You're reading: Zelensky outlines ambitious plans to rebuild Donbas at Mariupol gathering

MARIUPOL, Ukraine — The makeshift convention center installed in front of a theater was brightly lit and abuzz with excitement. Foreign businesspeople rubbed shoulders with heads of international financial institutions and the entire Cabinet of Ministers of Ukraine.

It was also, for once, not in Kyiv.

At President Volodymyr Zelensky’s invitation, high-profile guests descended on Mariupol, the Azov Sea port city located perilously close to the frontlines of Russia’s war against Ukraine. Reinvigorating the Donbas region and promoting it as an investment destination was the main objective of the RE: Think investment forum held on Oct. 29 in Mariupol.

More than 700 guests representing companies, international financial organizations, diplomatic corps and others came to Mariupol, a city of half a million residents located just 30 kilometers from the fighting.

Guests told the Kyiv Post that the scale of the forum eclipsed most similar events in Ukraine, even some in Kyiv. The turnout impressed many, especially given the difficulty of getting to Mariupol.

According to Zelensky’s office, the government pitched 120 major investment projects and 12 important memorandums were signed, potentially paving the way for large-scale infrastructure developments. International financial institutions will still be doing most of the heavy financial lifting, followed by companies that have already been investing in Ukraine.

“When I got up this morning, I had no idea what to expect and I was completely surprised by the level of attendance,” Georgina Baker, the International Financial Corporation’s vice president for Latin America, the Caribbean, Europe and Central Asia told the Kyiv Post. She added: “If the purpose of the event was to bring investment opportunities to people’s attention, it has succeeded.”

Zelensky likened Ukraine to the company Apple, when it was first starting out in a garage. The president’s office called for investments in infrastructure, tourism, industrial and technological parks and other segments of the economy. Zelensky also asked for investments into rural areas. International organizations have pledged major commitments.

But it remains to be seen whether new private investors will be as enthusiastic. Some guests said that many old problems, both specific to eastern Ukraine and Ukraine in general, continue to be obstacles and need to be addressed for investments to flow.

Meanwhile, Mariupol had everything to gain from demonstrating relative safety, transparency and ease of doing business. While the city has long been a port and metallurgy hub, Mariupol Mayor Vadym Boychenko said that the city is reinventing itself and Ukrainian and foreign investor interest continues to climb every year.

Agreements reached

According to analysis by Liga.net of proposed projects, the Cabinet of Ministers believes that tourism requires the largest share of investments, followed by industrial and technological parks, then roads and bridges, potable water access, factories and mines. Other proposals included airports, railroads, other infrastructure, real estate and ports.

Zelensky and the World Bank said they would launch a fund to support the Donbas region with reconstruction and reintegration into Ukraine.

On the day of the forum, the 225-kilometer highway spanning Mariupol and Zaporizhia was inaugurated.

This “Road of Life,” completed in three months by Ukrainian and Turkish companies, will be a vital link for ports, the metallurgy industry and the military, according to Zelensky. Zaporizhia has an active and growing airport.

The Turkish company Onur LLC, part of the Onur group of companies has taken part in the road project and plans to expand its operations, according to group chairman Onur Cetinceviz. He told the Kyiv Post that the company has increased its number of employees in the country from 1,000 to 5,000 and plans to eventually have 10,000 in infrastructure, agriculture and renewable energy.

State-owned railway Ukrzaliznytsia has invested $6 million into launching a second daily Kyiv-Mariupol night train, to improve access to the city, which is currently one of the hardest to reach in the country.

COFCO, a Chinese state-run food company also signed a memo with the Ukrainian Sea Ports Authority to implement an investment project to increase turnover of agricultural products in the port by 3.5 times.

The deal will reportedly involve a $50 million investment to develop the Mariupol port infrastructure, although COFCO denied that it intends to invest directly in the port’s infrastructure.

A 100 million euro water supply and filtration project and modernized distribution system is in the works, sponsored by loans from France and the European Investment Bank, which signed a memorandum with the Mariupol city council during the forum.

Vincent Pringault, an economic service chief at the French Embassy told the Kyiv Post that the French government’s loan would pay for the facility and the European Investment Bank’s loan for the distribution network’s modernization. Once completed, Mariupol may become the first Ukrainian city to have universally drinkable tap water.

“There are two reasons we launched this project with Mariupol,” said Pringault. “The first reason is because it’s Mariupol — there is an obvious symbolic reason, the stabilization of the area. The second reason is the professionalism of the city and its administration.”

French Ambassador Etienne de Poncins said that France has multiple projects ongoing in the area and wants to demonstrate support to Mariupol both for political and economic reasons — 20 French companies are involved in the region.

Separately, four of Ukraine’s largest mobile operators — Kyivstar, Vodafone, Lifecell and Intertelecom, signed a government memorandum to deliver 4G internet coverage across Ukraine over the next four years.

