing the decentralization reform by creating prefects.
Russia’s invasion affected Ukraine’s economy – and these problems are not fully solved
Apart from sluggishness of the state and lack of coordination between local authorities and national government, Ukraine’s economy still digests the problems caused by Russia’s invasion.
Most Ukrainian refugees abroad were of working age, which meant Ukraine lost a chunk of employees inside the country after Russia invaded Ukraine. Internally displaced persons worked on enterprises destroyed on occupied territories and there were no same enterprises on territories far away from the front line.
After 2022, satisfaction of recovering labor demand was complicated by continued migration abroad and mobilization to Ukraine’s Armed Forces.
Ukraine’s businesses are constantly finding replacements for mobilized workers and the ones who left. Employees who remained in Ukraine did not always have skills that matched the new needs of Ukraine’s economy.
One of the solutions for the lack of workforce could be creating a policy to hire more workers from abroad, Korotka told Kyiv Post. But she is not sure whether such a solution would not provoke conflicts inside the country – Ukrainians might not be ready to see the inflow of foreigners working on sites, she said.
Another problem is the shrinking of Ukraine’s economy, which deepened a problem that existed long before Russia’s invasion – lack of investment projects to scale up in large volumes.
If Ukraine intends to grow at 5% GDP per year, it will need $10 billion in foreign investment per year plus a corresponding domestic investment base. This will double if Ukraine seeks to grow GDP by 10% per year, Kyiv Post previously wrote.
“Ukraine lacks large-scale projects that would truly attract major market players – and Ukraine’s task is to solve this,” Korotka said.
“Projects need to be scaled, especially in the destroyed territories close to the frontline. Sometimes it’s better to build a new facility rather than repair that one that’s severely damaged. Otherwise we should not count on global market leaders to be involved in Ukraine’s recovery,” she explained.
Local Firms Struggle With Costs; Global Investors Seek Guarantees
Although security issues remain a major problem for businesses in Ukraine, reconstruction is more challenging due to other, market-related, reasons, Korotka told Kyiv Post.
Internal obstacles that limit businesses’ ability to contribute to rebuilding efforts differ markedly between local and international companies.
For businesses with Ukrainian capital, the biggest hurdle is often access to affordable finance, according to Korotka.
“Loans remain expensive, and many small and medium-sized enterprises are shut out of lending programs altogether,” she said.
This is frequently due to weak corporate governance, underdeveloped compliance systems, and poor financial performance indicators such as low profitability and unstable cash flow.
“Many firms also struggle with a shortage of qualified personnel, further hampering their ability to scale up or compete for recovery projects,” the deputy business ombudsman added.
In contrast, international investors tend to be more focused on guarantees. Korotka explained.
Global companies in Ukraine need legal protections, insurance mechanisms, and clear rules of the game. “Without these assurances, many global firms remain hesitant to commit capital, even when opportunities in the recovery effort are clear,” she told Kyiv Post.
Solid strategy is key for Ukraine’s postwar investment
According to the deputy business ombudsman, Ukraine needs a solid recovery strategy that should include solving key challenges and outline the structure of the future Ukraine’s economy. It should not be a paper created formally for Ukraine’s international donors.
The recovery strategy should be a roadmap that will actually be used by all stakeholders, listing the plan of who’s doing what.
Ukraine lacks leadership in creating such a plan – the government bodies created to coordinate the recovery so far have not shown real initiative, remaining in shadow as nameplate institutions, Korotka told Kyiv Post.
But time flies. Ukraine’s government spends its major efforts in defending the country against Russia’s deadly strikes and damages of the war. The reconstruction is a process that happens simultaneously with warfare – Ukraine’s government needs to work on recovery policy as strategically as fighting on the front lines.
For this, Ukraine’s bureaucracy needs to be updated in the blink of an eye – the cash for recovery is still in plans among Ukraine’s international partners, but one day it may be gone. Market risks need to be limited thanks to the government’s policies and solutions. Investment projects should no longer be a scheme drawn on paper napkins, but viable projects with proper paperwork done by all Ukraine’s state institutions.