IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine
REFORM IN THE CONTEXT OF POLITICAL REFORMS AND
MORE ASSERTIVE REGIONAL ELITES
Dr Olga Mrinska, Department for International Development (DFID) Ukraine
Introduction NSRD: ‘Strong regions – a
The political reforms which are now rich country – happy people’ strategy (and earlier by the Law on the
being implemented in Ukraine as a result
of the changes brought about by the 2004
Orange Revolution are imposing great
pressures on regional policy at both the
national and regional levels, with antici-
pated territorial administrative reforms
raising the temperature still further.
With their mind on greater decentralisa-
tion, politicians’ understanding of what
constitutes a successful region is often too
simplistic or technical. Mostly, they ignore
what lies at the heart of effective reforms
of this kind: thinking of regions as unique
socio-economic systems which require
coherent, co-ordinated policy in order to
become competitive and successful.
Since it aims to set a clear agenda for
the development of Ukraine’s regions over
the next 10 years, the National Strategy for
Regional Development (the NSRD) has
attracted the attention of a wide range of
central government and regional elites, and
is subject to all the comments, confusions,
and ambitions they bring with them.
The strategy also represents a key stage
in the process of bringing Ukrainian
institutional structures and legislation
in line with EU policies; approval and
implementation of the strategy is one
of Ukraine’s commitments under the
Ukraine-EU Action Plan for 2004-2006.
This article will provide an insight into
the parallel processes of territorial and
administrative reform and regional policy
formulation over the last year, demon-
strating that big compromises will soon
be needed between national and regional
interests in Ukraine.
Ukraine in 2006
Source: http://www.lib.utexas.edu/maps/cia06/ukraine_sm_2006.gif
6
tools and mechanisms proposed by the
The process of developing a National
Strategy for Regional Development
(NSRD) in Ukraine to 2015 began about
five years ago, and the document has been
through several major adjustments since
then. Influenced both by changes within
the country and by lessons learned from
other European countries, the whole
philosophy underpinning the document
has evolved considerably. The strategy
was recently approved by the Cabinet of
Ministers and the next step is to allocate
corresponding funds for implementing its
priorities and tasks.
The mission of the NSRD is ‘Strong
regions – rich country – happy people’,
with the main goal being ‘to create con-
ditions for raising the competitiveness of
the regions to maintain sustained dynamic
growth on a modern technological base
with high productivity and employment’.
Some think this mission is quite dangerous
and misleading in a situation when regions
are becoming less willing to co-operate
and co-ordinate with centre and at least
some regional political forces are demand-
ing greater autonomy, or even that Ukraine
transfers to a federal model of state. It thus
took great effort to explain and illustrate
that in this context, ‘strong’ regions cannot
be taken to mean the same as ‘autonomous’
or ‘independent’ regions.
Also the claims were dismissed that
NSRD will lead to a substantial increase
in the amount of regional funding and
redistribution, which would work in
favour of either the rich or the poor. The
Stimulation of Regional Development)
are aimed at the optimal use of exist-
ing fi nancial flows from the centre to
the regions to achieve the maximum
effect. Of course, there is a real need for
an increase in funding to support the
regional policy in Ukraine.
After a detailed analysis of the current
socio-economic situation in Ukraine
and its regions, it was decided that the
Strategy should address the following
problems over the mid-term:
• Low investment appeal and innovative
activities in the regions;
• Underdeveloped physical and social
infrastructure;
• Irrational use of human resources;
• Weak inter-regional links; and
• Growth of regional disproportions in the
country’s socio-economic development.
There are of course many other challenges
which are necessary to target, and arguably
could have been included in this docu-
ment. Yet bearing in mind that this area
of national policy has limited resources
and considering the higher-level goals of
the National Socio-Economic Strategy
to 2015, it was decided that a selective
approach concentrating on issues such as
competitiveness and high productivity in
the regions would be more effective.
From strong regions to
polarised development
Despite much criticism and reluctance
main author of the document (the
Ministry of Economy) insisted that the
principle of polarised development should
be one of the Strategy’s cornerstones.
This means that the state will deliberately
support only ‘locomotives of growth’ and
aim to catalyse spill-over effects from
these areas. This is quite a logical step
and it is based on the fact that regional
targeted capital investment grants are only
3.5 billion Hryvnia (700 million USD) in
2006. The principle of polarised develop-
ment will also be employed to support
the least developed and most deprived
areas: compact territories where further
degradation might undermine national
security and harmonious development of
the state (see box 1).

