A bird in the hand is worth two in the bush. How municipalities can develop an acceptable format for arrangement of territories for business development
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A bird in the hand is worth two in the bush. How municipalities can develop an acceptable format for arrangement of territories for business development

Photo: depositphotos
2 December 2021
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Decentralization that provided more resources and responsibilities to local authorities is one of the major reforms implemented in Ukraine since 2014. One of the most important and urgent issues for newly formed communities is business development. However, in some oblasts more than 70% of business is concentrated in and around the oblast center. The structure of business is also heterogeneous: industrial enterprises are concentrated in regional centers and large cities, while mainly agricultural businesses operate in smaller municipalities. Developed business activity guarantees budget revenues for a municipality, prevents outflow of population, contributes to the reduction of social tensions and to infrastructure development. Thus, municipalities are interested in promoting the expansion of local businesses and attracting new ones, including industrial enterprises.

An effective way of business development is the provision of infrastructure to stimulate the expansion of local businesses and facilitate the entry of new businesses.

Today, everyone is talking about the industrial parks. After adjustments in the legislation and preparation of two more draft laws 5688, 5689 this tool looks quite promising. Creation of industrial parks is regulated by the Law “On Industrial Parks” which provides a number of requirements (Article 8, Article 14, Article 34):

  • land plot of minimum ​​10 hectares;
  • the purpose of the land plot use should be industrial land;
  • the site must be suitable for use, taking into account the conditions and restrictions of urban planning documentation;
  • the industrial park must be approved and registered to receive state support for landscaping and certain tax and other benefits.

An example of a successful industrial park is the one in Bila Tserkva.

“Bila Tserkva Industrial Park has an approved development concept and strategic goals for a period of 10 years, namely: $ 250 million in investments, more than 4,000 jobs created, 30 residents and 70 hectares of developed areas. So far, $ 35 million has been invested, 11 hectares of land have been developed, 6 residents have been attracted, which has created 400 jobs. During the same period, the foundation was laid, without which the industrial park and its residents cannot function. First of all, all the necessary engineering networks, in-site and access roads have been built to the site. Secondly, anchor production and storage facilities and ready-made premises for sale or rent have been built. Third, there are three working residents whose companies already manufacture products, provide services and cooperate with each other. Fourth, management and service companies provide residents with administrative and other services respectively. This is exactly what we expected from the first 3 years of the industrial park operation.”[1]

However, the industrial park is only one of the tools that communities should consider. A municipality does not always have the minimum labor force number needed for an investor, or the money to connect the park to necessary networks. It is also important to understand that the interest of business at the local level is very often not related to benefits, but rather to the proximity of resources or markets. Clear and transparent rules of the game are also an extremely important factor for businesses that may be deterred by possible complications and corruption risks related to big scale projects.

We can divide municipalities into three groups:

  1. Municipalities – satellites of large cities.
  2. Municipalities that have several settlements with large population.
  3. All other municipalities.

The creation of industrial parks can be profitable (subject to the preliminary feasibility studies, as well as a request from several investors at least) for the first and partly for the second group. Which means, in fact, that this format will be feasible for a very small number of municipalities.

Then what shall other municipalities that do not have a lot of population (e.g. those that include one town and a number of villages), abundant resources of other preconditions for creation of an industrial park do? Clearly, they should not go for the creation of an industrial park. Drawing an analogy with a natural park – perhaps in some areas it’s impractical to create a large park but it still makes sense to arrange a park or a small green area for walking.

Therefore, each community should state for itself not the question: “How to create an industrial park?” but rather “What kind of cooperation with business will be most effective for us?”. The services and infrastructure will be defined individually in each case, however, there should be a single concept for all – first municipality helps developing business, then business develops municipality.

Strategies for creating a business space will be different in an oblast center or a relatively large city and in small municipalities. Large cities are interested in attracting large-scale investments, both Ukrainian and foreign. They have suitable  population and infrastructure.

Smaller municipalities should not forget about the possibility of intermunicipal cooperation – a few small municipalities together will get a wider range of possible strategies for building infrastructure for business. 

So, what should municipalities do for business development?

First of all, it is necessary to conduct a general inventory of all municipality’s resources. These include: available labor potential, premises, community-owned land, former industrial zones, information resources, existing roads, utilities, etc. Now a tool that is actively developing and helping to address the issue of systematization is a geoinformation portal.

The next step is to determine the economic profile of the community, namely, what business is already present in the community, what does this business do, how does the population earn money.  For this, in addition to the analysis of statistics one should implement a survey of focus-groups. They allow to collect more precise and refined information, as well as serve as an instrument for citizen engagement. 

After collecting all the necessary information, one should define alternatives and adopt one of them. One should involve business into decision-making. Thus, if a community plans to develop infrastructure on certain territory, it needs to produce a list of possible infrastructure and find out what local business or investors need. These can be different networks (electring, water, gas, heat), roads, refurbishing of premises.

Community heads need to understand what business they want to attract – large or rather micro / small / medium. It is very important to understand what kind of business we want to see on our site – companies of different sectors require different types of  infrastructure. Maybe we just want to stimulate business activity in a certain part of our community? Then the decision will be related to this part of the community. For example, the municipality of Autun in France arranges offices, shops in the part of the city where there is lower business activity, and rents them out at lower prices.

One of the success factors is active business involvement. Local enterprises and those considering entering a community  should be fully engaged into the process of determining the best solution for business support.

Business associations can also be partners in organizing business involvement. For example, the Royal Association of Small and Medium-sized Enterprises of the Netherlands (MKB Nederland) creates “business zones” through its local branches involving local businesses in cooperation with municipalities.

An example of such a cooperation in Ukraine is the project “Municipal business zone” of the Luka-Meleshyvska municipality of Vinnytsia region, which is being developed within the initiative of the Program “U-LEAD with Europe” for drafting of local development projects. The project partners started with the idea of ​​an industrial park. Gradually, during the discussions into which about 40 local businesses were involved, participants came to the conclusion that an industrial park could be an interesting format for the future, but it is better to start with a smaller project.

Today the land plot for creation and operation of micro and small businesses in partner municipalities is being created. Five hectares of the land plot will be equipped with water supply network, sewerage network and treatment facilities to enable construction of production, warehouse and administrative premises, buildings will be connected to gas and electric distribution systems.  

The partner municipalities decided to apply an integrated approach and to equip the “One Stop Business Zone” business support center on the territory. The main activities of the center would be improving the skills of local entrepreneurs, establishing more efficient production activities and organizing business events.

Zabolottsy municipality of Lviv region is an example of cooperation between the municipality management and people which resulted in the implementation of a project that allowed everyone to earn more (classic win-win situation).

“Back in 2008, the head of the village set up an initiative group, which submitted to the Canadian International Development Agency (CIDA) a project aiming at improving pastures in Zabolottsy. Under the terms of the project, all pastures had to be cultivated. And of course, at first the peasants did not support this idea. However, over time, there was a real need to uproot shrubs and install fences. So the residents started doing it consciously. By joint efforts, the pastures were put in order and electric shepherds were installed on them. And in June 2011, for the first time, an agricultural service cooperative (СОК) “Pokrova” was established, which is currently engaged in the production, cooling and sale of milk.”[2]

Summing up we would like to emphasize once more: business development projects are crucial for development of small municipalities. Equipping an area for business development is an important instrument. However, other instruments exist too. Thus one should consider the situation in the community – its resources and business that is already present. It is also necessary to involve entrepreneurs and the population into the decision-making. Then chances for the project success will considerably increase.

Authors

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The authors do not work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations