When the war ended, the country looked very devastated. Almost all industrial structures were destroyed by airstrikes. Infrastructure has become unusable. And big cities are bombed. Russian forces have occupied the east and millions have fled their brutality. However, the West German economy recovered after 1945, which quickly became known as the Wirtschaftswunder - an economic miracle..

Unlike Nazi Germany, Ukraine is not an aggressor. And she has a chance to become a winner. However, rebuilding the country will be a monumental task, writes The Economist.. The war unleashed by Vladimir Putin has taken the lives of thousands of innocent people and forced millions more to flee.. Residential buildings, hospitals, bridges and ports turned into ruins. Since the end of the war is not yet in sight, new destruction can be expected. Officials and economists assess the damage done and, based on the experience of Germany and other countries, think about how to organize further recovery..

Researchers at the Center for Economic Policy Research (CEPR) have calculated that the total cost of rebuilding Ukraine would be in the region of $220-540 billion.. Approximately the same figure was called by the Ukrainian government. How reconstruction is organized, and the reforms that accompany it, will be as important as budgets.. Done right, you can turn an oligarch-suppressed economy into a more open and dynamic one..

It will not be easy to repair the damage caused by the war to the Ukrainian economy. The Vienna Institute for Economic Research (WIIW) has calculated that the affected regions account for 29% of the country's GDP.. Electricity consumption fell by a third compared to last year. According to the National Bank, 30% of companies throughout Ukraine completely stopped working, and another 45% reduced their output. The World Bank believes that in 2022 the Ukrainian economy will shrink by 45%.

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The government is trying to reduce damage wherever it can.. $7 billion in aid to the West helped keep government spending afloat. Farmers received $675 million to start planting campaign. Industry can apply for an allowance for the transportation of production within Ukraine. Russia blocks export routes in the Black Sea. Therefore, Kyiv, together with the EU, are trying to establish trade through land. 80% of Ukrainian exports can still leave the country.

At the same time, the cost of restoring war-torn regions will be considerable.. Three major challenges ahead. The first is to clear the affected areas from mines and explosive debris.. The scale of the mine is not yet known.. However, previous experience says that the work will be quite expensive.. Even before the start of a full-scale Russian invasion, the Ministry of Defense of Ukraine estimated that it would take 650 million euros to clear Donbass, where the Russian army brought the war in 2014.. And in Iraq, the decade-long process of eliminating mines cost about a billion dollars.. The economic benefits of demining can be very large. Mozambique was once littered with minefields. After their elimination, the country's GDP grew by 20%.

It will also cost a lot to provide housing and food.. Given that Ukraine is a food giant, it will be able to feed its citizens. However, the number of internally displaced people will increase. The Kyiv School of Economics has calculated that the cost of the destroyed housing stock is $29 billion.. But the restoration of infrastructure and industrial facilities will cost even more.. Ukrainian experts estimate that restoring everything from power plants to factories, bridges and roads will cost more than $50 billion. But stopping production, service and investment will mean that even the surviving infrastructure will have to be upgraded.. A WIIW study found that after the invasion of Donbass in 2014, such decline led to the loss of about 60% of war-related infrastructure by the end of 2019. The calculations of the Ukrainian government, which indicate that this time it will cost $119 billion to restore infrastructure and industry, are not far from the truth..

Reconstruction will require a plan, finances, and a clear process for distributing money between projects. The government of Ukraine has created a recovery fund. And the ministries put forward proposals that need to be rebuilt. The Ukrainian Ministry of Finance loses about $ 2 billion in revenue every month. So additional funding is required.. The recovery process will only increase the burden on the budget. A government that is already heavily indebted may find itself in a situation where it cannot borrow. Therefore, a combination of debt relief and grants will be needed.

Funding must come from Western governments, international organizations and private investors. The proposal to use the frozen Russian assets is also being discussed. But this is unlikely to happen, unless such a clause appears in a future peace agreement.. Grants, especially from the EU, are nothing new. Poland, similar in population to Ukraine, received 106 billion euros in 2014-2020 to finance the agricultural sector and investments. Financing for private business may take the form of subsidized loans, for example from the EBRD. In recent years, the bank has invested about $18 billion in Ukraine.

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The next question is the distribution of funds, which can be a difficult task for an economy that has been poisoned by vested interests for many years.. Since 2014, Ukraine has made its tenders more competitive. However, this time the contracts will be significantly larger.. CEPR proposes the use of framework agreements - permanent contracts with firms to supply a certain product at a fixed price - and open contracts, even without tenders, providing transparency. The latest phase of Ukraine's recovery suggests the country's economy needs to be helped to thrive in the long term.. In 2019, GDP per capita in the country was lower than at the time of the collapse of the USSR. It became a landmark illustration of a long-term lack of reform.. Many of the 1,500 state-owned enterprises were either unprofitable or did not bring significant profits.. Even before the full-scale invasion, the IMF urged the government to strengthen anti-corruption laws and strengthen the rule of law.

Ukrainian political support for complex reforms and their testing in the post-war investment process will be essential to the success of the recovery. It would be good if the government saw the process as an opportunity to make the economy more modern and competitive (and the industrial sector more “green”). Experience also shows that closer integration with Europe, as happened with West Germany many decades ago, can help succeed.. The rapid development of Poland is also associated with integration. In the 15 years since joining the EU, the country's GDP per capita has increased by more than 80%.

Ukraine is already trying to build closer ties with the West. Ukrainian exports to the EU grew up to 36% as of 2020. At the same time, trade with Russia decreased from 18% to 5.5%.. One way to encourage reforms is to make them a requirement for greater integration with the European market and supply chains, for example through a roadmap to EU membership..

Tough process ahead. Reforming Institutions Requires Political Will. The longer the war goes on, the more damage will be done to Ukraine and the more difficult the recovery process will be.. Also no funding will ever settle the horror of war.

However, careful planning can at least pave the way for a brighter and richer future..

Earlier, Ukraine received a questionnaire for obtaining the status of a candidate member of the European Union. The document was handed over personally after negotiations with Zelensky by the President of the European Commission Ursula von der Leyen. She stated that this is an accelerated procedure, since relations between Ukraine and the EU are so developed that Brussels does not need an answer..