The principle of polarised develop-
ment is also strengthened by the principle
of concentration, which is again based on
the scarcity of national funds available
for supporting regional development.
In 2006, the Government has already
approved a new procedure for allocating
regional grants, which is based on more
competitive and selective criteria, such
as funding capital investments for objects
under construction which are nearly
fi nished, or providing funds for projects
with a higher profitability rate.
It is also worth noting that NSRD
mentions cohesion as one of its key prin-
ciples, and distinguishes between social,
economic, and spatial cohesion. This is
seen as a measure to counterbalance the
existing gap in socio-economic develop-
ment between different regions, which
cannot be closed immediately. Cohesion
is aimed at preventing ‘enclaves of poverty’
from appearing, not only by providing
direct support to the most remote and
deprived areas but also by stimulating
links with more advanced neighbouring
territories – by improving infrastructure,
stimulating labour mobility and encourag-
ing collaborative initiatives.
The NSRD’s strategic goals are the
following:
• Increased competitiveness and strengthened
resource potential of the regions;
• Development of human resources;
• Development of inter-regional co-
operation; and
• Creation of institutional conditions for
the development of regions.
All the institutional mechanisms and
tools proposed by the Strategy will con-
tribute towards the achievement of these
goals and towards training the regions to
deploy their own funds and resources in a
new way. Some of them, especially those
bordering the EU, have already reached a
certain level of understanding about what
needs to be done in order to compete with
or even overtake their neighbours. Other
regions lack this understanding, and will
require a quite long and intensive training
and capacity building campaign if they
are to comprehend the importance of new
approaches in planning and managing
regional socio-economic development.
Political reform and its
impact on regional leaderships
However, regional policy is just one
element of a much wider, much more
IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine
Box 1: the high nature of soco-economic disparities in Ukrainian
regions, 2004
It is important to note that over the last 10 years, inequalities between the
most successful and the least developed regions in certain indicators have
reached large ratios (see table).
Indicator Maximum Minimum Average
GVA per capita, $* 3.274 537 1.002
FDI per capita, $ 1.011,8 26,8 176,1
Capital investments pc, $ 1.024,4 110,3 312,9
Salary, $ 190 76,1 115,6
Export of goods, $m 8.347,7 61,2 -
Export of services, $m 762,8 1,1 -
ILO unemployment rate, % 12,2 4,8 8,6
* 2003; currency rate used 1 USD = 5,1 UAH
Source: Monitoring of socio-economic development of Ukrainian regions in 2004, Ministry of Economy
complex ongoing process of reforming 2006 were a very good illustration of the
Ukraine’s state architecture. As a result fact that many parties and political blocs
of the compromise reached in autumn are little more than ‘one-man shows’.
2004, constitutional changes came into Nonetheless, most power in the regions
effect on 1st January 2006 under which and local communities went to a small
Ukraine became a presidential-parlia- bunch of parties (no more than 8-10)
mentary republic and many presidential representing strong political elites and
functions were transferred to parliament. economic groups from different regions.
The latter now has responsibility for The main standoff was between the Party
state policies in most areas, as well as for of the Regions (led by Victor Yanukovych,
appointing the Cabinet of Ministers and current Prime-minister who lost the last
controlling its work. presidential campaign) and two ‘orange’
At the same time, Ukraine has political forces: the Yulia Tymoshenko
changed its voting system at all territo- Bloc and the ‘Our Ukraine’ bloc backed
rial tiers from a proportional-majority to by President Viktor Yushchenko.
a proportional system. This is the main The results of the proportional voting
catalyst of the confusion and confl ict in regional and local councils were very
currently affl icting the country. Party similar to the results of 2004 presidential
life in Ukraine is still rather eclectic results: pro-Yanukovych parties formed
and impulsive. There are more than 100 a majority in the councils of Eastern
parties in Ukraine, almost all of which and Southern Ukraine, while councils
are based not on ideological values but in Western and Central Ukraine are
on the personalities of their leaders and dominated by pro-Yushchenko forces.
reacting to the current political situation. Regional and local councils that oppose
The parliamentary elections in March the President immediately started
The Black Sea port of Odessa is a key growth locomotive
7
 IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine
Ukraine is a land of political bastions
demanding greater autonomy and to them and to which they had direct
implementing what they call their own channels of communication. The party
‘regional policy’. list system has put this right in peril. Lists
One of the largest problems with the are currently formed not on the basis of
new voting system is the under-represen- ideology but according to economic
tation of local communities in regional interests.
