A day with the “Beeb”

A very short entry today as I have spent the day filming with the BBC talking drug and human trafficking, smuggling and counterfeit goods in Odessa – naturally I will eagerly await my BAFTA nomination!

So having spent the day talking trafficking routes in and out of Odessa and more broadly Ukraine – and basically stating the obvious, in that serious and organised crime will always choose the route of least resistance – and Ukraine is probably not as robust as the EU States when it comes to preventing entry or egress of illicit “goods” on the European continent, it is perhaps good timing that today, an announcement of the opening of Odessa Port’s new terminal will be in Autumn 2013 – an absolutely necessary economic infrastructure addition in respect of legitimate trade – but also another point of weakness in a somewhat porous and very large international land and sea Odessa border.

With such a large international land and sea border, how can Odessa be anything other than porous and a route of least resistance for serious and organised crime?

$40 Billion annual road maintenance budget – Ukraine

The current budget for road maintenance in Ukraine sits at $16.9 billion – which sounds, and indeed is, a lot of money – and yet the state of Ukrainian roads resembles something like those of Berlin circa 1945 after the 363 air raids to which it was subjected by bomber command.

As such, Vice Prime Minister Oleksandr Vilkul has made very forceful representations to increase the annual road maintenance budget to $40 billion – almost a 300% increase.

He also proposes to reorganise the accountability of those responsible for road maintenance.  In short, the 117.7 thousand kilometers of regional roads will become the personal responsibility of the heads of the regional state authorities – thus removing the involvement of Ukrautodor, the State agency responsible for road maintenance, leaving it responsible for a paltry 52 kilometers of State adopted roads.

Naturally there is an increased opportunity for either direct theft of funds, or cronyism and associated kick-backs, but there is also a very clear area of responsibility and indeed personal responsibility for road maintenance within the regions – which is a good thing.

Odessa, March 2013

The above is a rather extreme example of holes in the road in Odessa I will grant – most are only ankle deep, but there are so many ankle deep holes that the 1.5 million residents of Odessa could all put a foot in each hole and there would still be more holes than feet to put in them!

The question relating to the solid lobbying for such a massive increase in funding is really whether it has been worked out on a cost basis for maintenance alone – or whether there is a percentage included for the undoubted graft that will occur at regional level to be plundered for personal gain, and yet still provide a significant and noticeable difference to the quality of the regional road infrastructure.

With no noticeable improvements over the decade I have lived in Odessa at $16.9 billion annually – what improvements will $40 billion annually get me?

A positive outcome will only be forthcoming if some regional authority heads are suddenly lopped off should road quality remain exceptionally poor I suspect – but  I won’t hold my breath for that to happen!

Ukraine – An energy hub – Be careful what you wish for

On Friday 3rd May, whilst I was enjoying my time off in the Odessa sunshine and taking in the beach life, Ukrainian Energy Minister Eduard Stavytsky had a meeting with the EU Energy Commissioner Gunther Oettinger (as well as Royal Dutch Shell and Exxon Mobil amongst others) in Brussels.

What became immediately apparent, if it wasn’t already clear before, is that Ukraine has decided that it can become a gas hub for the European continent and intends to pursue that strategy, making the most of its gas transport system and more particularly its vast underground gas storage facilities (50 billion cubic meters).

The infrastructure, whilst somewhat decrepit and thus in need of some serious investment, does at least exist already.

Very good – and an obvious goal to pursue given the soviet legacy Ukraine inherited.

But then there is the widely talked about “resource curse” to consider should Ukraine actually achieve its aim of both Black Sea Shelf and fracking production, transit and storage.  It may very well turn into an oil and (mostly) gas State.

Quite possibly a very good thing for the Ukrainian economy, GNI and indeed citizen income as well.

But at what social cost?

Of all 23 nations on the planet where 60% or more of GDP is derived from oil and gas – not a single one can be classed as a democracy.

Further all are very corrupt, almost completely unresponsive to the demands of their populations and have extremely low accountability amongst the political elite.

