Ukraine post- Cost to Rebuild Ukraine

Ukraine post-war economic and workforce development

In 2012, several global pharmaceutical companies engaged Mr. Hatch (while a senior executive with ManpowerGroup/Experis), asking for assistance in finding a reliable source of biostatistical programmers. Mr. Hatch proposed creating a collaborative workforce development program for the pharmaceutical executives after a study demonstrated no significant pools of talent with the right skills anywhere globally.

After some discussion, Mr. Hatch structured a joint venture between Experis, Intego Group (a local Ukrainian outsourcing firm), Roche, and V. N. Karazin Kharkiv National University in April 2013. Through this joint venture, all parties agreed to create a biostatistical programming and bioinformatics program at the university.

In fall 2013, the Center for Biostatistical Programming (biostatcenter.com) officially launched with active involvement from all joint venture parties.

In the spring of 2014, students began graduating with a Master’s Minor in Biostatistical Programming, with all graduates retained by Roche (through Intego-Group and Experis).

The program continued to expand and financially self-sustain until the Russian invasion of Ukraine in February 2022. Over twenty pharmaceutical or clinical trial companies have retained talent produced through this program. Graduates routinely received awards from various industry trade groups, and Ukraine was widely considered the reference workforce for elite biostatistical programming talent.

This program has been widely regarded as a success. Key findings from this proof-of-concept program include:

  1. If the quality of talent produced through such a program is high, international companies will tolerate risk. Euromaidan and the following war in the Donbas region in Ukraine happened shortly after this program’s launch. Although Ukraine had material geopolitical risk, it did not matter. International companies continued to be involved in this program until the outbreak of war in February 2022.
  2. If programs are structured through a compelling commercial model, international employers will invest in covering program costs in full. This program was launched and continued to operate without any grants or donations from the Ukrainian government, NGOs, or IGOs.

 

  1. The quality of talent Ukraine can produce is highly compelling. This program produced arguably the best biostatistical programming talent globally. More importantly, global employers quickly recognized the potential of Ukrainians and agreed to invest in developing this asset further.

Uncertainty

War is one of the most disruptive dynamics for any economy. It is impossible to accurately model the full impact of the war on Ukraine’s economy or define detailed steps needed to rebuild postwar. Given uncertainties:

  1. Modeling will factor 2021 Ukrainian economic and industrial performance.
  2. Launch dates for any full-scale economic recovery program will not be known until closer to the war’s end.

A colleague once stated, “We might not know where we are eating breakfast on the third day of our holiday, but we know we are going to Hawaii.” We do not know specific details about an economic and workforce development program post-war, but we know the derivative. There are key themes that will continue to ring true and will be focused on in this document.

Talent Flight & Repatriation Given changes in the global economy stemming from the rise of the 4th Industrial Revolution, highIP producing talent will dictate economic performance more frequently in the years ahead.

Ukraine’s talent flight problem preceding the war has already been problematic and has been chiefly responsible for Ukraine’s lower than the regional average in the tech industry. The war has greatly increased the net outflow of people from the country.

As of May 27, 2022, UNHCR estimates that 6.7 million people have left the country- or 16% of the Ukrainian population. (UNHCR, 2022)

 

In preparation for this paper, I conducted a poll of 100 Ukrainians that left the country due to the war. Employment following the war was the primary consideration for the repatriation of refugees.

  1. The war has had a material effect on the financials of Ukrainians. 91% of respondents noted they needed a job in Ukraine before returning.
  2. 70% of refugees with a spouse still in Ukraine stated they intend to return to Ukraine if they or their spouse had full employment in the country. Without full employment of the refugee or the spouse, intent to return to Ukraine dropped to 24.2%
  3. Over 90% of respondents that had gained full employment with a company outside of Ukraine noted they are not likely to return to the country.
  4. 50% of respondents noted they would not return to Ukraine if their homes were destroyed.
  5. Although Zelensky is receiving praise for his leadership during the war, only 3% stated they believe the Ukrainian government could create a thriving business ecosystem (including a material reduction in corruption) following the war.

The consistent theme in repatriation is employment. The extent Ukraine can create Ukrainerelated jobs now and the scale of a job creation program to be launched immediately following the war will dictate Ukraine’s ability to keep (and bring) people home. Without such programs, Ukraine will likely experience one of the largest talent flight events in history.

 

Cost to Rebuild Ukraine

The war in Ukraine is incomprehensible. The damage to Ukraine’s infrastructure has not been seen since WW2. By the end of April 2022, economists estimated that the damage to Ukraine’s infrastructure and capital stock might exceed $1 trillion. (VIVIENNE WALT, Fortune.com, 2022)

While this figure is alarming, it understates the cost of rebuilding and relaunching the Ukrainian economy.

  1. UNDP estimated that up to 90% of Ukrainians are at risk of living in poverty post-war. (UNDP, 2022) Extensive social benefits programs will be needed at an unprecedented level. Further, the cost of providing social benefits will be materially higher. In many municipal areas, basic services such as healthcare no longer exist. Facilities were destroyed. (World Health Organization, 2022) The lack of such services in communities across the country will significantly increase the cost of delivery. If it takes a decade to achieve economic selfsustenance, Ukraine could theoretically need an additional $500 billion – $1 trillion to cover social benefits alone. (Phil Hatch, 2022)
  2. There is a material activation cost (Frankenstein Cost- cost to bring the economy to life) once the infrastructure has been rebuilt. There are costs related to restarting education once a university has been rebuilt. Companies need working capital to restart commercial services once power, internet, and office space have been rebuilt. If the war were to end today, the activation cost (including needed working capital) of every aspect of the Ukrainian economy could theoretically cost between $500 billion – $1 trillion. (Phil Hatch, 2022)

 

The total cost to rebuild and relaunch the Ukrainian economy will be unprecedented, and the world is not prepared for such a financial need. European Bank for Reconstruction and Development (EBRD- the development bank created in 1991 to assist Eastern Bloc countries post-Soviet Union) had a total outstanding loan balance of $28.62 billion in 2020. Adjusted to today’s dollars, the Marshall Plan ($13 billion in 1945) totaled $155.95 billion.

Current thoughts regarding funding the rebuild of Ukraine include some form of a program like the Marshall Plan with active involvement from the IGOs and Western countries. Discussions about donating seized Russian assets to Ukraine to further offset the cost of rebuilding the country are ongoing.

 

If the war were to stop today, the combination of some new form of a Marshall Plan (including grants and secured loans) and donation of seized Russian assets likely would not be enough to rebuild the entire country.

Assuming a reconstruction program like the Marshall Plan ($155.95 billion), and all frozen Russian assets were seized and then sold ($300 billion), Ukraine likely will have an outstanding cost of reconstruction, economic development, and ongoing social services that exceed $1 trillion over the first decade following the war.

The only viable option for Ukraine is to increase foreign direct investment (FDI). Over the past decade, FDI Net Outflows (indicator: BM.KLT.DINV.CD.WD) have averaged $1.7 trillion per year, exceeding all grants and loans made by all IGOs, NGOs, and government development agencies combined. (Phil Hatch, 2022)