A New Strategic Framework for Regional Policy in Ukraine, 2007

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Article in Regions Magazine, Volume 265, Issue 1, pp. 6-9
  6  IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine  NSRD: ‘Strong regions – arich country – happy people’ The process of developing a NationalStrategy for Regional Development(NSRD) in Ukraine to 2015 began aboutfive years ago, and the document has beenthrough several major adjustments sincethen. Influenced both by changes withinthe country and by lessons learned fromother European countries, the wholephilosophy underpinning the documenthas evolved considerably. The strategywas recently approved by the Cabinet of Ministers and the next step is to allocatecorresponding funds for implementing itspriorities and tasks.The mission of the NSRD is ‘Strongregions – rich country – happy people’,with the main goal being ‘to create con-ditions for raising the competitiveness of the regions to maintain sustained dynamicgrowth on a modern technological basewith high productivity and employment’.Some think this mission is quite dangerousand misleading in a situation when regionsare becoming less willing to co-operateand co-ordinate with centre and at leastsome regional political forces are demand-ing greater autonomy, or even that Ukrainetransfers to a federal model of state. It thustook great effort to explain and illustratethat in this context, ‘strong’ regions cannotbe taken to mean the same as ‘autonomous’or ‘independent’ regions.Also the claims were dismissed thatNSRD will lead to a substantial increasein the amount of regional funding andredistribution, which would work infavour of either the rich or the poor. The Introduction The political reforms which are nowbeing implemented in Ukraine as a resultof the changes brought about by the 2004Orange Revolution are imposing greatpressures on regional policy at both thenational and regional levels, with antici-pated territorial administrative reformsraising the temperature still further.With their mind on greater decentralisa-tion, politicians’ understanding of whatconstitutes a successful region is often toosimplistic or technical. Mostly, they ignorewhat lies at the heart of effective reformsof this kind: thinking of regions as uniquesocio-economic systems which requirecoherent, co-ordinated policy in order tobecome competitive and successful.Since it aims to set a clear agenda for the development of Ukraine’s regions over the next 10 years, the National Strategy for Regional Development (the NSRD) hasattracted the attention of a wide range of central government and regional elites, andis subject to all the comments, confusions,and ambitions they bring with them.The strategy also represents a key stagein the process of bringing Ukrainianinstitutional structures and legislationin line with EU policies; approval andimplementation of the strategy is oneof Ukraine’s commitments under theUkraine-EU Action Plan for 2004-2006.This article will provide an insight intothe parallel processes of territorial andadministrative reform and regional policyformulation over the last year, demon-strating that big compromises will soonbe needed between national and regionalinterests in Ukraine. REFORM IN THE CONTEXT OF POLITICAL REFORMS ANDMORE ASSERTIVE REGIONAL ELITES Dr Olga Mrinska, Department for International Development (DFID) UkraineUkraine in 2006 tools and mechanisms proposed by thestrategy (and earlier by the Law on theStimulation of Regional Development)are aimed at the optimal use of exist-ing financial flows from the centre tothe regions to achieve the maximumeffect. Of course, there is a real need for an increase in funding to support theregional policy in Ukraine.After a detailed analysis of the currentsocio-economic situation in Ukraineand its regions, it was decided that theStrategy should address the followingproblems over the mid-term:ã Low investment appeal and innovativeactivities in the regions;ã Underdeveloped physical and socialinfrastructure;ã Irrational use of human resources;ã Weak inter-regional links; andã Growth of regional disproportions in thecountry’s socio-economic development.There are of course many other challengeswhich are necessary to target, and arguablycould have been included in this docu-ment. Yet bearing in mind that this areaof national policy has limited resourcesand considering the higher-level goals of the National Socio-Economic Strategyto 2015, it was decided that a selectiveapproach concentrating on issues such ascompetitiveness and high productivity inthe regions would be more effective. From strong regions topolarised development Despite much criticism and reluctancemain author of the document (theMinistry of Economy) insisted that theprinciple of polarised development shouldbe one of the Strategy’s cornerstones.This means that the state will deliberatelysupport only ‘locomotives of growth’ andaim to catalyse spill-over effects fromthese areas. This is quite a logical stepand it is based on the fact that regionaltargeted