Posts Tagged ‘development’

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The 5T municipal investment “strategy” – Odessa

June 18, 2016

For several months the 5T “strategy” arrived at by the Odessa City Council to attract investment has been occasionally mentioned.

The 5T “strategy”, or perhaps more accurately described as little more than a “slogan” will be officially unveiled on 1st July at an event sponsored and/or organised by the Odessa Development Fund, the Odessa Tourism Association, the Department of Economic Development of Odessa City Council, and the of Tourism and Resort Department of Ministry of Economic Development of Ukraine.

Naturally the municipal investment “strategy” is an attempt to convince investors foreign and domestic that Odessa is a good place to invest with tremendous potential – and indeed it certainly has tremendous potential.

Of course a reader will want to know what the 5 “Ts” actually are when mentioning the 5T “strategy”.

Those 5Ts are – Transport.  Trade.  Tourism.  Technology.  Trust.

Trust?

Trust per the dictionary definition “belief that someone or something is reliable, good, honest, effective, etc.”?  Odessa City Hall?  A City Hall that currently is seeing all of its long term organised criminality associates consolidate and indeed grow under its patronage?

Trust per the dictionary definition “an arrangement in which someone’s property or money is legally held or managed by someone else or by an organization (such as a bank) for usually a set period of time” – or perhaps better defined as “an arrangement in which someone’s property or money is illegally held or subjected to hostile/very hostile take over by someone else or by an organization (such as organised criminality closely associated with City Hall) usually after a set period of time

Trust per the dictionary definition “an organisation that results from the creation of a trust“.  Something that those in political power in City Hall do not bother with, for why bother to separate their business interests from their political interests?  Odessa City Hall does not run on the concept of the business of politics – it runs on the concept of the politics of (vested) business (interests).

Trust perhaps per “Trust in Deeds” – the Mayor Trukhanov’s personal pocket political party?  Is it a sinister subliminal message to the would-be investor?

An investor should perhaps clarify, and perhaps even codify contractually, just which definition of “trust” the Odessa municipal  5T investment “strategy” actually refers to.   He who sups with the Devil should have a long spoon – and a very clear eyed view of who and what Devil be Odessa City Hall.

devillongspoon

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Limitations of power – Saakashvili’s problem

June 2, 2015

After a few emailed requests from regular readers in response to questions arising from several recent posts leading up to, and following, the appointment of Governor Saakashvili in Odessa Oblast – despite stating repeatedly that the dust must be allowed to settle before making any knee-jerk judgement – there are a few matters that can be addressed relating to the questions received.

Predominantly, this reply to those questions will stick within the parameters of constitutionally granted/authorised power verses the challenges Governor Saakashvili faces, and the constraints.

Starting with the very basics, Governor Saakashvili is exactly that – a governor.  He is not a President.  He does not have anything like the powers he held as a President.  Thus his current legitimate (via The Law of Ukraine) and constitutional authority is significantly reduced in comparison to those he once held.  The ability to dictate the sacking of all the traffic police en masse as occurred in Georgia is far, far out of reach for him as a governor.

Quite simply, he is not the President of Odessa Oblast (even if it is a bigger geographical area than Belgium).  Neither is he the Mayor of the City of Odessa.  The Mayor holds his own constitutionally legitimate power and responsibilities over what occurs within the city limits.  The same can be said for other town and village administrative heads – although all eyes will naturally be focused upon just how heavily Governor Saakashvili will tread (or tries to tread) upon the nefarious toes of Mayor Trukhanov.

It is suffice to say that the Odessa Oblast Administration and Odessa City Hall have always had a fractious relationship, being extremely zealous in guarding their own turf, and quick to scoff, ridicule and publicly lambaste each other in the game of political oneupmanship.  Whether the shadow of Governor Saakashvili – particularly as he has the ear of President Poroshenko – will loom large over Mayor Trukhanov to the point of at least a truce between administrations,  perhaps even a reasonably coherent working relationship occurs, remains to be seen.

The problem with expecting such a reasonable working arrangement is that of the (nefarious) relationships the Mayor has with the vested power/clan interests in Odessa – notwithstanding his own vested personal/business interests that extend far beyond his office in City Hall, many of which are far from transparent – to be diplomatic.

In short, Mayor Trukhanov did not become Odessa Mayor without playing by “Odessa Rules” over decades past to get there.  Governor Saakashvili has no such local ties, interests, illicit hooks from which he can be hung or pressured over as far as the local elites are concerned.  In short, they have no local kompromat that can be used, and offering bribes would be somewhat risky – at present anyway.

For the people of Odessa that is a plus.  For the elites of Odessa it is a minus.  For Governor Saakashvili, it may become problematic – at the very least insuring “institutional resistance” where he has very few legitimate methods to address that resistance alone.

