Switzerland and Ukraine jointly hosted the Ukraine Recovery Conference in Lugano on July 4-5, 2022, which was the first opportunity for Ukrainian’s government to present a Recovery Plan to international partners. Forty countries and 18 international organizations pledged to support Ukraine’s reconstruction.
The Recovery Plan was well received, but how ready are we for what must follow? Are Ukrainians going to lead the reconstruction effort or will we leave it to others?
It’s no secret that the reality of war is forcing Ukraine to centralize decision-making, which happens in times of national emergency even in the most democratic countries since quick decisions need to be made. Sometimes this means ignoring established procedures.
When the war ends, this will have to change. Reconstruction will need to deliver results quickly without compromising integrity. Cutting corners will not be an option if Ukraine is to avoid the outcomes seen in the Western Balkans when reconstruction exacerbated the problem of corruption.
Even if it is hard to think about these issues today, when Ukraine is fighting for national survival on the battlefield, we need to be prepared for the challenges that come next.
Corporate-governance reform in state-owned enterprises needs to be high on the agenda because these businesses will become one of the key channels of international aid for the reconstruction process.
Before the war, there was a widely held view that Ukraine has large problems with corruption. Although we have made substantial progress in recent years in reducing some forms of corruption, this perception remains. So, how can we give developed countries the confidence to invest in Ukraine’s reconstruction? In my view, there are two options.
The first way is for donor countries to use their companies to deliver as many of the approved works and services as possible, ensuring a level of control over expenditures. From the economic perspective as well, they will benefit since aid to Ukraine will simultaneously contribute to the growth of their own GDP.
The second way is much more favourable for Ukraine. It requires investment in the Ukrainian companies which will take part in the country’s reconstruction. The advantages are clear. It will boost tax revenues, create hundreds of thousands of new jobs and bring back many of the economically productive people who fled the country. This Ukrainian-led approach, based on fast growth, will also make possible new state-of-the-art branches of the economy virtually from scratch.
After their defeat in World War II, Germany and Japan quickly overtook Britain and France in economic growth and, later, overall output. One reason was that Germany and Japan were building new industries focused on the future while the victorious allies were restoring their old economies. Ukraine needs to take this path.
The implementation of corporate-governance reform by state-owned companies will make them not only more efficient and resistant to corrupt practices, it will also provide the level of assurance required by investors.
What is needed and who benefits?
Transparency and reporting. In addition to the government and investors, as the ultimate owner Ukrainian society will be able to measure the performance of state companies and the value of their contribution to the country’s recovery.
Minimization of interference and corruption. A properly functioning supervisory board, and other governing bodies, will make it impossible for shareholders to influence company policy outside established procedures. For example, the government won’t be able to force a state company to work with a “desired” supplier or buyer, or set non-market prices for its products or services, etc. Company management will also be under tight multi-level control.
Better managerial decisions. Supervisory board review of companies’ important management decisions will contribute to improving the quality of decision-making. They will also help insulate state companies from cronyism and other inappropriate forms of external influence
A crisis always brings new opportunities. Today, Ukraine has a unique chance to accelerate its modernization and give birth to a new economy with ‘best in class’ infrastructure, an efficient energy sector and a resilient financial system. This will require substantial reorientation of Ukraine’s trade toward European markets.
So, will Ukrainians determine the structure of Ukraine’s new economy, or will we leave it to international investors?
The answer will depend largely on our ability to integrate with Europe and bring our companies up to European standards of performance.
State banks, Naftogaz (state-owned oil and gas company of Ukraine), Ukrzaliznytsia (Ukrainian Railways), Ukrposhta (Ukrainian Postal Service), ports, and hundreds of other state-owned companies must become transparent and understandable for foreign partners. Not only will Ukraine’s reconstruction dramatically increase efficiency, but it will also significantly speed up our journey to full membership of the EU.
Yaroslav Zhelezniak, MP, is First Deputy Head of the Parliamentary Committee on finance, tax and customs policy
The views expressed in this article are the author’s and not necessarily those of the Kyiv Post.
