A new report by the US aid agency says when Russia's war ends reconstruction loans should be spent on businesses and jobs in Ukraine

Ukrainian manufacturers can and should lead reconstruction efforts in the country when Russia's war ends, new research has concluded.

A white paper published by USAID, the US international development agency, has found Ukraine's own building materials sector could provide up to 90% of the construction materials needed to rebuild the thousands of residential, non-residential and infrastructure sites destroyed by the Russian military.

Using Ukraine's own factories that make cement, metal and other building materials, could also preserve up to 100,000 jobs in the building sector, the research found. It would also contribute $5.6bn in wages and $4.4bn in tax revenue, the report claimed - providing Ukrainian manufacturers received every contract.

MP Tony Lloyd, vice-chair of the UK all-party parliamentary group on Ukraine, welcomed the findings. "We need to ensure that international financial support acts to rebuild the Ukrainian economy and provides opportunities for Ukrainian businesses and jobs for the Ukrainian people," Lloyd told openDemocracy.

Brian Milakovsky, deputy chief of party (technical) at USAID's Economic Resilience Activity group, told openDemocracy: "Every dollar or euro or zloty or yen that is spent on Ukraine's reconstruction in Ukraine is working twice.

"It's working on the physical fixing to make life liveable in Ukraine - and it's putting fuel back in Ukraine's economic tank," he said.

The USAID research, conducted by two public think tanks (Ukrainian Industry Expertise and the International Economic Research Institute), cuts across some of the conventional thinking about Ukraine's war-ravaged economy, Milakovsky told openDemocracy.

First, he said, there's an "informal, but fairly widespread impression" that Ukraine's manufacturing capacity has been devastated by Russia's war.

In reality, many building manufacturing plants - other than those currently under Russian occupation - are operating at 20-30% of their capacity, and could return to higher capacity under new contracts or investment.

And second, there's a "very natural and understandable interest" from European companies planning to supply materials for post-war reconstruction on the basis of international loans, Milakovsky said.

But, he cautioned, a scenario where Ukraine's reconstruction is supported by international donors on the basis that loans have to be spent on suppliers in their countries, rather than in Ukraine, should be avoided.

"How can Ukraine afford its own recovery if it is going to be fuelled, to a large extent, by loans? If there are going to be loans, the funds should be spent in Ukraine," Milakovsky said.

In a separate report released this week, the German Marshall Fund of the United States explains its strategy for a new 'Marshall Plan' for Ukraine - an international effort to support the rebuilding of Ukraine's economy after the war.

Against a backdrop of concern in the West about the cost of Ukraine's reconstruction, its authors ask: "What is the alternative? To win the war at enormous cost and lose the peace? To eventually provide security assurances to a free Ukraine but allow an economically failed state to emerge?"

Importance of localization

Speaking to openDemocracy, Vasyl Andreyev, head of Ukraine's construction workers' union, said he supported 'localisation' efforts, but wanted to see jobs come first.

"From one point of view, we support the localisation of production, but at the same time we are looking at the reconstruction process from the other angle: what conditions will be fixed for workers during the implementation of these contracts? Will international donor agreements contain clauses on labour protection or social benefits?" he asked.

Andreyev also said that Ukrainian property developers could push the Ukrainian government to permit high-level imports of building materials - to keep domestic prices low.

"Any reconstruction effort should also account for local business realities," he said. "The government has ties to [property] developers, big business, and their lobby can be stronger [than lobbying efforts by building material producers]."

The localisation agenda has had some success in Ukraine so far when it comes to humanitarian aid. Japan's international development agency JICA has provided funds for Ukrainian manufacturers to build vehicles for the country's emergency ministry; and the Danish government has purchased water filtration systems for the southern city of Mykolaiv, which has been shelled repeatedly by Russia, from a company in Irpin, near Kyiv.

The Federation of Employers of Ukraine, a business association, supports localisation on the basis that Ukrainian companies can provide competitive prices and quicker transport - and that the economic stimulus will boost consumer demand and taxes.

"This is a classic win-win strategy," commented MP Dmytro Kiselyvskyi, who sits on the Ukrainian parliament's committee on economic development.

The reports come as Ukrainian president Volodymyr Zelenskyi has emphasised the scale of Russia's destruction of cities such as Bakhmut, where Russian forces have increasingly gained a foothold after months of intense fighting. Speaking during the recent G7 meeting in Japan, he compared Bakhmut to the destruction of Hiroshima by a US atomic bomb.

"Let me be sincere: the pictures of ruined Hiroshima really remind me, totally remind me, of Bakhmut and other similar settlements and towns," Zelenskyi said last week, after visiting the atomic bomb memorial.

"It's just the same: nothing alive left, all of the buildings have been ruined, there is no understanding where the street is, where the houses used to be."

From openDemocracy

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