Hennadiy Zubko has been Vice Prime Minister and Ukraine’s Minister of Regional Development, Construction, Housing and Utilities of Ukraine since 2014. One of his key priorities and achievements has been decentralization, a major reform which grants more powers to local communities in terms of budgeting, taxation and investment strategy. Between the launch of the reform in 2015 and 2017, the revenues of local budgets have more than doubled and continue to rise through 2018. This decentralization is also tied to energy efficiency and creating more sustainable cities, areas in which German experience and partnership are highly valued. Here, Zubko explains decentralization, the two-pronged approach to attracting investment for sustainable regional development and the opportunities the reform has created for German investors
What have been some of your most significant challenges since you stepped into office and what are your priorities moving forward?
The most important challenge and achievement is our work on decentralization, whereby the country’s finances are gathered centrally and then distributed to the regions through governmental programs. We feel that decentralization is the appropriate model to encourage growth for the country. We believe that by distributing funding from the central government to the regional authorities the country will stay strong. Currently, about 865 local communities of 3,600 in the country have sophisticated systems of local government, including financing, tax systems, and service delivery. We absolutely need effective systems of local management and there are reforms being implemented across the country to facilitate this transition. Reforms across the board in healthcare, education, infrastructure, and housing are needed. Decentralization will provide the possibility of allowing localized teams to learn and create strategies specific to their context that will attract financing and investment in the future.
UkraineInvest wants to promote competition between the Ukrainian regions to attract FDI. How is the government also helping each unique region promote and attract investment?
The national governmental strategy for regional development allows the regions to control their stream of funding, but in a way that is facilitated by the government to allow productive competition between more developed regions and the regions that have been left behind. There is a specific regional development fund that supports the regions that are lagging behind. The development is focused not only on enhancing traditional sectors that are already developed in each region, but encouraging regions to diversify their economies utilizing a smart specification strategy to explore the best means to develop.
In your view, what is critical to the success of Ukraine’s decentralization program?
Our young people are critical to our success, so the number of educational institutions in the region is important, as are the vocations and specializations taught in the region. We are trying to support re-training in skills that are relevant to the new economic spheres being developed. Secondly, we work to ensure that local authorities are able to attract the investment they need without requiring permission of the central government. They are incentivized to develop their own localized strategies to find foreign partners on their own.
What kind of incentives do you offer to German companies, for example? What differentiates the incentive programs offered by each region?
Each region offers different incentives specific to the particular spheres and industries present. Every region determined ten spheres to focus on. Some regions specified their strong spheres as IT, agricultural, or industrial production. For example, Dnipropetrovsk has attracted significant investment from Germany, specifically in industrial production. Another region, Kharkiv, historically was strong in industrial production, and now is known for IT and has about 50,000 young people working in this sphere. In terms of collaboration with Germany, there is a joint German-Ukrainian government commission to support cooperation in the business sphere between the two countries. Large German companies such as Bauer and Siemens now operate in Ukraine, as do a variety of SMEs.
What are the Ministry’s plans to continue creating high added-value investment in order to help Ukraine reach the government’s growth target of five to seven percent economic growth by 2020?
We are utilizing a two-pronged approach to both attract investment for economic growth but also to reduce energy consumption. We are looking to attract the type of investment that serves both objectives. We are currently working to reduce energy consumption across our economy, in production, community services, transport, and in local business.
You have been a key proponent of sustainable cities. How do you want to shape Ukraine as a leader in sustainable cities?
Germany is a key partner in Ukraine’s complex technological reforms, and cities are at the core of this work. Our ministry is working with the German Federal Ministry for Economic Cooperation and Development on a Strong Cities initiative to create integrated development at the city level. This is a new vision for the development of infrastructure and community in cities. We have funding from not only Germany but the EU, IFC, and our own government as well to support these types of modernization efforts. In terms of sustainability, Ukraine consumes an enormous amount of energy resources. Ukrainian consumption of energy in buildings is nearly double that of the consumption in EU member states (respectively, 0.17 Gkal/m2 Vs 0.09 GKal/m2). That is why it is important we partner with and learn from Germany’s example. Reducing energy consumption and increasing energy efficiency is about new urban planning and urban development. German technology has helped us a lot here, particularly in relation to the modernization of community utilities such as heat and water. We dream about what Germany has achieved in energy efficiency.
As minister, what are your goals for the next several years?
One of my ambitions is a final and complete implementation of a Ukrainian decentralization programme that corresponds to European standards. Another goal is the efficient use of and reduction of energy. For Ukraine, energy independence means independence for Ukraine as a country.
Do you have any additional comments for readers?
The EU directives are the roadmap for Ukrainian development. However, in addition to the roadmap, we need the experience, and German experience in decentralization, technology, and urban development is incredibly important for our success. Germany does the complicated technological reforms that nearly no other country does. We also want to note that German taxpayers support the development of Ukraine and we are grateful for that and the relationship we have with Germany.