A place-sensitive approach to regional development in Ukraine

Of course, they needed money, and they looked at the support they could receive from the European Union’s Regional Development Fund, which was established to finance the EU’s cohesion policy, i.e. the development project of Europe’s less developed regions. They soon realized that applying with a large number of small projects individually will not do the trick. They would have little control over which projects get selected and the mix could easily become incoherent and lacking synergy. 

So they sat down again and made a plan – but a different kind of plan. They named it the Integrated Territorial Development Plan of Sicily. Sounds familiar? Indeed, there is something like that in the draft Ukrainian legislation and we’ll come to that in a bit.

The word ‘integrated’ meant that the plan included all sectors of the economy and society requiring development support. But this is only one half of the story. The other half is that the entire plan was financed by a single grant from the European Regional Development Fund – the so-called global grant. The global grant was not earmarked for specific projects defined in advance. Rather, the grant has been managed locally – by municipalities acting together and cooperating with local stakeholders to programme, select and implement the projects financed from the grant. This enabled granting small amounts of support for “soft projects” and small to medium-sized local infrastructure and business sector projects.

It’s all about the people

The Sicilian approach worked. Finally, people felt that the money was going to where they wanted it to go, instead of them going where the money was – that is, performing less meaningful activities just because they were able to get some funding for them. This feeling of ownership – not only of the money, but of the entire development process – sparkled motivation and dedication to implement the projects on time and in an efficient manner. The collaborative decision-making on the use of funds facilitated communication between different stakeholders, a commonly shared understanding of development goals, and sharing of experience and vital information.

Today, the approach to regional development which builds on local initiatives and puts the local stakeholders in the driving seat, is known as the place-sensitive regional development policy. At the bottom of it is the recognition that regions and territories within a country face different challenges and require different kinds of support. This may sound obvious, but, when taken earnestly, it has profound implications for the planning and implementation of regional development policy.

How place-sensitive is the regional development policy in Ukraine?

In terms of recognizing the different circumstances and needs of territories, the official documents do well. The State Strategy for Regional Development 2021-2027 (the SSRD) introduced the concept of functional territories which require special attention from the state, defined 13 different types of such territories and put them on the map. The amendments to the Law on the Principles of State Regional Policy, approved in July 2022, introduced a more concise classification of four functional types: restoration areas, regional growth poles, sustainable development territories and territories with specific development conditions.

The indicators for classification of territories are to be determined by the Cabinet of Ministers, after which the Ministry of Communities, Territories and Infrastructure Development (the MCTID) will form a commission for assignment of territories to functional types. The law requires that at least half of the members of this commission are members of the relevant committees of the parliament. This provision entails the risk that the assignment of territories becomes a highly politicized process rather than being based on clear indicators and objective evidence.

Good principles lacking implementation instruments

The legal concept of functional types has yet to be complemented by specific instruments for supporting the different types of territory.  Two instruments capable of introducing a place-sensitive approach into the regional development policy have been proposed within the draft Law on Stimulating the Development of Regions. The draft law was taken out of consideration by the Verkhovna Rada, but the two instruments proposed within the draft are still worth considering. 

The draft law provided an option for regions or local communities to develop their own integrated multi-sectoral development projects. This sounds very similar to what the Sicilian local communities have done. Indeed, such integrated projects, when prepared, would be an ideal opportunity to test the approach of financing them by a single global grant from the state budget – i.e, financial support provided for the integrated development project as a whole but at the same time letting the regions and communities decide on the allocation of money to specific activities. 

Another instrument proposed in the draft law were regional development agreements between the state and lower-level authorities. Such contracts would build a partnership-based approach to coordination between different levels of government and empower the “bottom-up” development initiatives. In Poland, for example, programme contracts were related to the use of EU funds, sectoral contracts were used for agreeing on the scope of territorially targeted sectoral policies of line ministries, and territorial agreements were used to agree on interventions at the local level.

Moving from hierarchical to place-sensitive development planning

Despite these interesting legislative developments, the current approach to regional development policy planning is based on a hierarchical approach. The law requires that development strategies of regions must be fully consistent with the strategic goals and priorities defined by the SSRD. Draft regional strategies and their action plans must be submitted to the MCTID to obtain a conclusion on compliance with the SSRD. If a regional strategy is adopted without a positive MCTID decision, the projects of the regional strategy are not eligible for financing from the State Fund for Regional Development (the SFRD).

However, the necessity to adapt the development projects to local circumstances, needs and capacities limits the effectiveness of the hierarchical approach. Within a hierarchical setting, it is difficult to achieve sufficient motivation, engagement and creativity of those at the lower end, in this case the development stakeholders at the regional and local level. The current approach should therefore be transformed into one based on “soft” and “bottom-up” coordination mechanism. The relationship between the state and the regional level should gradually develop into a more open one, where the role of the central level would primarily be to support locally driven initiatives and their implementation. Emphasis should be put on communication, developing a shared understanding of development needs and priorities, supporting policy design and management capacity at local level and empowering local (“bottom-up”) development initiatives. 

