The Coming Transformation of Ukraine

From Survival to Sustainable Development: Lessons Learned from CIPE’s Private Sector Approach

Soon Ukraine will embark upon reconstruction in the aftermath of the full-scale Russian invasion, which has displaced around 10 million people and left the economy in shambles. Recovery costs, including humanitarian and economic needs, have been estimated in excess of $400 billion¹. Over the course of the coming reconstruction, Ukraine will face the tasks of restoring stability and rebuilding livelihoods, but more than this will need to reinvent its economy and governance in order to carry itself forward. As Ukraine charts its path through a turbulent time, it can benefit from the lessons of other countries ravaged by conflict. Over the past 40 years, CIPE has played a significant role in helping countries rebuild their economies through the private sector. Among them: Bosnia and Herzegovina, Kosovo, Afghanistan, Iraq, and Colombia.  Along the way, CIPE has observed the pivotal contributions that the private sector can make, as well as the traps that arise when the local private sector is sidelined.

Across every region of Ukraine, business networks like the National Business Coalition, the Ukrainian Business Council, and the Union of Ukrainian Entrepreneurs are positioning for this work. Already they are a force behind the country’s war efforts, ensuring the safety of the people, upholding vital supply lines, and supporting the army. Bolstered by CIPE’s 30 years of programs in Ukraine, businesses are consolidating their voices and taking advantage of platforms for communication with decision-makers at the international level. If governments and international organizations heed the lessons below, the Ukrainian private sector is ready to do its part.

Planning Reconstruction

Planning for reconstruction involves vision, coordination, and adaptation to the realities on the ground. Reconstruction tasks can be divided into three phases: immediate triage, mid-term assistance, and sustainable investment. These phases help provide structure in uncertain transitions and point to relevant tasks and lessons at each step. Private sector engagement should permeate all three phases.

The triage phase is the immediate phase, where the priority is to stabilize the country and address immediate needs. This includes providing military assistance, stabilizing the economy, implementing anti-corruption measures, and preparing institutions for the next phases of reconstruction. Top considerations in this phase are to leverage existing local strengths for recovery and to start planning for the long term.

The assistance phase is the build-up phase, where efforts should focus on rebuilding infrastructure, providing budget support, and strengthening institutions. This phase is crucial for setting a solid foundation for long-term sustainable development. During the assistance phase, hard-earned lessons are to keep the focus on private-sector growth and respect local ownership. Strategically speaking, one should align goals and partnerships, and seize the window of opportunity to bring about the best results.

Finally, the investment phase should be focused on establishing an ecosystem for long-term strategic investments and opportunities for entrepreneurial, small, and medium enterprises. With input from the private sector, investments should be aligned with the country’s priorities and capable of generating sustainable economic growth. Beyond the necessary physical investments, this phase involves investing in the enabling environment for business, the capacity of the local private sector, and the good will of the public.

In each phase, the international community should respect Ukraine’s democracy and avoid imposing priorities from the top-down. Instead, the international community should work in partnership with Ukrainian stakeholders to develop a reconstruction plan that aligns with the country’s own vision for the future.

1. Leverage Local Strengths for Effective Response

In Ukraine, it is first important to recognize and build upon the existing strengths that can be leveraged for the recovery effort. These strengths include civil society, a sophisticated pre-war private sector, qualified talent, an open procurement system, and a beneficial ownership register. Most of these remain viable since the invasion and have already been put to good use in the war effort.

Do not overlook the powerful role of private sector networks and logistics in humanitarian relief efforts. CIPE’s private sector partners in Ukraine are already driving activities in nine humanitarian hubs. These partners can efficiently extend the reach of relief efforts. In Yemen, after the outbreak of the civil war in 2015, the private sector responded with a network of importers, distributors, and traders that were able to deliver aid across the country. This network leveraged existing commercial logistics channels to deliver aid, and their efforts were often more efficient and effective than those of international organizations. And in Poland, 53% of businesses got involved in helping Ukrainian refugees.

However, it is equally important to respect the primary role of business associations in policy and member service, rather than treating them solely as conduits for aid. Associations should remain independent and true to their mission, though they like everyone else must adapt in crisis. During the recent COVID-19 pandemic, CIPE’s initiatives for association policy advocacy—driven by partners’ own leadership—never ceased to address immediate and fundamental policy issues, even as associations were distributing medical supplies, sharing information with communities, and helping members to pivot.

