Boost for regional development

This week the Verkhovna Rada will consider in the first reading the draft bill that will quite literally affect the life of every Ukrainian. The bill proposes new principles for the state policies on regional development and the development of territories. Our digest today will focus on the in-depth analysis of the bill.

Boost for regional development (draft bill # 5649 of June 10, 2021)

Status: first reading.

Who is affected: Ukrainian citizens, government bodies, and local governments.

Background information: in August 2020, the Cabinet approved the State Strategy for Regional Development for 2021-2027. The Strategy introduced the classification of territories that need state support and defined key priorities for the state regional policy. That includes the restoration of territories affected by the war, development of rural regions, and strengthening of the dominant role of big agglomerations.

Summary of the draft bill: the bill regulates the state policy on providing support for different types of territories. In particular, the territories that have limited resources for growth:

• thinly populated territories and mountain areas
• frontline territories
• territories on the border with the Russian Federation and Moldova
• former mining centers that are now in decline.

To boost the development of such territories, the bill proposes the following:

• investments into the development of industrial (including the creation of industrial parks), transport, and social infrastructure
• support for small and medium businesses, interest compensation for those who create jobs
• introduction of tax privileges for new businesses
• promotion of labor migration to such territories
• promotion of the processing of agricultural products.

To implement the proposed state policy, the bill will grant the Cabinet the right to sign agreements on regional development with the Verkhovna Rada of the Autonomous Republic of Crimea, oblast councils, Kyiv and Sevastopol city councils. In addition, it will allow the councils in question to sign agreements with each other concerning the following issues:

• interregional cooperation
• economic development
• handling of domestic waste
• transportation for inhabitants of neighboring areas
• preservation of historical heritage and environment.

What is right:

• the bill proposes a comprehensive approach to the development of the territories in accordance with the unified strategy of regional development. The bill is an attempt to change the old ineffective approach to supporting regions and particular territories via chaotic state investments into random objects of state and communal ownership
• the bill proposes to introduce the classification of territories based on economic, demographic, social, and security factors and defines separate policies for each type of territory with different priorities of the development and state support
• creates the possibility of coordination between the Government and local authorities on boosting the development of the regions
• grants the regions the right to sign agreements with one another to solve common problems.

What is wrong:

• the bill violates the Constitution: relations between central and local authorities based on agreements are characteristic of federal and not of unitary states. The introduction of agreements between the Government and local councils will be one more step towards the federalization of the country. Under the current complicated situation with state security, Ukraine does not need any additional threats to its territorial integrity. Also, it is important to stress that a similar system of agreements between the Government and local authorities is proposed in the law on the special status of the temporarily occupied territories of Donetsk and Luhansk oblasts that Ukraine was forced to adopt by Russia while signing the Minsk Protocol
• agreements between the Cabinet and oblast councils will create a complicated system of political leadership over projects on regional development and diffuse the responsibility for the failures in the implementation of these projects
• the draft bill in question and the State Strategy on Regional Development (it covers territorial zoning) are based on outdated information about the demographical situation in Ukraine: the previous census was conducted in 2001. Therefore it is highly probable that territorial zoning will be inaccurate and the proposed policies will be ineffective
• many of the draft bill’s proposals are unrealistic, so the bill looks more like a declaration. For example, it projects that people from regions where the economy is better will move to less prosperous regions
• the introduction of tax privileges and larger investments from the government budget into particular territories could bring the same results as free-trade zones in the 1990s: the rise of oligarchy, misuse of public funds, and corruption
• without the increase in transparency and parliamentary control, there is a high risk that the boost for regional development will degenerate into corruption and misuse of public funds.

Alternative solution:

• to develop an effective strategy for state regional policy based on data from census and comprehensive research on demographic and economic trends
• to discard the idea of allowing agreements between the Cabinet and oblast councils. Instead, local governments should have the opportunity to initiate projects on the development of their territories and the Cabinet should be the final judge on these projects since it is responsible for the state policy on regional development
• to give up the idea of introducing any territorial tax privileges.

What’s next: the Verkhovna Rada should reject the draft bill because some of its provisions are unconstitutional, some of the proposed changes create threats to national security, and some proposals are unfeasible empty declarations.