To take on the infamously corrupt customs and port authorities, he will need more than a little assistance from the Ministry of Interior – and indeed the Minister himself – in order to break the “Odessa System”.  Likewise with the issue of smuggling and Transnistria.  His control and influence over vital State institutions such as customs, the State Fiscal Service, police etc is (currently) limited.  He has perhaps already received such relevant assurances prior to accepting the role – if not, then progress may be far slower than many expect.

In taking on the “oligarchy”, Odessa has never really had its own oligarch – but oligarchical interests there undoubtedly are.  The replacement of former Governor Palitsa with Governor Saakashvili does not remove the Kolomoisky influence or “his people”, as is made clear in this recent entry predicting the immanent fall of then Governor Palitsa.   It is not only Mr Kolomoisky with “his people” in Odessa to confront.  Messrs Firtash/Liovochkin have “their people” too – headed by a former Odessa Governor and current MP, Mykola Skoryk.  There is also former (and probably the worst and most obnoxious) Governor, current MP Eduard Matviychuk, not withstanding his long-term chum Sergey Kivalov MP who seemingly still has the local judiciary wrapped around his nefarious finger.

Indeed these, and other local MPs sitting within the national Rada such as Messrs Cisse, Gyliev and Pressman are all problems to be dealt with – problems that still enjoy immunity.

The link above, also displaying that neither the Oblast Governor, nor the Chairman of the Oblast Rada, can be sure of the support of the Oblast deputies over policy large and small.

There is however, the “fear factor” that arrives with Governor Saakashvili amongst the more corrupt yet clueless within the regional institutions of State – regardless of what powers he may actually have.

By way of example, very soon a story is likely to break in the local media regarding a high ranking police chief (that won’t be named here yet – but it was inferred here first) from Odessa.  Suffice to say this police chief is not particularly bright, and his mother for years has wasted no time in telling those she knows just how well her (very corrupt) son is doing for himself.  A new home in Arcadia, a new $80,000 car etc.  That son (whether unbeknown to his dear mother or not) is now desperately trying to get a transfer from Odessa to Zaporozhye – and is offering $100,000 to those that can accomplish that transfer.  Thus far, though it is sad that there are those in Odessa willing to try and facilitate this transfer, unfortunately for him, his reputation precedes him and those in Zaporozhye don’t want him.  If Governor Saashavili can’t get him directly within his powers, he can perhaps insure he sits high upon the “lustration list” or insure criminal corruption proceedings are opened after an “encouraging word” at the Prosecutor’s Office.

Thus, although headway can be made directly by Governor Saakashvili, few of this issues can be dealt with by him alone.  More than a good deal of support, readily available assistance, and goodwill from both President and certain Ministers within the Cabinet of Ministers will be required to break the “Odessa System” and repeal the unofficial “Odessa rules”.

In the meantime, Governor Saakashvili can do little more than keep a watchful eye over Mayor Trukhanov, intervening where his powers allow, confront the “infamous” where opportunities present themselves – and in both cases get the external assistance required to get results.

He can go through the Oblast Administration like a dose of salts turning out the embarrassingly corrupt, disbanding departments that have no practical use or benefit for the public (and using some good people within to replace the bad apples thrown out from departments elsewhere).  In other words good house keeping over the next few weeks, getting a grip on the Oblast budget (which is separate from the City budget), and gaining the political consensus to pass policy that has hit the Oblast Chamber wall.

Having to leave the city for the most part to the Mayor, and as most districts of the Oblast are generally “on board” with the national and regional policies, particular attention should, perhaps, be given to the southern districts that are less robust in their supportive attitude.

Attention should perhaps be given to Ismail in the south, and a development plan (together with local MP Anton Cisse if possible) agreed.

Indeed, whilst Mayor Trukhanov has begun to flirt with Poland and its diplomats in Odessa (something that may (or not) become the subject of a different entry), perhaps Governor Saakashvili should embark upon a regional (yet international) policy that will be “owned” by him – something like an “E87 policy” given the few obvious options available.

e87

E87 is the road from Odessa that passes through Ismail en route (briefly through Moldova) into Romania and then Bulgaria.  He is possibly the only regional governor that has the clout associated with his name that could generate real cooperation from Romania and Bulgaria to turn the E87 into a far more revenue generating infrastructural artery than it currently is.

It would require significant budgetary commitment from Odessa to upgrade its part of the E87, and also to reinvigorate Ismail.  Ismail has the potential not only to be a transport/logistics hub on the E87, but also a scientific – specifically ecological – hub given its location next to the unique biosphere of the Danube Delta.

Further, whilst Odessa is well connected to Europe (and the world) by sea and air, that is not the case by road.  An attempt to drop an upgraded and useful infrastructural road anchor in Romania and by extension Bulgaria (and ultimately Turkey) would seem logical for a regional Governor with international recognition that has these nations as his closest EU neighbours.

