Earlier this week, the Financial Times ran an unusually long piece about the recent resignation of Mustafa Nayem, who had served as chairman of the Committee for the Reconstruction and Infrastructure Development of Ukraine, eliciting comments from Alexander Mercouris (which I also found to be quite over the top when I saw it). There has been further discussion about Nayem’s resignation, with Bloomberg speculating that it may have been due to Nayem’s failure to attend the “Ukraine Reconstruction Conference” held in Berlin earlier this week.
This little blog has taken a look at what seems to be a palace intrigue, as an excuse to discuss how embarrassingly stupid this plan to restore Ukraine is, even as an excuse to plunder it. I have struggled to muster the energy to give this obviously stupid plan the heavy blow it so rightly deserves.
As Mercouris argues, the excessive coverage of this resignation seems like another element of the campaign to tarnish Zelenskyy’s image, but I also think another reason is to pre-empt the failure of the doomed reconstruction fundraising scam.1
Yes, there are always more fools, and the US and EU would undoubtedly like to, and probably will, throw some money at Ukraine for appearances and for the benefit of some stakeholders, but the very fact that the organizers are holding a conference rather than a roadshow touting specific, erm, “opportunities” suggests that the initiative is even more fanciful than Zelensky’s Swiss peace conference, which was plagued by an embarrassing number of senior officials’ absences.
Mercouris said in a June 10 Financial Times article: Ukraine’s reconstruction chief resigns, dealt new blow to President Zelenskyspoke at length about how the resignations of Nayem and others had caused “our Western partners” to lose trust, suggesting that Zelenskiy’s time was coming to an end.
The tone of the article is particularly disingenuous. As Mekoulis points out, under Neyem’s command, Western funding for the construction of the Kharkov defenses vanished with little fortification or mine construction taking place. Western politicians and media outlets were generally alarmed by the speed of the Russian advance on Kharkov, which was at least partly due to the lack of fortifications. Recall that this Russian success prompted the U.S. to escalate its approval of limited long-range missile strikes, ostensibly to target Russian forces supporting the Kharkov advance.
In other words, Mr Nayem’s summary dismissal is fully justified. However, nowhere in the Financial Times article is there any mention of the theft of funds from the Khalibov Defense Line. Instead, Nayem is portrayed as the victim as President Zelenskyy moved incrementally to oust him, and Nayem resigned before the president’s removal from office was officially announced. This piece suggests that the Pink Paper is either following instructions or choosing to mislead.
As Russian forces continue to bomb Ukrainian power plants and intensify their offensive in the country’s east, Nayem’s resignation and the absence of a minister for infrastructure are likely to raise questions about Kyiv’s ability and resolve to protect the country’s critical infrastructure. Two agency officials in charge of anti-corruption policy and procurement resigned along with Nayem on Monday.
At the very least, the man who likely got a large share of the failed and lost Line of Defense funds is leaving, but the Financial Times is reporting this as a big loss? Well, the Western press is always saying black is white when it comes to Ukraine, so I guess this misunderstanding is not surprising.
As Mercouris noted in an earlier segment, Zelensky appears to be purging government officials close to the US. This makes sense as a survival strategy: it will be harder to oust Zelensky without a solid set of people in government that the US considers loyal. It may also reduce some of the information flow. The unseemly whining in the Financial Times article supports the idea that Nayem is considered part of their camp.
The Kyiv Post reports that Nayem and the US likely have a long-standing relationship. Infrastructure chief who sparked the Dignity Revolution resigns:2
Nayem, 42, has served as a member of parliament since 2014 and is credited with sparking the Euromaidan protests of 2013. On November 21 that year, Nayem posted on his Facebook page a call for people to gather at Kiev’s “Maidan” (also known as Independence Square) to protest against then-President Viktor Yanukovych’s decision to abandon the Association Agreement with the European Union. Within three months, Viktor Yanukovych had fled Kiev.
Now, my final point: the second reason for the strange attempt to promote Nayem is to blame his resignation for the soon-to-be-revealed failure to raise funds for the reconstruction, rather than the fact that the reconstruction was doomed to fail.
Here are some reasons why, and we invite you to add to the list:
Getting the private sector to build basic infrastructure is a bad ideaEven strong small government advocates generally agree, for one thing: the extra costs and fees borne by private developers act as a tax on commerce, making businesses less competitive. Look at how many infrastructure deals in the US have either gone bankrupt (toll roads are universal for structural reasons) or hurt local businesses (the infamous Chicago parking meter deal).