Meanwhile, Metinvest, owned by Ukraine’s richest man, Rinat Akhmetov, said it would spend $400 million over the next five years to reduce pollution from his factories in Mariupol, Kryvyi Rih and Zaporizhia. Exhaust from Akhmetov’s plants in Mariupol cause the city to have the dirtiest air in Ukraine, triggering multiple protests. Akhmetov’s firms had previously promised to reduce pollution in Mariupol but drew criticism for the slow pace of this work.

Speakers, including Ukrainian Railways CEO Yevhen Kravtsov, participate in a panel on the needs of the Donbas region at the RE; Think investment forum in the port city of Mariupol on Oct. 29, 2019. (Photo by Oleg Petrasiuk)

Widespread optimism

Jean-Erik de Zagon, the head of the European Investment Bank representation for Ukraine said that bringing all the international investors was a great idea and having them all come sends a message that they care about all of Ukraine, including its eastern parts.

“There is a will to do good things” in Mariupol, he said. “And then if you have the support from the state, from the region and from the IFIs to develop infrastructure, it says to the investor that they’re going to have everything they need here.”

Gennadiy Chyzhykov, president of the Ukrainian Chamber of Commerce and Industry, told the Kyiv Post that war was a key concern of Ukraine’s potential investors and if they can be convinced that it’s safe to invest in Mariupol, then they can be convinced about the rest of Ukraine. “It’s a litmus test — if it works here, it will work in the rest of Ukraine.”

“Many interesting people have arrived,” said Chyzhykov. “Very interesting bankers, who will prepare very interesting reports, which will most likely be positive. They saw the political will.” He added that he had seen multiple investment scouts come out.

Timothy Ash, the emerging markets sovereign strategist for Bluebay Asset Management, told the Kyiv Post that while lots of investors come to Kyiv and Lviv, they may have been afraid to come to the Donbas region, which is why the forum was a “refreshing experience.” The fact that they could come to Mariupol and feel safe is good for the economy.

He also praised the presidential administration and the cabinet of ministers for organizing the “ambitious” event, calling it a “huge win” for Ukraine.

Notes of caution

Multiple obstacles still stand in the way of greater investor confidence in the region and in Ukraine. The country will need to demonstrate better rule of law, judicial reform and safety from raiding sanctioned by public officials.

“Right now, if you’re a western director looking at this market, you realize that there is a chance to lose your money,” said Thomas Sillesen, the chairman of engineering firm BIIR, which has been investing in

Ukraine since before the EuroMaidan Revolution and continues to do so.

Many potential investors are also looking to see what will happen with PrivatBank. Zelensky and Prime Minister Oleksiy Honcharuk sought to reassure guests, with the president saying point-blank that rumors he will return the bank to its former owners are false. But many expect to see proof in the coming days.

“The mixed signals on PrivatBank must stop,” Alain Pilloux, a Vice President at the European Bank for Reconstruction and Development said at a panel. “We need to see what is Plan B if the courts decide otherwise.”

Ash agreed: “The proof of the pudding is in PrivatBank.”

More locally, the perceived threat of conflict may be a brake on some investors’ zeal. Zelensky, who hopes to wind down Russia’s war, wants potential investors to stop fretting about the threat of conflict.

“The region needs to stop being branded as an area where there is war,” said Oleh Myroschichenko, the manufacturing and business international lead at USAID.

Hlib Vyshlinsky, the executive director at the Center for Economic Strategy, said that Zelensky’s promise to back investors has no guarantees and that Ukraine’s international partners, such as the EU could provide investment guarantees to cover the risk of a military escalation. The EU investment Fund is not involved in the process, meaning there is a lack of financial security for those willing to invest in Donbas.

Another helpful tool would be a Multilateral Investment Guarantee Agency. The World Bank uses MIGAs as insurance against conflict and covers investors costs for lost business income. It also encompasses violence against foreign investment. This financial tool is still missing in Donbas after more than five years of conflict, and it is fundamental to attract investors.

Myroschichenko would agree. He told the Kyiv Post that innovative small and medium enterprises in Donetsk Oblast are ready to receive credit but the lack of insurance “increases the cost of these resources multiple times.”

“We ask our partners to come out as guarantors, so that this resource could be used,” he said. “This would be the ideal setup for development.”

Several cited Mariupol’s remoteness and relatively long travel time as negatives. As Mariupol’s airport remains shut down due to safety concerns and rail travel remains limited by pro-Russia forces’ occupation of parts of Donetsk and Luhansk oblasts, multiple infrastructure projects are needed to make the region more accessible and attractive to business.

Furthermore, despite infrastructure achievements like the opening of the Road of Life from accessing Donetsk Oblast and Mariupol is still a long and arduous journey by road or rail.

Infrastructure minister Vladyslav Krykliy said that road financing in 2020 will be Hr 1.43 billion in Donetsk Oblast and Hr 660 million in Luhansk Oblast, a combined increase of 50% from 2019. Negotiations are ongoing with the EU to rebuild the Kherson-Mariupol road.