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What happens when the guns fall silent?

Ng Qi Siang
Ng Qi Siang • 5 min read
What happens when the guns fall silent?
A destroyed residential building in Chernihiv, Ukraine which suffered massive shelling at the start of Russia’s invasion. Ukraine’s President Volodymyr Zelensky has declared that US$1 trillion will be needed to rebuild the country / Photo: Bloomberg
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While the consensus is that the War in Ukraine is unlikely to end any time soon, Putin’s controversial call for negotiations raises the question of what a reasonable settlement will look like. The end of conflict would not see a return to the status quo: Ukraine’s economy has been left destitute by the ravages of war, while a battered and discredited Russia would find itself isolated from the international economic system.

ESSEC Business School professor Cedomir Nestorovic sees negotiations taking months to conclude, even if both parties find it within themselves to come to the negotiating table. One critical question is how Ukraine will be rebuilt and who will finance such efforts. He also cites the question of double nationality, with many people likely wishing to be both Russian and Ukrainian simultaneously for either familial or possibly ideological reasons.

Kyiv is eager for Moscow to pay for Ukraine’s reconstruction as reparations for its aggression. Markiyan Kliuchkovskiy, a member of a Ukrainian government working group on reparations, told Radio Free Europe that Ukraine would do all in its power to obtain the funds in collaboration with “the civilised world”. Zelensky has declared that US$1 trillion ($1.3 trillion) will be needed to rebuild Ukraine. The seizure of Russian assets to finance these costs has been mooted by the Congressional Study Group on Foreign Relations and National Security.

The West, however, may seek to avoid inflicting a punitive peace on Russia’s already moribund economy. Similar harshness on Germany during the Treaty of Versailles after World War One engendered bitter revanchism, creating the political conditions for the rise of Nazism and the beginning of World War Two. The post-World War Two Marshall Plan, where the US gave large amounts of aid to European countries (including the defeated powers), appears to be the preferred model among experts.

“It sometimes pays to be generous toward former enemies as well as friends,’ writes Kellogg Business School professor Nancy Qian, who says that doing so would likely improve stability in Eastern Europe. The Economist reported that donors — including the US, individual European and Asian countries, and multilateral institutions — are meeting to coordinate donations. Zelensky’s government has had initial talks with private investors, including Blackrock’s Larry Fink, to raise private financing for reconstruction, which could prove an exciting business opportunity.

But with Ukraine ranked 122nd out of 180 countries on Transparency International’s Corruption Index, investors may be worried about where their money goes despite war needs diverting funds away from the pockets of Ukraine’s oligarchs. Stephen Blank, the senior fellow at the Foreign Policy Research Institute, fears that war will encourage Ukraine to nationalise critical parts of its economy, which could potentially crowd out private investment. A mixed economy strategy, he argues, is at least required to pull in much-needed private financing for reconstruction.

See also: Temasek hunts for domestic bets with geopolitical tension rising

Russian redemption?

The future of the Russian economy is also uncertain. While not ravaged by wartime damage, sanctions and international isolation may make future economic growth difficult for Moscow. The country has been cut off from the Swift payment system, and McDonald’s and Coca-Cola have withdrawn from the Russian market.

“Sanctions are likely to remain in place in the next five years. The reintegration of Russia into the global economy and financial system will be difficult, especially as the world will have adjusted to the current geopolitical reality by then. Even if negotiations are successful, Russia has lost a lot of economic credibilities, which will be difficult to restore,” says EIU Europe analyst Mario Bikarski. These sanctions, he says, will serve as a deterrent against future Russian aggression.

See also: Biden adds tariffs on Chinese chips, critical minerals, EVs

Maxim Mironov, professor at IE Business School, fears that sanctions will only alienate ordinary Russians and breed antagonism against the West. “If Western countries continue to tighten the economic screws on the Russian economy as a whole, instead of targeting specific figures in the regime with more tailored sanctions, they will risk turning Russia into something like a larger, more unstable, and more dangerous North Korea,” he writes in Foreign Affairs. Russians, he says, may come to see these sanctions as a “tax on independence” and itself as being in a “holy war” with the West.

Nestorovic of ESSEC is more optimistic. Business withdrawals from Russia, he says, may benefit new market entrants in the long run as market share opens up for new players. For instance, Singaporean firms keen on the Russian market could benefit from the large US multinationals withdrawing from the country. At the very least, he predicts McDonald’s and Coca-Cola will eventually return. For all its trials and tribulations, Russia is too big a market to ignore.

“It is in the interests of everyone that McDonald’s ever return to Russia, and our CEO Chris Kempczinski mentioned “possibility of a new meeting,” in his statement,” Oleg Paroyev, who previously ran McDonald’s in Russia, told the Russian state news agency Tass in May 2022. Russia’s anti-monopoly services say McDonald’s has the option to buy back its Russian restaurants in 15 years starting from 2022.

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