Looking at the Human Development Index which is a key identifier when it comes to identifying liberal consolidated democracies, almost all oil and gas States with 60% of GDP coming from those sources have extremely low HDI scores regardless of citizen wealth and GNI per capita.

That is not to say a low HDI score prevents democracy, of the bottom 46 ranking nations in HDI, 13 can be deemed a democracy of sorts and 2 of those, as liberal democracies.

Looking at the top 25 HDI scoring nations, only Singapore is not a democracy – and from the top 40 HDI scoring nations they are all democracies less Singapore and a few small oil and gas States (Qatar, UAE etc.)

Thus becoming an energy producing exporter and hub may well have dire consequences for an already “feckless” (per academic definition) political system in Ukraine.

One of the best ways to identify an effective and consolidated democracy seems to be to take the Freedom House score and multiply it by the World Bank anti-corruption score, and more often than not it closely mirrors the HDI position in the HDI league table – Spooky!

In fact, discounting the Islamic world, there is a very strong correlation between democracy, freedoms and any HDI score a nation has.

So becoming an energy producer and energy hub as planned will destine Ukraine to the usual fate of oil and gas dominant GDP nations with regards to democracy?

Well, not necessarily.

“Feckless” as the Ukrainian politics are and have been historically, there is nothing to prevent the current “feckless democracy” of Ukraine moving to a consolidated effective and possibly liberal democracy prior to the full  realisation of the energy producing/energy hub plan.  Should that movement to an effective and consolidated democracy occur prior to, or even simultaneously with the “energy plan”, then all may bode very well for democracy in Ukraine.

A very smart scholar named Przeworski has proven that (again removing the Islamic world from the equation) should the personal purchasing power of a nation reach a certain monetary figure (currently about $10,000, but a figure that needs to be index linked to remain relevant), then no democracy has ever crumbled.

In effect with a diversified economy and the average purchasing power per capita of $10,ooo or more, democracy is not only consolidated but invincible to the challenges of other governance models due to the middle class/ independent bourgeoisie.

Ergo, empirical evidence and academic works from the likes of Lipset, Prezeworski, Welzel and Ingehart etc, would all point towards the necessity of moving Ukraine’s currently “feckless politics” to an effective democracy whilst simultaneously trying to reach $X personal purchasing power and climbing the HDI league table if democracy is to survive any significant oil and gas increased share of the Ukrainian GDP.

The question is can the feckless political system stop being feckless before it leads Ukraine into the black hole of the resource cursed nations?  Looking at the entire Ukrainian political landscape and personalities within, that seems very unlikely without consistent external pressure and guidance.

All in all, an obvious and achievable plan for Ukraine – with very scary possible outcomes should it succeed.

Danube Action Plan – Progress Report

What seems like a very long time ago, back in April 2011 in fact, I wrote about an EU sponsored action plan relating to the River Danube and the nations through which it flows.

It naturally effects Ukraine, as the Danube Delta is partly Ukrainian territory – shared with Romania.  It is in fact part of my home Oblast of Odessa, and the Delta happens to be a very beautiful place indeed.

It is now time for an update on how the EU action plan has progressed thus far.

Let’s hope that by 2020 the environmental and ecological targets are met – together with the social and economic targets too.

Italy to open Consulate in Odessa soon

A very short and sweet entry today.

Yet another diplomatic mission will soon open in Odessa – this time Italian - which will please the good woman if it has the ability to produce Visas, as Italy is a nation that particularly attracts her for reasons of history, architecture, food and of course fashion.

Very good.  That makes half a dozen Consulates opened in Odessa in as many years and leaves Odessa housing close to 20 diplomatic missions.

Naturally the UK isn’t one of them – not even an Honorary Consul, despite an ever growing and vibrant local diplomatic community – but I have come to expect nothing less.

Regional Development (Again)

A few days ago I briefly wrote about regional development in Ukraine, concluding that “Accepting there is no perfect method – why do we expect a perfect outcome?” – A fair point I think.

