The Financial Times had a bizarrely long article earlier this week about the departure of Mustafa Nayyem, recently the Chairman of Ukraine’s Restoration and Infrastructure Development, which elicited commentary from Alexander Mercouris (I had also noticed when I had encountered the piece that it was clearly excessive relative to the event). There have been more articles on Nayyem quitting, such as Bloomberg speculating that it was the result of Nayyem not being allowed to participate in “Ukraine Recovery Conference” held in Berlin earlier this week.
The reason for this humble blog turning to what would seem to be a palace intrigue is that it serves as an excuse to discuss what an embarrassingly ridiculous idea this Ukraine reconstruction scheme is, even as a pretext for looting. I’ve found it hard to rouse myself to give this patently dopey program the shellacking it deserves.
Even though the excessive press coverage of in this departure looks, as Mercouris argued, to be another element in of the campaign to dirty up Zelensky’s image, I believe another reason is to pre-position the failure of this destined-to-be-stillborn recovery fundraising scam.1
Yes, there are always greater fools. And the US and EU will no doubt want (and perhaps will) throw some funds Ukraine’s way for appearance’s sake and for the enrichment of some well-placed interests. But the very fact that the promoters are having a conference, as opposed to road shows hawking particular, erm, “opportunities,” shows that this initiative is even more pie in the sky that Zelensky’s Switzerland peace conference, which is suffering an embarrassing number of high-level no-shows.
Mercouris believed that June 10 Financial Times article, Ukraine’s top reconstruction official quits in new blow for Zelenskyy, which went on and on and on about how “Western partners” were losing confidence due to Nayyem’s and other departures, signaled that Zelensky’s days were numbered.
The positioning of the story is particularly disingenuous. As Mecouris pointed out it was on Nayyem’s watch that the funds provided by the West to build defense lines in Kharkiv went poof, with no fortifications built, and few to no mines laid. Collective West politicians and the press were alarmed by the pace of Russian advances in Kharkiv, which was at least in part due to the lack of fortifications. Recall that this Russian success triggered the US escalation of authorizing limited long-range missile strikes, ostensibly to target Russian forces supporting the Kharkiv advance.
In other words, a summary firing of Nayyem is fully warranted. Yet the Financial Times article no where mentions the Kharviv defense line funds looting! It instead paints Nayyem as a victim, with Zelensky moving step-by-step to force him out and Nayyem departing before his ouster became official. This section shows that the pink paper was either taking dictation or choosing to mislead:
The void left by Nayyem and the absence of an infrastructure minister are likely to prompt questions about Kyiv’s ability and commitment to protect its critical infrastructure as Russian forces continue to conduct air strikes on Ukraine’s power plants and mount offensives in the country’s east. Two agency officials responsible for anti-corruption policy and procurement resigned with Nayyem on Monday.
The guy who at least screwed up and more likely got a big cut of the missing defense line funds is leaving, and the Financial Times depicts this is a huge loss? Wellie, since the Western press is regularly saying black is white as far as Ukraine is concerned, I suppose this misdirection should come as no surprise.
As Mercouris had pointed out in early programs, Zelensky appeared to be purging his government of officials close to America. This makes sense as a survival strategy: it makes it harder for the US to oust him if they don’t have a decent roster of people in the government they regard as loyal. It may also somewhat reduce the flow of information. The unseemly level of whinging in the Financial Times article confirms the idea that Nayyem was perceived to be in their camp.
Kyiv Post indicates that Nayyem and the US almost certainly go way back. From Infrastructure Head Who Triggered Revolution of Dignity Resigns:2
Nayyem, 42, had served as a parliamentarian since 2014 and has been credited with triggering the Euromaidan protest in 2013. On Nov. 21 of that year, Nayyem posted on his Facebook page a call to gather on Kyiv’s “Maidan,” as Independence Square is known, in order to protest then-President Viktor Yanukovych’s decision to back out of an association agreement with the European Union. Within three months Viktor Yanukovych would flee Kyiv.
