Note: This transcript is auto generated and lightly edited.
Ukraine has been defending itself from Russia's attack for more than three years, forcing it to struggle with a wartime economy. Negotiations to end the fighting have gone nowhere, but it is not too early to think about a resolution at some point. How will Ukraine rebuild if the countries reach a ceasefire? Elina Ribakova (PIIE) joins host Monica de Bolle (PIIE) to discuss how Ukraine could pivot to a reconstruction with a green transition, taking advantage of its critical minerals while aiding Europe's efforts on defense spending.
This podcast is produced by the Peterson Institute for International Economics.
ELINA RIBAKOVA: There is no point of rebuilding Ukraine to the model of Poland 20 years ago. That doesn't make sense. There's no point of building the same infrastructure that was there.
One has to think going forward in the future Ukraine sees itself as a European country, it is a European country, it sees itself in European Union, there a lot of agreements, there is a financial macro assistance program ongoing and also reforms that have been agreed with European Union and also with the IMF. And so one has to rebuild with that in mind that Ukraine has to comply with the new green initiatives in Europe and what is better it has to be an important driver of some of those initiatives, it has to contribute to some of those initiatives.
MONICA DE BOLLE: Welcome to Policy for the Planet, a podcast exploring the global response to the climate crisis. We'll unravel the complex tradeoffs of different policy choices to steer us toward sustainable solutions and public well-being.
I'm Monica de Bolle, a senior fellow at the Peterson Institute for International Economics.
Welcome to the conversation.
Ukraine has been under attack for the last three years, defending its borders from a Russian onslaught. Because of the attack, Ukraine shifted its economic focus to a wartime economy, with defense spending at its core.
A ceasefire seems far from reachable at the moment. If reached in the future, how will Ukraine rebuild? What will its economy look like in the future? Can Ukraine refocus and help Europe achieve its climate goals?
Joining us today is Elina Ribakova, nonresident senior fellow at the Peterson Institute for International Economics, nonresident fellow at Bruegel, and director of the International Affairs Program and vice president for foreign policy at the Kyiv School of Economics.
Elina has over 25 years of experience with financial markets and research. Her research focuses on global markets, economic statecraft, and economic sovereignty. She has also served as deputy chief economist at the Institute of International Finance in Washington, and managing director and head of Europe, Middle East and Africa (EMEA) Research at Deutsche Bank in London.
Welcome to Policy for the Planet, Elina. It's a great pleasure to have you on the show. I'm just going to jump right in and ask you, as the devastating war in Ukraine grinds on, let's talk about the future possibilities of rebuilding Ukraine while it adapts to climate change. Suppose a ceasefire takes effect. Can Ukraine rebuild?
ELINA RIBAKOVA: Ukraine absolutely can rebuild if the ceasefire takes effect. In fact, Ukraine is rebuilding despite not having the ceasefire yet. And in a way, there is no choice, right? A big share of the infrastructure that has been destroyed is civilian infrastructure. This is residential infrastructure. That has to be rebuilt. People need hospitals, people need apartments to stay in.
If there were indeed to be a ceasefire or maybe unwritten, sort of unsigned ceasefire, that would definitely ease off the pressure on Ukraine and will allow... more businesses, will change expectations, especially of businesses that haven't worked closely with Ukraine before to come back and restart the operations in Ukraine.
MONICA DE BOLLE: And how do you see the rebuilding of Ukraine in connection with or in conjunction with the climate goals that Europe has? Is this an opportunity to sort of rebuild Ukraine in a way that already leads to climate adaptation measures. How do you see that going?
ELINA RIBAKOVA: This is straight to the point. There has to be leapfrogging, so to say.
There is no point of rebuilding Ukraine to the model of Poland 20 years ago. That doesn't make sense. There's no point of building the same infrastructure that was there.
One has to think going forward in the future Ukraine sees itself as a European country, it is a European country, it sees itself in European Union, there a lot of agreements, there is a financial macro assistance program ongoing and also reforms that have been agreed with European Union and also with the IMF. And so one has to rebuild with that in mind that Ukraine has to comply with the new green initiatives in Europe and what is better it has to be an important driver of some of those initiatives, it has to contribute to some of those initiatives.
MONICA DE BOLLE: So you mentioned Poland. Can you talk to us a little bit about Poland in that contrast, sort of what it was for Poland 20 years ago, what it is for Ukraine now?