What I didn’t do, is state what I thought would be a reasonable model to pursue – naughty me!

After all, I get rather tired of reading commentary and monologue that is quick and oft justified in the crucification of the current models and their outcomes – but that crucially omit any thought about how to improve the model, or if the model is about as good as it can be, how to manage the expectations for perfect results from an imperfect model.

Naturally the first thing to recognise is that regional development is exactly that – regional.

Whilst some issues will be constant throughout many regions and thus should form part of a national development plan controlled and implemented nationally – regional development issues are the prerogative of local government and they are best placed to identify and implement local development.

In short, the individualities of Odessa are not all easily transposed to work effectively in Carpathia – despite some prima facie compatibilities.  Not only in the local needs for infrastructure and economic drivers, but also in the availability and regionally bespoke arena of human capital.

The training and development needs of industrialised Donetsk  are not so easily transposed to Yalta for example.  That said, putting in place parameters on regional development simply because “that isn’t how it works here” is not necessarily a good thing either.  Internal innovation at a regional level is one method of development – particularly by SMEs.

Putting up barriers to local innovation is a self-defeating policy for any local government.  Why should local government work harder to generate regional development if SMEs have the desire and ability to work hard instead?  Let them.

Is it not a smarter policy for local government to encourage rather than unnecessarily corral the innovation of its populous?

This naturally would lead to greater interaction between local business and local government and a dialogue that should, theoretically, lead to local government creating a structure whereby the local populous generate greater production either by active assistance or by simply staying out of the way.  In doing so, those SMEs that thrive obviously become sustainable.  Those that fail will reinvent themselves if there is a medium for knowledge exchange within the local business community – preferably one where local government sits and listens.

Where local government can help is in the arena of sustainable and ecologically wise city planning.

Odessa is replete with brownfield sites which stand abandoned and could be turned into business parks or engineering parks.  Brand new, shiny, business incubators are not necessarily going to either meet the needs of the SMEs or provide any dynamic gains for the local economy or employment.

In converting the plentiful brownfield sites, is there not an opportunity to be environmentally conscious at the same time when it comes to energy efficiency?  Does that not create an opportunity for local “green” business and tick all those globally friendly boxes, encouraging grants to continue with such development of other brownfield sites?

If a site is beyond renovation or situated in an area where it holds not commercial or society benefits – flatten it!

If made from brick, crush it and use the crushed material as aggregate to compact under new roads or road repairs rather than the cheapest rubbish the nefariously won tender holders now use.  What is wrong with recycling the materials in derelict buildings?

Collect and sell as scrap the thousands of miles of steel rusting away in disused brownfield buildings if they need to be demolished.  There is an international market for scrap metal – use it!

Has anybody in the Odessa local government even tried to evaluate the benefits of having so many business incubators via a vis development of a brownfield site into a business park or engineering park?  Are they even capable of coming up with a reasonable evaluation model?  I doubt it.

Local authorities should also consider the cultural side of local life.  Can an abandoned factory warehouse be used for a dance centre, a go-cart course, a youth club etc rather than stand empty generating precisely nothing – not even local good-will toward the local government, let alone community spirit?

It is all very well putting up cheap and cheerful play equipment, or resurfacing a footpath in a run up before local or national elections in an effort to try and buy voters, but such acts are seen for what they are.  They are certainly not what can be classed as regional development.

As many people state, they wish elections would happen every year for that is the only time the politicians actually actively make good the state of necessary repair in the local voting regional seats.

Naturally there is the issue of funding – and here perhaps more than anywhere, local government has a vital role to play.  Not only in spreading out the meager budget granted by Kyiv to meet immediate problems – and stealing half of it doesn’t help – but also in attracting funding from the EU, World Bank, EBRD, EIB etc., not only by way of grants but also by way of loans.

