As the United States engages in ceasefire discussions with Russia and Ukraine, expectations for a ceasefire are growing, yet the government appears lukewarm towards the Ukraine reconstruction project. This seems to be due to safety concerns and analyses suggesting that the scale of the Ukraine reconstruction may not be as large as anticipated.
According to government sources on the 28th, Jeong Byeong-ha, the government representative for Ukraine Reconstruction Support, is scheduled to attend the 13th Operational Committee of the Ukraine Donor Platform (UDP) in Kyiv on April 2. However, recent intensified Russian attacks on Kyiv have led countries and organizations to hesitate in confirming attendees, and the agenda has not yet been finalized.
The Ministry of Trade, Industry and Energy's actions are also not swift. On that day, the ministry discussed the trends of the Russia-Ukraine war with experts and industry leaders at a Central Asia forum, considering an event to connect our corporations with Russian and Ukrainian business professionals, but the timing remains unspecified as 'sometime in the first half of the year.' In contrast, the Korea International Trade Association, a private organization, met with a Ukrainian Chamber of Commerce delegation on the 26th and signed a memorandum of understanding (MOU), while government actions seem sluggish.
The reason both our government and other nations are responding passively to the Ukraine reconstruction project thus far is that Russia has been conducting strong airstrikes just before a potential ceasefire, and analyses suggest that the reconstruction efforts may not be as extensive as previously expected. Initially, the Ukraine government projected that it would cost $900 billion (approximately 1,300 trillion won) to restore infrastructure devastated by the war; however, international agency analyses now predict the reconstruction expense will be at half that level.
The scale of the Ukraine reconstruction expense announced by the World Bank in February was $524 billion (approximately 768 trillion won), with direct damage estimated at $176 billion (approximately 258 trillion won). If it is assumed that Russia annexes Ukrainian territory during a ceasefire, the calculations would change. According to the Korea Overseas Infrastructure Cities Development Support Corporation (KIND), the direct damage in non-occupied Ukrainian territories (Russian-occupied) is as high as $89.5 billion (50.85%). If these areas are incorporated into Russia, the size of the reconstruction market could significantly shrink.
There is also the issue of whether Ukraine can safely secure funding. Due to the prolonged war, Ukraine has seen its budget deficit widen and most of its fiscal operations rely on international aid, leading to a surge in government debt. Meanwhile, U.S. President Donald Trump is expected to significantly reduce the financial support amount promised to Ukraine, and Europe is likely to mostly allocate financial support to military sectors, such as peacekeeping forces, immediately after any ceasefire.
Despite this situation, Ukraine's credit rating has also declined, making self-financing challenging. The international credit rating agency Standard & Poor's (S&P) downgraded Ukraine's national credit rating to selective default (SD) in August last year, and Fitch downgraded Ukraine's credit rating from CC to C in July last year. This indicates that Ukraine is believed to have entered a state of 'default or a similar process has begun.'
A government official said, 'Despite being on the brink of a ceasefire, ongoing attacks render it unsafe, making it inappropriate to proceed with discussions,' adding, 'Corporations are currently not very proactive about the Ukraine reconstruction project, so we plan to keep observing the situation.'
Additionally, President Trump's proposal for a mineral agreement is changing the paradigm of the Ukraine reconstruction market. President Trump has proposed a mineral agreement fund for Ukraine. The U.S. has promised that if Ukraine places half of the revenues generated from its natural resources and infrastructure into a U.S.-owned fund, those fund earnings will be used for Ukraine's reconstruction and development projects. If the Ukraine reconstruction efforts are mainly carried out by Europe and the U.S., it seems that the position of our corporations will diminish.
Generally, governments tend to provide official development assistance (ODA) conditional on their domestic corporations conducting projects, but as of 2022, our government's support scale ranks 14th among 30 countries, which is relatively small compared to Europe, the U.S., Japan, and China, thus reducing contract opportunities. Moreover, the Economic Development Cooperation Fund (EDCF), which Korea will support Ukraine with by 2026, is limited to $2.1 billion, which is minuscule compared to the hundreds of billions of dollars supported by the EU or the U.S. Therefore, there is analysis suggesting participation in joint projects or consortiums for businesses contracted by the EU or the U.S.
Experts believe that for our corporations to engage in the Ukraine reconstruction project, detailed assessments of profitability and proactive strategies are necessary.
A representative from the Korea Overseas Infrastructure City Development Corporation noted, 'The ODA support projects centered on the European Union (EU) and U.S. fund-led development projects will unfold as the two pillars of the Ukraine reconstruction efforts,' adding, 'While our corporations lack experience in Ukraine projects, there could be opportunities because ODA donor country construction companies also lack overseas experience.'
Views among corporations regarding the Ukraine reconstruction project vary. Large construction firms anticipate lower profitability than expected, while construction machinery and transportation-related corporations are growing their expectations for the Ukraine reconstruction project.
A representative from a large construction company stated, 'While there is interest in Ukraine, the prospects and profitability are not high,' noting, 'The scale of our ODA is limited, so there will be fewer business opportunities as a result.' Hyundai Rotem mentioned, 'We are waiting for orders to begin only after the end of hostilities,' and added, 'We will look for contract opportunities based on past export experiences with Ukraine.'
Some voices suggest that if Russia occupies the Ukrainian territories, attention should also be given to Russia's reconstruction projects. A construction industry professional said, 'Since the war damage in Ukraine is concentrated in Russian-occupied areas, there may be opportunities in the reconstruction projects there.' However, with ongoing military cooperation between North Korea and Russia, and potential diplomatic issues with the EU, this situation is also complicated.