Annex 3:

3PR: Improvement of Regional Policy for Development of Institutional Infrastructure and Investment-Friendly Business Environment

1. Project description

2.  Project purposes and goals

            The project proposal states that the outdated institutional environment represents the most fundamental obstacle for business and economic development in the Ukraine on both the regional and national levels. The improvement of the institutional infrastructure and conditions for doing business in the region are considered vital and important areas for the transition to a free market and the building of democratic governance structures.

            The key issue of the project was providing local governmental agencies with basic guidelines on policy innovation for improvement of those institutions that support investment processes in the region. These can be used as a basis for strategies for institutional and policy innovations to develop strong institutional capital and investment policies which are more likely to be successful in the context of transition and the globalizing economy.

The key audiences of these guidelines are city and regional governmental agencies and associated organizations, and national business regulation and development committees and associations of entrepreneurs.

The project tried to react to the following questions:

1.       What regional and local government institutions and organizations are involved in or affect the regional economic investment process?

2.       How do these institutions exercise economic, political and administrative authority in managing and influencing investment activity in the region?

3.       How can these institutions change and improve their structures, policies and processes to enhance their capability to improve the business investment environment of the region?

            Its results were expected to help to create new regional policy to build institutional structures for the development and support of investment activities in Kharkiv area, with potential impact on other Ukrainian regions and Eastern Europe countries.

The main results of the project were defined as:

1.       Project of Institutional Infrastructure & Investment Business Environment improvement in Kharkiv region;

2.       Proposals of strategy for realization of new organizational structure;

3.       Approximate project of strategy for raising the skill level of the key staff of Kharkiv Oblast Administration and Municipal Executive Committee according to a new approach to activity.

3. Project realization

The project was realized with some implementation problems due to difficult local environments. Two issues should be mentioned:

1.         All public officials in regional and city administration in Kharkiv have been involved, and over-occupied with the election campaign and elaboration of its results which ended in late April 2002. Because of this, they were not approachable in terms of cooperation for the preparation and conduction of surveys and distribution of questionnaires. This caused delay with the conducting of surveys and other key actions in terms of study implementation.

2.         The distribution of questionnaires among all public agencies and private enterprises has been controlled by regional administrations. All fulfilled questionnaires collected by representatives of regional administrations were submitted only after “examination of its content”. All these measures did not stop the work but did consume time and caused completion delays of research actions.

The project realization was faced with old-fashioned administrative cultures and the tendency of state (public) agencies to control and inspect everything they can, but there were also new signs of managerial innovations. For instance, the Counsel on Investment Activity became more dynamic and less “bureaucratic” in all procedures and more supportive to prospective industrial investors.

Because of delays linked to the Ukrainian elections of 2002, the implementation of field work and surveys were postponed. It caused a half-year shift in the completion of research. In addition, the group leader’s illness and personal circumstances also caused the preparation of the final report to be submitted later. 

4. Project outputs, outcomes and impacts

The main tangible output from the project is “The Final Report of Improvement of Regional Policy for Development of Institutional Infrastructure & Investment Friendly Business Environment”. This report includes all proposed project results and is available in Russian, Ukrainian and English. It was presented to the Department of Economics of Kharkiv State Administration, the city’s Executive Committee and the Council on Special Regime of Investment Activity. A copy of the report was sent to the Ministry of Economics and European Integration of Ukraine, the Committee on Regulatory Policy and Support of Entrepreneurship, and related committees of the Ukrainian Parliament (Verkhovna Rada) as well as local and national Associations of Entrepreneurs and the National Association of Agencies for Regional Economic Development.

The structure of the report is as follows:

1.       Research conception

2.       Investment climate in Ukraine and Kharkiv

3.       Results of review

3. 1 Public agencies

3. 2 Business organizations

4.       Conclusions

4. 1 Macro-recommendations

4. 2 Micro-recommendations

5.       Distribution of results

6.       References

7.       Appendixes:

a.       Background text

b.       Evaluation of the quality of the main factors of investment attractiveness  and competitiveness of the region

c.       Structure of investment process and its basic barriers

d.       Management quality

e.       Organization of interactions with applicants/potential investors

f.        Questioning of business organizations

g.       Questionnaires

The project results were also included in the preparation of two new training courses which will be offered by the CEDRMCB: “Regional Economic Development” and “Investment Friendly Environment and Policy”, and into the elective course “Institutions for Economic Development” to be offered to graduate students of KSAME.

            Concerning intangible outputs, the fact can be stressed, for example, that in the implementation of the project a number of KSAME graduate students took part. The work helped define the master’s thesis topics of two students including data.

The project outcome is an opportunity for the Center and KSAME to acquire visibility by participating in national and regional conferences concerning the improvement of business climates where the project results have been presented. The most important was the First International Symposium on “Economic Development and Strategic Planning in Eastern Europe in Context of Globalization: Opportunities and Problems”, held in Kharkiv on May 27-28, 2003. The second occasion was the Ukrainian National Conference on Local and Regional Economic Development (funded by USAID) in Kharkiv on June 11-13, 2003. It conclusions have been heavily based on project findings:

1.       Develop and implement the mechanisms of interaction between local self-governance agencies, the business sector and the public in making specific decisions as regards solutions of regional development problems.

2.       Introduce into the local budget a provision for cost items to support local institutions and agencies of regional development.

3.       Form local budgets with the account of the local initiatives programs.

4.       Increase the professional level of employees working in local economic development institutions by carrying out training programs for them.

5.       Provide for widespread use of information regarding the performance of the local economic development institutions.

6.       Carry out reviews of local economic development institutions performance in all Ukrainian regions.

7.       Recommend donor organizations carry out preliminary consultations with the institutions of local economic development when forming priorities for their performance in Ukraine.

8.       Set up training centers in the regions to train specialists for local economic development institutions.

No definite impacts of the project might be identified, yet, but there is hope that lessons learned and information distributed might help improve the local business environment not only in the region but also in the Ukraine.