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In the beginning there will be a strategy. Donetsk region and Lviv have witnessed the launch of a project on economic development and increasing regional competitiveness
Many of our fellow citizens have been allergic to the word "reforms" for quite awhile. Whichever reforms you look at - be it land, housing and communal, pension or any other ones - Ukraine is on top of the list in the world in terms of studying experience and being loud in its promises. At the same time every winter urban population has to settle heating issues in their homes by themselves while the government is struggling with gas supplies. Do we really still expect that 14 months before the presidential elections our central authorities will start seeing eye to eye and will finally come up with something reasonable? Do we really?
Every person of common sense understands that it's not the best time for any central level reforms that require rigorous and systemic work on an everyday basis. But as medical people say 'Movement is life'. And this movement in all its mundane variety never ceases at the lowest level - regional one which is greatly restricted in its authoritative and financial powers. There they don't rack their brains about the presidential "throne", hence they listen out for people and are more motivated to bring reforms and success. Besides, the practical result is right at hand.
That's why the representatives of the Foundation for Effective Governance fixed their eyes on two regions this fall by having prepared and launched the project on increasing their competitiveness. One model of reforming will be elaborated and implemented at regional level in Donetsk area, the other one - at city level in Lviv. And who knows, in a couple of years we might be able to successfully implement these approaches to driving reforms in other corners of our country.
The goals are clear. The tasks have been determined.
How is this regional project different from a multitude of other ones that have been to a lesser or greater extent successfully implemented in Ukraine over the recent years? In our opinion, the main difference lies in a special approach towards defining problems.
- 'The Foundation for Effective Governance is financed by private businesses. The founder of the Foundation is Rinat Akhmetov who allocated 50 mln USD for the five-year work of the organization', says Managing Director of the Foundation Natalia Izosimova. 'The Foundation uses these funds to attract the best independent experts and world practice to Ukraine. I want to draw your attention to the word "practice" here. The Foundation for Effective Governance is not an academic institution that does research for the sake of research. The task of the Foundation is to select the right project and find an executor that will cope with the task better than others.'
'While preparing for the launch of this project, we announced a big transparent tender, had meetings with most world experts on competitiveness issues, studied their proposals. Finally, we opted for Monitor Group. The management and International Advisory Board of the Foundation came to the conclusion that the international consultancy Monitor Group is the company that has the best and most suitable for Ukraine practice of tackling regional development tasks.'
'The Foundation is funding the work of the international experts that were invited to participate in the project. From the very beginning of the project they have been working not for the client, but with the client. We expect regional representatives in partnership with Monitor Group to work out an elaborate professional long-term development strategy, as well as design a robust action plan to implement this strategy. The regional authorities will gain the necessary knowledge and skills to be able to move the project further independently.'
- 'There's another important thing', continues Mrs. Izosimova. 'Economic growth is not something abstract. It implies the development of certain industries and specific companies within these industries. However, we need investments to foster such growth. The investor correspondingly should understand which industries to invest in and why.'
'We'll help the regions reveal their potential to investors. Monitor Group has implemented similar projects in many countries of the world. Hence apart from providing us with a package of investor materials, they will also assist us in attracting investors to Lviv and Donetsk region.'
'It is essential for us that all the key participants of the project take active part in it from the very outset. That's why in each of the two regions we formed an Advisory Board that comprises the representatives of the local authorities, business, mass media and educational establishments. The first meetings of these Boards took place on November 12 in Lviv and November 14 in Donetsk. They are a platform for discussing the intermediate findings of the project.'
- 'Why did the Foundation select Lviv and Donetsk region?' we asked Natalia Izosimova.
- 'It was done on the basis of a comprehensive analysis of the competitiveness of different regions of Ukraine which the Foundation for Effective Governance carried out in partnership with the World Economic Forum (WEF). Later Monitor Group used its methodology to once again assess the economic potential of all the regions of our country. The analysis resulted in Donetsk region and Lviv having been chosen.'
'Both of these regions are in line with three main screening criteria. First of all, such a project has to be in demand in the region and wanted by the local authorities, regional business and regional elite. It's not enough just to want, though. It's also important to be able to do something. Secondly, these regions have all the necessary economic resources at their disposal and a well-established economic and administrative basis. Besides, they have hands-on experience and potential for implementing such projects. The economy of these regions has a positive impact on the economic growth in the whole country.'
'Finally, other regions will be able to take use of their positive experience of the project implementation as we are planning to apply both economic development models to other regions and cities of Ukraine. That's why we chose regions with two completely different economic models.'
'Our goal is not just to develop a strategy and business plan, but also help the regions breathe life into them. The first stage of the project will last for half a year. It will lay a solid foundation for the successful economic growth over the next five to ten years.'
Monitor: first steps in Ukraine
I believe the name of Michael Porter - a Harvard professor and guru of the modern competitiveness theory - will speak volumes to some of our readers. Michael Porter was one of the six entrepreneurs who set up the Monitor Group Company in 1983. It specializes in projects dealing with increasing economic competitiveness and is also involved in investment activities.
"Monitor Group helps organizations grow" - that's how the company defines its mission. The company is growing itself too: 30 offices all over the world, 1500 professional consultants.
