Ukraine is fighting back against a vicious attack by Russia following its invasion on February 24 and even before that with the annexation of Crimea in April 2014 and the first Russian attacks on Donbas also in 2014. But we should not forget that the war in Ukraine is not only an ATTACK ON Ukraine but also on US and OUR very SYSTEM of Western Liberal Market Democracy and Rules Based Global Order.

Putin has made this clear now through a long track record of malign actions against the West and its allies, including the invasion of Georgia, Transdniestr, Crimea, Donbas since 2014, use of WMD in Salisbury and on Litvinenko, cyber-attacks and election interference on Western democracies and now the on-going energy war being waged by Russia on Europe and blackmailing the rest of the World via its position in the global grain and fertiliser markets.


It should now be clear to all that this is not only Ukraine’s war but ours. Our very system of governance is at risk but the front line is Ukraine.

It is important that Ukraine is able to defend itself, hence the importance of military supplies and financing its day-to-day budget needs. But as important as Ukraine winning this war is also ensuring that it wins the peace. Russia must see that aggression does not pay and that our system of Western Liberal Market Democracy will enable Ukraine to rise back from the ashes.

And therein it will be important that Ukraine rebuilds rapidly and successfully. A democratic, transparent and economically successful Ukraine will also be the clearest message to the Russian population about what their future direction should be.

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The 39-year-old veteran turned Ohio senator has maintained a firm opposition to aid to Ukraine, and his nomination might cement white working-class votes for the Republicans.

Important, indeed landmark, steps have already been taken here, including the provision by the EU of candidate member status to Ukraine. The importance of this step should not be underestimated as we have seen how over the past 30 years or so, the EU accession anchor has enabled successful transition across Emerging Europe.  EU candidate member status will be hugely important in providing an anchor, a template/blue print and a driver for reform in Ukraine, as it already did in Poland, the Czech Republic and others in the period since the Treaty of Copenhagen in 1994 green lighted EU accession for former Communist states.


But the shear-scale of destruction in Ukraine wrought by Russia, is simply immense. Estimates by the Kyiv School of Economics and the World Bank have put the losses to Ukraine, in infrastructure and lost economic output, at close to $350 billion as of July, and rising on a daily basis. It is hence not inconceivable that the total reconstruction bill will total close to $500bn, if not much more. This is a huge sum, and exceeds even the post war reconstruction in Germany after WW2 (funded through the Marshall Plan), West German investment in East Germany after the fall of the Berlin Wall (administered through the Treuhand) and post war reconstruction in Iraq.

Five hundred billion dollars represents two and a half times Ukraine’s pre-war GDP, and around 1.25% of the combined GDP of Western market economies. That might sound small when perhaps financing is spread over a decade but given the fraught political environment in Western democracies – with the rise of populism – it’s a hard sell to present the case for Ukraine’s reconstruction to be funded entirely by Western taxpayers.


Even though a strong case can be made for any Western official financing in that Ukraine presents a critical buffer against inevitable future Russia aggression – spending on Ukraine will face competing claims especially in the midst of a European energy and global cost of living crisis.

The focus should be on the fact that Ukrainians have proven willing and able to fight and fend off Russian aggression, and Ukraine is the front line now for the West against Russia. Investment in the rebuild of Ukraine should therefore be sold as an investment by the West in its own defence – every Russian tank destroyed now by Ukraine is one less for NATO to have to confront down the line. But a successful and vibrant Ukrainian economy would not only be better able to fund its own defence, but I think would be an example of success for Russians themselves to emulate.

Russians might themselves want similar economic success, and more political freedom and might contemplate regime change at home to be able to deliver on that. Hence our best chance of stopping the threat from Russia is to ensure that Ukraine is successful and a positive role model for Russia itself.


All this said, a dose of realism is required, as the shear-scale of Ukraine’s rebuild costs and likely rival spending pressures on taxpayer dollars, euros or pounds, means that other financing sources should be identified beyond the official sector. Yes, there will be roles for the multilaterals, the IMF, World Bank, et al, but they do not have the financial firepower or the specific mission for the role of rebuilding Ukraine as a bulwark for the West against Russian aggression. Nor are Western tax payers in a state to fund the scale of the financing required.

With the above constraints in mind, we need to think outside the box – even reinvent the box itself – to ensure success.

