INTERVIEW: "We are focused on supporting Ukrainian businesses and government needs" – Dimitar Bogov, EBRD

EBRD London Headquarters / bne IntelliNews
By Dominic Culverwell in Kyiv September 14, 2022

Russia’s invasion of Ukraine has devastated the country, causing billions of dollars worth of damage to infrastructure, houses and industry. Kyiv and its international allies have discussed a “Marshall Plan” for Ukraine at several key events this year, including the reconstruction conference in Lugano, Switzerland in July, whilst another conference is planned in Berlin for October.

Ukraine needs assistance from its Western allies, and one of its key partners is the European Bank for Reconstruction and Development (EBRD), which is on the way to providing at least €1bn to keep Ukraine’s businesses and operations afloat. In an exclusive interview with bne IntelliNews, Dimitar Bogov, the EBRD Regional Lead Economist for Eastern Europe and the Caucasus, explains how the bank is providing critical support for Ukraine.

Although primarily involved in the private sector, EBRD adjusted its priorities once the war began and focused on Ukraine’s most urgent needs, which Bogov narrowed down to food security, medical supplies, energy security, logistics and trade finance facilities. At the same time, the bank stood by its clients to ensure they had full support during the war.

“We are focused on how we can support Ukrainian businesses and also the government needs to keep them functioning in the current situation,” Bogov said.

He points to UkrZaliznytsya (UZ), Ukraine’s state-owned railway, as an example. Pre-war, EBRD lent money to help with modernisation, but once the war began, lending was repurposed to provide €50mn in liquidity to keep UZ’s operations running, which Bogov knew was critical to the country. With Russia blocking Ukraine’s Black Sea ports until July 22, UZ took the brunt of exporting goods, particularly agricultural products. Even in August, after the signing of the Black Sea Initiative which opened up three ports, 3mn tonnes of goods were exported via rail, more than by sea or road. As Bogov explains, the railways became “the only lifeline” for Ukraine.

The Black Sea blockade helped escalate global food prices and devastated Ukraine’s agricultural industry, one of the pillars of its economy. EBRD extended several trade lines with food and agricultural companies to help with the sowing and harvest season, which in turn not only contributes to food security in the country but the whole world, due to Ukraine being the globe’s second-largest exporter of grain.

In addition, EBRD supported Ukraine’s energy sector. The bank extended credit lines to Ukrenergo, Ukraine’s national energy company, which helped the company continue operations and even begin exporting electricity to the EU, Bogov said. The bank also provided Naftogaz with up to €300mn due to fears of a gas shortage caused by the Russian invasion. Although Naftogaz hasn’t managed to hit the 19bn cubic metre target set by the government, its current projection is 14.5 bcm by mid-October, enough to survive a mild winter.

Estimates vary on how much damage Russia has caused Ukraine and how much will be needed for the reconstruction process. The World Bank recently announced it is conducting an assessment and estimates that the war has cost Ukraine $350bn. At the Lugano conference, Ukrainian Prime Minister Denys Shmyhal said Kyiv is looking for $750bn over a 10-year period. Bogov believes it is too soon to make an accurate estimation but he is sure international partners will support Ukraine’s reconstruction process.

Indeed, there are many new opportunities for Ukraine post-war. In particular, Bogov notes the possibility of rebuilding destroyed cities using a green model and implementing climate-friendly infrastructure which could be one of the most efficient methods of reconstruction. Although Ukraine’s central and local authorities are preoccupied at the moment, Bogov sees potential interest after the war not only from Ukrainians but also from international partners to support such efforts, particularly as Ukraine now has EU candidate status.

Looking at the future of Ukraine’s key industries, Bogov is optimistic that the agricultural industry will recover and continue to be a key pillar of the economy. He is not as certain about the devastated steel industry, which took a massive hit after the siege of Mariupol, home to Azovstal, the country’s most important steel plant. It is estimated that steel production dropped by 60% in July. Huge reconstruction projects will be needed to return the metallurgy sector to its former level of success.

On the other hand, the IT industry continues to thrive, mostly due to the fact workers are able to operate remotely. Bogov sees that IT will become more prominent and become one of the “main pillars in the reconstruction process”. The Ukrainian government has invested significant effort into digitalsing the economy and introducing digital public services. With a highly qualified, well-educated tech-savvy nation, IT is likely to thrive after the war and help attract crucial investments.

However, Bogov also expressed concerns about corruption, which plagued Ukraine before the war and continues to do so. Over the summer, €8bn in EU funding was stalled allegedly due to concerns about corruption and accountability. Ukrainian President Volodymyr Zelenskiy is showing that he is taking the issue seriously and has appointed a new head of the Special Anti-Corruption Prosecutor's Office after a two-year gap. Nevertheless, apprehensions still prevail, particularly as prodigious sums of money will enter Ukraine post-war.

“No doubt corruption was one of the central issues before the war. It will be again one of the priorities in the reconstruction stage after the war,” Bogov said. “Certainly we closely looked at this before the war, and we will closely look after the war in the reconstruction period.”

He states that Ukraine needs to acquire the funds quickly and easily, but that this should not come at the cost of transparency. In fact, Bogov sees the reconstruction process as an opportunity to implement a new way of working based on “competitive procedures and fully transparent procurement practices”.

“We think some basic principles of transparency and some sustainability analysis should be in place even during the war for the urgent reconstruction needs, but the full focus will be on this after the war in the reconstruction phase,” he said. “This would be a good opportunity to turn the page and make a significant improvement.”

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