Municipalities need local business development to ensure a steady stream of revenue for local budgets, the availability of jobs, and possibilities for developing local territories. However, to work in municipalities, companies need to have favorable conditions. Industrial parks provide a way to create such conditions. Creating industrial parks requires investing considerable financial and human resources. ATCs, and especially those with a population of up to 50,000, should therefore open up to alternative solutions. This article discusses such solutions and ATCs’ success stories in Ukraine.
The article is based on the results of the “Local Economy” session held on December 7, 2021, during the International Expert Exchange 2021: Partnership for Development, as part of Vox Ukraine’s analytical partnership with the ULEAD with Europe program.
What the government offers ATCs
The Ministry for Communities and Territories Development’s strategic plan is based on three priority areas: planning, financing, and effective governance at the central, regional and local self-government levels. The first thing any ATC should do is answer a series of questions to help assess its potential and choose a development route: What are our strengths and growth points? What resources do we have available to us? How can we use them to develop the territorial community?
According to Deputy Minister for Communities and Territorial Development Ivan Lukerya, “each ATC must eventually answer a very simple question: what are we about? That is, why we were created, what we’re doing it for, how we’re expanding, strengthening our capability, and making use of all our capacity. Of course, the document containing answers to all of these questions is the ATC development strategy. And we ensure at the legislative level that every one of the newly created municipalities should have such a document.”
The financial direction includes budget resource planning at the state, regional and local levels to achieve the goals listed in the development strategy of a particular region and ATC. According to Ivan Lukerya, municipalities today have more opportunities to get financial resources from the state budget, ranging from the State Fund for Territorial Development program to infrastructure subventions aimed at developing municipalities’ economic infrastructure, rather than from qualitative development projects.
“The 2022 State Budget provides tools to support territorial communities,” says Ivan Lukerya. “These include the State Fund for Regional Development, a subvention for creating industrial parks, a subvention for establishing creative economy centers, a subvention for infrastructure, a subvention for drinking water, and creating and supporting administrative service centers. A project to connect localities to high-speed, broadband internet is underway. Of course, these resources will be earmarked competitively to be received by the ATCs having the best development plans. So we’re getting back to point number one, i.e., planning.”
Lastly, only effective management at all three levels can ensure the strategy’s quality implementation and win the resource competition. At the regional level, institutions that can enhance regional and local authorities’ governance capacity are territorial development agencies. The Ministry sees ATCs as potential founders of such agencies. “Capable big city ATCs can create their own regional development agencies that will attract additional resources, support and implement development projects, including economic infrastructure projects, whose high level will ensure success in this competition for state resources,” Ivan Lukerya notes.
According to the Deputy Minister, the government supports creating industrial parks as investment havens for local ATCs to offer all the conditions necessary to attract private investment. The first thing municipalities are expected to do is earmark land for industrial parks. Then they should come up with a quality concept for developing industrial parks, including studying local ATCs’ potential and providing quality project documentation for industrial park infrastructure regarding water supply, sewerage, electricity, access roads, leveling the site, and more. “Instead of simply leasing out or selling, local authorities can earmark land for private investment sites in the form of industrial parks,” Ivan Lukerya explains.
Big city ATCs can count on government help in creating innovative infrastructure. We are talking about innovative technology parks to develop creative industries: creative economy centers, laboratory infrastructure, micro-manufacturing, R&D, and IT companies.
Integrating economic sectors: Slovenia’s experience
The planning stage is key to developing business support infrastructure, as confirmed by European countries’ experience. Slovenian expert Jurij Kobal (Oikos d.o.o.) cites data from the World Bank, saying that the largest increase in terms of value and cost is seen today in such production stages as R&D, design, marketing, and the added services. Today’s share of production and assembly in the value chain is lower than half a century ago.
Jurij Kobal recalls that when planning to create a technology park in the capital Ljubljana, they decided not to focus solely on working with manufacturers or companies assembling equipment. Instead, they integrated the park with R&D institutions, designers, providers and developers, and anyone able to develop a full-fledged product. Integration makes it possible to gain added value and sell the product at a higher price. It is important to remember that a municipality planning on developing a business not related to innovations at first thought should still take them into consideration. After all, they may be directly related to business development.