The first and most obvious source of Ukraine reconstruction costs should be frozen Russian assets – some of the circa USD400bn in assets frozen and held in Western jurisdictions. The moral case for drawing down these funds to finance Ukraine’s reconstruction is compelling – Ukraine suffered an unprovoked attack, a land grab by Russia, and it is Russian missiles which are destroying Ukrainian lives and infrastructure. Each dollar of destruction wrought by Russia should be paid for by Russia.

The political will seems to be there to allocate these funds (see the recent G7 communique in this regard) to Ukraine, albeit it might take time to change legislation to facilitate the allocation of these funds to Ukraine. This will happen. It has to happen.


As an interim measure, G7 states could offer to underwrite eventual allocations to Ukraine from frozen Russia assets, and this could be used to create some Brady bond style scheme where frozen Russian assets are used as the collateral to allow Ukraine to borrow for investment. Such a scheme could be used to help Ukraine meet the reconstruction costs but also the huge monthly costs at present of financing the war – running at $5bn a month.

A similar commitment could be for the G7 to commit to charge a fee on energy and commodity imports from Russia as reparations for war losses – similar in many respects to reparations paid by Iraq to Kuwait for the losses incurred during the first Gulf War. Why is this not being done already?

The second alternative source of financing is the private sector in the West and also in Ukraine.

The logic for Ukrainian private sector institutions to invest in their own country’s reconstruction is obvious – and the hope will be Ukraine’s bevvy of rich oligarchs will put their money where their self-interest should be. They have spent years accumulating and exporting capital – many might argue in a warped and corrupted Ukrainian business setting prior to the invasion, that now needs to change.


The self-serving, corrupt, oligarchic system in Ukraine has been one of the main weaknesses for Ukraine since independence and this will be an opening for the local businesses to change their behaviour, and especially given the sacrifices made by the ordinary Ukrainians to protect their freedom.  Now is the time for them to bring their money home.

Perhaps for some it is less obvious as to why Western big business should invest in Ukraine’s reconstruction. But I would argue the case is also compelling. I would argue that Western big business should have as much interest as Western taxpayers in investing in Ukraine’s reconstruction. This is because they too should recognise that this is about regime competition, about the survival of the system of Western liberal market democracy in which their businesses were built and allowed to flourish.They should recognise that this system is now under attack from Putin’s system of fascist kleptocracy – surely now laid bare through the energy war being waged by Russia against the West.

A rule based global order is sine qua non for any Western large corporation, and they have been the main economic beneficiaries of globalisation which relies on such a rules-based order. Imagine a world order projected by Putin, where there will be no respect for contracts, property rights and more importantly national borders.   Western big business should therefore have an interest in ensuring the survival of the system that provided the base for their own success. And where better to start in pinning their colours to the defence of Rules Based Global Order than in Ukraine?

Think of this as the equivalent of a Minsky Moment in terms of the survival of our systems.

But self-interest should also ensure strong involvement of the private sector in Ukraine reconstruction, if indeed the rebuild bill will be in the order of $500 billion plus. Western companies who pledge to assist in the Ukraine rebuild should benefit from participation in contracts and financing projects and the expected sharp and rapid recovery in the Ukrainian economy. Huge amounts of money will be spent in Ukraine and large returns reaped. That should be an incentive for most to get involved.

For many Western businesses, investment in Ukraine also provides an opportunity to improve their global image – some sullied by investments in Russia, and their slow move to exit their investments in Russia. Companies increasingly say that ESG is central to their business decisions.

Helping Ukraine’s reconstruction, and the defence of Western Liberal Market Democracy in Ukraine should be the ultimate ESG play. Western big business should invest in Ukraine as it’s the right thing to do – to push back on neo-patrimonial / corrupt system spearheaded by Russia as an alternative, even in advanced democracies.  It is their moment to show where they were when there was a need to stand up and be counted against a regime conducting war crimes and genocide?

And for those that are the target of social media campaigns calling them out for their investments in Russia, how better to rebuild sullied brands than by signing up to pledge funds to Ukraine’s reconstruction?

The Moral Rating Agency recently identified some of those that could do better and could help assuage their consciences by investing in Ukraine (See here).

We should be ambitious here, and perhaps assume a one third each split between Western official sector support, draw down of frozen Russian assets, and private sector involvement. But we should be thinking of sums of the order of at least USD150bn to be pledged by the private sector. Put differently, this is the scale of support that is required to make Ukraine successful. And remember that this is an investment in our own defence.

But how can Western big business help?

We would hope that Western banks and corporates understand the importance of Ukraine’s successful reconstruction – the message that will send about the durability of our system of Western Liberal Market Democracy and the threats posed for the environment that these businesses flourish in.

Long term investment pledges

One hundred and fifty billion dollars might sound ambitious. However, according to Fortune, the top 500 US companies alone generated over USD16.1 trillion of revenue and USD1.8 trillion of profits in 2021.  If you add the top companies in Europe, Japan, Australia, Canada, South Korea, Singapore and other democracies the figure should easily at least double.  Imagine the largest 1000 companies in the Democratic World, each committing to invest / lend USD10mn to USD20mn over the next 10 years to Ukraine, the cost will be less than 0.05% of these companies’ annual revenue, with eventual benefits reaching multiples of it.

Thinking of the practicalities, this might well take the form of big banks and corporations making pledges to Ukraine’s reconstruction over the next ten years, once the war ends. It’s not difficult to imagine the West’s largest banks (JPM, GS, MS, BAML, Citibank, HSBC, Jefferies, Barclays, BNP, Soc Gen, DB, Commerzbank, Nomura, Danske, Swedbank, Santander, Halifax-BOS, RBC, BOM, et al, but that’s $20bn already) pledging $1bn each to finance Ukraine’s reconstruction – small change relative to the size of their balance sheets. This does not have to be towards meeting the country’s immediate budget financing needs but could be pledged to finance or co finance long term bankable projects put together by IFIs, Western governments in partnership with the government of Ukraine. They will be making a long run commitment to Ukraine. That’s the point. It shows commitment and will encourage others to follow. It will build momentum.

Investment pledges should not be limited to the financial sector, but sector should as defence, IT, infrastructure, communications should all have a huge interest in pledging to support Ukraine’s reconstruction.

The reality is that Ukraine will be a front-line state in the West’s defence for years to come. The West and Ukraine will make huge investments into its defence sector – likely totally hundreds of billions of dollars a year – why should defence companies which will likely make huge profits from supplying arms now to Ukraine and NATO, as defence spending in the West multiplies, also not have an interest in ploughing some of the profits that will be made, back into Ukraine?

Similarly, huge sums will be spent in rebuilding roads, schools, hospitals and residential housing stock – Ukraine lacks the capacity to undertake much of this, so Western private sector companies will likely secure multi-billion dollar contracts for reconstruction. If these companies want part of that business they should also pledge funds for Ukraine’s longer-term reconstruction. Their “skin in the game”.

And Ukraine and Ukrainians have shown remarkable ingenuity throughout this conflict, using and adapting Western technology to great effect. They have shown they have a highly educated and innovative population which has huge potential to be an innovation and IT powerhouse, like Israel, Taiwan or South Korea. Why should Western companies engaged in these sectors also not want to commit to Ukraine’s reconstruction?

There will be lots of talk about donor conferences, and we recently had the Lugano conference. But this was mostly for the official sector. But our governments need to convene a private sector big investors conference – name and shame the big Western corporate and banks, which normally attend Davos to turn up and pledge. If they go to Davos they should be challenged why they are not attending the Ukraine private sector donor conference? Do they not care about the survival of Western Liberal market democracy?

We already see pledges from large businesses and various structures, initiatives being organised.  One can imagine such pledges building up and providing a big-ticket envelope of investment pledges which can capture the headlines. Success builds success.

But surely the experience of the last 31 years of Ukrainian independence and indeed the past six months of Western donor support is that there is a need for strong coordination between public sector donors, but also with the private sector. But for private sector pledges to be realised in practice there needs to be a strong institutional setting, or governance structures, put in place to coordinate and plan what will be a huge reconstruction and financing need. If you create the right investment environment in Ukraine, there should be no need to press gang the private sector into investing in Ukraine – the opportunity should be self-evident. And for this, the right institutional setting needs to be created.

The right institutional setting will be critical

As per the Treuhand in Germany, or the National War Fund which helped channel US support to UK reconstruction after WW2, one could image a secretariat (Entity X – I am going to call it AURA, the Agency for Ukraine’s Reconstruction and Advancement) formed for Ukraine reconstruction funded perhaps thru a levy of a small percentage of funds pledged from the public and private sectors, or even a PIK bond as below. The job of the secretariat would be to administer pledges, coordinate assistance, identify, and develop bankable projects, raise funding on its own behalf, even act itself as an equity investor (as per development banks and institutions such as the EBRD, or sovereign wealth funds) but also to act to lobby for reforms in Ukraine, to ensure the right environment to promote business development and private sector investment.

