A New Strategic Framework for Regional Policy in Ukraine, 2007

8/9/2019 A New Strategic Framework for Regional Policy in Ukraine, 2007

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IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine

NSRD: Strong regions a

rich country happy peopleThe process of developing a National

Strategy for Regional Development(NSRD) in Ukraine to 2015 began about

five years ago, and the document has been

through several major adjustments since

then. Influenced both by changes within

the country and by lessons learned from

other European countries, the whole

philosophy underpinning the document

has evolved considerably. The strategy

was recently approved by the Cabinet of

Ministers and the next step is to allocate

corresponding funds for implementing its

priorities and tasks.The mission of the NSRD is Strong

regions rich country happy people,

with the main goal being to create con-

ditions for raising the competitiveness of

the regions to maintain sustained dynamic

growth on a modern technological base

with high productivity and employment.

Some think this mission is quite dangerous

and misleading in a situation when regions

are becoming less willing to co-operate

and co-ordinate with centre and at least

some regional political forces are demand-

ing greater autonomy, or even that Ukraine

transfers to a federal model of state. It thus

took great effort to explain and illustrate

that in this context, strong regions cannot

be taken to mean the same as autonomous

or independent regions.

Also the claims were dismissed that

NSRD wil l lead to a substantial increase

in the amount of regional funding and

redistribution, which would work in

favour of either the rich or the poor. The

IntroductionThe political reforms which are now

being implemented in Ukraine as a result

of the changes brought about by the 2004

Orange Revolution are imposing great

pressures on regional policy at both the

national and regional levels, with antici-

pated territorial administrative reforms

raising the temperature still further.

With their mind on greater decentralisa-

tion, politicians understanding of what

constitutes a successful region is often too

simplistic or technical. Mostly, they ignore

what lies at the heart of effective reforms

of this kind: thinking of regions as unique

socio-economic systems which require

coherent, co-ordinated policy in order tobecome competitive and successful.

Since it aims to set a clear agenda for

the development of Ukraines regions over

the next 10 years, the National Strategy for

Regional Development (the NSRD) has

attracted the attention of a wide range of

central government and regional elites, and

is subject to all the comments, confusions,

and ambitions they bring with them.

The strategy also represents a key stage

in the process of bringing Ukrainian

institutional structures and legislationin line with EU policies; approval and

implementation of the strategy is one

of Ukraines commitments under the

Ukraine-EU Action Plan for 2004-2006.

This article will provide an insight into

the parallel processes of territorial and

administrative reform and regional policy

formulation over the last year, demon-

strating that big compromises will soon

be needed between national and regional

interests in Ukraine.

REFORM IN THE CONTEXT OF POLITICAL REFORMS AND

MORE ASSERTIVE REGIONAL ELITES

Dr Olga Mrinska, Department for International Development (DFID) Ukraine

Ukraine in 2006

tools and mechanisms proposed by the

strategy (and earlier by the Law on the

Stimulation of Regional Development)

are aimed at the optimal use of exist-

ing financial flows from the centre to

the regions to achieve the maximum

effect. Of course, there is a real need for

an increase in funding to support the

regional policy in Ukraine.

After a detailed analysis of the current

socio-economic situation in Ukraine

and its regions, it was decided that the

Strategy should address the following

problems over the mid-term:

Low investment appeal and innovative

activities in the regions; Underdeveloped physical and social

infrastructure;

Irrational use of human resources;

Weak inter-regional links; and

Growth of regional disproportions in the

countrys socio-economic development.

There are of course many other challenges

which are necessary to target, and arguably

could have been included in this docu-

ment. Yet bearing in mind that this area

of national policy has limited resourcesand considering the higher-level goals of

the National Socio-Economic Strategy

to 2015, it was decided that a selective

approach concentrating on issues such as

competitiveness and high productivity in

the regions would be more effective.

From strong regions to

polarised developmentDespite much criticism and reluctance

main author of the document (the

Ministry of Economy) insisted that theprinciple of polarised development should

be one of the Strategys cornerstones.

This means that the state will deliberately

support only locomotives of growth and

aim to catalyse spill-over effects from

these areas. This is quite a logical step

and it is based on the fact that regional

targeted capital investment grants are only

3.5 billion Hryvnia (700 mill ion USD) in

2006. The principle of polarised develop-

ment will also be employed to support

the least developed and most deprived

areas: compact territories where further

degradation might undermine national

security and harmonious development of

the state (see box 1).Source: http://www.lib.utexas.edu/maps/cia06/ukraine_sm_2006.gif


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complex ongoing process of reforming

Ukraines state architecture. As a result

of the compromise reached in autumn

2004, constitutional changes came into

effect on 1st January 2006 under which

Ukraine became a presidential-parlia-

mentary republic and many presidential

functions were transferred to parliament.

