How to make regions rich?

Attempts to answer this question were made at an expanded governmental meeting devoted to decentralisation and regional development, held recently in Vinnytsia.

“Are four years much or little for such a reform?” started his speech Stepan Kubiv, First Vice Prime Minister of Ukraine, during the expanded governmental meeting on decentralisation and regional development. The speech by Mr Kubiv opened the thematic block: "Economic growth of the regions: the priority of the current decentralisation stage".

The First Vice Prime Minister stressed that implementation of the reform took place under complicated circumstances, not encountered by Ukraine during its recent history. It means an armed conflict with Russia, complete lack of money on the treasury account, hybrid war, loss of the Russian market, etc. But already in 2017, Ukraine's GDP grew by 2.5% and the industry – by 3%. Average salary in the state amounted to about UAH 7 thousand per month, and in Kyiv – UAH 12-14 thousand per month. An indication of positive change is also the increase of Ukraine's position in the International Doing Business ranking.

“Over last year we received UAH 366 billion of capital investments, which is 22% more than in 2016,” said Stepan Kubiv. “We managed to reorient ourselves to the markets of the EU and Asia, and now we deliver there not only raw materials, but also finished products. Thus, we are talking not only about stabilisation, but also about growth.

William Tompson, Senior Counsellor and Deputy Head of the Regional Development Policy Division of the OECD, was not so optimistic in his speech. He stressed that there is still a lot of work ahead.

“When I am asked about Ukraine, I say that from the times of the Maidan, it has moved forward less than expected, but more than it usually advances," said Mr Tompson. “Decentralisation reform is one of the most successful and one of the key, as it forms the basis for many other reforms. When everything just started, many in Europe believed that voluntary amalgamation of hromadas was impossible in such a short time. But Ukraine managed to do this, and now it's important not to lose the momentum. Do not stop. There is a need of further amalgamation of hromadas, fiscal decentralisation, etc...

William Tompson also noted that excessive attention of Ukrainians to external financing hampers the development of the reforms.

"Often, people are waiting for donor money from abroad considering them to be "salvation" from all their misfortunes," he said. “It is wrong. It is necessary to open own local economic potential. While the donor funds and the funds from the SFRD are just the means for this. We also noticed that investments into physical infrastructure do not affect the growth of regions. Real changes can only be achieved through investing in innovation, human capital, business support, etc. Only then will we get a cumulative effect.”

Mr Tompson drew attention to the fact that, according to the level of economic development, the regions of Ukraine are very different from each other.

“Before Maidan, Kyiv accounted for 35% of Ukraine's GDP, and the Kyiv Oblast, along with its capital, had 45%,” he said. “It's not bad that the centre of the country is so rapidly developing, but the regions must grow as well. Besides, the gap between the rich and the poor should decrease. With decentralisation it is quite possible, because people on the ground know much better what exactly needs to be changed for growth, than in the centre.

At the end of his speech, Mr Tompson compared Ukraine to a ship people try to rebuild at sea during a storm.

“It is extremely difficult, but there are no alternatives to this work,” emphasised the European expert. “And we are ready to help Ukrainians in this heroic deed.”

The speech of Oleh Synyutka, head of the Lviv Oblast State Administration, was quite frank as he drew attention to a few sensitive issues.

“In the first quarter of this year, the Lviv Oblast has significantly increased revenues to both the state and local budgets,” he said. “During last year, 1,836 infrastructure facilities and over 600 kilometres of roads were repaired. But I would like to emphasise: if we do not revise the policy on customs indicatives, we will lose a serious source of income ... The growth of small and medium-sized producers in the village and the development of the cooperative movement are indisputable. However, I would like to draw attention to the need to revise the basic monetary valuation of land. Why has it decreased this year compared to the past one? Land is one of the main budget forming indicators, the second in volume after the PIT. Another negative point concerns the state policy directed at the consolidation of land plots, the reason why local communities lose...

Danylo Bilak, director of the UkraineInvest Investment Attraction and Support Office, instead of delivering a speech, has shown a movie advertising Ukraine as a very attractive investment state.

“When we got the Prime Minister's task to provide 5-7% of investment growth, we realised that for this we have to rebrand Ukraine at first,” said Danylo Bilak. “Believe me, investors are primarily afraid of corruption, and not war. In addition, we must solve the problems of existing investors before calling for new ones. Due to solutions to these problems, last year investors additionally invested in Ukraine USD 700 million. Another UAH 1.3 billion are to be invested in the Ukrainian economy this year. I want to emphasise: everything will be fine in Ukraine, when investors are treated as honoured guests at all levels of government.”

The material was created with the support of the Swiss-Ukrainian project "Decentralisation Support in Ukraine" DESPRO

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