So anyone considering an investment in Ukraine that relies on functioning infrastructure will be wondering whether it will get done, and, even if it does, whether the costs will stifle business.
Can Ukraine keep the lights on? This is something that the West, and especially its investors, cannot afford. Russia is on a path to completely or almost completely destroying it. Russia could repeat this situation unless there are negotiations to end the war, which the West is not willing to sign.
Western officials understand that restoring the power system is fundamental, but they lose sight of the fact that this will require compromise with Russia. From an article in the Financial Times on June 11th::
Ukrainian officials have called on Western countries to provide billions of dollars in aid for the country’s battered energy sector…
Chancellor Olaf Scholz said the World Bank estimates that Ukraine will need investments of around $500 billion over the next decade to rebuild and modernize.
But the main focus is energy. “Energy is the priority,” said Arvid Turkner, managing director for Ukraine at the European Bank for Reconstruction and Development (EBRD). “In the end, it’s all about energy.”…
But relentless Russian airstrikes have negated much of the reconstruction effort. “It takes an average of two to three months for a unit to recover, leaving them only three weeks to function before the next attack,” he said.
Some of the bright ideas outlined in the article include increasing energy imports (the first stage of a power grid attack would have involved destroying power lines) and strengthening air defenses (which no one seems able to admit is possible).
Much better investment offers for distressed countries found few buyers.Remember the big Greek asset sale in 2015? It looked promising enough that organizers held a roadshow in London. But the Greek economy was in such a bad state that the only thing that sold was the port of Piraeus, even though more IMF bids were scheduled.
Plundering the battlefield is easier said than doneThe West stole big time from post-Soviet Russia. Russian businesses were unscathed, even though they suffered from a lack of investment. The bargains were amazing too. I know investors who bought aluminum assets for a fraction of a dollar. Alas, not only did the government allow the looting, but there was no resistance because many high-ranking Russians believed the delusion that neoliberal shock therapy was beneficial.
In contrast, people like Lindsey Graham (a negative indicator of policy) who talk nonsense about Ukraine’s mineral wealth being around $10-12 trillion need to look at a map. 85% of Ukraine’s frackable gas is in the Eastern provinces, which are currently or definitely controlled by Russia. According to DW, as of August 2023, Russia has already seized the main iron ore deposits. Another big deposit they have not yet seized is in the Kryvyi Rih region, which will definitely be seized if Russia takes Odessa (it’s on the best rail route to Odessa from the east). Russia had seized 80% of Ukraine’s black coal at the time. Russia already controls two of the four major lithium deposit regions.
And if Russia controls Ukraine’s Black Sea coast and keeps its Western rail links suspended, how will the mineral wealth be transported out of the country, even assuming plenty of electricity?
So Nayem’s high-profile resignation is really a convenient face-saving move: No doubt the bankers in charge of the thankless reconstruction fundraising project are secretly grateful to Zelensky.
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1 But, but, but, you might say… why is a big, well-known firm like BlackRock so visibly involved in a venture like this when there is little hope of it coming out? On the deal/new product side of large financial institutions, very few deals get done. The key to succeeding in this business is to find a way to focus your energy on the ones that do get done.
But there’s a lot that institutional investors are chasing, because they have motivations beyond short-term profits. One, they want to be seen as being on the cutting edge. Another, and this is very important here, is to build relationships with the movers and shakers. The third, they want to make sure that they’re seen as a significant player, at least in their key business areas. They want to see all the opportunities in their field, even if they don’t necessarily want to pursue them.
The effort has attracted media attention, and many European officials are attending the meetings. The illusion of recovery is a great pretext for seizing Russian assets (in von der Leyen’s eyes, the motive is to punish Russia), and it allows the officials to associate themselves with a positive story about Ukraine. For the big financial institutions, the recovery fund is in the “must answer the phone” category, but they know it belongs to the pantheon of empty missions.
2 Please forgive me for not going into detail about whether Nayem received funding from the National Endowment for Democracy, but I’m pretty sure it was from Soros’ Open Democracy. I was there when Chrystia Freeland interviewed George Soros in 2015, and Soros bragged that Open Democracy had given grants directly or to close relatives to every senior official in the new Ukrainian government.