The latter now has responsibility for

state policies in most areas, as well as for

appointing the Cabinet of Ministers and

controlling its work.

At the same time, Ukraine has

changed its voting system at all territo-

rial t iers from a proportional-majority to

a proportional system. This is the main

catalyst of the confusion and conflict

currently afflicting the country. Party

life in Ukraine is still rather eclectic

and impulsive. There are more than 100

parties in Ukraine, almost all of which

are based not on ideological values but

on the personalities of their leaders and

reacting to the current political situation.

The parliamentary elections in March

2006 were a very good il lustration of the

fact that many parties and political blocs

are little more than one-man shows.

Nonetheless, most power in the regions

and local communities went to a small

bunch of parties (no more than 8-10)

representing strong political elites and

economic groups from different regions.

The main standoff was between the Party

of the Regions (led by Victor Yanukovych,

current Prime-minister who lost the last

presidential campaign) and two orange

political forces: the Yulia Tymoshenko

Bloc and the Our Ukraine bloc backed

by President Viktor Yushchenko.

The results of the proportional voting

in regional and local councils were very

similar to the results of 2004 presidential

results: pro-Yanukovych parties formed

a majority in the councils of Eastern

and Southern Ukraine, while councils

in Western and Central Ukraine are

dominated by pro-Yushchenko forces.

Regional and local councils that oppose

the President immediately started

* 2003; currency rate used 1 USD = 5,1 UAH

Source: Monitoring of socio-economic development of Ukrainian regions in 2004, Ministry of Economy

Indicator Maximum Minimum Average

GVA per capita, $*3.274 537 1.002

FDI per capita, $ 1.011,8 26,8 176,1

Capital investments pc, $ 1.024,4 110,3 312,9

Salary, $ 190 76,1 115,6

Export of goods, $m 8.347,7 61,2 -

Export of services, $m 762,8 1,1 -

ILO unemployment rate, % 12,2 4,8 8,6

The principle of polarised develop-

ment is also strengthened by the principle

of concentration, which is again based on

the scarcity of national funds available

for supporting regional development.

In 2006, the Government has already

approved a new procedure for allocating

regional grants, which is based on more

competitive and selective criteria, suchas funding capital investments for objects

under construction which are nearly

finished, or providing funds for projects

with a higher profitability rate.

It is also worth noting that NSRD

mentions cohesion as one of its key prin-

ciples, and distinguishes between social,

economic, and spatial cohesion. This is

seen as a measure to counterbalance the

existing gap in socio-economic develop-

ment between different regions, which

cannot be closed immediately. Cohesionis aimed at preventing enclaves of poverty

from appearing, not only by providing

direct support to the most remote and

deprived areas but also by stimulating

links with more advanced neighbouring

territories by improving infrastructure,

stimulating labour mobility and encourag-

ing collaborative initiatives.

The NSRDs strategic goals are the

following:

Increased competitiveness and strengthened

resource potential of the regions;

Development of human resources;

Development of inter-regional co-

operation; and

Creation of inst itutional conditions for

the development of regions.

All the institutional mechanisms and

tools proposed by the Strategy will con-

tribute towards the achievement of these

goals and towards training the regions to

deploy their own funds and resources in a

new way. Some of them, especial ly thosebordering the EU, have already reached a

certain level of understanding about what

needs to be done in order to compete with

or even overtake their neighbours. Other

regions lack this understanding, and will

require a quite long and intensive training

and capacity building campaign if they

are to comprehend the importance of new

approaches in planning and managing

regional socio-economic development.

Political reform and itsimpact on regional leadershipsHowever, regional policy is just one

element of a much wider, much more

Box 1: the high nature of soco-economic disparities in Ukrainian

regions, 2004

It is important to note that over the last 10 years, inequalit ies between the

most successful and the least developed regions in certain indicators have

reached large ratios (see table).

The Black Sea port of Odessa is a key growth locomotive


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demanding greater autonomy and

implementing what they call their own

regional policy.