The combination of EU accession, a large reconstruction and development fund, particularly focused on promoting and leveraging private sector investment will surely be powerful in pushing forward changes to the rule of law and governance to ensure business flourishes. This project will aim to join up all the dots, to deliver rapid and meaningful economic development in Ukraine as the best foil to Russian aggression towards Ukraine and the West.

Rather like entities like the EBRD, AURA will be owned by a group of shareholders, likely to be the Western nations and large IFIs initially pledging support to Ukraine, but also Ukraine in order to have a supranational institution character for the organisation. One could imagine majority ownership being held in trust by donor countries, until some point in time (ten years hence?) when the entities’ ownership fully reverts to Ukraine – and likely by then it will function rather like a sovereign wealth fund. Initial Western ownership will encourage good governance, credibility and trust, key to generating and multiplying investment into Ukraine.

The highest governance body should be the Board of Directors nominated by shareholders, which should be composed of respected and credible individuals from academia, business and politics, who would be able to lobby at the boards of the donor companies and set the general strategy of the fund, and coordinate/lobby with the Ukrainian government to enact necessary laws and governance structures to minimise corruption. The Board will appoint the secretariat and perform audit functions and also approve projects above certain sizes. There should be an advisory board, composed of the representatives of international /national bodies such as IFIs, i.e. IMF, EBRD, EIB, IFC, KFW, NORAD, DFID etc., the largest donor companies and Ukrainian civil society institutions to have a coordinated approach on reconstruction of Ukraine, along with special focus group on transparency of the process.

A very small Executive Management team, and a cadre of professionals working to identify financing sources, identify and develop bankable projects, develop debt and equity financing models and vehicles, provide research, but also help promote an improved, international best practice business environment in Ukraine, which will act as a beacon for private sector investment.

Because it will likely emerge as the biggest investor in Ukraine, it will have leverage to push forward change in the business and legal environment, required to provide the multiplier effect for private sector investment to flourish.

Debt & equity financing                                                                                                                                                            

The presence of AURA be a key partner of and assurance for private sector investors in Ukraine. It will be their partner in investments, obligor for potential fund raising, and lobbyist for reform and agent for change and transformation in Ukraine.

One could imagine AURA issuing its own debt, perhaps initially guaranteed by shareholders (Western donors).

Returning to the specifics of how the private sector could fund reconstruction, through AURA, there could be different types of commitments from private donors, which might vary depending on their circumstances.  One interesting idea might be the issuance by AURA of long term (30-50 year) sovereign/reconstruction PIK bonds, say offering a 4% coupon, where the companies can either book as long term “buy to hold” investments hence avoiding any losses, or should they decide to book the bonds as “trading or available for sale” instruments, the NPV losses can be used for tax shield purposes.

Herein, the coupon / tenure of the PIK notes can be structured, in a way the NPV losses can be equivalent to direct aid.  Foreign investors will, for example, either donate $50m or buy $60m worth of PIK notes as their “pledge but can only sell at $10m in the secondary market, so their initial contribution will be the $50m. The funds raised could provide the initial start-up capital for AURA.

AURA can be an equity investor in investments, rather as sovereign wealth funds do throughout the world, and as per development banks such as the EBRD.

Could one even imagine the private sector being offered an equity stake in AURA itself? If AURA is ultimately being developed as a sovereign wealth fund, managing assets of Ukraine on behalf of the state, how about earmarking 10-20% of the long-term ownership of AURA, for big private sector entities, such as Blackstone, Blackrock, JPM, et al. They would pay/buy a stake up front, but get a seat on the board, and be seen as a long-term partner for Ukraine.

If we can think of ultimately a $500 billion fund, an initial 10% stake could be auctioned with a reserve price set in the $10-25bn range, in upfront cash. For such a commitment you are getting a seat on the board, an eye/input into the country’s long-term development, and an ability to be involved in the best projects going forward. Perhaps other sovereign wealth funds such as PIK, ADIA, or the Government Pension Fund of Norway could be anchor investors themselves.

Think of it as premium membership in the Ukrainian recovery and success story. Imagine the positive ESG spin.

Timothy Ash is an associate fellow in the Russia and Eurasia programme at Chatham House and a senior sovereign strategist at Bluebay Asset Management in London.

Reprinted from @tashecon blog, See original here.

The views expressed in this article are the author’s and not necessarily those of the Kyiv Post.

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