Decentralization, local economic development, smart city in Ukraine

In 2020, Ukraine completed an important stage of public authority decentralization: the formation of consolidated communities (municipalities) and consolidated districts (subregional level), increasing the powers and budgets of communities by reducing those of districts. This significantly strengthens the capacity and motivation of local governments to independently manage economic processes within their territories. This, along with public demand for innovation and government support, is driving demand for technology. smart city. This, in turn, opens up a new, large, growing, and low-competition market for businesses.

Decentralization of public power: 2014-2020, prospects

The goal of decentralization is an independent and self-sufficient local government capable of solving local issues while preserving the unitary structure of Ukraine.

Decentralization is an important step in the transition from the USSR legacy to a modern and successful democratic society.

The first task of decentralization – the formation of enlarged communities and enlarged districts. This significantly increases their economic potential and governance efficiency. Since 2014, small communities have been amalgamated, and larger communities have incorporated neighboring territories. From 11,212 existing communities, 1,469 new communities have emerged, and from 490 existing districts, 136 new districts. The final step is the holding of general local elections on October 25, 2020.

The first task of decentralization is the formation of enlarged communities and enlarged regions. This can increase their economic potential and management efficiency significantly. Since 2014, small communities have been enlarged, with neighboring territories joining large communities. On the basis of 11,212 old communities, 1,469 new communities appeared, on the basis of 490 old districts — 136 new districts were formed. The last step is to hold general local elections on 10/25/2020.

The second task of decentralization is the formation of the powers of community self-government bodies, sufficient to resolve most issues of local importance. Starting from 2021, the competence of all self-government bodies will involve:

self-government : strategic planning; formation and adoption of regulatory and individual decisions; public finance and procurement management; disposal of communal property (land, various buildings); smart city; provision of public services; own cybersecurity; legal support; office work; openness of information and constant communication with the public.

For a long time, this competence has been successfully implemented in cities with populations over 50,000. These cities are centers of economic development and have more creative and effective local governments. Starting in 2021, this competence will be extended to other communities, encompassing a larger portion of Ukraine's population and territory.

For a long time, this competence has been successfully implemented in cities with a population of over 50 thousand people. Such cities are centers of economic development, have more creative and efficient local authorities. Staring from 2021, other communities that cover most of the population and territory of Ukraine will also receive such competence.

The third task of decentralization – Providing communities with adequate financial and property resources. Since 2014, a consistent state policy has been implemented to increase community budgets. Starting in 2021, the budgets of the latest wave of enlarged communities will be significantly increased.

Benefits of decentralization for business:

• Responsibility and opportunities for the development of the community are concentrated in the hands of the head of the community.

The head of the community chairs both the local council and the executive bodies. The head of the community and its members are elected by the community's residents. This ensures their strong interest in the community's economic development. They are also strongly motivated by the direct positive impact of the community's economic development on its budget.

• Dispersion of decision-making centers.

This is an opportunity to implement both large and small projects. Local authorities are quite open to experimentation and creativity. Successful experiences are easily replicated in other communities. New communities have sufficient human and financial resources to implement a variety of community development projects.

• Easy access for businesses to the local public procurement market through the Prozorro platform and to community infrastructure for the implementation of their projects.
• Communities, through their association, can effectively lobby their interests at the central level.

Local economic development

The government is systematically improving the business environment in Ukraine. From 2012 to 2020, Ukraine rose in the Doing Business ranking from 152 to 64. This is reflected in the following general trends:

• simplification of interactions between the state and business (digitalization of all management processes and public services, liberalization of currency regulation, electronic public procurement, reduction of state influence on business, fight against corruption);
• promotion of large projects for the construction of roads, bridges, and airports;
• implementation of reforms that significantly affect economic development (decentralization, judicial reform, education reform, healthcare, social protection, etc.).

An important indicator of the growing role of local governments in the economy is the growth trend of their overall budgets. Since 2014, they have increased 1.75-fold. At the same time, the share of transfers from the state budget is decreasing.

Community development is actively supported by financial resources and technical assistance from the USA, Canada, the EU, and Norway.

Community self-governments have a significant positive impact on economic processes. To achieve this, they can use the following tools:

• strategic and urban planning for community development;
• development of transport and engineering infrastructure, smart city;
• development of public and municipal services;
• provision of land plots, benefits on local taxes and rent to businesses;
• ease of access to public information and business advisory support, etc.

Today, the significant role of community self-government bodies in economic matters is clearly evident. The top 10 best cities for business according to Forbes Ukraine (September 2020) are Ivano-Frankivsk, Vinnytsia, Lviv, Kyiv, Ternopil, Uzhhorod, Dnipro, Khmelnytskyi, Odesa, and Kharkiv. Of these cities, six represent western and central Ukraine. They rank higher than the other four cities, which represent larger territories in the north, south, and east.

The 2019/2020 City Competitiveness Index, prepared with support from USAID, identifies the top six cities with the best performance: Khmelnytskyi, Ivano-Frankivsk, Lviv, Vinnytsia, Ternopil, and Chernihiv. This index also confirms the leadership of western and central Ukraine in terms of business climate.

The USAID-supported Cities Competitiveness Index 2019/2020 identifies the top 6 cities with the best indicators: Khmelnytsky, Ivano-Frankivsk, Lviv, Vinnytsia, Ternopil and Chernihiv. This index also confirms the leadership of the west and the center of Ukraine in terms of the business climate.

Smart city

Smart city

Since 2014, the state has purposefully pursued the digitalization of all public administration processes and the development of digital infrastructure. In particular, today electronic interaction between government agencies and government databases has been established with the help of the X-Road «Trembita». Documentation of individuals and legal entities, as well as the provision of public services, are being digitized actively. The problem of the overall high-quality access to the Internet and increasing digital literacy of citizens is being solved. This activity creates good conditions for smart city.

Today, advanced technologies in the following areas are a top priority for Ukrainian cities (communities):

• E-governance: electronic documents, communications, and municipal databases; online provision of public services; implementation of IoT, machine learning, big data, and open data in all areas of activity;
• Electronic democracy: mass information, citizen appeals, petitions, citizen participation in decision-making, public budget projects, access to public information;
• public utilities: infrastructure management, customer interaction, convenient payment for services;
• Transport: intelligent traffic management systems and public transport; a single electronic ticket for public transport; convenient parking search and payment; monitoring of internal and transit traffic using intelligent video surveillance and GPS sensors;
• ecology and energy efficiency: use of sensors for monitoring the condition and operational control elements;
• public environment and architecture: urban development plans, smart building; smart streets;
• Security: intelligent video surveillance systems for public spaces to detect violations of public order and traffic; cybersecurity;
• Development: support for smart city startups.

General conclusions

In the near future, Ukraine should expect active development of the smart city market. This will be the result of decentralization, economic development, accumulated positive experience, and the infusion of additional financial resources into communities. Israel has cutting-edge developments and experience that Ukraine currently needs. Now is an opportune time for Israeli businesses to enter the Ukrainian smart city market.

 In the near future, an active development of the smart city market is expected in Ukraine. This will be the result of decentralization, economic development, the accumulated mass of positive experience, the injection of additional financial resources into the communities. Israel has advanced developments and experience that Ukraine needs now. Today is a good time for Israel’s business to enter the Ukrainian smart city market.

The Chamber of Commerce and Industry Israel-Ukraine will be glad to assist Israeli business representatives in establishing and developing trade and economic ties with Ukraine. If you have any questions, you can contact us using the contact details provided on our website.