“When we develop a business zone or industrial, technology parks, we need to engage designers, people directly from local municipalities (no matter large or small). If people have access to innovative development, R&D, they get together and create a product. The municipality will reach the highest production and supply chain level, and it’ll benefit a lot,” Jurij Kobal is convinced.
To achieve this, it is necessary to talk with people. Municipalities need to create discussion platforms and start a discussion across the participants’ network – from researchers to logistics specialists and designers to manufacturers – everyone needs to understand what businesses need to create this added value. “In this way,” says Yuri Kobal, “you get more and more local companies integrated into the process of creating higher value. Otherwise, you’ll be simply selling, outsourcing your employees, and those will still be low-paid resources. And you don’t want that.”
Jurij Kobal emphasizes that municipalities should have leaders, i.e., project owners responsible for developing business infrastructure.
The experience of creating a business park in Slavutych
Slavutych is Ukraine’s youngest city, created after the Chernobyl tragedy to permanently house Chernobyl workers. The 25,000-strong city of Slavutych in the Kyiv region has an extensive infrastructure: schools, kindergartens with swimming pools, sports facilities, cultural and health centers, and two city swimming pools. Until 2000, the entire infrastructure was on the books of the Chernobyl Nuclear Power Plant that generated electricity, earned money, and kept the city going. However, in 1995 the authorities decided that the city would no longer generate electricity, and Slavutych had to be transformed from a one-company town into a multi-industry city. In 2000, when the Chernobyl nuclear power plant stopped power generation, the city’s entire infrastructure became communal property, with the municipality being responsible for its maintenance, operations, and development.
“It was really difficult. At the time, we’d lost 8,500 quality, high-paying jobs, and over 1,500 people had left town seeing no future for themselves in a city of nuclear power plants with a non-operating power station,” Slavutych mayor Yuriy Fomichov recalls.
Slavutych eventually got a tool that helped it survive, re-discover its multi-vector market economy, and create the conditions to develop small and medium enterprises. The tool was a “special economic zone.”
“Thanks to this tool, we created over 1,000 jobs and attracted over USD 5 million worth of investment over five years. The tool turned out to be truly effective,” says Yuriy Fomichov. “However, special economic zones were discontinued because of some abuses in other locations. The preferences expired in 2005, and since then, we’ve been in dispute with the Ministry of Finance.”
Yuriy Fomichov is convinced that special economic zones should be restored. He puts forward other arguments in favor of this: “Over the five years of the special economic zone, entities paid four times as much to budgets of all levels than they got as preferences. In other words, it’s absolutely economically profitable for the state, and that’s the way to go.”
However, the mayor of Slavutych thinks it is difficult for ATCs to create industrial parks. Therefore, the city continues to move in a different direction. “In 2017, we signed up to the Covenant of Mayors (Mayors for Economic Growth) and worked out a local development plan. With the experience gained since 2000, we followed the path of creating business support institutions and a favorable environment to attract investment. We also maintained a dialog with the community, conducted surveys, and got people engaged in business training,” Yuriy Fomichov says.
The local authorities of Slavutych have set a course to develop local and regional businesses. They implemented the regional direction in cooperation with the newly established, neighboring ATCs (Mykhailo-Kotsiubynske, Liubech), where agricultural entrepreneurship is mainly being developed.
As for Slavutych, it did not change much during the decentralization. Its ATC remains within the same borders as before. Slavutych’s business park started with winning a competition and 650,000 euros of grant funding from the European Union for the creation of a friendly business environment. “We took a building that was operated very inefficiently. It was a road service building. We now have an area where entrepreneurs can receive all the services they need. We have ten production facilities to enter and start your business by installing your own equipment. That is, they’re equipped with all necessary networks. Besides, we’ve got office space and a conference hall,” Yuriy Fomichov said.