One of the largest problems with the

new voting system is the under-represen-tation of local communities in regional

councils. For example, of the 120 MPs

elected to the Odessa oblastcouncil (one

of the biggest regions of Ukraine), 94

live in Odessa itself, and three more are

residents of Kyiv. 11 of the 26 raions and

three out the seven cities ofoblastsignifi-

cance are not represented in the council

at all. The previous proportional majority

system was highly cr iticised (often quite

justly) for favouring the interests of areas

where MPs had the most influence andwhose interests were thus best lobbied.

Nonetheless, it did provide an opportu-

nity for communities to be represented

at the local, regional and national levels

by people who were vaguely accountable

to them and to which they had direct

channels of communication. The party

list system has put this right in peril. Lists

are currently formed not on the basis of

ideology but according to economicinterests.

Forthcoming territorial and

administrative reformsThis is only the first stage of reforms.

Another result of the political compro-

mise was major administrative reforms

leading to considerable redistr ibution of

authorities among administrative tiers

and branches of power aimed at greater

decentralisation of power to regional and

local self-governments. The Governmentwas also tasked with ambitious and quite

contradictory terr itorial reforms which

aim to create a more rat ional and coher-

ent model of territorial arrangements

(see box 2).

Whilst everyone recognises the need

for greater decentralisation and the

strengthening of local government at

the lowest level, the proposed territorial

rearrangement of country has provoked

strong arguments and opposition. It is

certainly true that local level govern-

ment is currently the weak link in the

chain. However the proposal to extractbigger towns and cities from raion and

oblaststructure and give them raion and

region status correspondingly is quite

controversial.

It should be noted that the Ukrainian

understanding of the notion of

city-regions differs from the European/

international one. Currently, at least,

creating city-regions in Ukraine will be

little more than a mechanical process,

without much research on these cities

spatial position and significance, inter-relations between the core city and its

hinterland, infrastructure accessibility or

mapping their spill-over effects.

As many European cases have shown,

simply extracting regional centres and

turning them into separate units is

very rarely successful in stimulating the

appearance and growth of alternative

regional centres. Most often, these cities

become enclaves of comparative prosper-

ity, where the local population has better

access to services and the level of incomegenerated is much higher than anywhere

in the surrounding region. A consider-

able part of the population is already cut

off from many basic services in Ukraine

due to poorly developed transport routes.

Liberating outlying areas from the

regional capital may well do nothing

to improve their income base, since the

most profitable businesses and properties

tend to be located in these cities.

Currently, the town and village commu-

nities which will form the region around

the city-region do not possess the nec-

essary institutional, physical and social

infrastructure to satisfy their populations

needs. Until this missing inf rastructure

has been created, transport infrastructure

upgraded, or financial relations between

the to-be-independent regions and their

big brothers regulated, the whole idea

of creating city-regions and city-raions is

quite dangerous. It should also be taken

into account that for the last four years,

Ukraine has been implementing budget-ary decentralisation reforms.

One effect of this is to reduce the

amount of obsolete social infrastructure

Ukraine is a land of political bastions

Box 2: Changes to Ukraines territorial arrangement after the reforms

The main objective of the reforms is to improve social, administrative

and communal services by bringing the centres where these basic services

(education, health, social, communal, etc) are provided closer to the

population. To achieve this, the new Government proposed a package of

legislation to strengthen local and regional self-government bodies, while

simultaneously amalgamating local communities and raions (at the intra-

regional level) into more viable and self-sustainable terr itorial units.

* 2003; currency rate used 1 USD = 5,1 UAH

Source: Monitoring of socio-economic development of Ukrainian regions in 2004, Ministry of Economy

Before reformPopulation(average)

Units after reformPopulation(minimum)

1. 24 oblasts 1.8 mill ion 1. 24 oblasts 1.

2. Autonomous Republicof Crimea

2. AutonomousRepublic of Crimea

2.

3. 2 state cities 3. 8 city-regions 3. 750,000

1. 490 raions 80,000 1. 280 raions(exceptionally

40,000)

2. 170 cities ofoblastsignificance 2. 70 city-raions 5,000

28,615 villages, settlements,

towns grouped in 10273 councils 1,700

4,000 communities

equal to villages,settlements and towns

(exceptionally

1,500)


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in some regions where there is a far

greater quantity of such objects than is

real ly needed. This is saving a great deal

of funding, allowing the proper mod-

ernisation of remaining infrastructure;

it is also logical given Ukraines demo-

graphic slump, with the country losing

300,000-350,000 people a year due to

negative natural growth. Hence territo-rial and administrative reforms, which

propose to bring services as close to peo-

ple as possible (especially in rural areas)

by creating a greater quantity of smaller

scale social infrastructure projects, go

against current trends in budgetary

policy. Territorial administrat ive reform

does however provide a much-improved

administrative structure for implement-

ing regional socio-economic policy

more effectively (see box 3).

