Lugano conference: A first step towards Ukraine’s recovery

Armed conflict is still raging in eastern and southern Ukraine. Russian missiles occasionally hit targets across the whole country. Accordingly, the idea of reconstruction, of Ukraine’s future after the war, the very idea of “after”, seems farfetched. Can one think reconstruction and recovery of a country in the midst of a war with highly uncertain outcome?

The Ukraine Recovery Conference (URC) in Lugano, Switzerland, in early July revolved around just that. It was the first such platform to rally all major stakeholders in Ukraine’s potential reconstruction. Under the current circumstances, the limits of getting specific are obvious. However, it appears necessary to think ahead for a “Marshall Plan” beyond the current focus on military aid and high-level political signals. These efforts also represent a recognition that Ukraine’s reconstruction is already a reality. People in liberated areas and returnees cannot wait for the ink to dry under a peace agreement – if there ever is one. They need to reinstall basic infrastructure and support and guidelines to that end.

As such, the conference addressed two fears. It reassured Ukraine that Western attention is not fading and that there is a long-term commitment for the country. Meanwhile, the Ukrainian co-organizers reassured the West that the reconstruction effort shall not be derailed by corruption but closely tied to political reforms, inclusion, and sustainability.

As the formal result of the URC, seven guiding principles for Ukraine’s potential recovery were declared. More such conferences were announced so the URC 2022 only represents a steppingstone to tackle a long, cumbersome process that may end up being Ukraine’s recovery.

‘Colossal investments’ needed

On July 4-5, more than 1000 delegates from 40 Western countries, the EU, the business community, civil society, parliaments, and multilateral development banks gathered in Lugano to discuss Ukraine’s future reconstruction. Facilitating interactions between them was probably the conference’s most tangible outcome. It was the first such platform to involve all these stakeholders.

Most high-level among the participants were the two co-hosts, Ukrainian Prime Minister Denis Shmyhal and Swiss President Ignazio Cassis, alongside EU Commission President Ursula von der Leyen, and heads of state and government of Poland, the Czech Republic, and Slovakia. Many other states like the UK or Germany sent ministers of foreign affairs or development. The fact that few Western heads of states were present was likely due to the conference taking place mere days after the NATO and G-7 summits, discussions being more of technical nature (suitable for minister level) and no major breakthroughs being expected. Notably absent were Russia and non-Western states.

Ukrainian Prime Minister Shmyhal suggested a highly developed national Reconstruction Plan worth 750 billion dollars. This rough figure is in line with other estimates that also indicate Ukraine may have lost half its productive capacity through the war. Ukrainian President Volodymyr Zelensky, in his online address, spoke of the need for “colossal investments”. Von der Leyen spoke of a “generational undertaking” that also represents a “huge opportunity.” In that vein, Shmyhal spoke not only of reconstruction but of transformation and the need to “build a coalition for Ukraine’s recovery.”

To personalize commitment, Ukrainian President Volodymyr Zelensky raised the idea of patronage of donor states for certain regions or industries in Ukraine, such as Germany being chief in the reconstruction of the Chernihiv Region, the US and Turkey of Kharkiv, and so on. So far, only few states have specified their commitments to that end.

One elephant in the room was the question why Western donors and Ukraine should pay for the damage the unprovoked Russian invasion inflicted. In Lugano, the Ukrainian delegation reiterated its hope to seize and use hundreds of billions of dollars of frozen Russian assets to that end. Von der Leyen announced a legal framework to facilitate such steps. While some states have taken first efforts towards that, substantial legal and political challenges remain.

A Compass

Other legal and political challenges permeated many statements in Lugano, including the rule of law and anti-corruption efforts that would need to precede and accompany any reconstruction in Ukraine. Already at this stage, there is substantial worry among potential donors about some of their contributions ending up misappropriated, echoing Ukraine’s troubled history of corruption. To ensure domestic support in the West for reconstruction efforts, substantial safeguarding mechanisms will need to be put in place. In his address in Lugano, Zelensky reiterated Ukraine’s desire to strengthen institutions and tackle reform. This echoes European allies and the US highlighting the need to rebuild a new Ukraine and using conditionality to strengthen the right kind of actors and policies in Ukraine to that end.

The URC was an attempt to highlight all these dimensions and add a long-term perspective beyond immediate military and humanitarian needs. The conference’s sub-fora on economics and civil society were based on the premise that reconstruction needs to be inclusive and sustainable. It emphasized Ukrainian ownership of the process, which is key but needs to be reconciled with the fact that funds will mostly be loans and grants provided by Western states and Western-led multilateral banks, which all have their own agendas and conditions. “We strive to build not only new infrastructure, but also a new infrastructure project management architecture,” Ukraine’s Minister of Infrastructure, Oleksandr Kubrakov, stressed and announced anti-corruption tools to “be applied all along the entire cycle of every infrastructure project.”

As the Ukraine Recovery Conference’s official result, seven guiding principles for Ukraine’s future recovery were declared: for Ukraine to steer the process, the focus on reform, transparency, participation of local communities, of all stakeholders, of equality and sustainability. These are broad, generic guidelines that nonetheless reflect the certainties and uncertainties around the endeavor and the aspirations and concerns of all parties involved.

Long Road Ahead

Moving forward, a degree of realism will need to be injected once efforts become more tangible. Progress will hardly be linear, reconstruction will have setbacks, and Ukraine is unlikely to fulfill ideals that many donor countries fail to comply with themselves. Ukraine’s national Reconstruction Plan is already several thousand pages long and will be intensely scrutinized as projects may become more specific and multilateral funding flows.

Moscow, meanwhile, will do its utmost to torpedo any efforts as its vision for Ukraine is the opposite, one of division and subjugation. For lasting reconstruction, a ceasefire or even a peace agreement appear to be necessary conditions, which currently appears unlikely.

Already, the UK agreed to host next year’s Ukraine Recovery Conference and Germany 2024’s. Von der Leyen announced that a high-level EU summit would take place “after the summer”. This emphasizes that the horizon is partially shifting from the everyday events at the frontline to processes that take years and decades.

Ukraine’s path towards EU integration will be closely tied to reconstruction efforts, with the EU likely to be a major donor and investor, and the EU acquis and EU standards likely to be main guides. European and global reconstruction and development banks and private investors – as gathered in Lugano – complete the fold of partners Ukraine will have to involve in its strive for reconstruction and economic recovery.

On the Ukrainian side, the goal of “inclusiveness” is not trivial: Encouraging Ukrainians who fled (particularly highly skilled ones) to return and commit to the reconstruction effort, and involving local actors, rivaling political factions and civil society will be key but also a challenge in an eventual transition from a war economy. In the end, it is up to all actors’ continuous efforts that Ukraine can achieve the stability and prosperity it strives for – for its own and the wider West’s benefits.

Benno Zogg is Senior Researcher and Head of the Swiss and Euro-Atlantic Security Team at the Center for Security Studies, a think tank at ETH Zürich.