What does a high quality and effective city cost?

Iryna Ozymok, Director of the Local Economic Development Programme at the Western NIS Enterprise Fund


As cities and municipalities grow rapidly and compete, they have long moved beyond the borders of their own countries to compete globally. This is making the job of local governments a lot more complicated: in addition to scheduled and emergency maintenance, infrastructure projects, coping with unexpected pandemics, supporting the arts and so on, development remains very important. After all, this determines just how attractive a municipality is for talent, investors and its own residents.

It’s no secret that there’s never enough money in the budget to cover everything. However, a key two-part step needs to be taken before a city goes looking for alternate sources of financing. The first part is to audit just how effectively existing funds are being used based on the municipality’s line items. The second part is a detailed analysis of spending priorities. In Ukraine, the state of the roads is a good litmus test for an effective government: repaired or restored right away, they immediately give local leadership high marks. On the other hand, proper prioritization can give better results by investing first in those areas that allow the municipality to generate more budget revenues and use these funds to start patching up roads.

Having used this approach to determine where additional funding is needed, it’s time to move on to looking for additional sources to finance projects in the municipality. Here, too, there are several options, from involving investors to borrowing from international financial institutions like the EBRD or the EIB, to co-financing projects with private business or applying for grant money.

Everybody talks about attracting investors, and everybody is busy competing for investment capital. There are several simple rules for working with investors.

 

What investors need?

  • Reliable partners. At the municipal level, it’s important for the investor to find a reliable partner, people whom they can trust, who don’t have unmentioned benefits from the situation or a negative purpose.
  • Transparent rules. This depends not only on the local level but also the national level, meaning those laws and instruments that apply equally to all and inspire confidence in the investor.
  • A coordinated and competent team. This group needs to understand what an investment project is, how to negotiate, and how to provide answers to key questions from the investor (case Head).
  • Competitive advantages. Every municipality should be aware of its own, and to be honest about them. Not every municipality can be a major tourist draw or offer the right kind of terrain for certain projects. It doesn’t make either municipality worse, but means that different projects are suitable for them.
  • A vision and strategy. For investors, the current state of things is not the only important element. Moreover, not just the municipality but the region as a whole needs to have a vision and strategy. Since return on investment (ROI) does not come immediately, it’s critical to have a development vision and plan for the medium and long terms as well.
  • A strong regional policy. This attracts investors to more than just one municipality, because when a large project, such as a factory, is involved, the site may be in one municipality but employees will be drawn from neighboring municipalities as well.
  • The business climate and treatment of existing investors. This is the entry point for most investors, both domestic and foreign, as it provides a clear signal, whether positive or negative. Investors already on the ground are the best ambassadors and are more believable than formal reports.
  • Judiciary reforms. Deregulation or the speed of launching a company aren’t the only aspects that matter to an investor. A weak, corrupt court system remains one of the negative signals to investors who, despite Ukraine’s other advantages, will be inclined to choose a municipality in another country. In this situation, it’s up to the municipalities to convey to key reformers just how important this reform is for them.
  • Objective, reality-based messages. In a completely digitized world, these remain very important. When the information on government sites and respected media differs, this also affects perceptions negatively. For instance, the Government site posts statements about how the business climate in the country is improving, while authoritative media resources say that investor evaluations of the business climate have worsened to 2015 levels.

 

Lines of credit and large-scale projects

The EBRD has allocated €1.1bn for the Green Cities programme, under which partner cities can undertake projects aimed at improving infrastructure, air quality, green zones, and drinking water. The programme’s aim is to foster the development and implementation of Green City Action Plans. So far, 42 municipalities have joined the programme, including five in Ukraine: Khmelnytskiy, Kryvyi Rih, Kyiv, Lviv, and Mariupol. EBRD plans are to involve a total of 100 cities.

Quite a few Ukrainian cities have already been able to get lines of credit. For instance, Mariupol has a €30mn line of credit to develop its public transit, and €13mn of which is a loan from the EBRD. Mykolayiv was able to get more than €5mn in non-refundable funds to modernize the city’s water supply system, while Zhytomyr has received a €11mn loan from the World Bank.

 

Partnering with business

With the coming of the pandemic, business once again showed that it can be an active, reliabl partner for municipalities. Many municipalities have special business associations that should never be underestimated. Joint efforts have made it possible to carry out many different projects, from fixing up city spaces and ensuring inclusiveness, to resolving social issues and undertaking development projects.

Some of the big agribusiness holdings have even set up special funds for the support of the municipalities where they have a presence. Thanks to corporate social responsibility programmes, corporations have often introduced important educational and environmental initiatives. Social entrepreneurship has demonstrated effective synergies with local governments on many projects, such as Horikhoviy Dim in Lviv.

 

Translated by Lidia Alexandra Wolanskyj

All terms in this article are meant to be used neutrally for men and women


Iryna Ozymok has participated at the International Expert Exchange, "Development of Municipalities: trust, institutions, finance and people", organized by U-LEAD with Europe Programme in December 2020. His speech delivered during one of the workshops is to a great extent depicted in this article.

In the name of the U-LEAD with Europe Programme, we would like to express our great appreciation and thanks for both inputs of Ms. Ozymok. The article will be included in future online publication Compendium of Articles.

Compendium of Articles is a collection of papers prepared by policymakers, Ukrainian and international experts, and academia after International Expert Exchange 2019 and 2020, organized by U-LEAD with Europe Programme. The articles raise questions in the fields of decentralisation reform and regional and local development, relevant for both the Ukrainian and the international audience. The Compendium will be published online in Ukrainian and English languages on the U-LEAD online recourses. Please, follow us on Facebook to stay informed about the project.

If you have any comments or questions about the Compendium of articles or this article in particular, please contact Yaryna Stepanyuk yaryna.stepanyuk@giz.de.


This publication has been produced with the assistance of the European Union and its member states Germany, Poland, Sweden, Denmark, Estonia and Slovenia. The contents of this publication are the sole responsibility of its authors and can in no way be taken to reflect the views of the U-LEAD with Europe Programme, the government of Ukraine, the European Union and its member states Germany, Poland, Sweden, Denmark, Estonia and Slovenia.

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