ELINA RIBAKOVA: Well, Poland, 20, 30 years now already has started more like a sort of a hub for cheap labor production, right? It was post-Soviet space. was much cheaper. It was lack of capital, lack of funding opportunities. And then you had the influx of foreign investment, highly educated labor force. But the influx of foreign investment was looking for that sort of cheaper means of production.
And then you got some of the manufacturing from Germany, the similar things happen in Czech Republic at the time. And then of course, fast forward 20 or so years later, the differential in the cost of production has closed a bit, right? The productivity also has caught up, but also the labor is no longer as cheap. And Polish authorities, Polish businessmen, businesswoman, started thinking much more progressively.
For example, as of now, Poland is one of the most important EV production battery hubs in Europe. Why? Because some time ago they thought, wait a second, we don't want to be just the cheap sort of production facility for Europe. We want to be progressive, we have great universities. We want to think where is Europe going forward? In the future, Europe will need electric vehicles. So why don't we start investing in that area? And I think that is a fantastic example for Ukraine as well.
MONICA DE BOLLE: And do you think that the conditions are in Ukraine are there? you think they're there? We know that Ukraine has critical minerals. So does it have the conditions in place to rebuild itself already once that process starts with that focus in mind, with something along, you know, meeting climate goals and going in the climate adaptation direction? Or does it substantially need something from other countries? Does it substantially need, and when I say that, it substantially need assistance from European countries, let's say, in setting out a climate agenda of its own?
ELINA RIBAKOVA: I think Ukrainian authorities have been looking closely already at the European Green Agenda. So they're already thinking, and with that framework in mind, they have no choice because unfortunately a lot of infrastructure has been destroyed and needs to be rebuilt. So it's not that.
How can we improve existing infrastructure? A lot of it is just completely building new infrastructure that will have compliance with European regulations. And Ukrainian authorities have good sort of experience with that. So look at the agricultural experts, for example. Once Ukrainian authorities decided to pivot away from Russia in terms of the exports, they realized, wait a second, we need to comply with European regulations.
But once they started complying with European regulations, many other countries said, wait a second, this is a vetted product. I want it too. It's much more reliable. It's much more safe. So I think similar things can happen also in mining, manufacturing, where they will pivot more towards a green. But now, sort of to give you context, of course, Ukraine has a long history of very strong engineering schools. And now they're also rebuilding some of those schools, including at actually even Kyiv School of Economics is doing an engineering program.
It has a highly educated force. Mining used to be a big share of the economy. But now the question is can that mining be transformed into the green agenda? And we have seen some early developments in that. Ukrainian authorities have put a range of projects, including the critical raw minerals, materials, to be able to sort of market themselves to international investors. But of course, the geopolitical climate, the war is still hindering a lot of this investment.
MONICA DE BOLLE: But in terms of the critical minerals that Ukraine has, can you talk a little bit about what are these resources, how they would help the green transition, how relevant they are for batteries, for chips, for wind and solar power, and green hydrogen as a matter of fact?
ELINA RIBAKOVA: So in terms of, for example, what is needed for Europe, the critical raw materials, which I think there are over 30 that have been sort put in the list and the list gets amended more than 20 exist in Ukraine. The question is how easy it is to develop them. Our colleague, Cullen, has written about it in of the blog posts. One thing is to have geological study that shows something is somewhere in the ground. Another completely different item is to say that there are reserves and how expensive it will be to develop them. So if you think about the materials, for example, Europe, lithium is critical for green transition alongside cobalt and nickel.
Lithium is developed in Ukraine and has existed. There are reserves that have been produced in the past. If you think also about areas like defense, know, there are also like graphite or beryllium or titanium, Agnese, all of them are also important. If you think about digital transformation, some of the similar critical minerals are needed as inputs. And here there is a combination. On one hand, Ukraine will not be as cheap of a production or processing facility, rather, as it is in China.
Why? Because ideally we also want to think about green processing. We don't want to do this sort of completely, we know what China used to do say 10-20 years ago, complete disregard for the environment. We do want to have, and that makes it more expensive. On the other hand, if you think about Europe, Europe has geopolitical considerations. It's not now looking only for the cheapest alternative. It is also looking for like-minded partners.
It is something that has great proximity to Europe and is already working to integrate the standards and the processes and potentially even sort of value chain integration into Europe. So in that sense, Ukraine becomes attractive. And I would use an example of Japan, what Japan did from early 2000s in terms of thinking about critical materials. They started thinking about it geopolitically.
