A fierce wave of Russian attacks threatens to rattle Ukraine's recovery conference in Rome

Globe and Mail

3 days ago

Ukraine needs a lot of weapons and budget financing to repel the Russian invaders and survive as a functioning country. It also needs jobs, a tax base and foreign investment. If its economy shatters, so does its ability to defend itself, let alone rebuild.
Ukraine has high hopes that the Ukraine Recovery Conference in Rome next Thursday and Friday will speed up the rebuilding efforts.
It may leave disappointed. In recent weeks, Russia has pounded the country with devastating aerial attacks. The barrage overnight on Thursday was the biggest since the war began, according to the Ukraine air force, with 550 drones and missiles raining down on Kyiv and elsewhere. The British government's foreign office this week estimated that the attacks have killed 1,000 Ukrainian civilians since January.
Against the backdrop of destruction and death, Ukraine's efforts to sell itself as a promising investment destination will not be easy. Still the country will persist − it has no other choice.
In spite of the war, Ukraine is attracting some foreign investment. The government can boast that Ukraine's economy is not only intact, it's growing, thanks in good part to about US$100-billion a year in assistance, including weapons, it receives from Western countries, according to the Kiel Institute's Ukraine support tracker. It has also been cracking down on corrupt oligarchs and launching business-friendly reforms.
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In a report published this week, the International Monetary Fund forecast Ukraine' s GDP growth at 2 per cent to 3 per cent this year, about the same as last year's, rising to 4.5 per cent next year and close to 5 per cent in 2027. If the war ends soon, the growth figures would be fattened up. Companies putting money into Ukraine are gambling that a peace agreement would make their investment returns soar.
The Rome conference is the fourth of its kind – last year's was in Berlin − since Russia invaded Ukraine in February, 2022. Government and business leaders from Ukraine, the U.S., Italy and other European countries are expected.
The high-level participation shows that this edition is particularly ambitious. Ukraine President Volodymyr Zelensky may show up (his presence was not confirmed on Friday). His Finance Minister, Sergii Marchenko, and his Economy Minister, Yulia Svyrydenko, will be there. U.S. Energy Secretary Chris Wright is expected.
In addition, the top executives of the European Bank for Reconstruction and Development (EBRD), the U.S. International Development Finance Corp. and several big defence contractors, including Fincantieri, Europe's largest shipbuilder, and Italy's Leonardo, are listed as participants. Canada is sending a delegation that will probably include Finance Minister François-Philippe Champagne.
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The Ukrainian industries that would appeal most to Western investors include agriculture, energy and defence.
Ukraine, essentially one big farm, is a major exporter of grains. If the country is granted membership in the European Union – it's on the waiting list – it will have free access to one of the world's biggest food markets, with 450 million consumers.
Canada's Prem Watsa, head of Fairfax Financial Holdings, has invested in one of Ukraine's biggest agribusinesses, Astarta, on a bet that war's end could make the company a pan-European player. So far, so good. Astarta's Warsaw-listed shares have doubled in the past year.
In energy, Ukraine's DTEK, the country's biggest privately owned electricity producer – its coal plants are prime targets for Russian missiles – is building enormous wind farms. It is expanding its renewables portfolio into eastern Europe. Never mind the war – DTEK wants partners to help it expand.
With the fighting in its fourth year, and no sign that Russian President Vladimir Putin is ready to seek peace, it is Ukraine's defence industry that offers the most potential for foreign investment. Ukraine, by necessity, became a world leader fast in aerial robot warfare done on the cheap, putting it years ahead of Western countries.
France has figured that drones present an enormous opportunity. Last month, the French government asked Renault, the car company that is 15 per cent owned by the state, to manufacture drones in Ukraine in partnership with local engineers. Renault's mass-manufacturing expertise would help Ukraine pump out drones in great quantities while providing the French company with drone expertise that it could repatriate when the war ends.
Ukraine only makes about a third of the weapons it needs. Western companies could help it ramp up production in armoured personnel carriers, anti-tank rockets, artillery shells and radar jamming systems. They would know that anything they produce would get bought by the Ukraine military in a second.
Will Western companies rush to build factories and make other investments when the Russian attacks are becoming more intense? Would they risk spending the money even if security guarantees were offered by the EBRD or other international financial institutions?
Both sides are said to be exhausted from the war of attrition, but Russia seems not exhausted enough. Ukraine's destruction continues. Its air defences are close to being tapped out. Worse, the U.S. this week abruptly halted the delivery of some crucial weapons, including Patriot interceptor missile systems, citing fear of draining its own stockpiles.
Poor Ukraine. Just when Ukraine needs rebuilding help the most, Mr. Putin ramps up the attacks to boost the risk factor. The headlines of endless missile and drone barrages will be hard to ignore in Rome.