The most significant strengths may be sub-national. Decentralization reforms in Ukraine have been widely popular in the business community and civil society. Also in assessing strengths—and weaknesses–mapping the private sector and the damage it has received is important for allocating resources. In Kosovo, CIPE’s partner Riinvest conducted a damage assessment of the private sector after the conflict, which provided a basis for prioritizing interventions.

2. Plan Early for Sustainable Development

CIPE has learned from partners and experience the imperative to plan early for sustainable development. Reconstruction efforts must balance the need to meet short-term humanitarian needs while effecting long-term institutional reforms. This involves balancing urgency—decisive action–and legitimacy—effective decision making that takes into account the human dynamics of reform.² The international community was slow to make this adjustment in Bosnia and Herzegovina and Afghanistan. In these countries and others like Iraq, CIPE worked with local leaders to develop policies that would encourage private sector growth and investment, while also addressing immediate crisis response. In Iraq as early as 2005, CIPE was sharing free market principles, initiating business advocacy programs, and engaging political parties in economic policymaking. Even CIPE’s entrepreneurship program for Syrian refugees in Turkey took account of entrepreneurial growth opportunities and integration in the local community, in addition to livelihoods. By taking a long-term view and starting to build market institutions and economic policies that support a good business environment, CIPE helps to lay the foundation for sustainable development.

3. Seek Recovery Based on Private-Sector Growth

When trying to move funds and plan large-scale investments for reconstruction, it is easy to forget that economic regeneration occurs through stimulation of private enterprise, including smaller and newer enterprises. In fact, after establishing law and order, restarting the economy is a top priority.³ Cultivating private enterprise creates a foundation for sustainable economic growth instead of an artificial economy dependent on donor and government spending. In short, reconstruction efforts should help people regain control of their economic future, not encourage aid dependency. This means assisting the development of local markets, not displacing them.

In Peru, CIPE was an early supporter of the Institute for Liberty and Democracy’s push from the 1980s to the 1990s to move the country’s poor populations from the extra-legal economy to the formal economy by strengthening property rights and simplifying administrative transactions. As a result of reforms, Peruvian society received $18.4 billion in net benefits between 1992 and 2007, and support for the Shining Path Peruvian terrorist movement decreased.

4. Ground Reconstruction Efforts in Local Priorities and Needs

CIPE has seen the difference that local ownership makes in reconstruction efforts. Development planning driven by outsiders removes the incentive for local leaders to design and implement reforms, which is a lost opportunity. In Bosnia and Herzegovina, for example, the international community took charge of economic issues, leaving local leaders unwilling to take responsibility for difficult decisions.⁴ CIPE then was among the first to introduce the concept of advocacy by business associations in Bosnia and Herzegovina. CIPE’s assistance helped associations to articulate their interests and gain the recognition of government, the media, and the public. CIPE further helped them through the transition to a voluntary membership model, thus building ownership of the members. To consolidate this effort would require greater commitment, however.

In Kosovo, CIPE’s partner the Riinvest Institute for Development Research found ways to bring civil society and the business community into a governance process that had mostly neglected local input. By mapping the state of the economy and the role of private enterprise, Riinvest was able to formulate an economic reform strategy with a program for small and medium enterprise development. Through roundtables and polling of hundreds of private companies, Riinvest channeled local input into policy achievements on privatization, a wider tax base, and a competitive market for SME credit. CIPE has also learned the importance of ensuring an exit strategy for development partners to transfer responsibility to local actors and institutions. It takes time for local actors to mature, navigate policymaking, and find ways to sustain themselves. When they do, however, they remain the legacy of reconstruction and the architects of a vibrant economy.

5. Align Goals Among Partners

One of the earliest reconstruction lessons–to establish a coordinating structure for relief efforts– remains relevant today. A coordinating structure should include both local representation and development partners and should not omit the private sector. Governments should co-create programs with the private sector, treating them as partners rather than just implementers or funders, in order to align efforts and capitalize on private sector expertise. By engaging in upstream engagement with the private sector, it is possible to identify shared interests, common goals, and a solid basis for cooperation.

