bne IntelliNews – Ukraine Report Jul22

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The war drags on and Ukraine is losing ground to Russia in the face of incessant bombardment. Russia has already taken all of Luhansk and is trying to take the half of Donetsk it doesn’t already control. Will Russian President Vladimir Putin stop then? It’s possible. It would be the smart thing to do as he could declare victory and stop the bleeding of men, material and money. But Putin has become so unpredictable since the beginning of this year that anything is possible.

In the first phase of the war, Russia attacked on too many fronts and never succeeded in taking control of more than roads. This left its columns of men and love vulnerable to hit and run from small teams armed with deadly Javelin missiles, which were used to such devastating effect.

But in the second phase, things changed. The war has become a classic large-scale confrontation, with fortified positions and entrenched troops extremely difficult to dislodge. Combat has evolved from quick and stealthy hit-and-flight teams to the brawl of an artillery duel. And there, the Russians have the advantage of shooting at the Ukrainians ten against one. Even if the Ukrainian troops are dug in, the sheer volume of lead the Russians can throw at them means it will slowly wear down the resistance and advance, inch by inch.

For its part, Kyiv has constantly asked the West for heavy weapons, but it has not received any. In the meantime, Ukraine has put up a heroic defence, but unless NATO sends heavy weapons, Kyiv’s prospects clinging to the rest of Donbass look poor.

Unless something changes – and according to reports, the United States does not have the manufacturing capacity to supply enough of the heavy weapons Kyiv needs to turn the tide for at least a year – the only hopes of a Ukrainian victory are if the Russian economy collapses, there is a mutiny of Russian soldiers, or if Putin dies of cancer. Since the sanctions are not having the desired effect and Russia is actually making more money than ever, the first is unlikely, but the other two could still happen.

A new problem has arisen as the war lasts longer than expected: Kyiv is short of money. Ukraine has received a total of about $9 billion from the West to support fiscal spending, but it runs a deficit of about $5 billion per month. The government has already tapped into the country’s reserves to the tune of $3 billion and the National Bank of Ukraine (NBU) is printing the rest. With only $30 billion pledged by donors for the rest of the year, but government estimates of $65 billion in spending, this will be a problem. Although it seems likely that donors and the IMF will cover the shortfall.

The economy is in tatters. The NBU expects the Ukrainian economy to contract by “only” 35-40% in 2022. According to the National Bank, Ukraine’s GDP fell by 15.1% in the first quarter of 2022 compared to the first quarter of 2021, after increasing by 6.1% in the fourth quarter of last year. The World Bank predicts a 45.1% drop in Ukraine’s economy this year, while the National Bank of Ukraine says the drop will be at least 30%. No one really knows and it’s a bit academic as the fighting continues.

However, thoughts are already turning to what’s next. There was a conference on the reconstruction of Ukraine in the first week of July to begin the process of building a “platform” to revive the country when peace comes. Ukrainian Prime Minister Denys Shmyhal said the country needed $750 billion and Russia and the oligarchs should be forced to pay. A sort of Marshall Plan is on the cards. The physical damage to housing and infrastructure must first be repaired and indeed work on housing has already begun as the flood of refugees has turned into an ebb as Russian attacks outside of the Donbass are decreasing.

The Ukrainian government has announced a new economic strategy. A total of 8 programs will be launched to create jobs through business support, public procurement, construction, loans and employment of the unemployed.

In particular, the program will include non-reimbursable grants to small and medium-sized enterprises, support for Ukrainian producers and the construction of new infrastructure. Prime Minister Denys Shmyhal spoke of six subsidy programs so far:

The first program is in the form of micro-grants to start your own business.
The second initiative concerns non-reimbursable subsidies for equipment for the development of processing companies: woodworking, furniture production, production of clothing or accessories, building materials, agricultural processing, etc.
The third initiative is a program in the agricultural sector that offers partial compensation for the cost of greenhouses.
The fourth program is also linked to the agricultural sector in the form of subsidies for the planting of new orchards and berries within the framework of state and corporate co-financing.
The fifth program is aimed at the IT sector. The Ukrainian Startup Support Fund provides financial assistance to newly established companies to help them with ongoing activities as well as acceleration programs.
The sixth program will fund the training of 60,000 computer scientists. Ukrainians who wish to qualify as a junior developer, graphic designer or other technical specialties will be eligible.

The work will be staggered because once peace is restored, housing will be a top priority. But the rest will be a long and complicated subject. It is clear that Ukraine is about to receive a unique opportunity to build the country of its dreams, because the financial assistance will be massive. But they will have to be clear about what this dream is and it remains an open question.

National report on Ukraine July 22 – July 2022

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