Between Russian tanks and Western banks: a look at Ukraine’s infrastructure future

Author: Samuel Rogers

Ukraine like all states is unique, but it is unique in a unique way. A large European state from the former communist Second World, until February 2022 it sat uneasily between the so-called Global North and South. Russia’s ongoing invasion of the country has propelled it to the forefront of global politics where there are daily reminders: obliterated buildings, maimed civilians, and military hardware have become a mainstay in the imagination. While nobody knows when it will end, it is critical to think about how any recovery might materialise.

One of the core dimensions of Ukraine’s revival will be the issue of infrastructure (re)development. A September 2022 World Bank report estimates Ukraine’s infrastructure needs at $349bn, 160% of the country’s June 2021 GDP levels. Who or what will finance this? I do not intend to speculate, rather outline two outcomes: one likely unavoidable, a second potential; consequences that are not necessarily mutually exclusive. First, based on the post-1989 inward capital flows into many post-socialist European countries, Western capital will provide the bulk of this shortfall. In a word: privatisation. Indeed, the Ukrainian government, which banned eleven political parties in March 2022, has rapidly moved towards privatisation, tax reductions, a downgrading of labour rights, and a proclivity towards ‘Western’ institutions. Second, Chinese capital may seek access opportunities to finance infrastructure (re)development projects. This entry focusses on the latter.

Chinese commitments

Any understanding of Chinese financial commitments to (a post-war) Ukraine should also consider China’s lending patterns to Russia as Chinese capital flows to Ukraine will largely depend on its (changing) capitalist relations with the world’s largest country. Before the war, Ukraine was already a debtor to China: estimations put Chinese lending commitments at $7bn – mainly in agriculture and infrastructure – approximately 4.5% of Ukraine’s 2021 GDP. Russia by contrast has received an estimated $125bn since 2000 from China, principally channelled into state-owned enterprises in the energy sector. Together with Belarus, these three post-soviet European states constituted 20% of all Chinese overseas lending in the period 2000-2020, meaning this segment of the post-Soviet space represents an important role in Chinese overseas capital provision. As such, any new loan facilitation to Ukraine would not represent a necessarily radical shift in economic geography.

Simultaneously, Chinese lending patterns to Ukraine should also be understood in relation to ‘Western’ financial commitments. From a ‘Western’ financial organisational perspective, because of the war’s continuation, creditor governments have suspended Kyiv’s debt servicing until the end of 2023, with an option to extend this deferment for an additional year. This means any ‘Western’ finance organisation-led initiatives are likely to be piecemeal across territory and sector until a cessation in hostilities is achieved or at the very least territorially restricted. Concomitantly, any entry points for Chinese capital would likely be contingent on an end to – or at least seriously reduced – conflict, too: a war, which by January 2023 had resulted in an estimated 30,000 civilian deaths is simply too risky to absorb substantial investment. This reaffirms the importance of Russia’s role in Sino-Ukrainian infrastructure relations.

An ‘infrastructure state’ test case?

The conflict in Ukraine is not simply about territorial gain. Rather, it is becoming the core global fracture point between ostensible competing accumulation strategies: a private, commercial ‘Western’ variant and a state-led ‘non-Western’ alternative. As such, Ukraine may develop into a laboratorial test case in an era of what Seth Schindler and Jessica DiCarlo call the Infrastructure State: a scenario where ‘the USA and China are engaged in geopolitical-economic competition to integrate territory into value chains anchored by their domestic lead firms through the financing and construction of transnational infrastructure’ (Schindler et al 2021 p. 331). In other words, Ukraine may become a nodal point in the nexus of a Sino-US global rivalry where infrastructure development is a key dimension with which to purpose capital. However, while grandiose infrastructure projects are regularly tabled, the Ukrainian infrastructure story will likely be focused on war recovery in the first instance. Therefore, it will be the everyday infrastructures that will – or at any rate, should – be prioritised: bridges, hospitals, housing, roads, schools. At the same time, it is worth asking where Chinese capital may contribute infrastructurally.

Ukraine’s principal export is grain and Mariupol, the port city devasted in the early stages of the invasion had been chosen for a $50mn trilateral agreement in 2019 between the state-owned China Oil and Foodstuffs Corporation (COFCO) – China’s largest food-processing firm – the state-owned Ukrainian Sea Ports Authority, and Sea Trade Port Mariupol. Together, these bodies agreed to develop berths and construct a grain terminal, envisioning these expansions would advance grain shipment capacities, enlarging trade numbers. The port, which as of July 2022, was operating at full capacity, is in the so-called Donetsk People’s Republic and now in what Russian leaders have recognised as part of Russia. The war forced a suspension of this agreement with COFCO and time will tell if it will be reanimated. However, as Russia’s capital movements are severely restricted due to sanctions operationalised by multiple states and international organisations, it may be challenging to legally sidestep these multifaceted arrangements to repair or rebuild (damaged or destroyed) infrastructure. Consequently, Chinese capital may be encouraged or requested in this case. As such, any realisation of this movement – or cognate Chinese-sourced financing streams into Ukrainian infrastructure in Russian-held territory – may speak to the ‘infrastructure state’ concept. Yet, as above, these investments would likely be shelved until a cessation in conflict has been achieved.

Whether or not Ukraine is able to regain its pre-war borders is something of a moot point. The country is on its knees: damage to transportation infrastructure alone amounts to an estimated $35.1bn. Nothing short of an unparalleled infrastructure plan and implementation would come close to reshaping the country’s infrastructure to resemble anything like it did twelve months ago. How far China will become an important actor remains to be seen. The recent 20^th Party Congress report mentioned the Belt and Road Initiative just twice, which speaks to a reassessment of China’s flagship infrastructure programme. Nonetheless, China’s push into global infrastructure projects maintains momentum, projects continue to be agreed. The extent to which China opts to finance part of Ukraine’s infrastructural recovery will become an important event for multiple actors. Whichever way things develop, Ukraine’s policy choices between the pressures of Western banks and Russian tanks remain acute, though Chinese capital may hold the key to revitalising the country’s infrastructure.