The ingredients for rebuilding post-war Ukraine

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McKinsey: How can Ukraine chart its post-war recovery?

Oleksandr Kravchenko: Obviously, Russia’s invasion of Ukraine has taken a huge toll on Ukraine and the Ukrainian economy. We are talking about 100,000 casualties, with one-third of the population displaced. A lot of critical infrastructure has also been destroyed, such as energy, logistics, and a lot of physical production assets. In 2022, GDP plunged by 30 percent, while unemployment climbed to 30 percent in January 2023.

I’m very proud of how McKinsey reacted to this crisis. In 2022, we made a direct contribution to Ukraine of about $30 million, which included humanitarian aid and pro bono work. Moreover, we remain committed to Ukraine, and have remained in the country. We really want to support Ukraine, our clients, our people, and of course, are excited to continue recovery discussions with all relevant stakeholders.

Of course, the most important topic remains Ukraine’s post-war recovery. First of all, if you look at the scale of destruction and what’s needed to recover, it’s probably unprecedented since World War II. The World Bank estimates recovery costs of $350 billion, while the Ukrainian government’s recovery plan mentioned $750 billion. By contrast, the total cost of the post-WWII Marshall Plan, in today’s dollars, was $150 billion, so up to five times more may be needed to rebuild Ukraine.

When we think about post-war Ukraine, we focus on three main principles, the first being that this should be a holistic economic development recovery. We talked about physical asset destruction, but I think the real priority is to revitalize and restart the economy to integrate Ukraine into the international value chain. Because that’s how you make this recovery sustainable and long-lasting, and really ensure the benefits go to the population of Ukraine over time.

Secondly, private capital will be key, not only as a critical source of funding, but also for the capabilities to effectively utilize these funds in Ukraine. For historical context, the maximum net outward foreign direct investment (FDI) to Ukraine was just over $10 billion per year, but we are now talking about hundreds of billions of dollars. So it’s really critical that private partners bring to Ukraine their procurement capabilities, their supplier networks, and their network expertise to make sure we effectively utilize these funds.

Finally, the third principle is coordination. We mentioned the need for private capital, but there are certain prerequisites that need to be in place to attract private capital to Ukraine. We are talking about critical infrastructure, war insurance, and concessional capital, which can be can be provided by donors and the Ukrainian government. But it’s critical that private capital, donors, and Ukrainian government all coordinate and work together for maximum synergy to make this recovery planning effective.

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