The expensive prospects of building new roads west, or causing immense potential damage to the Danube Delta in crossing it, limit the options.  Thus an “E87 policy”, including the development of Ismail, would seem logical and in keeping with the ethnic mix in the southern districts too.

Granted the Kremlin will take a dim view of any “E87 policy”, no doubt stating it would be a “squeeze” on Transnistria or some such bluster – but whilst Kremlin “concerns” may be considered, they are not likely to be a driver for Ukrainian foreign policy, nor any local/regional “E87 policy” should it be pursued.

Transnistria will suffer more from a crackdown on smuggling and organised crime than it will any “E87 policy”.

There are yet other strings for the Oblast Governor to pursue in pulling Romania and Bulgaria closer – The EU Black Sea Basin policy is another.  Indeed there are several.

It would also seem a policy to pursue with the international flavour a former President would relish, rather than being confined to the daily grind of Oblast administration and little-league politicking.  Not everyday can there be headline-grabbing anti-corruption news after all.

That “daily grind of Oblast administration and little-league politicking” naturally raises another question when combined with the statutory and constitutional limitations of power on a Governor that used to be a President.  With the powers invested in him being insufficient to deal with the issues of Odessa Oblast without considerable help from Kyiv Ministers, one wonders just how long he will remain content to be a regional governor?

Having now taken Ukrainian citizenship, its absence it no longer prevents taking far loftier roles.

He has perhaps been given assurances, prior to accepting the role, over the devolution/decentralisation of powers that are to come, that may in turn increase his regional powers in orders of magnitude.  It seems unlikely a man with his ego would accept the role and leave it for loftier positions without first having made a regional difference.  “He managed to change a country, but failed to change an Oblast” is not the desired political epitaph.

That said, with a government reshuffle in the Autumn almost guaranteed, there is a chance Odessa Oblast is a “parking spot” until that reshuffle, providing the opportunity for Ukrainians to get used to their fellow citizen and politician Mikhail Saakashvili.

Whatever the case, the reforming powers once held as President of Georgia are much more retarded and limited as Governor of Odessa.  It is going to take a great deal of teamwork, coordination, and prompt assistance with, and from, the Presidential Administration and Ministers in Kyiv to effect the same reforming/modernising results in Odessa Oblast that were witnessed in Georgia.  For that timely and robust assistance, the Presidential Administration and those Ministers concerned are going to expect to be publicly recognised for their contributions too – so perhaps we will witness a far less “public eye” governor than when a President.

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Naftogaz reorganisation and the role of the State in development

May 3, 2012

The Ukrainian loss making State owned behemoth that is Naftogaz Ukraine is about to get broken down, reorganised but not, as the EBRD have stated is necessary over the years, privatised.

Actually that may not be quite accurate, there are certain parts of Naftogaz that are now legally banned from privatisation and others that quite possibly could be privatised.

What has been legally banned from privitisation, be it existing or newly created entities within the Naftogaz structure we are about to receive, is the following:  Any part of the organisation that transports gas via pipeline through either trunk or distribution pipelines,  underground storage facilities and Naftogaz itself.

Now you may think that leaves nothing to be privatised or partially privatised, but Naftogaz is a behemoth as I state.  There is nothing to state that the Naftogaz subsidiaries such as exploration, transport, logistics (etc) entities under the umbrella of  Naftogaz, are off limits to privitisation that I have found within the newly signed law.

All I can see is that the gas transport system, gas storage facilities and umbrella/holding company will remain State owned and legally cannot be privatised.  This press release would seem to confirm that.  The rest of the organisation’s subsidiaries, as far as I can tell, could well be privatised at some point in the future or indeed closed and their roles put out to private sector tender.

It is not unusual in Ukraine for the government to keep possession of certain parts of the nation’s infrastructure.  Airports for example.  The terminals and all integrated bits and pieces necessary to make an airport run can be owned or leased for long periods privately, but the runways remain the property of the State.  The reason being, apparently, is that should there be a war, the State has immediate access to, and control of, all runways of Ukraine.

This goes someway to explaining many fairly nice and new modern airport terminals with runways that resemble suffering multiple IED incidents.  The terminal owners are not overly keen to maintain a State owned runway when it is really a State responsibility.  Likewise, the State know if they wait long enough, the terminal owners will eventually do something, even if it is the absolute minimum, to keep the runways serviceable.

Putting aside the inevitable conflicts and derelictions of responsibility where State meets private sector in Ukraine, it is possible to understand the retention of certain infrastructural assets by the State even if some would disagree with State ownership.  Some prefer no State involvement, others possibly limiting it to a “golden share” scenario in any privitisation, and yet others are more inclined to give the State legal powers to simply take control of such assets in times of national emergency and rely on State regulations during times of peace. – Different nations use different models, some use all the models I have mentioned and more in different areas of the national infrastructure and for different reasons.

