The Future of US Development Assistance to Ukraine

By Ilya Timtchenko, Seth Myers, Ethan Lundgren

ACADEMIC PERSPECTIVE – As the full-scale Russian invasion of Ukraine is in its second year, the United States Agency for International Development (USAID) must plan for how it can most effectively contribute to Ukraine’s eventual recovery and reconstruction in partnership with other international donors. As such, we worked on our senior thesis (Policy Analysis Exercise) at the Harvard Kennedy School to help USAID structure its medium- to long-term recovery and reconstruction efforts in Ukraine.

Our client was the Senior Advisor for Ukraine’s Recovery and Reconstruction at the United States Agency for International Development. The Senior Advisor position is housed within the Agency’s Bureau for Europe and Eurasia in Washington DC and oversees the policy and planning process for future U.S. development assistance initiatives related to Ukraine’s medium to long-term economic recovery. Our report examines whether – and if so, how – USAID should seek to facilitate Ukrainian firms’ greater alignment with EU standards.

Overview

The war has caused extraordinary human, social, and economic harm, with current reconstruction cost estimates ranging between $411 billion – $1.1 trillion. Given the scale of devastation and potential of a prolonged conflict, reconstruction efforts cannot wait until the cessation of hostilities; further, these efforts must be global in nature and involve private-sector participation. As a candidate for European Union (EU) membership, reconstruction must also catalyze Ukraine’s deeper integration with Europe and its accession to the EU. This accession process will be long, complex, and must involve major reforms to the country’s judicial system. Changes to key economic sectors will also be necessary to bring Ukrainian agriculture, energy, and technology firms into alignment with the EU’s 35 acquis, or accession criteria.

Given the wartime uncertainty and existing literature on Ukraine’s immediate needs, the scope of our thesis is limited to the medium to long-term recovery of three key sectors in Ukraine: agriculture, energy, and tech. We recognize damage can fluctuate and that the scope and strategy of reconstruction may therefore change. Nevertheless, while we are unable to predict when the war will end or when post-war reconstruction may fully commence, by constraining our analysis to the medium to long term, we are able to provide a unique perspective and contributions within the larger ecosystem of reports on reconstruction. To gain a more in-depth understanding of reconstruction needs, we conducted 34 interviews with key stakeholders, traveled to Ukraine to assess the impact of the war first-hand, and traveled to Washington DC to meet with policymakers and other experts.

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While explicitly standards-oriented assistance may expedite Ukraine’s EU accession process, USAID may be able to better contribute to the reconstruction effort via programming that is not directly related to EU standards.

Our analysis concludes with three overarching recommendations for USAID’s medium to long-term engagement in Ukraine (see p. 42):

1. Prioritize Programming based on International Standards: USAID should provide non-EU standards-related support to Ukraine that catalyzes the country’s recovery and deeper economic integration with the EU but does not explicitly address standards-related issues. .
2. Incorporate Limited EU Standards-Focused Programming: USAID should develop programming that explicitly facilitates Ukrainian firms’ alignment to EU standards. This would limit the risk of fragmentation among international donors, expedite Ukraine’s EU accession, and provide a more predictable financial environment for investors.
3. Support Post-War Decentralization: USAID should begin creating a framework for post-war decentralization that prioritizes grant-based and municipal-level initiatives to empower local communities to take ownership of their own reconstruction processes.

Each of these recommendations is intended to enhance USAID’s capacity to best contribute to the speedy revival of key economic sectors, in light of the political and technical limitations that currently exist in the U.S. Ideally, these three recommendations would enable USAID to gradually develop further standards-related initiatives, which are discussed in greater detail in our paper.

Moreover, we have sought to make our recommendations as comprehensive as possible by incorporating the following analytical points into our recommendations:

First, our report contextualizes the question of whether U.S. assistance should facilitate Ukraine’s alignment with EU standards within the international framework for reconstruction and the domestic U.S. political climate. This enables the discussion, analysis, and recommendations to reflect the course of action that is most effective and politically feasible.

Second, it incorporates takeaways from dozens of interviews held with policymakers, analysts, and private sector actors in Ukraine, Europe, the U.S., and international financial institutions. This provides insight into how views of future U.S. assistance vary significantly by region and sector.

Third, it frames its analysis within the dynamic and uncertain wartime environment, providing guidance as to how recommendations may change depending on the war’s progression. The goal is that this will allow the report’s findings to remain relevant even amid the uncertain outcome of the war.

We hope this report provides useful insights to USAID’s Bureau for Europe and Eurasia as its staff considers how to make future U.S. assistance to Ukraine as impactful as possible.

There are several further considerations that USAID staff and other policymakers working on reconstruction efforts must bear in mind that are under-addressed in this paper. Among others, these will likely include: a) how to foster the G7 international partnership with Ukraine and its developing institutions of governance; b) consideration of establishing a model, similar to the Western NIS Fund at the end of the Cold War, to assist private investment; c) the need to utilize comparative advantages of USAID versus other development partners; d) specific steps to boost fast recovery (shelter, schools, medical facilities, some businesses) during the ongoing conflict; e) close cooperation with U.S. agencies to assess the pros and cons of coordinating with Chinese firms in Ukraine’s reconstruction efforts; f) complex and interrelated threats to Ukrainians’ fundamental human rights, especially in the form of human trafficking; and g) the potential to use digital platforms to monitor and evaluate countrywide reconstruction efforts in real time.

Our graduate thesis advisor, Professor Robert Zoellick, and our thesis seminar leader, Professor John Haigh, provided invaluable guidance and feedback and have been instrumental to our research and recommendations.

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