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Ukrainian’s 'Green Marshall Plan’ and the cost of reconstruction

27 June, 2023



Building on the strength of its iron and steel industry, Ukraine is determined to reinvent this sector with a focus on sustainable green steel. The country's officials will seek up to $40 billion (£31.4bn €36.6bn) in funding for the first part of a 'Green Marshall Plan'. However, the road to recovery is not straightforward, as confidence is key to attracting international aid

inspiratia insights:

  • To attract potential investors and international development banks, the reconstruction plan must be transparent and robust. There is a need to ensure that funds given or lent are used for their intended purposes, with a focus on demonstrating early successes to ensure continued support.
  • A short-term priority is to restore basic necessities to the affected regions, while the long-term focus should shift towards renewable and green energy solutions. The incorporation of resilient smart grid technology is seen as a crucial part of this strategy.
  • Despite ambitions for a green recovery, the uncertainty of Ukraine's heavy industry, particularly steel production, exists due to extensive war damage.
  • The reconstruction plan should harness the power of international collaboration, like the original Marshall Plan post-WWII. It's critical for both inside and outside players in Ukraine to understand each other's needs and work towards a common goal.

In 2021, the iron and steel industry contributed approximately 10% to Ukraine's GDP and was responsible for a third of export revenues while employing about 600,000 people. However, it also accounted for 15% of the country's carbon emissions. Officials, including Rostyslav Shurma, deputy head of President Volodymyr Zelenskiy's office, have identified this as an opportunity to create an industry powered by renewable energy.

"Our vision is to build a 50 million tonnes green steel industry in Ukraine," said Shurma. The proposed industry would utilise wind, solar, nuclear, and hydropower, positioning Ukraine as the world's most economical supplier of green steel.

This radical move aligns with Europe's objectives to decarbonise its economy and will also attract investment. However, transitioning to a greener economy comes with significant financial requirements. A coalition of industry, public and private sector stakeholders will help gather an initial funding of $20 billion (£15.7bn €18.3bn) to $40 billion (£31.4bn €36.6bn).

In order to raise these funds, Ukraine plans to collaborate with multilateral institutions such as the World Bank, European Investment Bank, and the European Bank for Reconstruction and Development. These institutions are expected to ramp up their lending efforts. In addition, a "war risk" insurance scheme is expected to be launched to provide cover for companies investing in Ukraine.

Discussions are also in progress regarding the use of frozen Russian assets to fund some of the reconstruction efforts.

This 'Green Marshall Plan' not only serves as a blueprint for post-war reconstruction but also paves the way for Ukraine to become a global leader in the sustainable steel industry. It symbolises a strong commitment to resilience and the adoption of green technologies for a sustainable future.

As a result of talks in London last week, prime minister Rishi Sunak pledged to provide £2.35 billion (€2.73bn $3bn) in bank loan guarantees over three years for the rebuilding of Kyiv. This scheme amounts to the first bilateral package of multi-year fiscal assistance to be set out by a G7 country.

In discussing the post-war future of Ukraine, it is easy to forget that this war is still ongoing – a war which has touched millions and cost the lives of tens of thousands of civilians. While the true cost of the war is incalculable, the World Bank has a figure for the total required to rebuild the country at $400 billion (£314bn €366bn). The sheer scale of which underlines the challenge ahead of rejuvenating a war-torn country.

Building confidence with delivery

As the conflict in Ukraine shifts towards an uneasy standstill, the critical conversation surrounding post-war reconstruction begins. The damage inflicted on public infrastructure, particularly at the frontline, has been profound. Today, international players, stakeholders, and policymakers must grapple with complex issues of rebuilding.

Speaking to inspiratia, David Baxter, a leading consultant in international development, public private partnerships (PPP)) and member of the WAPPP steering committee, highlights a core concern for the rebuilding effort - the requirement for a clear sense of trust and accountability. He notes that "there has got to be a sense of trust that the money being given, granted, donated or lent is actually going to the purpose that it was designated for." The implication for policymakers is that the reconstruction plan must be transparent and robust to attract potential investors, governments, and international development banks.

