(Lviv, Ukraine) Latvian roofing companies and South Korean trade specialists. Fuel cell manufacturers from Denmark and wood producers from Austria. Private equity titans from New York and cement plant operators from Germany. Thousands of companies around the world are placing their pawns in preparation for a possible multi-billion dollar gold rush: rebuilding Ukraine after the war is over.
Russia is stepping up its offensive on the threshold of the second year of the war, but the enormous task of reconstruction is already evident. Hundreds of thousands of homes, schools, hospitals and factories have been destroyed, along with essential energy facilities and miles of roads, railways and seaports.
This profound human tragedy is inevitably also a huge economic opportunity that Ukrainian President Volodymyr Zelensky has likened to the Marshall Plan, America’s post-World War II aid program for Western Europe. Early estimates of the cost of rebuilding physical infrastructure range between US$138 billion and US$750 billion.
The prospect of this treasure inspires altruistic impulses and entrepreneurial vision, shrewd business strategy and first-rate opportunism for what Ukraine’s Chamber of Commerce describes as “the world’s largest construction site”.
Volodymyr Zelensky and his allies want to take advantage of the reconstruction to integrate Ukraine’s infrastructure with the rest of Europe.
Yet it is far from certain that all the gold from this long-awaited gold rush will materialize. Ukraine, whose economy plummeted 30% last year, is in desperate need of funds to keep functioning and carry out emergency repairs. Long-term reconstruction aid will depend not only on the outcome of the war, but also on the money that the European Union, the United States and other allies make available.
And although private investors are being courted, few are willing to risk committing funds now, when the conflict is in full swing.
PHOTO MACIEK NABRDALIK, NEW YORK TIMES ARCHIVES
Lviv city center, earlier this month
Confiscate Russian assets
Ukraine and several European countries are pushing to confiscate frozen Russian assets held abroad, but skeptics including Biden administration officials have questioned the legality of such a move.
Nevertheless, “a lot of companies are starting to put their pawns in place to be ready and have a track record for the arrival of reconstruction funds,” said Tymofiy Mylovanov, a former economy minister and president of the School of Kyiv economy. “There will be a lot of funds from all over the world,” he added, and companies are saying “they want to be in it.”
For companies, a crucial question is who will control the money. This is an issue that Europe, the United States and global institutions like the World Bank – the biggest donors and lenders – are vigorously debating.
“Who will pay for what? said Domenico Campogrande, director general of the European Construction Industry Federation, at a trade show in Warsaw this week.
Ukraine made it clear that early investors would be rewarded for post-war reconstruction. But this prospect carries risks.
“Survival Mode”
Danfoss, a Danish industrial company that sells thermal efficiency devices and hydraulic power units for apartment buildings and other buildings, has been doing business in Ukraine since 1997. When war broke out last February, Russian bombings destroys its warehouse in Kyiv.
Danfoss has since focused on helping with immediate needs in war-torn regions and western Ukraine, where millions of people displaced from their homes have been forced into temporary shelters. .
“For now, all efforts are towards maintaining a survival mode,” said Andriy Berestyan, the company’s director in Ukraine.
PHOTO DIEGO IBARRA SANCHEZ, NEW YORK TIMES ARCHIVES
Andriy Berestyan, Director of Danfoss in Ukraine
For the moment, no one is really considering a major reconstruction.
Andriy Berestyan, director of Danfoss in Ukraine
Things had been looking up for the company since last summer, as Ukraine fended off Russian advances. In October, new orders for Danfoss products were pouring in, and Mr. Berestyan restored Danfoss’ distribution center in Kyiv. Then Russia started dropping bombs en masse. Electricity and water have been largely cut off, forcing Ukraine – and businesses – to get back to dealing with emergencies.
Nevertheless, Danfoss is keeping an eye on the long term. “For sure there will be prospects for reconstruction,” Andriy Berestyan said, “and we see a huge, huge opportunity for ourselves and similar businesses.”
This preparatory work is underway in places like Mykolaiv, one of the hardest hit regions, where many Danish companies have worked. Drones operated by Danish companies mapped each bombed structure, aiming to use the data to help decide which reconstruction contracts to award.
PHOTO MACIEK NABRDALIK, NEW YORK TIMES
The Cathedral-Basilica of the Assumption of the Blessed Virgin Mary, in Lviv, is boarded up in order to be protected against possible bombardments.
This information would help companies like Danfoss assess business potential and eventually bid for contracts.
Other governments that should contribute to the reconstruction of Ukraine also offer financial support to national companies.
Business Outlook
Private equity firms are also paying attention to business prospects. Volodymyr Zelensky struck a deal late last year with Laurence D. Fink, CEO of BlackRock, to “coordinate investment efforts to rebuild the war-torn country.” BlackRock, the world’s largest asset manager, will advise Kyiv on “how to structure the country’s reconstruction funds”. The work will be done pro bono, but promises to give BlackRock insight into investor interests.
Mr. Fink was associated with this initiative by Andrew Forrest, an Australian mining magnate, CEO of Fortescue Metals Group. In November, Mr. Forrest announced an initial investment of US$500 million, from his own private equity fund, in a new fund created for reconstruction projects in Ukraine. The fund would be managed with BlackRock and aims to raise at least US$25 billion from sovereign wealth funds controlled by national governments and private investors around the world for clean energy investments in war-torn regions.
Mr Forrest wooed Mr Zelensky, wearing a Ukrainian flag lapel pin in his lapel and gifting the Ukrainian president with an Australian whip during a visit to Kyiv last year. But, in a sign of investor caution, Mr Forrest said the capital would be made available “the moment Russian forces have been withdrawn from the lands of Ukraine”, not before.
This article was originally published in The New York Times.