Turning the financing of local development into a business whereby money has to be repaid rather than just accepted as charity by local government, would necessarily sharpen minds when it comes to return on investment within the local community – whether that return be directly economic or by way social good will through increasing the quality of life.  In short something of a mixture of that often hard to identify “added value”, “good will”,  or community/local government driven “inclusive growth”.

When considering the “feel good” factor within local society, it is all very well to have the roads in Odessa city centre is good condition, all the facades looking pristine – not that the current local authorities can even manage that, despite it being all that 99% of tourists ever see and experience – what about the redevelopment of urban areas in dire need of attention – such as Moldovanka in Odessa?

Where is the plan, where is the on-going implementation of that plan, and where is the budgetary forecasts for such much needed development?  If it exists on paper, it certainly has not been turned into reality in any shape or form.  In the decade I have been living in Odessa, Molodvanka has done nothing other than fall apart even further.

When part of the city becomes equated with ever increasing squaller, is it any wonder it becomes a haven for Russian and Moldavian criminals in hiding – for drug dealers – for an illicit sex trade – a place to hire a thug or two?  In Moldovanka, the development issue is certainly the quality of housing and the lack of policing.  We are talking about fundamentals for a part of a city that aspires to be a rising star of European tourism.

The issues of Moldovanka are hardly likely to give a large economic return when tackled – at least immediately – but if Odessa is a region, Moldovanka is a region within a region and is in desperate need of development before it literally falls down both physically and to the lowest levels of society.  Perhaps that is the local authorities plan – who knows, they do not seem to have another that are actually implementing to prevent it.

Anyway, though the areas I have mentioned above are broad in their scope and less than detailed, they do at least outline some issues for consideration when it comes to development for Odessa as city – and to my mind all major cities are a region unto themselves, albeit within the larger prescribed regions as recognised by central government.

Thus, in an effort not to be like so many commentators who put forward no alternatives, I have at least spent an entire 20 minutes thinking about the development model – rather than just pooh-pooh it without any constructive thinking whatsoever.  After all, I would hate for you dear readers to simply write me off as just another persistent complainer unable or too lazy to offer up some thoughts for improvement!

Regional Development Funding – Ukraine

This entry was inspired by a UK MEP named Arlene McCarthy who represents the north-west of England in the European Parliament – although what she said has nothing to do with Ukraine – directly.

Indirectly, her words undoubtedly fit Ukraine – as well as many other EU nations and nations that receive EU regional funds.

One can hardly draw any other inference from her words other than that she believes that central government (in this case Whitehall and the UK government) siphon off large quantities of EU funding meant for regional development.

I do wonder why the funds  are going through Whitehall and not directly to the regions?  Should they not be on a project by project basis as submitted for EU financing directly from local government to EU, without the need to involve central government at all?  At most a cursory informing of Whitehall?

Perhaps the MEP should also concern herself with the funds that do reach the regions and are then siphoned off by the regional and local government in the UK too – either for nefarious purposes or to support otherwise unsustainable pet projects?

Anyway, Liverpool, Arlene McCarthy, Whitehall and the EU can bicker amongst themselves as generally I write about Ukraine (and occasionally the neighbourhood).

Nevertheless, never one to look a gift horse in the mouth when it comes to an easy topic introduction – Ms McCarthy’s words come at the same time that the EU announced Euro 31 million to boost Ukraine’s regional development.

Here it seems the EU is prepared to directly finance the local government and regions rather than send funds via central government.  Insuring it seems, that the projects it supports do run parallel to the national action plan for Ukraine wherever possible.  Very good.

One level of corruption and/or funding miss-allocation removed in the case of Ukraine when going direct to regional/local government.  Naturally not the elimination of corruption and/or miss-allocation of funding.  That is simply not possible no matter how rigorous any process is.  Just as any security expert worthy of the name will state there can never be 100% security, there can never be a system that is absolutely corruption-proof.

After all, the lowest tender in any procurement model is not necessarily the best value for money when other issues from a bidding  entity are considered.  Cost alone simply does not and should not decide the winner of any tender.  Contractor ability, contractor experience, contractor cash flow etc., are all considerations alongside any tender bid.  In short the contractor awarded a contract should have the ability to provide a quality outcome and the cash flow to avoid folding mid-contract.