This investment must be steered towards projects that are "successful, resilient, sustainable and adaptable," according to Baxter. However, the situation in Ukraine is fraught with considerable risk. This places the spotlight on project insurability, as well as agencies like the World Bank's Multilateral Investment Guarantee Agency that offer risk mitigation measures for investments in risky environments. It becomes evident that a successful plan requires a delicate balance of prioritising projects, ensuring their sustainability and resilience, and demonstrating early successes to ensure continued support.

Prioritising the rebuilding effort

In terms of the energy sector, Baxter emphasises the need for a two-tiered strategy. In the short term, it is crucial to restore power quickly to the affected regions. However, the long-term focus should pivot towards renewable and green energy solutions. The incorporation of resilient smart grid technology is seen as a crucial component of this strategy.

It will be essential for financial support to go hand in hand with a building up of domestic institutions so that a peacetime regime can have the administrative capacity to execute many projects at once. For this, there must be a clear list of priority projects that must be accomplished first.

Professor Irina Zapatrina, a prominent Ukrainian economist, former deputy minister and current chair of the Ukrainian PPP Centre, gives her views on this plan to inspiratia. "It is first of all about energy infrastructure because we were without light for most of the day during the winter. It should be about the water supply and heating supply infrastructure. It should be about residential houses because many people now have no place to live."

The future of Ukraine's industry seems to be at a significant turning point. Prior to the war, heavy industry was a cornerstone of the nation's economy, especially the production of steel. Yet, the war has almost obliterated these sectors. Quite apart from the physical infrastructure, these energy-hungry sectors will require a robust and rebuilt energy system before they can think about ramping up to pre-war production.

Despite the ambition of Ukraine's industrial recovery plans, Zapatrina pointedly states that "nobody knows if we will recover in some of deoccupied cities." She also spotlights the need to evaluate future industrial structures in Ukraine. The war has caused significant damage to heavy industries, particularly in the east and south of the country. As she states: "We need to understand which industries will be developed in the future of Ukraine. Will it be heavy industry, IT or some other type of light industry?". This requires calculating the cost and environmental impact of various solutions and understanding energy demands for the future.

How to learn from history and move forward into the future

Baxter draws parallels to post-WWII Germany, where devastated cities transformed into powerhouses of production and prosperity through successful reconstruction. This example brings to light the potential of a 'Green Marshall Plan', where rebuilding is paired with strategic improvement. For Ukraine, this could mean leveraging new technologies and infrastructure models to create "new cities."

Taking a leaf out of the original Marshall Plan's book, the reconstruction effort will also need to harness the power of international collaboration. Baxter highlights the importance of outside and inside players in Ukraine understanding each other's needs and working towards a common goal - a vibrant and recovered Ukraine.

Zapatrina's comments echo this sentiment, underlining the critical role of Ukraine's allies. "All our partners in the United States, Great Britain, and the European Union countries are very important to us. And in my view, it's very important to coordinate the forces in providing support to Ukraine and preparing financial instruments."

While the sheer scale of the task at hand might seem daunting, Baxter and Zapatrina both hint at the possibility of Ukraine emerging stronger from its trials. By showcasing tangible progress in rebuilding efforts, Baxter suggests, Ukraine can maintain international support and funding. Zapatrina, meanwhile, envisions an extensive process of research and planning that will lay the groundwork for a detailed recovery program.

The post-war reconstruction of Ukraine, guided by the principles of the 'Green Marshall Plan', will be a complex, multifaceted endeavour. It will call for strategic decision-making, extensive international cooperation, and a resilient approach to investment.

However, with careful planning, steadfast commitment, and adaptive thinking, Ukraine can build back better and lay the foundations for a greener, more prosperous future. As the nation stands on the precipice of change, one thing is certain: the decisions made now will reverberate through its landscape for generations to come.

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