There is no end in sight yet to the war in Ukraine, but governments and businesses in Central and Southeast Europe are already eyeing potential lucrative contracts when the war finally does cease. Rebuilding will be on a massive scale and cost hundreds of billions of dollars.
Databases of companies ready to get involved in the reconstruction have already been drawn up in Poland, which is expected to act as a hub for rebuilding efforts, together with Romania. But officials from even the smallest countries in the region have expressed their readiness to get involved in what should be a construction bonanza.
Ukrainian officials are also preparing the ground, perhaps in response to the increasingly vocal speculation from other countries salivating at the thought of the huge reconstruction contracts on offer. Kyiv made it clear on April 6 that the government wants local Ukrainian companies to carry out at least 60% of the work.
The scale of the job can hardly be underestimated, and only gets bigger each day the war drags on. The cost of reconstruction and recovery in Ukraine had risen to $411bn, or 2.6 times the country’s estimated 2022 GDP, by the one-year anniversary of the war on February 24, according to a joint assessment by the government of Ukraine, the World Bank Group, the European Commission and the United Nations. And that is just the physical damage. If you add in the lost business, fall in exports and other economic factors, then the total cost of the war gets up to around $1 trillion, according to Natalie Jaresko, the former Minister of Finance. Reconstruction and recovery is expected to stretch over ten years, requiring both public and private funding, although it is still not clear who will pick up the bill.
By sector, the biggest needs are in transport (22%), housing (17%), energy (11%), social protection and livelihoods (10%), explosive hazard management (9%) and agriculture (7%), according to details published by the World Bank in March. Just demining the country could cost up to $1.5bn, according to the World Bank. Ukraine is now the most mine-contaminated country on earth.
Compared to June 2022, the largest proportionate increase in damages was in energy, where as of February it was more than five times higher, after Russia repeatedly targeted energy infrastructure with missile attacks. The geographic areas with the greatest increase in needs are frontline regions of the war: Donetsk, Kharkiv, Luhansk and Kherson.
According to a report by the Kyiv School of Economics, as of January the war had destroyed or damaged more than 149,300 residential buildings, including 131,400 private houses and 17,500 apartment buildings, as well as more than 3,000 educational institutions ranging from preschools to universities. Hundreds of hospitals, religious buildings, cultural facilities and other buildings were also damaged or destroyed.
The Ukrainian government and its partners have already started some of the work. The most urgent work, that won’t wait for the end of the war, is to build accommodation for displaced citizens. Next on the list is to repair the energy infrastructure.
For example, in the health sector over 500 affected healthcare facilities have been partially or fully repaired; the energy and transport sectors have received equipment, materials and financing to make rapid repairs. Kyiv made it through the first winter of war with the lights still on and water flowing from the taps, as reported by bne IntelliNews’ correspondent on the ground. Many Polish companies, for example, are already working in Ukraine, where the demand to rebuild infrastructure is ongoing, according to the Polish Investment and Trade Agency (PAIH), the newspaper Puls Biznesu reported on April 5.
Lithuania, another staunch supporter of Ukraine, has made the reconstruction of educational and training institutions and communications infrastructure, and the provision of temporary housing for refugees, its priorities in the short term, according to a plan approved by the government in August 2022. Among the projects announced at the time were construction of a mobile residential camp and renovation of a school in Borodyanka in the Kyiv region, rebuilding the bridge over the Trubiz river and rebuilding a kindergarten in the town of Irpin, in Kyiv’s suburbs.
Fellow Baltic state Estonia has focused on the Zhytomyr region, where it started rebuilding a kindergarten and will continue with other civilian sites and critical infrastructure. “We hope that we can show an example to other countries with our initiative and first projects, because rebuilding Ukraine will be a process that takes a lot of time and resources, and definitely calls for international co-operation,” Foreign Minister Urmas Reinsalu said in December.
A year of war
It was initially thought that the war would take a matter of weeks, but the fierce resistance of the Ukrainian side took Moscow by surprise. Instead of surrendering, the Ukrainians fought tooth and nail, with a highly successful counteroffensive in September, retaking hundreds of kilometres of lost territory, routing the Russian defenders.
