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What kind of peace agreement would make Ukraine ready for investment?

It goes without saying that the Russian invasion of Ukraine has devastated the country’s economy. Ukraine’s actions on the battlefield must lay the foundation for a sustainable peace in which the country can attract as much investment as possible.

May 12, 2022 - Andrii Dligach Mychailo Wynnyckyj Valerii Pekar - UkraineAtWar

Rescuers are working in the rubble of residential building in Borodianka, Kyiv region. March 2022. Photo: Rostyle / Shutterstock

After two and a half months of full-scale war, it is now clear that Russia will not achieve its primary strategic goal – the complete subjugation of Ukraine. Eventually, Ukraine will return to some level of normality but a complete recovery will require massive economic assistance and investment. Initially, financial flows are likely to take the form of direct aid from governments and international financial institutions. However, Ukraine’s complete recovery and full reintegration with global markets will require private investment. This in turn is dependent on confidence in the political and economic viability of Ukraine, as well as long-term peace in the country and broader region.

In the short term, Ukraine is unlikely to become an economic safe haven into which pension fund managers will transfer capital in large sums. However, venture investors are less risk averse and will find the country’s potential for economic growth attractive. However, a sustainable peace is a necessary precondition for such growth, upon which further institutional reforms will be implemented.

Putin has put forward six conditions for a peace agreement with Ukraine:

  1. Ukrainian neutrality outside of NATO
  2. Demilitarisation.
  3. “Denazification”
  4. Elimination of “obstacles” to the widespread use of the Russian language
  5. Recognition of the so-called “Donetsk and Luhansk People’s Republics”
  6. Recognition of the Russian annexation of Crimea

We examine these conditions from the point of view of Ukraine’s interests, focusing on the specific question of what kind of peace agreement would make Ukraine an attractive investment target? Obviously, such attraction is dependent on much more than just peace (e.g., economic growth, regulatory reform, liberal taxes, rule of law, transparency, human capital development, etc.). However, such complex analysis is beyond the scope of this article. Here, we analyse the possibilities of building the foundation for economic growth – peace.

Unrealistic demands

We shall start with Russia’s demand that Ukraine undergo denazification”. This is a totally fake narrative based on Putin’s myths about the Kyiv government’s lack of legitimacy. Presidential and parliamentary elections were held in Ukraine in 2014 and 2019 and were acknowledged by all international observers as free and with a minimum number of violations. His claims regarding the existence of “nationalist battalions” in Ukraine are also false. In fact, there are no armed groups in Ukraine except those established according to the laws of Ukraine by the military, police and security services. The Territorial Defence Forces (newly formed from yesterday’s civilians) are all legally a part of the armed forces and are subordinated to its commander-in-chief. Electoral support for far-right parties in Ukraine has never reached more than two per cent. International comparative surveys consistently show Ukraine’s population to be among the least xenophobic in Europe.

Demilitarisation is a totally unacceptable demand, as having such an aggressive neighbour means that the country needs an effective military.

The Russian language is also a contentious point. Although there are many Russian-speaking people in Ukraine, most of them are bilingual. There are Russian schools, newspapers, theatres, etc. Incidentally, there are no equivalent Ukrainian schools or media in Russia. Ukrainian legislation on national minorities fully corresponds with European norms and is one of the most liberal regimes in Europe. That is why according to numerous polls, the language issue is not considered important by the vast majority of Ukrainian citizens. So, what does Putin mean when he demands the “elimination of obstacles” to linguistic freedom? Overall, he wants Russian to be given the status of a second state language. Not surprisingly, Ukrainians consider this to be an aggressive demand. Its only aim is to entrench Ukraine’s position within Russia’s “sphere of influence”. This is not acceptable. In an opinion poll conducted in March, 83 per cent of Ukrainians (including Russian speakers) voiced their support for maintaining Ukrainian as the sole official language of the country.

The neutrality of Ukraine is a complicated point. Ukraine certainly needs a security umbrella to be ready for investment. The security umbrella provided to western Europe after the Second World War and then to countries like South Korea and Taiwan enabled investment and rapid economic growth. Ukraine’s course towards joining the EU and NATO is enshrined in its constitution and supported by the majority of citizens. However, NATO countries are in no hurry to invite Ukraine into the Alliance because of fear of direct conflict with Russia. As a result, there must be some other way of ensuring Ukraine’s security and ability to defend itself. Various ideas and initiatives aimed at providing immediate and effective help to the country in case of another invasion have already been proposed by its allies. Theoretically, Ukraine could refuse to join NATO if it found an adequate alternative agreement. Most definitely, such an agreement cannot include the aggressive invader Russia as a “guarantor” of Ukraine’s security.

All the other “peace proposal” points concern the territory of Ukraine. Of course, these issues are also non-negotiable.