The process of updating the SSRD, which has recently been initiated, presents a first opportunity to test a less strictly hierarchical approach. The current practice, whereby the preparation of regional strategies starts only after the SSRD has been adopted, should be reconsidered. If the two processes would run in parallel, a bottom-up channel of coordination could be opened, in the sense that draft regional strategies could be taken into account in the SSRD preparation. This would allow the SSRD to focus on strategic areas of intervention from the state-level and designing appropriate support instruments for the regions and the different functional types of territory.

There is also no need to insist on full compliance of lower-level strategies with the SSRD. When a regional strategy includes well-justified priorities that, formally, do not fully comply with those of the SSRD, this should not be seen as a violation but rather as a customization of the SSRD to the needs of the particular region.

Matching planning obligations with management responsibilities

There is presently no clear delimitation of the matters that should be covered by the state-level, regional and local development planning documents. In a multi-level governance setting, based on the principle of subsidiarity, the planning and implementation responsibility should be taken by the level of government covering the territory which will benefit most from the planned measures and projects.  

Planning at the state and regional level should be primarily concerned with the infrastructure of national or regional importance, for example airports, highways, universities, hospitals, energy production and transmission networks. Regional level planning should also include infrastructure of a multi-municipal nature, such as regional roads, regional water supply, wastewater treatment plants and waste management centres. On the other hand, a large portion of infrastructure supports the ability of municipalities to deliver local services – for example, housing, local roads, schools, clinics, distribution networks – and should therefore be planned at the local level. The same principle should apply to non-investment development measures and programmes. 

Once such delimitation of responsibilities is clearly defined, the approval requirements should be limited to local project with significant impact on the wider territory of the region, regional projects or programmes of significant national importance, and project and programmes that require financing from a higher governance level (i.e. the state or regional budget).

Supporting place-sensitive policy from the SFRD

In parallel with introducing a place-sensitive approach to regional development policy, a thorough modernization of the SFRD operation principles should be undertaken. To increase the impact on reducing the development disparities between regions, the share of SFRD funds earmarked for less-developed regions should be increased from the current 20% to at least 50%. Once the functional classification of territories is agreed, the allocation formula for the SRFD funding should be enhanced by setting a minimum share of funds that need to be allocated to territories with specific development conditions. 

Given that most resources for post-war restoration will be provided directly by development partners or through the budgetary fund for the elimination of consequences of the armed aggression, the support from the SFRD should focus on local-level projects aimed at recovery of local economies and improving the public services for the local population. For the weakest communities, there should be an option to waive the current obligatory co-financing requirement.

It has been recently proposed that citizens should be invited to vote on the projects proposed to the SFRD.  Voting has the potential to bring the selection of projects closer to the needs of people, but, if taken at the regional level, the projects benefiting larger populations, i.e. the regional capitals and urban centres would likely win at the expense of smaller community projects. A better approach, known as participatory budgeting, which means voting at the community or municipality level on the projects to be financed from the local budget, is now practised widely in many EU member states and in almost 200 Ukrainian local communities.

It’s all about the people… but how will they learn to “catch the fish”?

One concern often voiced about building the regional policy on local development initiatives is that local administrations do not have the skills and personnel to design and manage development projects. This is often true. But local administration – and, more importantly, the local stakeholders – have a crucial resource which nobody else can have, that is the knowledge of their circumstances and needs. For their own well-being, they also have a strong motivation to learn the skills required to act upon such specific knowledge.

The state regional development policy should therefore develop instruments supporting learning and capacity building at the local level. The recent initiative of the MCTID to establish reform support offices in local communities, which, inter alia, would provide “emergency consulting services” for the preparation of investment projects and planning documents, is already a move into this direction. The State Restoration Agency could also gradually move from direct implementation of projects towards supporting and advising local and regional authorities on project planning and implementation. Within the SFRD, financial and expert support could be provided for designing and managing projects of administratively less capable communities. All these new supporting instruments could be learnt from the experience of U-LEAD’s 24 regional offices which are already supporting municipalities in their day-to-day work by providing capacity development to local officials across all the spheres of municipal mandate.

What’s there to gain?

Embracing the logic, not to say the culture of the place-sensitive approach is not easy and would probably need to be introduced gradually, for example by first testing the global grants approach with a set of voluntary selected communities. But the benefits it can bring are worth the trouble. It leads to better prioritization of projects and creates the feeling of ownership which motivates the local stakeholders to learn, create innovative projects and implement them efficiently. It gives people the chance to start building their future at their own place, instead of moving to some other, presently better-off place to improve their odds.

The article is based on a larger policy paper available in Ukrainian and English