The Chairman of Dnepropetrovsk Oblast State Administration Aleksandr Vilkul intrigued everybody well in advance with a meeting of the Region’s Council. He had promised new best-practice approaches to a concept of a development strategy for our region with big capabilities. The Foundation for Effective Governance represented by the Managing Director Nataliya Izosimova, managers and the Chair of the Foundation’s International Advisory Board, former Canadian Prime Minister Kim Campbell was invited to participate in the discussion and later to cooperate in this area. Among parties involved there were Andrew Swart, Partner of international consultancy Monitor Group and Yevgeniy Orlovskiy, Project Manager of Monitor Group.

The meeting was held as a roundtable and attended by leadership of local government, district administrations, representatives of businesses, society, experts in economy and public policy. Dnipropetrovsk city was represented by Mayor Ivan Kulichenko; his deputies Anatoliy Krupskiy and Vladimir Mepeshchik; CEO of Machinery Plant, a member of Dnipropetrovsk City Council Yevgeniy Morozenko and other representatives of industrial businesses who prepared many catchy questions.

In their opening addresses the Governor Aleksandr Vilkul and the Chairman of Dnipropetrovsk Oblast Council Yevgeniy Udod called for a thoughtful conversation, diagnostics of existing problems and search for new growth objectives.

Benchmarks
Aleksandr Vilkul suggested starting the meeting with the analysis of today’s situation. It was reported that on 30 June Kyiv hosted a presentation of the Ukraine Competitiveness Report prepared by the Foundation for Effective Governance in partnership with the World Economic Forum. They were asked to repeat the presentation with an accent on the region. Ukraine took a pessimistic position there. In the Global Competitiveness Index it was ranked 82nd out of 133 countries. Over the last year it fell ten places because of the crisis effects.

According to international experts, the region had a more advantageous position. In 2009—2010, the Dnipropetrovsk Oblast was ranked the second after the city of Kyiv and 65th in the Global Competitiveness Index, between Russian Federation and Romania. Despite the crisis the region went 10 places up. It took the lead in the gross regional product per capita, with was nearly 50% higher than the nation’s average. According to Nataliya Izosimova, the region outperformed four EU countries (Romania, Latvia, Greece and Bulgaria) and one CIS country (Kazakhstan), though it lagged behind the most competitive CIS countries (Russian Federation and Azerbaijan).

The leading position of our region is based on the real factors. Dnipropetrovsk region has the most powerful industrial facilities. We produce almost 10% of Ukrainian GDP. Dnipropetrovsk plays a very important role in the country’s economy in almost all key economic indicators. We boosted production by a third in March-May 2010 year-on-year.

According to the Ukraine Competitiveness Report, Dnipropetrovsk region took the lead in business sophistication. The region ranked 2nd in infrastructure (the poor quality of roads is a major problem, the region ranks 17th on this indicator). Dnipropetrovsk oblast rounded out the top three Ukrainian regions in innovations. This can be explained by the high-quality research and cooperation between universities and business.

The problems confronting the oblast were health and primary education (11th place). For example, the region showed high rates of TB incidence and infant mortality, a low rate of life expectancy, and a poor quality of primary education.

By the level of institutions development Dnipropetrovsk region ranked 13th. The weak points were limited ability to protect intellectual property, judicial independence, wastefulness of government spending. However, the region placed well in the transparency of government policymaking and the efficiency of corporate operations. The political instability over the past years, tax policy and corruption were problematic factors for doing business.

The Foundation for Effective Governance was founded by Rinat Akhmetov in 2007 to design and implement long-term national economic projects and programmes. The organisation works to help reach public and political consensus in the main elements of the economic reform programmes.

To reach the objective the Foundation involves the leading Ukrainian and international experts with impeccable reputation. The International Advisory Board, which includes prominent public and political figures from different countries, ensures the Foundation’s independence. Among its 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 Managing Director of Morgan Stanley’s Office in Kiev Ihor Mitiukov. 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.

International consultancy Monitor Group works with the world’s leading corporations, governments and social sector organisations to drive growth on the issues that are most important to them. The firm has extensive expertise in regional economic competitiveness and has worked on over 175 projects in 58 countries the last 20 years to analyze and develop economic development strategies in regions and countries around the world.

Founded in 1983 by six entrepreneurs, including Harvard Business School Professor Michael Porter, Monitor is aimed to solve the toughest problems to ensure sustainable growth. Headquartered in Cambridge, Massachusetts, the firm employs over 1,500 people in 22 countries worldwide.

Kim Campbell in her speech stated that the region’s performance stood out of the pack. She said that they eagerly approved our region for implementation of the project on boosting the regional competitiveness. There were three key factors that convinced them: good resources for development, capabilities that can be extended all over Ukraine and quality of the leaders.

How we will be effective
Nataliya Izosimova elaborated on our capabilities. Following an in-depth analysis of almost all regions the experts of the Foundation selected the Oblast as the best region for implementation of the new project. Our economy is one of the strongest in Ukraine. We have good economic and administrative environment for the project and the commitment of the regional leaders to develop and implement the strategy.

She noted that the Foundation had been realizing the cluster-based economic development projects in Donetsk Oblast and the city of Lviv. To carry it out, international consultancy Monitor Group was chosen after a tender. It will design the development strategy for Dnipropetrovsk jointly with the Foundation and regional authorities. The project will be implemented considering the experience gained in Donetsk Oblast and the city of Lviv.

According to Andrew Swart, partner of Monitor Group, by October 2010 they will identify the priority clusters – the industries with a great potential to boost the region’s competitiveness. These clusters will become a foundation for development and implementation of the regional strategy. They will prefer the clusters that involve many big businesses as well as SMEs. Development of the clusters will encourage job creation in the region.

Identifying the clusters with a growth potential will be one of the first strategic steps. “We are looking for “the growth locomotives” that would automatically induce the development in the related industries. This is the core of the cluster approach. To have the good effects and tangible results, we will deal with two to three clusters at the first stage,” stated Aleksandr Vilkul adding that there is no present without a strategy of the future. “Our approaches are result-oriented. The priorities should be made quite clear and transparent. It’s very important to set clear objectives for the business, investors, science and education.”

Today we have to admit that the regional economy has some discrepancies. An excess of heavy industry (up to 50%) only boosts risks, especially amid crisis. Of course, the mining and metals, heavy engineering, power industry will be supported, but the region should gradually shift focus on development of other industries. This is the way for us to be effective.

This is why the issue is about clusters, a group of closely located companies operating in the same sector. They include production, training of highly skilled staff, research and development and other elements.

Of course, it would be the best to develop all industries, but it’s a utopia. It’s impossible to develop a hundred clusters at the same time. It’s reasonable to start with two to three clearly identified clusters and create the effective business environment for them. Later, you can take up the others.

The promising clusters were marked with varicoloured bubbles of different size on a chart shown to the participants. As we understood, the largest bubbles were construction, agriculture, manufacture of medical equipment. A bubble demonstrating the opportunities for space exploration was also big, but much cut off.

We hope that we will focus on these details later, as the development strategy progresses. The project authors assured us that their principle is a result-commitment, not theoretical exercises.