Rebuilding Ukraine will require at least three or four Marshall Plans

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Canada is looking to ramp up its support to Ukraine. Bolder government and business efforts are both needed if we’re going to make a meaningful contribution to Ukraine’s survival and recovery.

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Just after a fresh round of Russian missiles rained down on Kyiv, the Canada-Ukraine Chamber of Commerce and the Business Council of Canada convened the “Rebuild Ukraine” conference on Wednesday, Nov. 23, in Toronto to catalyze additional support for Ukraine. Deputy Prime Minister Chrystia Freeland, along with an array of Canadian and Ukrainian officials and business people, headlined the day of speakers.

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The meeting came on the heels of October’s federal government announcement of a so-called “Ukraine Sovereignty Bond”. The facility allows individual Canadians to underwrite, in $100 increments, a loan of up to $500 million from Ottawa to Kyiv via the International Monetary Fund (IMF).

This bond builds on the Government of Canada’s $2 billion in direct financial assistance to Ukraine so far in 2022, all of which has already been disbursed, with about $1.5 billion transferred through the IMF. Canada has separately committed more than $2.5 billion in military, humanitarian and other assistance to Ukraine this year. Ottawa says this brings Canada’s commitments to Ukraine in 2022 to more than $5 billion — around 63 per cent of Canada’s total US$6.3 billion (about $7.9 billion) of official development assistance in 2021.

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What’s a lot for Canada is still a drop in the bucket of Ukraine’s expanding reconstruction costs. Through June 1, the World Bank, European Union, and Ukrainian government pegged the rebuilding bill at US$349 billion.

This total will likely rise to over US$600 billion by the end of 2022 — three times the size of Ukraine’s annual GDP before the invasion. The Kyiv School of Economics (KSE) estimates that Russia added another US$31.5 billion to the bill by Labour Day. The KSE reckons that around US$4.5 billion of additional civilian infrastructure is destroyed every week. On top of this, the Ukrainian government is running a deficit of around US$3–5 billion each month with tax revenues down amid a projected 33 per cent contraction in economic output. For context, Canada’s real GDP shrank by 5.2 per cent during 2020’s pandemic shutdowns.

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Much of the West’s current assistance is saddling Ukraine with debt

Zenon Potichny, president of the Canada-Ukraine Chamber of Commerce, called on Wednesday for “a 21st century Marshall Plan” to rebuild Ukraine. The original U.S. Marshall Plan to rehabilitate 17 European nations in the wake of the Second World War provided only US$13.3 billion — or about US$150 billion in today’s terms.

Almost all of the Marshall Plan was provided through grants or forgivable loans, whereas much of the West’s current assistance is saddling Ukraine with debt. At a minimum, the servicing of these loans should be made contingent on Ukraine’s future economic recovery — not tied to a fixed repayment schedule.

Rebuilding Ukraine will require at least three or four Marshall Plans. There’s little chance, though, that Western governments are going to foot this bill: they haven’t even committed to filling the US$50 billion fiscal deficit that European academics expect Ukraine to face in 2023.

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The resources that the West has provided have been dispatched slowly and unpredictably. We risk leaving Ukraine’s government stuck with asking its central bank to finance its deficit, thereby increasing the chance of ruinous inflation, a further erosion in the value of Ukraine’s currency, the hryvnia, and a rollback of the country’s still-incomplete pre-war reform efforts.

Canada needs to make a more concerted effort to engage private capital in keeping Ukraine afloat and smoothing its renewal. Several speakers at the “Rebuild Ukraine” conference observed that American and European businesses are already positioning themselves to participate in Ukraine’s war economy, its post-conflict reconstruction and its eventual admission into the European Union.

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The Canada-Ukraine Free-Trade Agreement (CUFTA) has been in place since 2016. In June 2022 the federal government suspended tariffs on all Ukrainian goods for one year. Canadian Ambassador to Ukraine, Larisa Galadza, noted at “Rebuild Ukraine” that CUFTA is being “modernized” to include services, such as IT and back-office functions. Still, this isn’t enough.

Halyna Yanchenko, Secretary of Ukrainian President Zelensky’s National Investment Council, was clear: more private trade and direct investment is needed to deepen Western support.

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Yet, Ottawa’s main tool to assist Canadians doing business abroad, the Export Development Canada (EDC), lists Ukraine as “open on a restricted basis” for activity. The Canadian government’s self-styled “international risk experts” are still hedging their bets at the same time that Freeland is calling on Ukraine’s allies to be as steadfast as the country’s frontline fighters and intrepid civilians. These restrictions need to be resolved so that the full suite of EDC’s loans, insurance and guarantees can be mobilized to mitigate the uncertainties faced by Canadian businesses in Ukraine.

The EDC should go even further and engage its FinDev subsidiary. This would involve widening FinDev’s focus from Africa and Latin America. FinDev’s mandate has already expanded from supporting the poorest developing countries to upper-middle income countries such as Peru. If there were ever a time for further mission creep, this is it.

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In fairness to EDC’s leaders, they’re charged with an impossible task: be bold, but don’t lose any money while they’re at it. Canadians have to accept that taking risks in an existential fight for the future of democracy and the rules-based international order means a few loans or guarantees are going to go bad. These losses are likely to be many orders of magnitude smaller than the private flows of Canadian investment and trade that EDC’s financial instruments could catalyse.

Until EDC’s website says “Ukraine: encouraged for business,” we’re going to need to keep pushing ourselves to be bolder.

Brett House is a Fellow with the Public Policy Forum, the Munk School, and Massey College. He tweets at @BrettEHouse.