Your position is probably based on how narrow or broad an economic definition you would give to what is “public goods” and what you consider is a national strategic asset.

This brings us to the tricky issue (or not depending on how hard your views are) of the role of the State in national development, and in the case of Ukraine, it is probably fair to say it falls on the developing nation side of the line rather than that of developed, despite any infrastructural legacy of the USSR.

I would say it probably actually sits on the line and falls completely into neither the standard definition of developed or developing, as far as nations go.

If we compare Ukraine to the USA or Japan (or other similar “Old EU” nations) the development path is likely to be far harder and less swift but for reasons that we may not immediately recognise.  It will be easier to blame the government (of which ever party is in power) for the lack of progression to reach those “Old European” standards, than it is to look back at the histories of the nations we are comparing them to and how they achieved their development successes.

Suffice to say, the State did have a big hand to play in those successes and in a far less globalised world, be it  economically, business-wise and through international laws.

Nations like the US, UK, Germany, France, and others succeeded in creating a far better entrepreneurial climate than Ukraine.  There is no denying that.  Ukraine still manages to kill off much of the white economy and white entrepreneurs through the bureaucratic and corrupt legacies inherited from the USSR.  Thus there is a large black economy, large black entrepreneurial base and a middle class that is small and in many cases un-auditable when it comes to discovering quite how their financial status and social strata has been achieved.

However, we must also recognise that the successful nations had State interference that created protectionism, subsidies and generally unfair trade conditions whilst building their developed nation status.  Even today we can watch Senate economics hearings via live podcasts where economists will sit and plainly state the the US is a protectionist economy.  The EU single market by nature and design is protectionist.  There are subsidies galore for alternative energy R&D and alternative energy companies to give a modern, contemporary example.   The controversial Common Agricultural Policy within the EU is yet another.

Such examples are bountiful when looking at the histories of the developed nations I have mentioned so far when it comes to insuring the establishment of a domestic sector via State protectionist practices before allowing a more liberal attitude.

The UK for instance even went as far as only allowing trade with other nations if the cargoes were carried by British ships.  The US upon independence imposed incredibly high tariffs and import taxes in order to allow the newly founded nation to develop internal producers and demand for the internally produced goods.  Even in the 1920’s the US maintained the highest import tariffs in the world, second only to Spain at the time.

German unification under Von Bismarck also brought with it incredibly high importation tariffs whilst Germany evolved internally through the State’s protectionist policies.  State manipulation occurred again when East and West Germany unified.

Where Germany differs from the UK and US under Von Bismarck, is simply that the State at the time was driven by an elite who wanted industrialised development and entrepreneurial classes, where as the UK and US did it via democratic governance.

I could go on and on and list developed nation after developed nation that has employed protectism for prolonged periods to reach the their developed status and not just within Europe or citing the US, but you by now get what I am pointing you towards.

Protectionism is not an option for Ukraine, at least to the scale and over the prolonged period of time that the “model developed nations” employed it.  Membership of the WTO, having to cede ground with the World Bank, IMF and others who have vested interests in Ukraine being opened up for the existing developed nations to enter, quite simply makes this a non-starter.

Ergo the protectionist policies that have allowed others to develop steadily and robustly whilst retaining absolute sovereignty beholding to none, have been replaced by the slower, liberal and politically manipulable  method of foreign direct investment (FDI) to only open and liberal developing nations.

Now I have no interest in protecting or attempting to justify the 20 years of continually wrong or poorly thought out policies of successive governments in Ukraine,  nor their consistently corrupt  practices when it has been their turn at the public trough.  Undoubtedly they, each and every one of them, have personally contributed to the lack of progress in Ukraine along with many of those they have appointed to run the agencies of State.

However, they are also not to blame for the time in history and global attitudes they have led Ukraine through, and having hoped to cast a light on the very different development paths available to those who have made it and those who are still in the process (now matter how retarded that process seems) maybe we can see some reasons why Naftogaz will remain a State owned company, why some subsidiary parts will not be privatised, why subsidies will continue to occur within the Naftogaz arena to the angst of external actors and why so much loss making infrastructure will remain, for want of a better label, “public goods” or deemed “strategic”.

Having written all of that, much of it still does not sit well with me as far as excessive State intervention is concerned, but as Aristotle put it, and who am I to argue, “It is the mark of an educated mind to be able to entertain a thought without accepting it”.

That said, much of what seems to be the modern agreement between State and society (not only in Ukraine) doesn’t sit well with me either.  I have the worrisome feeling that we as a society are far too keen to dump our personal responsibilities on the State and that the State in turn is far too keen to take them on.  Maybe it’s an age thing?

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