capital investment grants are only3.5 billion Hryvnia (700 million USD) in2006. The principle of polarised develop-ment will also be employed to supportthe least developed and most deprivedareas: compact territories where further degradation might undermine nationalsecurity and harmonious development of the state (see box 1). Source: http://www.lib.utexas.edu/maps/cia06/ukraine_sm_2006.gif   7  IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine  complex ongoing process of reformingUkraine’s state architecture. As a resultof the compromise reached in autumn2004, constitutional changes came intoeffect on 1st January 2006 under whichUkraine became a presidential-parlia-mentary republic and many presidentialfunctions were transferred to parliament.The latter now has responsibility for state policies in most areas, as well as for appointing the Cabinet of Ministers andcontrolling its work.At the same time, Ukraine haschanged its voting system at all territo-rial tiers from a proportional-majority toa proportional system. This is the maincatalyst of the confusion and conflictcurrently afflicting the country. Partylife in Ukraine is still rather eclecticand impulsive. There are more than 100parties in Ukraine, almost all of whichare based not on ideological values buton the personalities of their leaders andreacting to the current political situation.The parliamentary elections in March2006 were a very good illustration of thefact that many parties and political blocsare little more than ‘one-man shows’.Nonetheless, most power in the regionsand local communities went to a smallbunch of parties (no more than 8-10)representing strong political elites andeconomic groups from different regions.The main standoff was between the Partyof the Regions (led by Victor Yanukovych,current Prime-minister who lost the lastpresidential campaign) and two ‘orange’political forces: the Yulia TymoshenkoBloc and the ‘Our Ukraine’ bloc backedby President Viktor Yushchenko.The results of the proportional votingin regional and local councils were verysimilar to the results of 2004 presidentialresults: pro-Yanukovych parties formeda majority in the councils of Easternand Southern Ukraine, while councilsin Western and Central Ukraine aredominated by pro-Yushchenko forces.Regional and local councils that opposethe 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 IndicatorMaximumMinimumAverage GVA per capita, $*3.2745371.002FDI per capita, $1.011,826,8176,1Capital investments pc, $1.024,4110,3312,9Salary, $19076,1115,6Export of goods, $m8.347,761,2-Export of services, $m762,81,1-ILO unemployment rate, %12,24,88,6 The principle of polarised develop-ment is also strengthened by the principleof concentration, which is again based onthe scarcity of national funds availablefor supporting regional development.In 2006, the Government has alreadyapproved a new procedure for allocatingregional grants, which is based on morecompetitive and selective criteria, suchas funding capital investments for objectsunder construction which are nearlyfinished, or providing funds for projectswith a higher profitability rate.It is also worth noting that NSRDmentions cohesion as one of its key prin-ciples, and distinguishes between social,economic, and spatial cohesion. This isseen as a measure to counterbalance theexisting gap in socio-economic develop-ment between different regions, whichcannot be closed immediately. Cohesionis aimed at preventing ‘enclaves of poverty’from appearing, not only by providingdirect support to the most remote anddeprived areas but also by stimulatinglinks with more advanced neighbouringterritories – by improving infrastructure,stimulating labour mobility and encourag-ing collaborative initiatives.The NSRD’s strategic goals are thefollowing:ã Increased competitiveness and strengthenedresource potential of the regions;ã Development of human resources;ã Development of inter-regional co-operation; andã Creation of institutional conditions for the development of regions.All the institutional mechanisms andtools proposed by the Strategy will con-tribute towards the achievement of thesegoals and towards training the regions todeploy their own funds and resources in anew way. Some of them, especially thosebordering the EU, have already reached acertain level of understanding about whatneeds to be done in order to compete withor even overtake their neighbours. Other regions lack this understanding, and willrequire a quite long and intensive trainingand capacity building campaign if theyare to comprehend the importance of newapproaches in planning and managingregional socio-economic development. Political reform and itsimpact on regional leaderships However, regional policy is just oneelement of a much wider, much more Box 1: the high nature of soco-economic disparities in Ukrainianregions, 2004 It is important to note that over the last 10 years, inequalities between themost successful and the least developed regions in certain indicators havereached large ratios (see table). The Black