Partnerships with the private sector should be organized around the Kampala Principles, which provide guidance on the roles and responsibilities of different stakeholders in development or reconstruction. The Global Partnership for Effective Development Cooperation endorsed the Kampala Principles in 2019, which were developed in a multi-stakeholder process with input from a Business Leaders Caucus and CIPE. The principles provide guidance on building trust, promoting transparency and accountability, and ensuring results in partnerships across sectors.

Colombia illustrates the value of aligning goals in multiple ways. The private sector was a key partner in Medellín’s economic revival and urban transformation.⁵ For rural regions in the PDET plan (Programas de Desarrollo con Enfoque Territorial), CIPE worked with the private sector to develop a set of principles for responsible investment. The principles acknowledge the necessity and the perils of introducing private investment into areas with a history of weak governance. Finally, the local private sector should be engaged in the management and monitoring of reconstruction projects to ensure that they are aligned with local priorities and maximize their impact. In collaboration with Colombian chambers of commerce, CIPE maintains an Observatory for Private Investment in Zones Most Affected by Poverty and Violence, supported by USAID.

6. Use the Window of Opportunity to Lock in Reform

There is a limited window of opportunity when appetite for reform is high, and it is important to take advantage of this window to implement reforms that counter corruption risks and state capture by oligarchs. Reconstruction finance itself creates corruption vulnerabilities, to which must be added the eventual return of oligarchs or cronies if left unchecked. Elements of a rapid response to counter corruption risk include supporting independent, free local civil society organizations, forming a coalition of reform champions, sharing relevant international experiences, coordinating international support, and achieving quick anti-corruption policy wins.

Rapid Response programs have become a key part of CIPE’s work to promote democracy and free markets around the world. These programs are designed to respond quickly to emerging opportunities or threats to democracy and the market economy, providing timely support to local actors who are working to protect or advance these values. For example, in response to the COVID-19 pandemic, CIPE launched anti-corruption training for humanitarian aid, which aims to mitigate the impact of corruption on emergency procurement and delivery of healthcare supplies.

CIPE has gained valuable experience applying the rapid response approach in other countries such as Sudan, Ecuador, Malaysia, The Gambia, and Moldova. Additionally, CIPE has already applied the rapid response approach in Ukraine, where CIPE partnered with local organizations to provide assistance to small and medium-sized enterprises impacted by the conflict in Donbas.

7. Link Financing to Recovery Objectives

To close the financing gap, strive to create a healthy investment climate first for domestic investors. Foreign direct investment will tend to follow domestic investment. Foreign investors do not have the same knowledge and motivations as domestic investors, and will feel assured by financial and legal structures that serve domestic investors well. It is moreover a mistake to provide incentives to foreign investors to the detriment of domestic and smaller firms.

Development finance can serve reconstruction objectives while deepening financial markets. It can be used to de-risk investment and prepare firms, especially small and medium-sized enterprises, to participate in international markets. It should catalyze private enterprise and not substitute for it.

Particularly in post-conflict settings, it is important to adopt a constructive capital approach, promoting transparent, accountable, and market-oriented investments. CIPE uses the term “constructive capital” to describe financial flows that are well-governed at the funding source and destination, and which respond to market voids. Such capital is characterized by transparent terms and entry into the market, accountability to a wide array of local stakeholders, and a justification based on market principles. Constructive capital is based on trust, integrity, and a shared vision for the future. As with the principles for responsible investing in Colombia, CIPE supports collective action for investments that bring positive externalities, reinforcing market and democratic institutions.

8. Improve the Enabling Environment for Business

CIPE views the “enabling environment for business” as the framework of laws, regulations, policies, and institutions that support and promote private sector development. This includes protecting property rights, enforcing contracts, promoting competition, facilitating access to finance, providing reliable infrastructure, and ensuring a level playing field for businesses of all sizes. By creating an enabling environment, governments can help to unleash the potential of the private sector, which is the engine of economic growth and job creation. A favorable business environment can also encourage domestic and foreign investment, as well as stimulate innovation and productivity.

Reconstruction efforts should keep sight of the enabling environment and seek systemic change rather than simply supporting individual companies. To achieve inclusive opportunity and sustainable private sector development, stay focused on the fundamentals and lower the barriers to participation in the market economy. In doing so, avoid imposing international best practices that may not fit the local context. Rather, economic reforms should be guided by local priorities, such as the recommendations of the Union of Ukrainian Entrepreneurs (SUP), one of the most active business associations in Ukraine.