Now the fighting has become bogged down in a seven-month battle for Bakhmut. But things may change soon, as both sides are expected to launch a spring counteroffensive.
Ukrainians remain adamant that Kyiv should continue fighting for the meantime and 97% believe that Ukraine will win the war, according to a survey by the International Republican Institute (IRI) conducted in March.
For Ukraine to withstand Russian pressure, however, it will need more military support from the West. Currently, European countries are struggling to fulfil their promises to send hundreds of tanks to Ukraine. There are fears that unless the West delivers more offensive weapons, Ukraine's army could be overwhelmed this summer and there is a potential supply crisis looming this summer as Ukraine is running out of ammo. According to bne IntelliNews’ frontline reports, the Ukrainian army is already rationing shells as stocks start to run low.
Ukrainian President Volodymyr Zelenskiy said recently that Ukraine may be forced to start peace talks if it loses control of Bakhmut, in a two-day conversation with AP journalists on March 28-29. He predicted that if Russia defeats Ukraine in Bakhmut, Russian President Vladimir Putin would set out to “sell” a victory to the international community.
On the Russian side, the Kremlin has put Russia’s economy on a war footing and is ramping up military production. However, the Kremlin does not appear to expect a speedy victory; presidential spokesman Dmitry Peskov warned colleagues that they should get ready for a possible “forever war”, according to a recent report by The Guardian.
Looking ahead to reconstruction
But while the outcome of the war and its timing remain completely uncertain, officials and companies in Ukraine’s neighbours to its west are already thinking ahead to the reconstruction period.
On February 15-16 the Rebuild Ukraine exhibition took place in Warsaw, attended by hundreds of representatives of government institutions and businesses from Central European countries such as Czechia, Estonia, Latvia, Poland and Slovakia, as well as Western Europe.
Poland has repeatedly been referred to as a hub for the reconstruction of Ukraine. Poland is the biggest economy in Central and Eastern Europe (CEE), it has a long border with Ukraine, and Warsaw has been one of the most loyal supporters of Ukraine since long before Russia’s invasion. Polish President Andrzej Duda was instrumental in pushing fellow EU members into promising Ukraine over 400 modern Leopard 2 main battle tanks (MTBs) and other military aid to be sent to Kyiv.
The issue of reconstructing Ukraine after the war is expected to feature prominently in Polish-Ukrainian talks in the coming weeks and months, as the two allies are negotiating a treaty to give their new special relationship fresh momentum.
The visit of Ukrainian President Volodymyr Zelenskiy in Warsaw on April 5 could be key in moving the treaty forward and laying the groundwork for Polish companies to partake in the reconstruction effort, worth hundreds of billions of dollars.
“It is a programme of very intensive co-operation on the reconstruction of Ukraine after the war, in which the Polish and Ukrainian authorities, as well as international organisations, and financial institutions such as the G7 Group, the World Bank and the International Monetary Fund [IMF] will participate,” Poland’s Deputy Foreign Minister Pawel Jablonski told Wnet radio in early April.
"Polish companies are very interested in this,” Jablonski also said, adding that businesses are asking about “conditions for economic operation” in Ukraine to prepare to move in after the war.
The minister said that the reconstruction of Ukraine is not only about reconstructing what was destroyed by Russia but also about building new elements of infrastructure in line with Western standards, for example the European-standard railway or making Ukraine a hub for European green energy.
There are more than 2,000 Polish companies in the agency’s database of Polish companies interested in exporting to Ukraine or participating in the reconstruction, according to Puls Biznesu.
A report by Polish bank Pekao SA said that the reconstruction of Ukraine after the war will expand Poland's economy to €38.9bn, equivalent to around 3.8% of its GDP. Breaking this down, Pekao bank analysts estimate that Poland will gain €6.69bn in direct benefits and another €27bn-€31bn in indirect benefits from Ukraine's convergence and integration with the EU.
In Latvia, opportunities during the reconstruction period were discussed at a workshop hosted by the Ministry of Finance in February.