Moscow’s true ambitions

War is largely focused on gaining political and socio-economic control over territory. Here, we can already see several inconsistencies with regards to the war in Ukraine. After all, Russia is the largest country in the world by landmass. It is therefore unlikely that it needs more territory to survive and prosper. Nevertheless, Moscow has gone to war in Ukraine with the specific aim of territorial expansion.

The Russian objective concerning Ukraine was clearly stated by Putin himself and repeated numerous times by his closest associates: they want to eradicate Ukrainian independence. Putin could potentially agree to Ukraine’s continued formal existence as a satellite of a Russian “Union State” (like Belarus), or as a failed state. Even more attractive to him would be the prospect of splitting Ukraine into several parts. However, he cannot live with an independent Ukraine within its internationally recognised borders.

Russian policies in previously occupied territories provide us with a good hint as to whether or not Putin in fact needs these regions. Historically, when a country occupied territory, the aim was to exploit its human, natural, industrial and/or agricultural resources. That is why an occupier would normally install a strong and effective administration in the occupied territory. They would also normally arrange for full-scale development, industry investment, more infrastructure and human capital. All territories occupied by Russia after 1991 (including parts of Ukraine’s Donetsk and Luhansk regions, Crimea, Georgia’s Abkhazia and South Ossetia regions and Moldova’s Transnistria) have become isolated and extremely poor. They have been totally ruined by destroyed infrastructure, a poor supply of everyday goods and services, and massive emigration. Russia does not need them for economic, or any other, purposes. Russia needs them as “ticking time bombs” to further undermine their “parent” countries, such as Ukraine, Georgia and Moldova.

Crimea is a special case. The peninsula was turned into a huge military base that threatens the whole Mediterranean region. To this end, its economy was destroyed and its local population was replaced by Russian officers and their families. The indigenous Crimean Tatar population was massively oppressed for the second time in a century. In 1944, Stalin deported much of this group and between one third to one half of these people died.

During the current hostilities in Ukraine, Russia has demonstrated its complete disregard for the infrastructure and people that it supposedly seeks to “liberate” and/or bring back into its sphere of influence. The indiscriminate bombing of Kharkiv and Mariupol – both largely Russian-speaking cities close to the border – illustrates the criminal Russian regime’s complete disregard for both the territory and population it supposedly seeks to incorporate into the “Russian World”.

As a result, it is clear that Russia does not need more territory for its people, industry, agriculture and resources.

Restoring territorial integrity

Ukraine insists on re-establishing its sovereignty over all its territories recognised by international treaties. This is a requirement if we are to build a rules-based society (i.e., to become attractive for investors): international and national rules and agreements must be respected.

However, there could be variations in the way that these territories are returned to Ukraine. Timelines for the return of territories occupied since February 24th could differ from those applied to the regions of the Donetsk and Luhansk oblasts occupied in 2014. These areas may require longer and more complicated procedures. Their demilitarisation, demining, restoration of the rule of law, recovery of human capital, infrastructure reconstruction and economic recovery will be very expensive. Crimea is even more complicated due to the massive military infrastructure that has been constructed there, as well as the latent inter-ethnic strife caused by Russian oppression of the Crimean Tatars.

Ukraine’s position concerning these territories should involve the following demands:

  1. All territories occupied by Russian forces since February 24th must be returned to Ukrainian control without any conditions.
  2. The disputed territories of the Donetsk and Luhansk regions occupied in 2014 must be recognised as Ukrainian territories in line with international law. A roadmap for their progressive and full return to Ukrainian control must be agreed. This could possibly happen over a substantial period. However, there can be no “federal status” imposed by Russia or local law enforcement agencies that are not accountable to the central government. Any proposals to give these regions veto power regarding the foreign policy of Ukraine are unacceptable.
  3. A multilateral agreement on the status of Crimea could be signed that engages global and regional powers. This could also establish a form of special autonomous status for the peninsula that would contribute to further negotiations on the Crimean issue.

This is the minimal set of Ukrainian demands that would allow the country to ensure its sovereignty and security, attract investments and launch economic recovery and growth.

Given the wide gulf between Kyiv’s basic position and Russia’s demands, it must be acknowledged that the main parameters of any future peace negotiations are now effectively being drawn out by the Ukrainian military. In other words, the military factor alone will determine whether the parties will be able to impose their opposing demands on the other side.

Valerii Pekar is a co-founder of the Nova Kraina Civic Platform, a lecturer at the Kyiv-Mohyla Business School and a former member of the National Reform Council.

Mychailo Wynnyckyj is an Associate Professor at Kyiv-Mohyla Academy and Ukrainian Catholic University. He is also the author of “Ukraine’s Maidan. Russia’s War. A Chronicle and Analysis of the Revolution of Dignity” (Ibidem, 2019).

Andrii Dligach is the Head of Advanter Group, Doctor of Economics, strategist, futurologist and visionary; founder of the Board business community, co-founder of the Center for Economic Recovery, SingularityU Kyiv, FreeGen, Investudio. Investor and ideologist of ecosystems and technology startups.

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