Rebuilding Ukraine: Private sector role can help counter corruption concerns

Ukraine has been hit by a series of damaging corruption allegations in recent weeks. So far in 2023, a number of senior government figures including ministers, deputy ministers, and regional governors have all come under scrutiny. Some have resigned or been dismissed. The timing is particularly unfortunate for a besieged country that is currently reliant on foreign aid as it fights for survival against Russia’s ongoing invasion.

Alarm over potential corruption reflects Ukraine’s often troubling prior record, despite the country’s reform progress since the 2014 Revolution of Dignity. Such scandals sow doubt among Ukraine’s international partners and could help convince some to hesitate before providing desperately needed financial support.

The problem with all of this, of course, is that Ukraine depends heavily on the continued support of Western governments and donors, who understandably tend to look askance at the mere suggestion that their donations could be misappropriated. Even if the current flurry of corruption allegations prove to be entirely or at least partially unfounded, the mere perception of corruption risk could alienate the very entities upon which Ukraine’s future recovery will hinge.

This is not a new problem. Ukraine has long been regarded as one of the world’s more corrupt countries and ranked 122nd of 180 countries on Transparency International’s 2021 Corruption Perception Index. In the present circumstances, Ukraine simply cannot afford to be seen as corrupt and must do everything possible to counter such negative perceptions.

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While confidence remains low in Ukraine’s state institutions, the country’s private sector does not appear to suffer from the same problem. On the contrary, Ukrainian businesses enjoy a growing international reputation as resilient, innovative, and cost-competitive. Many are noted for their skilled, modern, savvy, and hard-working talent. The uniquely challenging circumstances of the Russian invasion have served to highlight these positive characteristics.

Although the Russian invasion is now entering its second year, international companies have continued to look for investment opportunities in Ukraine. Even in the midst of Russia’s late 2022 bombing campaign against Ukrainian energy infrastructure, Sergiy Tsivkach of UkraineInvest, the country’s state investment promotion agency, reported that $5 billion of foreign private investment was in the pipeline for Ukraine’s manufacturing sector alone. “There are billions more across other sectors,” he noted. “Private investment in industry is the most important way to restore the Ukrainian economy and create new jobs.”

In a January 17 interview, Uber CEO Dara Khosrowshahi summed up why some foreign companies are excited about Ukraine despite the ongoing invasion. “I’m very optimistic,” he commented. “You really do see the spirit of the Ukrainian people here, the resilience. But even beyond that, you see the entrepreneurial energy here.”

The contrast could hardly be starker between the global optimism surrounding Ukraine’s private sector and the spectacle of the United States sending inspectors to the country early this year to investigate whether foreign assistance funds are being misused or misplaced. This is a hint, a strong one, about the best way to approach the country’s future reconstruction.

Private companies seeking Western investment have to meet Western standards, requirements, and anti-corruption norms. Major international companies simply won’t invest unless they are comfortable that they are not exposing themselves to unnecessary risk, including the financial, criminal, and reputational risk of corruption scandals. Similarly, Ukrainian companies cannot reliably attract foreign investment unless they can demonstrate that these risks are at a minimum.

Even where there may not be specific legal consequences for corruption, there are certainly reputational and financial risks. This means private companies have obvious incentives to operate cleanly and transparently that are often limited or absent in the public sector.

International confidence in Ukraine’s private sector and its ability to weather the storms of the Russian invasion is pronounced. Ukraine should capitalize on this and seek to minimize concerns about public sector corruption by letting the private sector take the lead on national reconstruction.

This approach would make the West a shareholder in Ukraine’s future. Leaving the private sector to lead the way would also introduce numerous checks on corruption as each individual contract is signed, executed, and monitored with the Western oversight of foreign investors. Even if the government officials in question are doing absolutely nothing wrong, it seems beyond dispute that the international community would sooner trust Ukraine’s private sector than its scandal-plagued public sector. Trust, in turn, begets investment.

Suriya Evans-Pritchard Jayanti is a nonresident senior fellow at the Atlantic Council.

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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.

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Image: General view of Kyiv's Independence Square amid the Russian invasion of Ukraine. (Photo by Sergei Chuzavkov / SOPA Images/Sipa USA)