So they've invested extra, they agreed to pay extra to be able to have more clean value supply chains to have like-minded partners, Australia and others, they started moving away to just having one partner that will provide all of these critical raw materials, which was China. And they moved towards the objective that not a single nation will provide more than 50 % of a given critical mineral and also the willingness to pay more and sometimes also to stockpile. So for Europe, that's what they need to think about. No, Ukraine is not going to be cheaper in many of these products, but at the same time it gives other advantages.
MONICA DE BOLLE: So you mentioned our colleague, Cullen Hendricks, who has written about critical minerals in different contexts, of course, but he has written quite extensively about critical minerals. He's talked about in different contexts obstacles to mining these minerals. So let me ask you that question specifically in the context of Ukraine. What are the obstacles in Ukraine? The process, how polluting it might be, costs, need for investment and so on. You've already touched a little bit on all of these, but just so that we get them all in one place.
ELINA RIBAKOVA: I think the most critical at the moment will be the geopolitical situation. So Ukraine used to be much more significant producer of this critical raw materials and actually in that blog that Colin has wrote there is great information there in terms of the shares of production.
And for example, on titanium, it used to be 3 % of global production in 2013. It's huge, right? It's huge. Indeed. And for magnesium, they have huge reserves. I think after South Africa, it also used to be about 2 % of the global production. It's also huge. It is also huge, right? And this is very important inputs. And especially in some of these areas like magnesium, where China dominates the market, especially in the processing, as well as in processing.
But so what happened after 2013? You had the war, right? You had the first invasion in 14 and then you had the second invasion in 2022. So that of course undermines investors appetite to invest and to put extra money into the projects. So I think the geopolitical situation is first. And then the second one is exactly the investments needed. If you want to do it in a green way, that is more expensive and we do want to have it in the green way.
So I think the good way forward now is to look within the frameworks. There is a framework with European Union, which I think was signed in 2021. There is the new framework with the United States. That will be great to find sort of pilot projects almost, like maybe the graphite projects that are at higher, sort of at the more advanced stage. If there can be small partnerships, it doesn't have to be immediately massive projects. Just to demonstrate, look.
There are possibilities, know, there are difficulties, but there are possibilities. Let's have the pilot project. Let's see if it works, adjust. And if it works, then you can road show that project and show it to other investors that it is possible to do. Because some of these reserves are not in the Eastern territories that are currently occupied or close to the front line. They may be in the central Ukraine, the northern Ukraine, where you actually can continue to expand your investment and facilities. Very interesting.
MONICA DE BOLLE: What is your assessment for the US-Ukraine agreement since you mentioned it?
ELINA RIBAKOVA: So I think first and foremost for Ukraine it's important to have a constructive pragmatic relationship with the U.S. And I think this agreement that goes along those lines, know, if we can have a business opportunity, if we can have a deal, that's what Ukrainian authorities are thinking, with the US in return to continued marginal support, know, and the marginal support I mean continued intelligence sharing and not preventing what is called third-party transfer, meaning allowing European countries to buy weapons that they will then on ship to Ukraine for its defense. So these are the critical items. And it seems like the...
It's been much less fanfare than what was in February. But the agreement was signed recently. And in fact, technical work is already happening. So the teams have met. They're looking at the next steps. The DFC is going to be very much involved, obviously from the US side. The technical work is going forward. And then there are also early discussions about some projects, possibly in graphite, that might move forward.
And then over the next year we might have some results. So I think it's first and foremost commitment from both sides to courteous constructive relationship.
MONICA DE BOLLE: So, Elena, can you walk us through the main points in the US-Ukraine agreement that are relevant for the U.S. and relevant for Ukraine?
ELINA RIBAKOVA: So, this is an agreement that covers Ukraine's natural resources, and it is a significant agreement because both parties are establishing a reconstruction investment fund. And from the US side, will be mostly DFC doing that and for Ukrainian aside. They need to work out I think of it I don't know the latest details, but it's Ukrainian authorities that do that so so there is a 50-50 percent profit sharing on this on this Investment fund and Ukraine will be contributing 50 percent of all future revenues from the government all natural resources.
There are you know there is importance now that the big issue here is in the details.
What exactly, what kind of resources are going to go in? Who is going to put in first what? Who is going to cover the expenses of setting up the fund? Who will be managing the fund? How can we make it attractive for an international management company to manage this fund? What kind of other products maybe will be happening alongside this fund? Because this fund is just one part of the relationship that US and Ukraine could have. But this is sort of in a nutshell, that's what the agreement is.
MONICA DE BOLLE: Does it get in the way of any possible Ukraine-EU agreement or investment or anything that?