Having now discounted the lowest tender as always being the best tender – even in the most transparent of circumstances – there are obvious methods now presenting themselves even to the most naive of readers for corruption, cronyism and kick-backs to occur.  And they do.  Daily.  In Ukraine and everywhere else on the planet.

The fact the finance comes from the EU, an entity riddled with accounting “issues” for so long I can’t even remember the last time auditors signed off the EU accounts in their entirety – (15+ years I suspect) – really doesn’t help.

I am reminded of a very caustic letter from a gentleman who managed to account very well in far more trying times than those faced by the EU accountants:

Gentlemen,

Whilst marching from Portugal to a position which commands the approach to Madrid and the French forces, my officers have been diligently complying with your requests which have been sent by H.M. ship from London to Lisbon and thence by dispatch to our headquarters.

We have enumerated our saddles, bridles, tents and tent poles, and all manner of sundry items for which His Majesty’s Government holds me accountable. I have dispatched reports on the character, wit, and spleen of every officer. Each item and every farthing has been accounted for, with two regrettable exceptions for which I beg your indulgence.

Unfortunately the sum of one shilling and ninepence remains unaccounted for in one infantry battalion’s petty cash and there has been a hideous confusion as the the number of jars of raspberry jam issued to one cavalry regiment during a sandstorm in western Spain. This reprehensible carelessness may be related to the pressure of circumstance, since we are war with France, a fact which may come as a bit of a surprise to you gentlemen in Whitehall.

This brings me to my present purpose, which is to request elucidation of my instructions from His Majesty’s Government so that I may better understand why I am dragging an army over these barren plains. I construe that perforce it must be one of two alternative duties, as given below. I shall pursue either one with the best of my ability, but I cannot do both:

1. To train an army of uniformed British clerks in Spain for the benefit of the accountants and copy-boys in London or perchance.

2. To see to it that the forces of Napoleon are driven out of Spain.

Your most obedient servant,

Wellington

So much for progress in our electronic data capable world eh?

However, knowing there to be no perfect model or model that cannot be manipulated, and knowing there are so very few in Ukrainian politics – be they local or national – that are entirely upright and solid citizens of Ukraine, with such integrity that they would never take anything more than the pitiful public servant salary for their time and effort in office, one has to suppose that even when cutting out the Ukrainian central government, the regional fiefdoms will carry out the same nefarious funding function – one way or another – even with projects with a maximum value of Euro 2 million.

Nevertheless, a need for regional development there certainly is.  A regional interface there needs to be – and local/regional government is the most appropriate, no matter how nefarious.  A rigorous auditing model would minimize the opportunities for corruption although it could never eradicate them, but together with the EU producing the invoices they are asked to pay/given as audit evidence for public scrutiny would keep “very generous profit margins” to a more reasonable level.

Most importantly of course is that development of the region occurs – and for those citizens who actually benefit from the development of the region and feel the effects in their daily lives – well do they really care how many Euros it costs or get nefariously appropriated along the way to get what they need?  Of course not!

Perhaps they have a point too.   Accepting there is no perfect method – why do we expect a perfect outcome?

Odessa International Investment Forum 12 – 13 April 2013

Some things are almost guaranteed to be anticlimactic.

The Odessa International Investment Forum 2013 has every ingredient necessary to produce a complete lack of  climax – similar to that of an 80 year old impotent male surrounded by lithe and lustrous young beauties who then discovers he has left his Viagra in his hotel room.  Whilst attractive opportunities abound, none will be taken up.

In short, the FDI this forum seeks to encourage will largely be as flaccid as the aforementioned 80 year old male’s appendage – particularly if ignoring the possible time-line manipulation of already announced Chinese FDI and Cypriot investment that is really Ukrainian investment via a Cypriot front belonging to the local patriarchy.