Now finally to my pet theory, that a second reason for the bizarre effort to pump Nayyem up is to blame the soon-to-be-obvious failure of the reconstruction fundraising on his exit, as opposed to the fact that it was destined to be a non-starter.
We’ll give just a few reasons. Readers are encouraged to add to this list.
Having the private sector build basic infrastructure is a bad idea. Even strong-form small government types generally concede this point. Among the reasons is that the additional costs and fees that a private sector developer would incur would serve as a tax on commmerce, hurting the competitiveness of businesses. Look in the US how many infrastructure deals went bankrupt (toll roads are universal for structural reasons) or hurt local businesses (the infamous Chicago parking meter deal).
So anyone looking at investments in Ukraine that depended on working infrastructure would wonder if it would get done, and even if it did, if the costs would choke their operations.
Can Ukraine keep the lights on? This is totally out of control of the West, let alone investors. Russia is on course to completely or nearly completely destroy it. Russia can keep rinsing and repeating in the absence of a negotiated end to the war, something the West cannot stomach signing.
Western officials have gotten the memo that having the power system restored is foundational, but have lost the plot that they need to come to terms with Russia for that to happen. From a June 11 Financial Times article:
Ukrainian officials have called on western partners to provide billions in aid for their country’s battered energy sector…
Chancellor Olaf Scholz said the World Bank had estimated that rebuilding and modernising Ukraine would require investments of nearly $500bn over the next ten years.
But energy is the main focus. “It is trumping everything,” said Arvid Tuerkner, managing director for Ukraine at the European Bank for Reconstruction and Development (EBRD). “It always comes back to energy.”…
But Russia’s relentless air bombardment was rendering much of the reconstruction effort futile. “On average it takes two-three months to restore a unit and it’s operational for just three weeks before the next strike,” he said.
The bright ideas in the article include increasing energy imports (when the first phase of the grid attacks included taking out transmission lines) and increasing air defenses (which no one seems able to admit is impossible).
Much better distressed country investment propositions found no almost no buyers. Remember the great Greek asset sale of 2015? That seemed promising enough that the organizers held a road show in London. But even though Greece was only a very depressed economy, with more IMF tender ministrations in the offing, the only thing that sold was the port of Pireaus.
Looting is easier said than done in a war zone. The West had a grand old time pilfering post USSR Russia. Its enterprises were intact even if suffering from underinvestment. The bargains were phenomenal: I know one investor who bought aluminum assets for pennies on the dollar. Oh, and not only did the government enable the plunder, but many well-placed Russians believed the con that neoliberal shock therapy would be salutary, so there was no pushback.
By contrast, people like Lindsay Graham (a policy negative indicator) who blather on about $10 to $12 trillion of mineral assets in Ukraine need to look at a map. 85% of Ukraine’s frackable gas in eastern oblasts, either currently or sure to be controlled by Russia. As of August 2023, per DW, Russia had already seized key iron ore deposits. Another big deposit they hadn’t yet is in the Kryvyi Rih area, which Russia is sure to take if it captures Odessa (it’s on the best train route from the east into Odessa). Russia as of then had taken 80% of Ukraine’s black coal. Russia already controls two of the four major lithium deposit areas.
And how will any mineral wealth be transported out, even generously assuming electricity, if Russia controls Ukraine’s Black Sea and keeps knocking its western rail lines out of commission?
So Nayyem’s high profile departure is actually a convenient face-saver. The bankers tasked with the thankless reconstruction fundraising project are not doubt quietly thanking Zelensky.
_____
1 But, but, but, a reader might say….why would big famous firms like BlackRock be so visibly involved with a venture like this if the odds of it delivering much are not very hot? On the deal/new product side of big finance, most deals do not get done. A key to success in those businesses is figuring out how to focus your energies on things that are likely to get closed.
However, there are many things institutions like to chase because they have motives beyond the immediate kill. One is wanting to be seen as on the cutting edge. Another, very much in play here, is building relationships with powerful people. A third is to make sure that your firm is seen as a key player in at least your major lines of business. You want to see every opportunity in your space even if you don’t necessarily want to pursue it.