Sea port of Odessa is a key growth locomotive  8 IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine  demanding greater autonomy andimplementing what they call their own‘regional policy’.One of the largest problems with thenew voting system is the under-represen-tation of local communities in regionalcouncils. For example, of the 120 MPselected to the Odessa oblast  council (oneof the biggest regions of Ukraine), 94live in Odessa itself, and three more areresidents of Kyiv. 11 of the 26 raions andthree out the seven cities of  oblast  signifi-cance are not represented in the councilat all. The previous proportional majoritysystem was highly criticised (often quite justly) for favouring the interests of areaswhere MPs had the most influence andwhose interests were thus best lobbied.Nonetheless, it did provide an opportu-nity for communities to be representedat the local, regional and national levelsby people who were vaguely accountableto them and to which they had directchannels of communication. The partylist system has put this right in peril. Listsare currently formed not on the basis of ideology but according to economicinterests. Forthcoming territorial andadministrative reforms This is only the first stage of reforms.Another result of the political compro-mise was major administrative reformsleading to considerable redistribution of authorities among administrative tiersand branches of power aimed at greater decentralisation of power to regional andlocal self-governments. The Governmentwas also tasked with ambitious and quitecontradictory territorial reforms whichaim to create a more rational and coher-ent model of territorial arrangements(see box 2).Whilst everyone recognises the needfor greater decentralisation and thestrengthening of local government atthe lowest level, the proposed territorialrearrangement of country has provokedstrong arguments and opposition. It iscertainly true that local level govern-ment is currently the weak link in thechain. However the proposal to extractbigger towns and cities from raion and oblast  structure and give them raion andregion status correspondingly is quitecontroversial.It should be noted that the Ukrainianunderstanding of the notion of ‘city-regions’ differs from the European/international one. Currently, at least,creating city-regions in Ukraine will belittle more than a mechanical process,without much research on these cities’spatial position and significance, inter-relations between the core city and itshinterland, infrastructure accessibility or mapping their spill-over effects.As many European cases have shown,simply extracting regional centres andturning them into separate units isvery rarely successful in stimulating theappearance and growth of alternativeregional centres. Most often, these citiesbecome enclaves of comparative prosper-ity, where the local population has better access to services and the level of incomegenerated is much higher than anywherein the surrounding region. A consider-able part of the population is already cutoff from many basic services in Ukrainedue to poorly developed transport routes.‘Liberating’ outlying areas from theregional capital may well do nothingto improve their income base, since themost profitable businesses and propertiestend to be located in these cities.Currently, the town and village commu-nities which will form the region aroundthe city-region do not possess the nec-essary institutional, physical and socialinfrastructure to satisfy their populations’needs. Until this missing infrastructurehas been created, transport infrastructureupgraded, or financial relations betweenthe to-be-independent regions and their ‘big brothers’ regulated, the whole ideaof creating city-regions and city- raions isquite dangerous. It should also be takeninto account that for the last four years,Ukraine has been implementing budget-ary decentralisation reforms.One effect of this is to reduce theamount of obsolete social infrastructure Ukraine is a land of political bastionsBox 2: Changes to Ukraine’s territorial arrangement after the reforms The main objective of the reforms is to improve social, administrativeand 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, whilesimultaneously amalgamating local communities and raions (at the intra-regional level) into more viable and self-sustainable territorial 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 million1. 24 oblasts 1.2. Autonomous Republicof Crimea2. AutonomousRepublic of Crimea2.3. 2 state cities3. 8 city-regions3. 750,0001. 490 raions 80,0001. 280 raions (exceptionally40,000)2. 170 cities of  oblast  significance2. 