Quite simply, a dramatic increase in FDI that is not already known about is highly unlikely to be forthcoming.  Especially so via a forum organsied by a City Administration that is so crooked it could not lay straight in bed – and is  widely known to be so.

The main objective of the forum is quoted as being “to foster effective cooperation between investors and regional authorities, increase the direct communication of national authorities, and make sure the market allows entrepreneurs to promote and attract private capital for new and ambitious projects”.

All of which would seem quite correct prima facie – until the costs of engaging with – or alternatively paying for the lack of engagement with – the regional authorities are taken into account.

It would be a bit of an overstatement to say I was “pally” with the last Mayor, and now UDAR MP, Eduard Gurvitz – but I certainly had no problems getting to see him if I wanted to.  To many he was known as “Eduard 6 zeros Gurwitz” apparently – but in my interactions with him I was never asked to pay anything, let alone a figure with 6 zeros – and neither did I make any money with 6 zeros at the end from my interaction with him.

However, if that image seems bad, then the current City Administration has a far, far worse reputation – not only for corruption but also incompetence – so much so in fact, that if I ever needed anything from the Odessa City Administration at its highest levels, I would probably go over their heads and have instruction sent down to them to assist me.  A very unsatisfactory state of affairs for all concerned if that were to ever be necessary.

A competent administration would be a bonus.  An honest one, a fairy tale.  However, dishonest but competent at least gives some conviction that the additional costs of doing business via them would produce anticipated results.

Within this investment forum, there is a framework to specifically highlight the need for investment and development in transport infrastructure, energy and modernisation of regional industrial parks.

Hmmm – transport infrastructure?  What about the maintenance and proper repair of the current infrastructure?  This hole in the road appeared only last week in Odessa:

Infrastructure is vital for economic growth and social well-being, and yet who would invest in transport infrastructure when the existing infrastructure is maintained on the cheap via opaque maintenance contracts within Odessa City Administration?

What returns do I get from a Public Private Partnership when the work is carried out with substandard materials, carried out by substandard contractors owned by family, friends or associates of those in City Hall through which bogus invoicing is approved?

How many times would I invest in laying a new road, to have it dug up for electrical work and then resurfaced.  Dug up again for telecoms work and again resurfaced.  Then for water, then gas, then for drainage and then for repair when the road is decimated due to snow and ice clearance each year?  Such is the incompetence of City Hall.

Even if all work was done at the same time, and due care and attention paid when clearing the roads of ice and snow, such is the corruption of City Hall, I could very well still pay for all the above digging up and resurfacing mentioned above even though it didn’t happen.

To invest in anything with the current City Administration I would only be confident of quality materials, quality of work, value for money and thus my ROI, if I was to stand and supervise the work myself – not something many potential investors are prepared to do.  More importantly I would need to have confidence in those who run City Hall and any due diligence worth its salt would severely shake that confidence before I signed on any dotted lines.

That is not to say all local government in Ukraine is as bad as that of Odessa.  It is just that any due diligence on the local government of Odessa specifically, will scare off the vast majority of investors.

Naturally this would be a very long entry if I were to look at all the areas this forum is to address, however, one final note regarding the moderinisation of industrial parks.

As I have written before, China is already busy in this area within Odessa.  Given the quite considerable investment of the Chinese and their first choice of locations, my first question would be why they passed over the industrial parks that Odessa City Administration is now trying to get others to invest in.

China is not short of investment capital, they send their own construction companies and they are used to dealing with corrupt officials.  They also have a new and efficiently staffed consulate in Odessa to provide diplomatic reminders to the local fiefdom when it steps out of line in their projects.  Further, they are also quite adept at picking the best opportunities thrown at them.

So why did they pass over the outstanding opportunities?

Anyway – enough – you all know what I am saying without the need to labour the point(s) further.

Suffice to say, the Odessa International Investment Forum will probably be quite well attended – it is the biggest on the south coast after all.  The outcome I expect to be nothing short of…..nothing really.  Nothing particularly noteworthy anyway.