This effort has gotten a good bit of press attention and quite a few top Eurocrats attend its meetings. The reconstruction chimera is the big pretext for seizing Russian assets (when from the gleam in von der Leyen’s eye, punishing Russia is the motive). It also allows officials to associate themselves with an upbeat Ukraine story/ That econstruction fund in the “must take the call” category for big financiers, even though they know it belongs in the Hall of Hollow Mandates.
2 Forgive me for not running down whether Nayyem got National Endowment for Democracy funding. But he almost certainly did from Soros’ Open Democracy. I was in the room when Chrystia Freeland interviewed George Soros in 2015. Soros bragged that Open Society had given a grant to every senior official in the new Ukraine government, either directly or to an immediate family member.
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And, if I remember correctly, the Port of Piraeus in Greece went to the Chinese capital. I don’t see any Western capital throwing (any more) serious money at Ukraine. The Chinese might invest in Ukraine’s reconstructions, but they’ll be dealing through, eh, other channels.
spelling: fortifications build should be built
for some reason this annoyed my brain.
Fixing, thanks for the catch! Too much drafting, not enough time for review.
At least I didn’t type “fornications” :-)
Well, that made my day! Thx Yves!!
The Bremer*, a unit of time for reconstruction oversight?
Sub-categories available for rent based on levels of
contributiongrift, including mercenaries, materiel handling, logistics, black market weaponry, food and the like. Humane work separate.*Paul Bremer, of short-lived and long-memoried Iraq infamy in the heyday of Provisional Authorities
Thank you for bringing up Iraq, which is the most on-point example….even with the war cleanly ending with the US calling the shots.
If the US would have restored power to Iraq, that would have gone a long way to solving other problems that they had. But in spite of the billions spent, the US just could not seem to get the power up and running properly like Saddam could.
There is no doubt that Moscow will revive and prosper Novorossiya, just as it transformed Chechnya from a ruin into a city of the future. If so, Kiev and its patrons’ devotion to plunder will only jeopardize their own legitimacy when the “ethnically correct” Ukrainians realize that the wretched Vatniks are better off than they are.
Thank you Yves, for “rousing yourself” to take on this odious bit of c-y-a “journalism”. A co-conspiritor with Vicky Noodles in the Maidan fustercluck? Puh-leeze! To quote Snoopy (after “ pointedly” rejecting a bowl of ‘substitute’ dog food from Charlie Brown), “the eyes can be deceived, but the Nose Knows!” . (Still a fan of your Skunk Party Manifesto, btw!)
Nicolai Petro in his “The Tragedy of Ukraine” has this rather adult quote by Nayyem re: Crimea:
“(…)
Knowing full well of the region’s long-standing aspirations for autonomy, Kievan nationalist politicians
tried to ignore or suppress them. This persistent clash of values and aspirations
was vividly captured by Mustafa Nayem, who later became famous for
sparking the 2013–2014 Maidan Revolution. After a visit to Sevastopol in
2009, he penned this remarkably candid assessment:
“This is a Ukrainian city in which Ukrainians are called occupiers. …
This is a Ukrainian city in which the Ukrainian flag is called a “dirty cloth,” and the Russian
tricolor is hung proudly from windows.
In this Ukrainian city it is almost impossible to encounter the Ukrainian state seal, even on
the signs of many government agencies.
In this Ukrainian city, sailors of the Ukrainian fleet cannot understand why they are paid
2–2.5 times less than their Russian counterparts.
In this Ukrainian city people worship the Russian fleet because, if it leaves, twenty thousand
people will be left without work.
This is a Ukrainian city whose anthem glorifies the “pride of Russian sailors,” and says not
a word about Ukraine.