The Slavutych mayor lists the business park’s main advantages: affordable rent (UAH 3.80 per sq. m.), the possibility to conclude an agreement within 72 hours for using the business park, and an equally friendly attitude to any investor. “Even the investor who’s simply opened up a coffee shop on wheels and sells coffee in it himself is also an investor, he also needs our support, he also creates jobs, relieves the social burden on the state. So, we provide attention to every investor,” Yuriy Fomichov emphasizes.
The Slavutych mayor advises all ATCs to pay due attention to communicating what the government is doing to create the conditions for doing business. “Get people engaged, communicate with them, provide information: why things are created, why small and medium-sized businesses are important, why entrepreneurship is important, what it gives us, and how you can become an entrepreneur. We conducted training on entrepreneurship and developing the creative industries. We have several joint regional development projects with our neighboring partner ATCs.”
Thanks to Slavutych’s business park, the share of local budget revenue from small and medium-sized businesses has been growing since 2017. And even the crisis of 2020 was no exception.
Municipal business zone of the Luka-Meleshkivska ATC
The Luka-Meleshkivska ATC in the Vinnytsia region has a population of about 15,000, comprising 13 localities with a well-developed infrastructure that needs to be maintained. After conducting an extensive analysis of its possibilities, the ATC became a participant in the “Municipal business zone: small business infrastructure development” project. The project’s budget is UAH 20.5 million, and it will last for another two years.
“At the heart of this project is inter-municipal cooperation. Our project partners are two neighboring communities. One of them, the ATC of the city of Vinnytsia, an oblast center, enabled us to bring the project to the regional level,” the head of the Luka-Meleshkivka ATC, Bohdan Auhustovych, said.
The project to build a business zone is being implemented in the Vinnytsia region for the first time. The project is part of a regional development strategy aligned with state development programs. Unlike the city of Slavutych, whose business park was built on the ruins of a road service department, the Luka-Meleshkivska ATC did not have a base building.
Bohdan Auhustovych notes: “We only have a very convenient plot of land. It’s located near the Luka-Meleshkivska ATC’s territorial center, at the intersection of the highway and a railway branch with the freight station. There are engineering networks near the site, minimizing the connection costs. The nearest Vinnytsia airport is only 14 km away, making it possible to house a wide range of industries.
Like in Slavutych, businesses in the Luka-Meleshkivska ATC will be able to conclude a lease agreement in the business zone within 72 hours.
“It’s not enough to simply attract entrepreneurs. For them to develop, they still need to be trained. Therefore, the project includes the creation of “One STOP Business zone,” i.e., a space offering advice and support, including legal support, to all those operating there and willing to develop. We’re not simply chasing quantitative indicators to make as many manufacturers as possible come to us. We need quality producers,” the ATC head emphasizes.
Bohdan Auhustovych explains that the business zone’s land and production premises will be in communal ownership, serviced by a communal enterprise belonging to the ATC. That is, the premises and land will be offered to businesses for rent only. The project also includes the building of modular storage and production facilities. In this way, the premises’ structure and configuration can be adjusted directly according to the needs of the manufacturers renting them.
The project will help create jobs for the unemployed. In particular, there is an opportunity for local residents to learn and develop craft production. People traditionally grow pears and other fruit on the territory of the Luka-Meleshkivska ATC for drying.
“We have many agricultural producers engaged in fruit and berry production. The thing is that we sell raw materials, not products. Because berries spoil quickly, it often forces small farmers to give them away, at a loss. This has led to the closure of many businesses. As part of the project, we’ll get the unemployed engaged, which will reduce the business burden on large ATCs and enable small municipalities like ours to develop,” Bohdan Auhustovych sums up.
More and more ATCs in Ukraine are working to build an infrastructure for local businesses creating favorable conditions to attract new entrepreneurs. Today, we have success stories proving that you may choose any format for developing the business environment, but it should meet the demands and challenges you are ready to accept. Those ATCs will succeed that plan their projects well, finding adequate funding, and managing resources efficiently.
Vox Ukraine thanks VoxCheck intern Mykhailo Astafyev for his help in preparing this article.
Автор не є співробітником, не консультує, не володіє акціями та не отримує фінансування від жодної компанії чи організації, яка б мала користь від цієї статті, а також жодним чином з ними не пов’язаний