councils. For example, of the 120 MPs
elected to the Odessa oblast council (one Forthcoming territorial and
of the biggest regions of Ukraine), 94
administrative reforms
live in Odessa itself, and three more are This is only the fi rst stage of reforms.
residents of Kyiv. 11 of the 26 raions and
Another result of the political compro-
three out the seven cities of oblast signifi-
mise was major administrative reforms
cance are not represented in the council
leading to considerable redistribution of
at all. The previous proportional majority
authorities among administrative tiers
system was highly criticised (often quite
and branches of power aimed at greater
justly) for favouring the interests of areas
decentralisation of power to regional and
where MPs had the most influence and
local self-governments. The Government
whose interests were thus best lobbied.
was also tasked with ambitious and quite
Nonetheless, it did provide an opportu-
contradictory territorial reforms which
nity for communities to be represented aim to create a more rational and coher-
at the local, regional and national levels ent model of territorial arrangements
by people who were vaguely accountable (see box 2).
Box 2: Changes to Ukraine’s territorial arrangement after the reforms
The main objective of the reforms is to improve social, administrative
and communal services by bringing the centres where these basic services
(education, health, social, communal, etc) are provided closer to the
population. To achieve this, the new Government proposed a package of
legislation to strengthen local and regional self-government bodies, while
simultaneously amalgamating local communities and raions (at the intra-
regional level) into more viable and self-sustainable territorial units.
Population Population
Before reform
(average)
Units after reform
(minimum)
1. 24 oblasts 1.8 million 1. 24 oblasts 1.
2. Autonomous Republic 2. Autonomous 2.
of Crimea Republic of Crimea
3. 2 state cities 3. 8 city-regions 3. 750,000
(exceptionally
1. 490 raions 80,000 1. 280 raions 40,000)
2. 170 cities of oblast significance 2. 70 city-raions 5,000
4,000 communities
28,615 villages, settlements, 1,700 equal to villages, (exceptionally
towns grouped in 10273 councils 1,500)
settlements and towns
* 2003; currency rate used 1 USD = 5,1 UAH
Source: Monitoring of socio-economic development of Ukrainian regions in 2004, Ministry of Economy
8
Whilst everyone recognises the need
for greater decentralisation and the
strengthening of local government at
the lowest level, the proposed territorial
rearrangement of country has provoked
strong arguments and opposition. It is
certainly true that local level govern-
ment is currently the weak link in the
chain. However the proposal to extract
bigger towns and cities from raion and
oblast structure and give them raion and
region status correspondingly is quite
controversial.
It should be noted that the Ukrainian
u nder st a nd i ng of t he not ion of
‘city-regions’ differs from the European/
international one. Currently, at least,
creating city-regions in Ukraine will be
little more than a mechanical process,
without much research on these cities’
spatial position and significance, inter-
relations between the core city and its
hinterland, infrastructure accessibility or
mapping their spill-over effects.
As many European cases have shown,
simply extracting regional centres and
turning them into separate units is
very rarely successful in stimulating the
appearance and growth of alternative
regional centres. Most often, these cities
become enclaves of comparative prosper-
ity, where the local population has better
access to services and the level of income
generated is much higher than anywhere
in the surrounding region. A consider-
able part of the population is already cut
off from many basic services in Ukraine
due to poorly developed transport routes.
‘Liberating’ outlying areas from the
regional capital may well do nothing
to improve their income base, since the
most profitable businesses and properties
tend to be located in these cities.
Currently, the town and village commu-
nities which will form the region around
the city-region do not possess the nec-
essary institutional, physical and social
infrastructure to satisfy their populations’
needs. Until this missing infrastructure
has been created, transport infrastructure
upgraded, or fi nancial relations between
the to-be-independent regions and their
‘big brothers’ regulated, the whole idea
of creating city-regions and city-raions is
quite dangerous. It should also be taken
into account that for the last four years,
Ukraine has been implementing budget-
ary decentralisation reforms.
One effect of this is to reduce the
amount of obsolete social infrastructure

in some regions where there is a far
greater quantity of such objects than is
really needed. This is saving a great deal
of funding, allowing the proper mod-
ernisation of remaining infrastructure;
it is also logical given Ukraine’s demo-
graphic slump, with the country losing
300,000-350,000 people a year due to
negative natural growth. Hence territo-
rial and administrative reforms, which
propose to bring services as close to peo-
ple as possible (especially in rural areas)
by creating a greater quantity of smaller
scale social infrastructure projects, go
against current trends in budgetary
policy. Territorial administrative reform
does however provide a much-improved
administrative structure for implement-
ing regional socio-economic policy
more effectively (see box 3).
