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Dag Detter is the principal of Detter & Co, an advisor to governments, investors and IFIs such as the IMF, World Bank and the Asian Development Bank. He led the restructuring of the Swedish portfolio of state-owned assets and is the author of “The Public Wealth of Nations.”
The reconstruction of Ukraine demands a comprehensive utilization of all potential funding sources and methods to improve the private investment climate in the country. And central to this endeavor is effectively managing Ukraine’s vast state-owned sector, which houses valuable public assets that can serve as a significant funding source.
Before the war, public assets constituted the largest segment of wealth in Ukraine and were seen as plagued by inefficiency, corruption and fraud. And today, the state-owned sector is still a cornerstone of the country’s economic system, as well as its war effort.
However, only proper management of these assets can generate sustained annual revenue streams, fostering economic growth and development. State-owned enterprises in sectors such as energy, transport, finance and real estate can play a critical role in Ukraine’s economic restructuring and recovery. And transformative change in the management of state assets can enhance competition, productivity, efficiency, and the adoption of European business practices prioritizing transparency and accountability.
Along these lines, the government of Ukraine recently announced its intention to set up a Public Wealth Fund (PWF) to manage public assets. And drawing from European reform experiences — from recent ones in Greece to those in Italy a century ago — Ukraine could learn from past shortcomings and clearly separate policy from commercial objectives.
The success of Ukraine’s economic recovery and growth hinges on private sector investment, which, in turn, will rely on transparency. Given the current scale of the state-owned sector and its presence in competitive industries, private investors will want assurances that the state portfolio operates strictly on commercial grounds, without policy-driven biases, unfair advantages or market distortions. Therefore, restructuring the management of public assets will serve as a gateway to broader investment in the country and its future development as a sustainable market economy.
Additionally, restructuring the state-owned sector and establishing internal revenue streams will influence international donor flows. Demonstrating Ukraine’s ability to fund its own reconstruction, as well as avoidance of waste, will be crucial to ensuring the efficient utilization of international donor funds.
Improving the portfolio’s value through professional asset management would also enhance debt sustainability. International research has consistently shown that countries with stronger public net worth —defined as assets minus liabilities —recover from recessions faster and benefit from lower borrowing costs.
To achieve these objectives, several recommendations should be considered: First, the focus needs to be on value maximization through a single objective approach — framing the process in financial terms with clear targets and timelines proves more effective than viewing it solely as corporate governance reform.
Additionally, the consolidation of ownership and governance into an independent holding company — commonly referred to as a PWF — is crucial, as this centralization facilitates the introduction of private sector discipline, ensuring clear responsibility, accountability and an approach aligned with private ownership principles.
While the concept of a PWF has been discussed in Ukraine for the past decade, inconclusive debates on the fund’s custodian have thus far hindered its establishment. To overcome this obstacle, an independent PWF must operate at arm’s length from short-term political influence — and the Ministry of Finance is best suited as the sole custodian, considering its role in improving public net worth and efficient capital allocation within the public financial management system.
Capital markets should then play a crucial role in providing external oversight and engaging international stakeholders. International involvement will be vital to ensure the holding structure’s correct establishment — and as one that supports reformers within the Ukrainian administration. Utilizing capital markets, such as issuing bonds for the holding company, would also encourage transparency and attract international investors.
Professional ownership of public commercial assets is essential to achieving efficiency, higher yields, and increased productivity and investment. It requires professional managers who prioritize commercial goals. And principles of good governance — including transparency, clear objectives and political insulation — need to be upheld to maximize returns.
Compliance with European Union frameworks and trade agreements will also require the avoidance of state subsidies. All commercial entities, regardless of ownership, should operate on equal terms.
Ukraine now faces a political choice in developing its economy. The professional management of public assets isn’t complex, but it requires unwavering political will and a concerted effort across the government. Successfully introducing private sector discipline to the government portfolio would result in additional revenues to the government, estimated to be the equivalent of 3 to 5 percent of GDP per annum, as well as economic growth, which directly impacts foreign direct investment — a critical component of Ukraine’s postwar reconstruction.
Ukraine must capitalize on all available opportunities to generate government revenues and create an environment attractive to private sector investment, driving postwar economic growth.
The efficient management of public assets will be pivotal to recovery. And rigorous, professional and commercially driven management of the country’s public assets should also be central to the EU’s support program for Ukraine and its accession process.
