As of August 1, 2022, direct losses of the Ukrainian economy caused by russia damaging or destroying the residential and non-residential buildings as well as infrastructure in Ukraine amounted to $108.3 billion or 2,9 trillion UAH, according to the estimation of the KSE Institute. The amount is already significant, but as the russian aggression still goes on, that number will keep growing. This makes post-war reconstruction and recovery an important process which has to be scrupulously thought through already now.
In this brief, we would like to outline key challenges which the post-victory recovery process may face and offer solutions to minimize possible risks from the start. We would also like to stress that the solutions offered in this brief should apply to the post-victory reconstruction funds, the approaches for allocation of the stabilization money aimed at keeping the economy running during the wartime and funds aimed for the immediate recovery of the critical infrastructure should be different.
In addition, we would also like to highlight separately that the recovery efforts would make little sense if the russia war against Ukraine is not won, but temporarily stalled, therefore helping Ukraine with all necessary heavy weaponry requested by the Government is a key precondition for the effective reconstruction. The support for the reconstruction shouldn’t be perceived as a substitute for military assistance.
Since 2014 Ukraine has undergone a massive democratic transformation in the areas of fighting against corruption, digitalization, and decentralization of power. However, the justice sector and public administration reforms were not complete before the outbreak of the full-scale russian aggression on February 24, 2022.
Given the scale of the losses, a key problem which arises is the capacity of the Ukrainian authorities to effectively manage significant funds. Evidence suggests that Ukraine’s public administration is not strong enough for performing the task. As of 2020, Ukraine was ranked 115 among 192 states on government effectiveness, with -0.36 points, while -2.5 is the lowest possible. It’s highly unlikely that Ukraine would make a significant breakthrough in public administration reform during wartime to be able to absorb and manage such big funds effectively and transparently.
Moreover, the funds which enter the state budget, are subject to the inspections and checks by the law enforcement and state auditing bodies. Not all of them were successfully reformed by now, e.g. the Security Service of Ukraine (SBU), the National police, the State Bureau of Investigations, the Anti-Monopoly Committee, the Accounting Chamber and the State Audit Service. Their reforms will be carried out as a part of Ukraine’s accession to the EU process, but it will take time, while the recovery would need to start after the victory. Unjustified checks and interference of non-reformed law enforcement agencies could complicate the reconstruction process, lead to misuse of funds and undermine the trust of international partners and private investors.
The question of trust is particularly important given that the russian propaganda and Ukraine’s Western foes will aim to use any opportunity to jeopardize the process. The very appearance of a corruption scandal could itself be a big blow for the reconstruction efforts and discourage foreign companies from bidding which would decrease the competition and overall quality.
That is why all necessary anti-corruption safeguards must be put in place before the process starts to ensure maximum transparency, accountability, and trustworthiness, and avoid corruption.
Therefore, in order to mitigate corruption risks and ensure integrity of reconstruction efforts given the above-described issues, the key principle is that the recovery funds should not enter the Ukrainian budget.
The Ukrainian authorities as the representatives of the Ukrainian people, in cooperation with the representatives of the local authorities, should define and prioritize the list of objects for the reconstruction and the rebuilding.
However, the Ukrainian authorities should not have an influence on choosing the contractors for these works. This process should be depoliticized and transparent, with a crucial say of the representatives of donors. This approach proved to be effective for the anti-corruption and rule-of-law reforms and should serve as a basis for the reconstruction efforts too, from our perspective. This can be ensured via the establishment of a separate Fund, which will act as the procurement agency, or other means.
Transparency is a necessary additional condition too. It should be ensured at each stage of the reconstruction process: from forming the list of demands and detailed calculations of costs to procurement procedures, control of quality, effectiveness evaluation, and so on. Digital tools for monitoring every state of procurement and project implementation by governmental institutions, donors and Ukrainian society are a must.
A high level of competitiveness in procurement is one of the prerequisites of the effective use of funds and the economy. Foreign bidders should be allowed to effectively participate in procedures. In order to have not only low cost but also high quality of work carried out, non-monetary criteria could be defined clearly, coupled with effective and impartial due diligence. The process of bidding shouldn’t be burdensome. The Ukrainian public procurement system is a good starting point, but improvements would be necessary.
It could be beneficial if foreign relevant institutions, e.g. Inspectors General or the European Court of Auditors, would also closely follow the reconstruction process. Cooperation with national controlling and law enforcement authorities is important too.
NABU, SAPO and HACC should have a clearly defined jurisdiction over corruption offenses committed in the course or reconstruction process. In any case, foreign law enforcement agencies need to have strong partnering bodies in Ukraine in order to ensure effective prosecution – and improvements of procedures for international cooperation in criminal matters is a necessary step.
As of now, the administration of funds by an external entity is the best option. This approach could ensure more transparency and trust for international donors, including private ones, as well as prevent any possible unjustified interference from the side of some non-reformed Ukrainian institutions.
In addition, effective and impartial prosecution for fraud and corruption would be vitally important. National agencies – NABU, SAPO, HACC – would inevitably be engaged in prosecution and adjudication respectively. Merit-based appointments, provision of sufficient resources, stable mandate and necessary legal framework, and operational independence are prerequisites for their effectiveness. The potential of international cooperation (in particular, joint investigation teams) has to be fully unleashed as well.
Ukraine’s post-victory reconstruction will go hand in hand with the country’s accession into the EU, in the course of which Ukraine will implement a number of important reforms, like judicial reform, law enforcement, and public prosecution service reforms, the reforms of the Security Service of Ukraine and the Anti-monopoly Committee etc, which will ensure country’s further resilience and sustainability.
Olena Halushka, ICUV co-founder, Board member at the Anticorruption Action Centre | AntAC