Kyiv, April 27. To establish efficient special economic zones (SEZs), the Government needs to work out an optimal complex strategy and fair regulatory policy of their development. Otherwise SEZs may become a tool for tax evasion, causing revenue shortfalls from privileged tax and customs conditions and eventually delivering a heavy blow on the country’s economy. This is the statement of Natalya Izosimova, Director of the Foundation for Effective Governance, at the debate “Special economic zones are necessary for increasing Ukraine’s competitiveness”. The event was held by the FEG in partnership with Britain-based Intelligence Squared.

“The successful examples of SEZs in China, the UAE, Japan and other countries show that the development strategy for special economic zones should strictly specify the distinctive position of each zone in a relevant economic sector and identify mechanisms of attracting the leading international companies in the field and wide-scale investments into SEZs infrastructure”, she explained.

Advocates of the motion at the debate noted that the establishment of special economic zones in Ukraine is one of few available options to boost inward investments.

“Considering the lack of world class infrastructure and absence of free trade agreement between the EU and Ukraine, the development of special economic zones is a must for investors in Ukraine to be competitive on the markets of Europe, Middle East and Africa”, said Philippe Costemale, General Director of Jabil Russia & Jabil Ukraine. He also emphasized that SEZs are oriented exclusively for export activities and should by no means influence trade on the domestic market.

Marcin Swiecicki, Director of the EC/UNDP Blue Ribbon Analytical and Advisory Center, who spoke about the practical aspects of SEZs at the debate, suggested that the Ukrainian central authorities should carefully analyze the potential of special economic zones in each particular region before actually establishing them.

“There are risks that regions will invest in infrastructure, advertising and promotion, while the feedback from investors and employment rates will not come close to their expectations or cover their expenses”, he noted. He also mentioned that it could be appropriate if the central authorities delegated the right to establish and administer SEZs to private entities.

Opponents of establishing SEZs in Ukraine were unequivocal that under current circumstances, special economic zones cannot be efficient.

For instance, in the opinion of Vlasyslav Kaskiv, Verkhovna Rada MP and member of the Committee on Industrial and Regulatory Policy and Entrepreneurship, functioning of special economic zones can only be effectively considered within the context of the country’s general economic strategy, its long-term priorities and methods of creating a competitive economic system, establishing an open economy, and launching budget, tax, customs, regulatory and other necessary reforms.

“The Government’s general strategy should be aimed at the economic liberalization of the entire country. In other words, the whole country should become a special economic zone”, he declared.

In his turn, Avetik Chelabian, Senior Partner at McKinsey & Company, pinpointed that Ukraine faces an overwhelming challenge to modernize its economy and create modern infrastructure – physical, administrative, educational, social, etc. This is while the creation of SEZs is likely to slow down this process.

“Keeping to the beaten track of granting tax privileges to friendly businesses – instead of putting real effort into fostering the new economy and wide-scale economic reforms – will preserve the current situation and further contribute to greater social polarization, leading eventually to the economic stagnation. The main task set for the politicians is to find modern solutions to modern problems”, he stressed.

About the debates

The debate “Special economic zones are necessary for increasing Ukraine’s competitiveness” which was held on April 27 in Kyiv, is the eighth public debate in Ukraine carried out in the Oxford Union style.
The event was organized by the Foundation for Effective Governance in partnership with Britain-based Intelligence Squared.
In 2009, the Foundation held a series of debates (debaty.org) on reforming Ukraine’s economy during the economic crisis. For future debates such important topics as administrative reform, regional economic development, the role of science and education in economic development, and innovation and technologies have been chosen.
“The goal of debates is to arrange an informative and efficient conversation on those issues of Ukraine’s economy development on which we don’t have a clear and simple answer. At the same time the debates are important both for the present and the future of Ukraine”, states Natalya Izosimova, Director of the FEG. –“However, for us the process of discussion is as important as the content. We’re trying to ensure that arguments in favor of opposing opinions can be expressed in a constructive manner, and that the opposing opinions can be heard."
A partner of the Intelligence Squared Nick Pisani is confident that such debates can attract attention of the public to culture of political discussions. “The debate helps present and, most importantly, future generations of decision-makers think and act in a different way,” he says.

Profile of FEG

The Foundation for Effective Governance (FEG) www.feg.org.ua was established in 2007 by Ukrainian businessman, Rinat Akhmetov with a mission to develop and implement long-term projects and programs which encourage the long-term economic development of Ukraine. FEG is committed to help reach public and political consensus on the key areas of the economic transformation programs.
To reach its objectives, the Foundation attracts leading Ukrainian and international experts with impeccable reputation. An Advisory Board, which includes famous public and political figures from different countries, ensures the Foundation’s independence. Among the board members are former Canadian Prime Minister Kim Campbell, former U.S. Senator Lincoln Chafee, former president of the National Bank of Hungary György Surányi, and General Director of the Ukrainian office of the International Investment Bank Morgan Stanley Igor Mityukov. The International Advisory Board takes an active part in building the Foundation’s strategy, selecting the priority projects and representing FEG both inside and outside Ukraine.

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