Founded on the principles of protecting and promoting the interests of Ukrainian entrepreneurs and small businesses, SUP has become a leading voice in the efforts to reform Ukraine’s regulatory environment. Only entrepreneurs who have built businesses, not privatized state assets, are welcome in SUP. A recent summary of SUP’s priorities includes: land reform, tax reform, labor liberalization reforms, corporate governance reform for state-owned companies, digitalization reforms, and SME support programs.

9. Build the Capacity of the Local Private Sector

Building the capacity of local private sector organizations prepares business to be an effective interlocutor and partner in reconstruction. Business associations and entrepreneur support organizations need to be empowered to help shape economic policies that will benefit the entire private sector. These organizations also provide important services to their members such as business development, training, networking, and professional standards.

Recognizing that private sector (and civil society) organizations’ ability to absorb and effectively deploy funds increases over time, it is important to fund them at a level that is appropriate for their current capacity. Funding an organization beyond its capacity can lead to dependence, which is counterproductive to the goal of building local ownership and sustainability. It is further essential to ensure ownership of all activities by associations and their members.

Economic inclusion should go hand in hand with empowering the private sector, which is equality of opportunity for all members of society to participate in the economic life of their country. This means addressing structural barriers that prevent certain groups, such as women and marginalized communities, from participating in economic activities. It also means engaging them in entrepreneurial ecosystems. By promoting inclusive growth, reconstruction efforts can help create a more equitable and sustainable economic system that benefits all members of society. In this vein, CIPE has introduced the women’s business agenda process and women’s business resource centers in diverse, conflict-affected areas.

10. Manage Public Expectations

Managing public expectations is essential to maintaining public support for reforms and changes that accompany reconstruction. It is necessary to explain reform choices and decisions, connect them to people’s values and priorities, and show indicators of progress. Communication should be transparent, timely, and responsive.

CIPE’s 2021 survey of Ukrainian public opinion revealed high levels of trust in Ukrainian business, especially small business and entrepreneurs, and a belief that private enterprise is key to economic recovery.⁶ At the same time, the public expects inclusive growth and a stronger government role in the economy. Reconstruction assistance providers need to take these expectations into account and business likewise should frame its reform priorities accordingly.

Supporting a Resilient Ukraine

The lessons learned from CIPE’s experience with the private sector in reconstruction efforts point the way toward recovery based on sustainable business growth. Local ownership and early planning are essential for ensuring the successful implementation of reforms. Neither reaction to crisis nor the imposition of international practice will suffice in the long term.

Ukraine has overcome numerous challenges and struggles since gaining its independence from the Soviet Union in 1991 and it is poised to do so again. Fortunately, many of the ingredients for economic recovery are already in place. The overriding challenge will be to align international and domestic efforts, as well as government and private sector roles, while balancing resource distribution with institutional development.

Above all, the global pro-democracy community should follow Ukrainians’ lead to make Ukraine a model of democratic resilience. By prioritizing Ukraine’s self-directed transformation and working in partnership with the local business community, the international community and Ukrainians together can ensure that the country emerges from reconstruction stronger, more resilient, and democratic.

1. World Bank, Government of Ukraine, European Commission, and United Nations, Ukraine Rapid Damage and Needs Assessment, February 2022 – February 2023.
2. Wade Channell, “Urgency and Legitimacy: Tensions in Rebuilding the Legal Structure for Business in Post-Conflict Countries,” CIPE Economic Reform Feature Service, July 30, 2010.
3. Paddy Ashdown, Swords and Ploughshares: Building Peace in the 21st Century. London: Phoenix, 2007.
4. Sanja Omanovic, “Accepting Responsibility: Moving Beyond Political and Economic Dependence in Post Conflict Bosnia and Herzegovina.” CIPE Economic Reform Feature Service, February 9, 2005.
5. Alejandro Fajardo and Matt Andrews, “Does successful governance require heroes? The case of Sergio Fajardo and the city of Medellín: A reform case for instruction,” United Nations University-World Institute for Development Economics Research Working Paper 2014/035, February 2014.
6. Public Perception of Economic and Social Reforms in Ukraine, CIPE, 2022. https://www.cipe.org/resources/public-perception-of-economic-and-social-reforms-in-ukraine/