Conclusions
The political reforms that are now in
progress call for greater democratisation
and accountability of central and local gov-
ernment at all tiers. And though there is
indeed more freedom of speech in Ukraine
since 2004, civil society – whether the
media, community organisations, or the
general public – are not yet aware what
leverage they have over local government,
and the under-representation of their
interests in the new electoral system might
only make the situation worse.
The NSRD outlines a clear state
position towards its regions. It is a docu-
ment that is not biased, but balanced,
rational and based on the socio-economic
situation and local conditions in each and
every region. It is not a panacea and does
not aim to address every single problem
faced by the regions: other policies and
strategic documents should also have a
regional component relating to the wel-
fare of regional and local communities.
What the NSRD does do, however, is
to be clear about how the state intends to
improve the competitiveness both of the
country as a whole, and of each particular
region. Unfortunately, regional elites do
not currently show much interest in raising
their region’s competitiveness, improving
local living conditions, or explaining to
their people what state policies exist to
address these issues. Quite often they play
with facts and figures, pitting one region
against. These actions are rather disruptive
and have potentially dangerous long-term
consequences.
For various reasons, regional leaders still
need to play particularly to the views of the
IN DEPTH: A New Strategic Framework for Regional Policy in Ukraine
poorest and most marginalised sections of and understandable format, targeted differ-
the population, since they are most numer- ently for the groups of officials, politicians,
ous (this makes creating a true middle class, and public.
normally the most active part of the elector-
ate, a challenge). Furthermore, they often Bibliography and further
do not really understand what competitive-
ness entails, or that there is much they need
reading
Ukraine National Strategy for Regional
to do themselves at regional level to capture
Development to 2015 (2006). Ministry
new markets rather than just reaping the
fruit of national (preferably protectionist) of Economy of Ukraine, Kyiv.
policies. Draft Law of Ukraine on Territorial
Lastly, politicians and officials at both Arrangement of Ukraine (2005).
the national and regional levels often dis- Reform for People. Collection of mate-
play a certain confusion about the different rials on implementation of territorial
types of reforms currently taking place in and administrative reforms in Ukraine
Ukraine. The simultaneous implementa- (2005). Secretariat of the Cabinet of
tion of territorial reforms, administrative Ministers, Kyiv.
reforms, spatial planning, fiscal decentrali- Sergiy Grynevetsky (2006). Big problems
sation, a new regional policy and a whole of small power Weekly Mirror, # 15.
range of other initiatives means that there Yulia Tyshchenko (2006). Language as house
are often misunderstandings and false of existence. Basis of ‘language sovereignties’
expectations about each particular set of in the light of regional policy Ukrainska
reforms. There is therefore an urgent need Pravda, 16 May, www.pravda.com.ua.
for a proper public consultation process and Monitoring of Socio-Economic
capacity building activities: the reforms, Development of Ukrainian Regions in
and the guidelines for their implementa- 2004 (2005). Ministry of Economy of
tion, should be presented in a more rational Ukraine, Kyiv.
Box 3: Changes to administrative arrangements after the reforms
The new administrative reforms will result in the appearance of self-
government bodies at the local and regional level that are stronger
and less dependent on the centre. As a result of the reforms, local
government will possess greater administrative, fi nancial, economic
freedoms while simultaneously becoming considerably more accountable
to the local population.
Tier Current structure structure after reform
I a. Oblast Oblast state administration Oblast state administration with
reduced functions (control and
Oblast council without executive monitoring)
body which delegates majority of
its functions to the administration Oblast council with executive body
implementing the majority of tasks
in the region
I b. City-region No analogue in current system Council with executive body
apart from two cities of state implementing majority of tasks
significance (Kyiv and Sevastopol) in the city-region
with the same arrangement as in I a.
I c. Autonomous Autonomous republic with own No changes
Republic of parliament and government
Crimea
II a. Raion Raion state administration Raion council with executive
body
Raion council without executive
body which delegates majority of
its functions to the administration
II b. City-raion Cities of oblast significance under No changes
the current system where there
are:
- Elected mayor
- City council with executive body
III. Community Council with limited responsibilities Council with executive body
(many delegated to raion tier) and and with greater responsibilities
scarce budgets transferred from the raion level
Source: author’s own design based on ‘Reform for People’