In this Ukrainian city, representatives of official Kiev are referred to exclusively as “the
worst nits.” And I have a hard time believing that in this Ukrainian city one can find
even a hundred people who, at the appearance of Russian tanks, would grab a rifle to
proudly defend their right to be called Ukrainians … and if many [in Ukraine] will not
vote because “they’re all the same,” in this Ukrainian city they will not vote because
they do not understand why they should vote for the president of a foreign country.”⁸⁸
At the time Nayem proposed that, rather than trying to eradicate Russian identity,
the government should encourage the locals to accept Ukrainian identity in
exchange for a better standard of living. Unfortunately, his advice was ignored.
(…)”.
(yes wrong spelling here, not in his footnotes though.)
In the light of his Euromaidan activism (was he then already afiliated with US services?
Wikispooks has him on the guest list of 2018 Munich Security Conference and at a meeting of the European Leadership Network which is in alliance with Israeli politics.
Trying to understand who this person is or was, since nobody is born a crook.
Once we are talking about this new “geostrategic” push for infrastructure investments abroad we can add a discussion on the African front-line: Getting Real: How the United States Can Deliver on Its Commitment to African Infrastructure.
This looks like another failure in the making:
1) because markets (and the complexities of those public-private partnerships, meaning too many middle men there).
2) because misalignments between the financial interests, geostrategic interests and real interests within those countries.
I hope people like Colonel Smithers could pipe in.
Russia produced 1 million 152mm shells in 2023 and are expected to increase the production to 1.3million shells in 2024 – when they need at least 4.5 million shells to gain significantly more territories in 2025
When Kiev runs out of bodies, to defend plundered lines of resistance….
Then Russia refills war stocks.
The current Western estimate of Russian production is 4.5 million shells this year. Not all of then 152 mm, of course. But way more than 1 million.
Anyway, Russia doesn’t really seem to be really going for gaining territories but for the attrition of Ukrainian and NATO fighting capability. You don’t need to conquer by force what you can get by a peace agreement.
Is the game to get the investment lined up on paper, then when Ukraine is gone, just get a bailout for face value of already looted bezzles, possibly from that tasty kitty of ‘frozen Russian assets’?
Yves writing: “I was in the room when Chrystia Freeland interviewed George Soros in 2015. Soros bragged that Open Society had given a grant to every senior official in the new Ukraine government, either directly or to an immediate family member. ”
Could you expand on that? Do we have some documentation from that event? (I think I read about it before but these details escape memory far too easily, although they are pretty significant.)
And in Germany such connections are still difficult to get reported.
It was at an INET conference. No transcript but plenty of people in the room.
Found the transcript, and you are correct.
https://www.youtube.com/watch?v=vdUaEE7mr2w:
16:41
and the foundation one of them found the things that the foundation did gave
16:48
a lot of scholarships and and and supported civil society
16:54
and the maturity of civil society 25 years later is to large extent
17:05
the work of the foundation yeah and i will just offer my own personal testimony here it’s
17:11
actually amazing in ukraine the new ukrainian government the new
17:16
ukrainian leadership everyone who i know in that group has been touched
17:22
somehow by open society and by george like literally either people personally got a
17:29
scholarship or someone you know their wife got a scholarship it it’s a really remarkable thing well this is
17:37
for me uh quite an experience uh to see this and i didn’t realize
17:45
actually how much how big an effect it has had over a
17:51
25-year period because those were students 25 years later
17:57
they were leaders um so george the way you describe ukraine and you know that’s where my own sympathies lie
etc etc
This is essentially the post-Cold War playbook of international institutions in post-conflict states, and, since Bosnia in the 1990s, it has an unbroken record of failure. In the eyes of the World Bank, the OECD, the EU etc. economic activity is something that happens naturally, and once the “uncertainty” of conflict and post-conflict is resolved, investment will flow in. The government has no role except to encourage investment through tax incentives, and otherwise get out of the way. Of course it didn’t work like that: the irony is that, after the various wars in the Balkans, the economic growth that was registered came largely from the international presence in the country and the spending power of the international institutions. The rest came from organised crime, which is a natural and logical investment opportunity in the circumstances. Peace had broken out but, inexplicably, there was no investment and growth. (Though when I was last in Sarajevo, nearly a decade ago, there was a spanking new mosque, funded by the Turkish government.)