“Ukraine’s post-war recovery and reconstruction needs are expected to be extremely high – estimated at about $349bn. These funds will be needed to restore public services, repair damaged infrastructure and sustain economic activity through investments in agribusiness, manufacturing, infrastructure and many other areas. Private sector export-oriented companies across the world, including Latvia, can support Ukraine's reconstruction efforts by implementing projects financed and procured by the IFIs [international financial institutions], benefiting from a variety of financial and risk-sharing instruments,” said an announcement from AmCham Latvia, which participated in the workshop.
“The main objective of this workshop is to introduce the Latvian private sector to the IFI’s … operations and upcoming reconstruction project pipeline in Ukraine, along with presenting IFI’s financial and risk-sharing instruments in Ukraine and other developing countries,” it added.
In one example, the chairman of the board of Latvijas Dzelzcels (Latvian Railways), Rinalds Plavnieks, said at the end of March that the company is “ready to continue supporting reconstruction of the Ukrainian rail industry”. The company took part in a meeting between Latvian and Ukrainian ministers and industry leaders in March, at which topics including opportunities for LDz to participate in reconstruction of Ukrainian rail infrastructure were discussed.
Economic opportunities for Romania
Companies in Romania, the second-largest economy in the region after Poland, are also positioning themselves to get involved in the reconstruction effort.
In Romania, the Romania-Ukraine Bilateral Chamber of Commerce signed a memorandum of understanding (MoU) with the Ukrainian embassy in Bucharest in January to create a database of eligible companies for Ukraine's reconstruction projects.
The following month, the Chamber of Commerce and Industry of Romania (CCIR) signed another MoU with the Chamber of Commerce and Industry of Ukraine to strengthen business relations and develop economic co-operation between the two states. The memorandum includes a new article on the joint management of a platform to capitalise on economic opportunities related to the future reconstruction of Ukraine. CCIR will select Romanian companies with potential to meet the requirements launched by the Ukrainian side.
“Today, together with our Ukrainian colleagues, we laid the foundations for the creation of an integrated platform that will enable Romanian companies in the reconstruction effort that will follow. We are happy that we already have many signals from the business environment in Romania interested in participating in this process,” said the president of the CCIR, Mihai Daraban.
While less vocal than Poland on military support for Ukraine, Romania has already played an important role in helping keep the Ukrainian economy going by opening up its Port of Constanta to exporters of Ukrainian grain and other products. Constanta handled a record amount of goods in 2022 after Ukrainian grain and other goods passed through the port.
Bulgaria’s relationship with Ukraine is more complicated. Shortly after the invasion, Zelenskiy extended an invitation to Bulgaria's then Prime Minister Kiril Petkov to participate in Ukraine's post-war reconstruction programme, according to a statement from Bulgaria's Council of Ministers. The invitation was a “gesture of gratitude” for Bulgaria's support during the conflict, and will make Bulgaria one of the few countries to be included in the programme, it said at the time.
It later emerged that Bulgaria had secretly sent fuel and Soviet-calibre ammunition to Ukraine in the opening days of the war.
However, the strongly pro-Ukraine coalition government led by Petkov collapsed in mid-2022 and was replaced by a caretaker government appointed by President Rumen Radev, who has become increasingly Russia-oriented since the invasion. Sofia’s future course is unclear, as the country has just held its fifth general election in two years, with no immediate prospect of a new government being formed.
Small countries seek to get involved
Even the smaller countries in the region, among them Slovenia with a population of just over 2mn, are eyeing reconstruction opportunities in Ukraine.
Slovenian Prime Minister Robert Golob visited Ukraine on March 31 to express political support and solidarity with the Ukrainian people amid the ongoing Russian military aggression, but he also stressed Ljubljana’s interest in getting involved in the reconstruction.
During the talks with Ukrainian President Volodymyr Zelenskiy, Golob said that Slovenia is interested in co-operating in the recovery of Ukraine and is ready to engage in the reconstruction of the Kharkiv region, especially the city of Izium.
“We will provide further humanitarian aid and contribute to post-war reconstruction,” Golob said.
In addition to discussing political matters, Golob and his delegation also met with Ukraine’s Prime Minister Denys Shmyhal to discuss economic co-operation.
Golob underlined the interest of the Slovenian side to start actively thinking about how to build on the cooperation that was established during the Russian aggression in the post-war period.
