Archive for November 3rd, 2011

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Regional challenges 2011 – 2015

November 3, 2011

Well it seems the Ukrainian President has instructed all regions of Ukraine to develop strategies to overcome the current difficult economic and social climate (for the most part being shared by the European continent and beyond) and create favourable conditions for those living within their administrative geographies.

Those of you who read a recent post upon the publication of the World Bank’s Ease of doing business report may well wonder how the regions are going to achieve this.  You are not alone.

Where Ukraine sits quite comfortably within the top 50 nations for enforcing contracts (despite its reputation for corruption it ranks 44th from 183 nations so it is actually in the top 25% for contractual enforcement amongst nations) and when it comes to getting credit it sits at 24th,  investors and population alike are most turned off by the tax situation.  Of those 183 nations surveyed by the World Bank, Ukraine comes in at 181.  Absolutely dismal.

In fact, if Ukraine got to grips with tax and customs for import and export it could climb exponentially up the World Bank league without attempting to tackle corruption or any other area in which there is also a need for action.  A tax ranking of 181/183 and customs ranking of 140/183 act as the most serious anchors in the World Bank league when it comes to FDI or SME activity.

So in light of these two facts that are critical for economic conditions being improved, how does the President expect the regions to combat the centrally controlled issues that prevent FDI and SME activity flourishing (more than any of the other scoring areas of the World Bank parameters).?

Odessa does not set the customs policy or tariffs for import and export via Odessa.  Odessa does not set the taxes for Odessa.  Odessa cannot remove the Kyiv controlled parameters within which the Regional Administration is bound.  After all, Odessa is completely subservient to Kyiv when it comes to setting annual budgets and receiving funds.  It has no mechanism to raise much in the way of tax locally and retain it for inward investment.

The only realistic way for Odessa to have the slightest chance of any meaningful strategy for economic and social improvement is less control from Kyiv and more ability to act autonomously which flies directly in the face of the vertical political power model now in place.

Kyiv could grant Odessa the free port status it once held as that would be a major attraction but it is highly unlikely to do so despite being the most obvious way to improve the economics of the region quickly.

When it comes to social policy, Odessa city has just embarked upon a major facade improvement scheme in the city centre.  Now I will admit that the environment you see every day does have a psychological impact on those living and working within it.  But image over substance goes only so far and the majority of people do not live or work in the historical city centre anyway.  The psychological impact on the majority of such a major face-lift will be minimal.

There is then the issue of the current mayor and the manner in which he took office, the fact his top three people in City Hall are all under investigation for corruption within 2 years of being in office and the fact he has not even considered his position when presiding over such a den of nefarious activity and actions by those he has appointed.

To be fair, Odessa has managed to hold a few public procurement tenders for the city, but as I have previously written, even public procurement does not mean transparency.

The economic transparency of City Hall and thus faith in the city administration would be best served by the accounts and auditors reports being publicly accessible with extreme ease so that nosy journalists and people with too much time on their hands like me can get behind the numbers and the auditors comments.

There are numerous projects on the City “wish list” that have existed since I have been here and none have progressed.  The City has decided to look at PFI/PPP partnerships to move them forward but they are not advertised anywhere.  The projects and details of them on CD ROM aren’t even kept in City Hall should a wayward investor manage to unwittingly gain access to City Hall.  All details of these projects are kept in a ground floor office in a very pretty building next to the monument for those lost at sea in Park Shevchenko.  More than half the people in City Hall don’t even know that this office and these projects exist!

Of these projects there is the land allocated, project details, design and planning permission for a state-of-the-art Business Incubator Centre that would be situated next to the Odessa-Kyiv motorway.  There is land allocated for an 18 hole golf course and club house on recently decontaminated land sat waiting for a business partner to magically appear in the hope that they somehow know this project exists with allocated land and planning permission.  The list goes on and on when it comes to City Hall incompetence, lack of marketing and reaching out to investors for Odessa, but Odessa still cannot create the climate necessary when the major turn-offs such as tax and customs for FDI are controlled centrally by Kyiv.

In short, Odessa could write the most wonderful strategies but they are absolutely meaningless when Odessa finances are centrally allocated and controlled by Kyiv and Kyiv also holds the keys to any regions success or failure by its ability (or not) to deal with the two major hurdles for economic growth – the abysmal tax situation and equally obtuse customs requirements and regulations.

These cannot be overcome by Odessa or any other region President Yanukovych.  Only the RADA and your signature can create the economic conditions necessary to allow FDI and SMEs to feel confident.  Of all the things on the “to do list”, sort the tax and customs issues first and foremost.  The rest can wait a little longer.

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