A good example of the failure of the policy is South Sudan which, after the end of the war twenty years ago, had effectively no infrastructure (not a mile of paved road, for example.) A parasite economy to service the NGOs and international organisations sprung up immediately, but there was no real investment. Then the Chinese came along, started building hotels (of let’s say indifferent quality, but better than the alternatives) and then agreed to turn the horrible little airport into a proper international standard one. They ha made good progress when the ciivl war started in 2011, and I understand they have been back since.
Funny you should mention Bosnia. A few days ago, this Bosnian Croat guy I know had his son almost kidnapped and shipped to Saudi Arabia. It transpired that the guy behind this attempted abduction is a war criminal convicted for murdering Serb prisoners, now free and running with other similar fellas the religious healing “workshops” (ruqiye). Police are apparently aware of the general operation but are too busy doing something else. The dad has now eloped to Croatia proper with his kid, wondering what to do next.
Speaking of looting and reconstruction. Check the NY Times article that came out…today, I think, I read a “pirated” version. But it’s by Constant Meheut and Daria Mitiuk, and it is called “Every Dollar Counts”, or something to that effect. Basically, Ukraine is announcing that it is selling off (privatizing) a bunch of government-owned assets via auctions, from Hotel Ukraina (centre of Kiev, Maidan Square), starting bid $25mm, to the United Mining & Chemical Company, billed as one of the largest producers of titanium in the world, starting bid $100mm (!!!). To be fair, apparently the last time they tried to sell it, in 2021, they also listed a starting bid of $100mm, so maybe that’s not too far from what the thing is actually worth…
The stated reasons are, I kid you not – we want to sell these assets before they are destroyed by war or captured by the Russians. This is practically a quote, so ponder that for a second. During this round of auctions, they are hoping to raise $100mm, which even the Times notes is nothing much compared with what the war effort requires, but the bigger idea is that this will attract western investors who will somehow juice up the Ukrainian economy. So they basically are asking Blackrock to come in and scoop these up, then hope that by the time the Russians occupy Kiev they will be kind enough to recognise Blackrock’s deed to Hotel Ukraina.
It is also notable that all of these assets – the Times mentions 3100 distinct “companies”, which usually means individual factories or buildings – were inherited from the Soviet era, i.e. are 40-50+ years old. The Ukrainians claim they came with “massive” debt, which just does not pass the smell test (unless they are talking about sovereign debt allocated to Ukraine after the dissolution of the USSR), and in any case, today only half have not been mothballed and 15% are profitable. Aside from possible diamonds in the rough like that titanium company, it seems like they are mostly offloading junk, possibly in a state of some disrepair. While claiming that the Russians are about to seize or bomb them.
I am assuming that any proceeds will just be stolen by the officials responsible and their higher-ups. What bothers me is that, just as with all this talk about “reconstruction”…you’re not going to have the assets when this thing ends. Or, if you do have them, they might be in a state of considerable ruination, see AzovSteel plant, the. Incidentally, the Russians have said they will rebuild things like the big Avdeevka factory, but then, they got the thing “for free”, without any auctions involved.
It is apparently very easy to con a conman. So these Western ‘investors’ (conmen) are going to get conned.
https://www.nytimes.com/2024/06/12/world/europe/ukraine-privatization-war.html
June 12. 2024
Every Dollar Counts. To Pay for the War, Ukraine Embraces Privatization
The government hopes to sell off a range of companies to fund the military and stabilize the economy as the grueling conflict with Russia drains its coffers.
By Constant Méheut and Daria Mitiuk
I stayed at the Hotel Ukraina when I visited Kiev in 2015. A great location, but pretty run down and tired building. Kiev is a beautiful city I would happily return to when all the troubles are over in years to come, but only if it is totally denazified. Even in 2015, there was an ominous air, with torchlight bandera marches, military patrolling the streets, trying to drum up money for themselves, anti Putin slogans and T-shirts on sale etc.