ELINA RIBAKOVA: The devil is the moment in the details, right? The way that we have seen the big agreement, it doesn't appear to be getting in the way. But now when the more detailed memorandums are happening, I think that's where we need to get more information. And for now, we haven't seen yet more information.
I'm sure it's in the forefront of the Ukrainian authorities' minds to make sure that they also honor the agreements with Europeans and also benefit from both, you know, relationship with the US, but also with European Union. That is definitely a critical item for them. Ukraine has reportedly become one of Europe's biggest supplier of weapons. You've already talked about this, for its military buildup. What are the implications of that for Europe's focus on the green transition? Well, unfortunately, Europe will have to invest in its security going forward.
Let's think about it as insurance. Unfortunately, you live next to a country, Russia, which has demonstrated its desire for more aggressive, militarily assertive behavior to achieve their geopolitical objectives. And it ranges from kinetic war, which is happening in Ukraine, to hybrid warfare, which happens across Europe. Oftentimes, this hybrid warfare lacks direct attribution, which also then ties up some of the responses Europeans have. For example, anti-corrosion tool.
I think Cecilia Malmstrom has written also about it.
MONICA DE BOLLE: She's also talked about it on this podcast.
ELINA RIBAKOVA: Wonderful. Yeah. Right. So you need a clear attribution to be able to use that tool, for example, some of the similar reactions in nature as well. So long story short, I think Europe will need to invest in this insurance. I hope they will never have to use it, but you know, we live next to the flood area, we buy insurance, right?
So the same thing with Europe. And here it should go both ways. used to, mean, many used to think about Ukraine as a charity case, you know, we need to help it protect itself. And I think now we need to think about it as a partnership because the risks indeed are, and they're already, for example, alleged assassination attempt at the CEO of a German military manufacturer, right? This is as close to almost a war as gets, right? So there are signs that Russia has potentially certain ambitions, right? So Ukraine can give important lessons to Europe about how to think about Russian defense from Russia.
MONICA DE BOLLE: What are the lessons learned, unfortunately, from this war in Ukraine?
ELINA RIBAKOVA: So it has to be a partnership. And potentially in the future, could be joint production already that's being explored. Joint venture production between European or US companies with Ukraine going forward. here, unfortunately, green and defense agendas don't have to contradict each other. Some of these critical materials are the same.
Some of the AI digital production, sort of digital innovation, could benefit both sides and we can build some of this defense industry with the mind of having the dual use aspect to it. It makes it a little bit easier in Ukraine because it is civilian companies that have moved for example aggressively into the drone production and development.
So they don't have a problem that they were originally military companies and they tried I to increase the civilian share. For example, if the war were magically to stop tomorrow, these companies can go back to their normal civilian work and incorporate what they have learned into their civilian production of the drone technology. So I think there is a chance. But unfortunately, yes, I wish we could only be talking about green, but we're also talking about the defense insurance as well. Well, from everything that you've said and things that you've touched upon here and there,
MONICA DE BOLLE: Do you have a cautiously optimistic assessment for what might happen to Ukraine going forward?
ELINA RIBAKOVA: I definitely have very cautiously optimistic assessment because there is no other choice. There is a war in Europe. This is the first full-scale war in Europe since the Second World War. We could also think about the breakup of Yugoslavia, which was also devastating for many countries, but it didn't spill over as much elsewhere.
So we're in that kind of situation. And if you, I were to say three years ago to many people, and many people did ask me how soon it will be over. Is it a couple of weeks? If I were to tell you that three years on Ukrainian military, Ukrainian people will be able to hold the frontline where they have and actually recapture some of the territories in the second year, first and the second year.
Most people would not believe it. Many people thought that in a couple of days it will be over. So the Ukrainian authorities and people have shown incredible resilience, innovation. We have all discussed the Operation Spiderweb recently, right? Which is very significant and it changes the slope in a way that we think about this kind of uneven resource-wise warfare between the two countries.
So I'm definitely optimistic, but having said that...to be able to stay in place, you need to keep on running, unfortunately, because there has to be more and for military innovation, one has to do reconstruction while there is no clear end to the war. One has to invest in education because Ukrainian kids first had COVID and now they have this and online education. So there are opportunities, but to be able to catch them, one needs to keep on investing and not standing still.
MONICA DE BOLLE: Well, this is all fascinating. Thank you so much, Elina, for coming on the show.
ELINA RIBAKOVA: Thank you very much for having me.
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