70 city- raions 5,00028,615 villages, settlements,towns grouped in 10273 councils1,7004,000 communitiesequal to villages,settlements and towns(exceptionally1,500)  9 IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine  in some regions where there is a far greater quantity of such objects than isreally needed. This is saving a great dealof funding, allowing the proper mod-ernisation of remaining infrastructure;it is also logical given Ukraine’s demo-graphic slump, with the country losing300,000-350,000 people a year due tonegative natural growth. Hence territo-rial and administrative reforms, whichpropose 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, goagainst current trends in budgetarypolicy. Territorial administrative reformdoes however provide a much-improvedadministrative structure for implement-ing regional socio-economic policymore effectively (see box 3). Conclusions The political reforms that are now inprogress call for greater democratisationand accountability of central and local gov-ernment at all tiers. And though there isindeed more freedom of speech in Ukrainesince 2004, civil society – whether themedia, community organisations, or thegeneral public – are not yet aware whatleverage 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 stateposition towards its regions. It is a docu-ment that is not biased, but balanced,rational and based on the socio-economicsituation and local conditions in each andevery region. It is not a panacea and doesnot aim to address every single problemfaced by the regions: other policies andstrategic documents should also have aregional component relating to the wel-fare of regional and local communities.What the NSRD does do, however, isto be clear about how the state intends toimprove the competitiveness both of thecountry as a whole, and of each particular region. Unfortunately, regional elites donot currently show much interest in raisingtheir region’s competitiveness, improvinglocal living conditions, or explaining totheir people what state policies exist toaddress these issues. Quite often they playwith facts and figures, pitting one regionagainst. These actions are rather disruptiveand have potentially dangerous long-termconsequences.For various reasons, regional leaders stillneed 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 strongerand less dependent on the centre. As a result of the reforms, localgovernment will possess greater administrative, financial, economicfreedoms while simultaneously becoming considerably more accountableto the local population. TierCurrent structurestructure after reform I a. Oblast Oblast  state administration Oblast council without executive body which delegates majority of its functions to the administrationOblast  state administration withreduced functions (control andmonitoring) Oblast council with executive bodyimplementing the majority of tasksin the region I b. City-regionNo 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-regionI c. AutonomousRepublic of CrimeaAutonomous republic with ownparliament and governmentNo changesII a. Raion Raion state administration Raion council without executivebody which delegates majority of its functions to the administrationRaion council with executivebodyII b. City-raion Cities of oblast significance under the current system where thereare:- Elected mayor - City council with executive bodyNo changesIII. CommunityCouncil with limited responsibilities(many delegated to raion tier) andscarce budgetsCouncil with executive bodyand with greater responsibilitiestransferred from the raion level Source: author’s own design based on ‘Reform 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 oftendo not really understand what competitive-ness entails, or that there is much they needto do themselves at regional level to capturenew markets rather than just reaping thefruit of national (preferably protectionist)policies.Lastly, politicians and officials at boththe national and regional levels often dis-play a certain confusion about the differenttypes of reforms currently taking place inUkraine. The simultaneous implementa-tion of territorial reforms, administrativereforms, spatial planning, fiscal decentrali-sation, a new regional policy and a wholerange of other initiatives means that thereare often misunderstandings and falseexpectations about each particular set of reforms. There is therefore an urgent needfor a proper public consultation process andcapacity building activities: the reforms,and the guidelines for their implementa-tion, should be presented in a more rationaland understandable format, targeted differ-ently for the groups of officials, politicians,and public. Bibliography and furtherreading Ukraine National Strategy for RegionalDevelopment to 2015 (2006). Ministryof Economy of Ukraine, Kyiv.Draft Law of Ukraine on TerritorialArrangement of Ukraine (2005).Reform for People. Collection of mate-rials on implementation of territorialand administrative reforms in Ukraine(2005). Secretariat of the Cabinet of Ministers, Kyiv.Sergiy Grynevetsky (2006). Big problemsof small power  Weekly Mirror  , # 15. Yulia Tyshchenko (2006). Language as houseof existence. Basis of ‘language sovereignties’in the light of regional policy Ukrainska Pravda , 16 May,www.pravda.com.ua.Monitoring of Socio-EconomicDevelopment of Ukrainian Regions in2004 (2005). Ministry of Economy of Ukraine, Kyiv.
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