ConclusionsThe political reforms that are now in

progress call for greater democratisation

and accountability of central and local gov-

ernment at all tiers. And though there is

indeed more freedom of speech in Ukraine

since 2004, civil society whether the

media, community organisations, or the

general public are not yet aware what

leverage they have over local government,

and the under-representation of their

interests in the new electoral system mightonly make the situation worse.

The NSRD outlines a clear state

position towards its regions. It is a docu-

ment that is not biased, but balanced,

rational and based on the socio-economic

situation and local conditions in each and

every region. It is not a panacea and does

not aim to address every single problem

faced by the regions: other policies and

strategic documents should also have a

regional component relating to the wel-

fare of regional and local communities.

What the NSRD does do, however, is

to be clear about how the state intends to

improve the competitiveness both of the

country as a whole, and of each particular

region. Unfortunately, regional elites do

not currently show much interest in raising

their regions competitiveness, improving

local living conditions, or explaining to

their people what state policies exist to

address these issues. Quite often they play

with facts and figures, pitting one region

against. These actions are rather disruptive

and have potentially dangerous long-termconsequences.

For various reasons, regional leaders stil l

need to play particularly to the views of the

Box 3: Changes to administrative arrangements after the reforms

The new administrative reforms will result in the appearance of self-

government bodies at the local and regional level that are stronger

and less dependent on the centre. As a result of the reforms, local

government wil l possess greater administrative, financial, economic

freedoms while simultaneously becoming considerably more accountableto the local population.

Tier Current structure structure after reform

I a. Oblast Oblaststate administration

Oblast council without executivebody which delegates majority ofits functions to the administration

Oblaststate administration withreduced functions (control andmonitoring)

Oblast council with executive bodyimplementing the majority of tasksin the region

I b. City-region No analogue in current systemapart from two cities of statesignificance (Kyiv and Sevastopol)with the same arrangement as in I a.

Council with executive bodyimplementing majority of tasksin the city-region

I c. AutonomousRepublic ofCrimea

Autonomous republic with ownparliament and government

No changes

II a. Raion Raion state administration

Raion council without executivebody which delegates majority ofits functions to the administration

Raion council with executivebody

II b. City-raion Cities of oblast significance underthe current system where thereare:- Elected mayor- City council with executive body

No changes

III. Community Council with limited responsibilities(many delegated to raion tier) andscarce budgets

Council with executive bodyand with greater responsibilitiestransferred from the raion level

Source: authors own design based on Re form for People

poorest and most marginalised sections of

the population, since they are most numer-

ous (this makes creating a true middle class,

normally the most active part of the elector-

ate, a challenge). Furthermore, they often

do not really understand what competitive-

ness entails, or that there is much they need

to do themselves at regional level to capture

new markets rather than just reaping thefruit of national (preferably protectionist)

policies.

Lastly, politicians and officials at both

the national and regional levels often dis-

play a certain confusion about the different

types of reforms currently taking place in

Ukraine. The simultaneous implementa-

tion of territorial reforms, administrative

reforms, spatial planning, fiscal decentrali-

sation, a new regional policy and a whole

range of other initiatives means that there

are often misunderstandings and falseexpectations about each particular set of

reforms. There is therefore an urgent need

for a proper public consultation process and

capacity building activities: the reforms,

and the guidelines for their implementa-

tion, should be presented in a more rational

and understandable format, targeted differ-

ently for the groups of officials, politicians,

and public.

Bibliography and further

readingUkraine National Strategy for Regional

Development to 2015 (2006). Ministryof Economy of Ukraine, Kyiv.

Draft Law of Ukraine on Territorial

Arrangement of Ukraine (2005).

Reform for People. Collection of mate-

rials on implementation of territorial

and administrative reforms in Ukraine

(2005). Secretariat of the Cabinet of

Ministers, Kyiv.

Sergiy Grynevetsky (2006). Big problems

of small powerWeekly Mirror, # 15.

Yulia Tyshchenko (2006). Language as house

of existence. Basis of language sovereignties

in the light of regional policy Ukrainska

Pravda, 16 May, www.pravda.com.ua.

Monitoring of Socio-Economic

Development of Ukrainian Regions in

2004 (2005). Ministry of Economy of

Ukraine, Kyiv.

Documents

A New Strategic Framework for Regional Policy in Ukraine, 2007