I saw a job listing last week for a consultant to work on the Ukraine rebuilding plan, especially green industrial transition, on behalf of the Japanese government which was looking to invest or build cooperation with Japanese businesses. It’s housed in “UNIDO” The United Nations Industrial Development Organization (UNIDO). It was for 80 days, which seems like stretching the optimism inherent to the base idea to the extreme.
…er, did Daly and Wallace truly lose their EP seats?!
wtf
Clare Daly and Mick Wallace sadly lost European Parliament seats. An important loss of truly independent, conscience driven voices for the working class, but possibly an Ireland with a per capita (ppp) GDP of more than $132,000.is no longer a traditional Ireland.
sigh…
wasn´t there for 30 years. But $132,000 is certainly something.
I wonder how this loss happened. In their last interviews they did not communicate doubts over re-election. At least not in public. What happened behind the scenes? I know nothing about Irish domestic power structures.
Who will now tell VdL to shut up?
The US was seriously unhappy that Mustafa Nayyem got the boot, even though under his watch all that money meant for Kharkiv’s defensive lines was looted so they were never built. Recognizing the fact that the US would have know about this because they have, you know, actual satellite coverage to show them, I was wondering about another possibility. That money was specifically allocated for those defenses. So what if it was actually a money laundering scheme with a US component and Mustafa Nayyem was “the guy” who oversaw it all and made sure that the appropriate kickbacks were made. So with him gone, there goes any present or future money laundering schemes.
IIRC when the USSR gave East Germany back to Germany in the 90s and the Berlin Wall was jackhammered into transportable pieces of graffitied memorabilia (one piece wound up in Stanford’s library) it was transacted by a war reparations payment fromGermany to the USSR for many many billions. A steep price. So if Ukraine loses the war, Russia will be able to claim reparations and possibly not allow all these western carpetbaggers to middleman the effort until Russia has been paid. But I don’t think paying Russia is part of the plan because one of the objectives of this war seems to be to create a zone that permanently divides Ukraine in order to maintain two entirely separate economic systems and settlement payments. So by that logic the West is probably happy that Russia is (looks to be) taking everything east of the Dnieper and Odessa. And it will be another standoff for decades to come.
Russia didn’t expend all that money, effort and most importantly, soldiers lives, for ‘another standoff for decades to come’.
Russia has just proposed another peace treaty which includes the four partially occupied territories going irrevocably to Russia, and Ukrainian neutrality, de-nazification and non NATO membership. This offer will of course not be taken up. So, much more of the Ukraine will go to Russia eventually, especially the useful bits.
https://sputnikglobe.com/20240614/putin-sets-condition-for-ukraine-peace-talks-full-ukrainian-withdrawal-from-new-russian-regions-1118950944.html
Smells a lot like the Iran–Contra affair. Essentially laundering money through Ukraine for some other nefarious endeavour? Resignation now because hollow logs all filled up?
Aha, that makes sense!
It’s hard to imagine that Zelensky and other Ukrainian leaders still believe the US and its European allies are their friends. It’s even harder to imagine that Zelensky et al., still believe a bright future depends on them following US orders.
It’s possible Zelensky, a comic actor before becoming president, spent a lifetime following other people’s directions and lacks the imagination and courage to take Ukraine in an independent direction which, I think, Ukraine desperately needs.
It often happens that when faced with an emergency many people, psychologically speaking, enter a period of denial. Ukraine has lost its war with Russia and nothing short of Baby Jesus lending a hand will prevent more destruction; Zelensky is in denial. Even if by some miracle Russia stumbles, China and other allies will certainly step in with weapons and intel, and prevent a Russian defeat.
Imo, Zelensky needs to go. If Ukraine wants to avoid looking like North Korea, the only chance Ukraine has for a reasonable future is with new leadership willing to negotiate a peace settlement with Russia, give in to Russia’s security and nazi concerns, and Ukraine and Russia, together, negotiate with the EU over a new security arrangement for all the parties. Moreover, Ukraine needs leadership willing to distance itself from the US because the US is not a friend to Ukraine, Russia, or the EU.