Written by Isaac Hintz
It has been more than two years since Russia began their full scale invasion of Ukraine on February 24, 2022. Ukraine has recaptured most of the territory occupied by Russia in the early days of the conflict, but the past year of fighting has been characterized by a strategic stalemate on the frontlines (Council on Foreign Relations, 2024). The final outcome of the war remains uncertain, however, the need for reconstruction and economic revitalization of Ukraine after the war is assured. According to the World Bank, it will cost about $411 billion to rebuild the housing, infrastructure, and services destroyed by Russia (The World Bank, 2023). The three potential avenues to meet this goal are foreign aid, foreign direct investment (FDI), and utilizing Ukraine’s own domestic industries.
One example of a successful post war foreign aid project was the Marshall plan after World War II. The Marshall plan was a U.S. funded program to rehabilitate Western Europe in order to create an economic environment in which democracy could survive. The United States granted $13.3 billion (about $150 billion in today’s dollars) to Western European countries between 1948 and 1952, to rebuild infrastructure, support industry, and improve living standards (Kenton, 2023). The recipient countries experienced 15-25% annual increases in GNP over this period (Britannica, 2024). Western Europe has since enjoyed decades of economic integration and prosperity and they remain some of the United States’ closest trading partners and allies.
Could the United States and the EU work together to create a public investment plan similar to the Marshall plan to support the rebuilding of Ukraine after the war? Yes. However, one key difference between Western Europe after WWII and Ukraine now is that Ukraine remains a highly corrupt country. Ukraine has had major anti corruption efforts since 2014 and this year Ukraine climbed from 112th to 104th least corrupt of 180 countries surveyed by Transparency International (Dickenson, 2024), however Ukraine will likely still be dealing with systemic corruption by the end of the war. Therefore, there should be real-time monitoring of any funding or investments sent to Ukraine to make sure that they are used properly (Ries et al., 2023). The two lessons to be learned from the Marshall Plan that apply to Ukraine are that foreign public investment can have a substantial positive impact on rebuilding a war-torn nation with proper supervision, but also that this aid should come right after the war. From 1945-1948, the economies of Europe remained in shambles and people starved, so if foreign governments decide to invest in Ukraine, they should begin investment immediately to avoid further humanitarian crises (World Food Program USA, 2021).
Another option to using taxpayer dollars to fund a Ukrainian foreign aid plan is to use frozen Russian assets. The Russian central bank held almost half of its liquid reserves in Western central banks amounting to about $300 billion (Fabrichnaya et al., 2023). Western countries could work together to seize and liquidate these assets, and then use that money to help rebuild Ukraine instead of using taxpayer money. However, seizing these assets would be complicated because it requires the cooperation of governments and banks around the world, and there is little historical legal precedent for such a seizure (Anderson, 2024).
Another way to rebuild Ukraine after the war is through foreign direct investment by companies. Investment in Ukraine remains relatively expensive mainly because of high wartime insurance premiums and because bomb shelters are mandatory in newly constructed buildings. It is also highly risky, because if Russia manages to win in Ukraine, the investors could lose everything. However, more risk tolerant investors see great opportunities for profit in Ukraine even while the war is still raging. For example, Nestle is expanding their instant noodle factory in the Volyn region and the German agricultural company Bayer recently began construction of a new seed factory near Kiev costing $65m (Dulaney, 2023). Foreign corporations such as these entering Ukraine after the war will be crucial to create quality jobs and encourage economic growth in the country.
A competitive business environment for Ukraine’s industries will also be critical for sustained economic growth after the initial rebuilding phases. Post-communist Poland best exemplifies how a competitive business environment can lead to economic growth and prosperity in Eastern Europe with their Balcerowicz plan in 1990. The Balcerowicz plan sought to reduce inflation and barriers to trade, eliminate shortages, stop subsidizing state enterprises and generally liberalize the Polish economy. The Balcerowicz plan led to the creation of hundreds of thousands of new small businesses (Johnson et al., 1995) that propelled the Polish economy to achieve almost 800% growth from 1990-2018 (Walker, 2019). Many of the plan’s goals were achieved in just a few months (Johnson et al., 1995). In contrast, the Ukrainian economy largely remained under oligarchic domination and riddled with corruption since the fall of the USSR (Sutela, 2012). The main difference is that after communism, Poland had the opportunity to join the EU while Ukraine was left to the Russian sphere of influence (Tilford, 2014). However, if Ukraine is victorious against Russia, they would have opportunities similar to post-communist Poland for economic liberalization and growth through a competitive business environment outside of Russian domination.
Another variable for Ukrainian economic recovery is how many Ukrainian refugees will return home after the war. Since the start of the war, more than 10 million Ukrainians have been displaced internally or are residing abroad. Only 62% of Ukrainian refugees express a desire to return to Ukraine one day (Dumont et al., 2023) and the longer the war and destruction continue more refugees may choose to remain in their host countries. But with peace, foreign economic support, and the following economic growth, more refugees could be encouraged to return to Ukraine and help rebuild their country.
Ukrainian and Western officials will have to decide how to utilize public investment, private investment, and Ukraine’s own industries to rebuild Ukraine after the war. If Ukraine can defeat Russia and deal with their internal corruption, western investment will pave the way for Ukrainian economic growth and their eventual integration into the EU.
Works Cited
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