"The Ukrainian market is not unfamiliar to Slovenian companies, and it would be good to lay solid foundations for future economic relations now," according to the statement.
Croatia also said several times that it is ready to help with Ukraine’s post-war recovery. Balkan countries such as Bosnia and Croatia have their own experience of post-war reconstruction after the wars in former Yugoslavia in the 1990s. This was noted by Shmyhal during his Croatian counterpart Andrej Plenkovic’s visit to Kyiv in March.
Other small countries in the region such as Albania, Montenegro and North Macedonia have also pledged to do what they can to rebuild Ukraine.
Russia’s friends in CEE
Even those countries that have maintained a relationship with Russia – to the dismay of both Kyiv and most EU members – such as Hungary and Serbia, are seeking to play a role in the reconstruction of Ukraine. However, Hungary's continued energy sector cooperation with Russia and Serbia's refusal to join sanctions may well result in their companies being side-lined.
“Hungary will provide all possible assistance for the reconstruction of Ukraine", the foreign ministry said in a short statement in early April, which came right after one of Hungary’s top security policy experts said Hungarian companies will most likely miss out on post-war construction projects. It is rather unusual for any ministry to react to reports, which may show the desperation of the government, Forbes.hu wrote.
Ferenc Kaiser, a professor at the University of Public Services, said the future reconstruction of Ukraine will cost around $400bn-$500bn and Hungarian companies will thus be left out of what could be almost half a trillion dollars-worth of business. He is one of the first persons to say out loud what is becoming the reality that the prospects of Hungarian companies winning tenders in Ukraine are slim, given Budapest’s position on the war, which many allies see as representing Russian interests.
Hungary has refused to send arms to Ukraine, blamed EU sanctions on Russia for high-energy prices and the highest inflation in Europe, as well as threatening to veto assistance to Kyiv on numerous occasions. Last week, Nato chief Jens Stoltenberg convened the first ministerial-level meeting of the Nato-Ukraine Commission since 2017 despite Budapest’s objection, a sign that Hungary’s allies have grown weary of Viktor Orban's veto threats, breaking the unity of the alliance.
Hungary’s construction sector is also dominated by companies run by powerful oligarchs close to the prime minister, a fact well known in the EU, which is calling for Hungary to reform its public procurement system to access frozen EU funds.
Avoiding the pitfalls
Kyiv has talked of the need to learn from early post-war reconstruction efforts such as in Iraq and the countries of former Yugoslavia. There has also been an emphasis on the need to build back better, by investing, for example, into new renewable energy capacity and other modern high-tech sectors.
On the downside, bne IntelliNews sources have mentioned the inflated prices already charged by some companies employed to carry out early reconstruction projects. And that is not to mention the corruption in Ukraine’s own government that has already seen senior defence officials dismissed for inflating the cost of soldiers’ rations in January to make a quick buck for themselves.
The gorilla in the room is the endemic governmental corruption that will become an issue when the billions of dollars of reconstruction money start to flow. In anticipation of these problems, that is likely to slow the amount of aid sent to Ukraine by western partners, Zelenskiy’s government continues to roll out its anti corruption programme in the background. One of Ukraine's most famous oligarchs is under investigation in an anti-corruption crackdown in February, when law enforcement agents raided the home of oligarch, and Zelenskiy’s friend, Ihor Kolomoisky.
Before the war, suggestions that the West fund a Ukrainian Marshall Plan to rapidly build up the economy as the most effective counter to Putin’s pressure were instantly dismissed on the widespread belief that most of the money would simply be stolen.
Meanwhile, rather than allowing a free-for-all by forcing companies, Olena Shulyak, the head of Ukraine’s parliamentary committee on regional development and urban planning, said on April 6 that Kyiv aims to have 60% of all reconstruction work carried out by domestic companies, reported Ukraine Business News.
She recommended that the government protect domestic producers and launch a programme to revive business activity, including preferential lending, after the damage caused to Ukraine’s economy by the war.
Shulyak also pointed to the need to analyse the materials required for reconstruction and to identify areas where the share of imports can be reduced. Ukrainian businesses can, for example, provide construction materials such as bricks, concrete, paint and ceramic tiles, while it would need to rely on imports of glass, electrical equipment and lifts.