Over the last two decades Monitor Group experts have carried out 175 projects in 58 countries. Regardless of an industry or country they are working on, they always manage to find a goldmine there that will help the client find new resources for economic growth.
In October 2008 this international company undertook the project realization in Donetsk region and Lviv. However, since the project is still at its early stage, our conversation with Monitor Group partners Andrew Swart and Kurt Dassel revolved a lot around the previous projects and to what extent they are similar or different than the current Ukrainian project.
Mr. Swart, leader of the Lviv-Donetsk project from Monitor Group, remembers their work in South Africa in 2001 where the company dealt with boosting the competitiveness of the tourism sector on request of the National Tourism Association. One of the key players of the project was Minister of Tourism, pointed out Mr. Swart, which underscores a universal rule - the importance of getting multiple players on board the project: businesses, local authorities and NGOs.
Andrew Swart: 'Before we started our work in South Africa, the tourism industry there had not been developing at all. After the project implementation, however, it demonstrated rapid growth. For example, in 2001-2003 the number of tourists was increasing by 6% annually, while in 1998-2000 - only by 0.3%.'
'For comparison: in Australia in 1998-2000 the number of tourists was growing by 5.2% annually, but in 2001-2003 this indicator dropped to 1.1%.'
Mr. Dassel joined the conversation. He deals mainly with regional projects in the United States. In particular, he implemented a project for the government of South Carolina on their request.
Kurt Dassel: 'Within the framework of this project we formed a group of about 100 business leaders and representatives of the local government which was headed by the Governor and director of a large company. We determined industrial clusters and companies that make them up. Ten to fifteen leaders of companies from each cluster would get together and have debates and discussions about how to reduce expenditures on doing business and increase its competitiveness.'
Readers must be wondering how it all ended? Searching for ways to make business more competitive under the conditions of massive Chinese presence on the market, business people and officials from South Carolina arrived at the conclusion that reducing expenditures is not always a key to success. As a result, the state authorities simplified the procedure of passing the legislation vital for business development, which had a positive impact on its growth. Later the local Chamber of Commerce stated that the project implementation year was the most fruitful one in terms of approving the necessary legislation.
Education was part of the magic there, too.
Kurt Dassel: 'We also came to the conclusion that improving the quality of secondary education plays an important role in improving business environment. As a result, South Carolina increased educational costs and established a committee to raise funds for educational needs.'
- Does education as a means of boosting competitiveness work only in the USA or in other countries as well?
Kurt Dassel: 'This approach is effective everywhere. First of all, one has to assess the level of education among the population and then invest into education based on the findings of the assessment. For example, at first China would rely only on the quantity of labor force. However, in some time they grasped the importance of innovation and qualified personnel for sustainable economic growth.'
- Many people in Ukraine think that our main problems result from inefficient economic structure, high energy consumption and outdated equipment and technology. Do you agree?
Andrew Swart: 'That's something we are working on now. The project will last for 6 months. It's still early to make conclusions.'
Kurt Dassel: 'We are going to formulate our vision of the regional development for the next 10-15-20 years, as well as determine priorities and risks.'
- Has Monitor Group had any unsuccessful projects?
Andrew Swart: 'Success depends on the ability of all the project participants to work in a team. The main thing is to determine and find solutions to 5-6 key problems. In some regions there would be up to 300 issues to settle and people would get lost not knowing where to start and how to act. It's important to learn to focus on the core issues; then there will be no uncertainty.'
Regional diagnostics
At first sight, it does not seem difficult to discern priority industries both in Donetsk region and in Lviv. In the industrial heart of the country 51% of the production structure is covered by metallurgy. Coal and chemical industries stand out, too. In the spiritual and cultural center of Ukraine science and education are strongholds. There are also some preconditions for the development of tourism.
However, if to take a closer look, it's not that simple. We are so used to perceiving Donetsk region as a driving force of domestic industry that we overlook such indicators as the quality of life and competitiveness in the broad meaning of this word. WEF experts toiled over figures and came to the following conclusion: 12490 UAH of Gross Regional Product per capita (2005) which is 30% above the average Ukrainian level and 13% of the country's GDP produced in Donetsk region are offset by low indices in healthcare and education, as well as by low ratings in the sphere of innovations and business development.
Thus, from the point of view of competitiveness our most affluent region is pretty mediocre (seventh place out of 12 regions that have been studied). Its rating by the WEF methodology - 4.9 - is almost the same as an average figure in Ukraine.
Lviv region with its 4.14 score takes the fourth place in the competitiveness rating of 12 Ukrainian regions. Therefore, 6657 UAH of Gross Regional Product (2005), which is almost twice lower than the corresponding Donetsk indicator, make you realize that wealth and competitiveness are far from being identical concepts.
Even though Lviv region has some definite upsides (quality of higher education, level of the development of science and business), the main obstacle in the way of its entrepreneurial development is corruption, say experts. They also point to some great problems on the labor market. Brain drain and a rather high unemployment rate are two sides of the same (not the most shiny) coin.
It is unlikely that these and some other findings that were publicized in May came as a surprise to the regions. That's why they were selected by the Foundation for Effective Governance as pilot regions - hard-working, advanced in their thinking, understanding the need for strategic planning and doing it within their capacity. Moreover, both regional centers are preparing to host Euro-2012 matches. On top of that, Donetsk is also getting ready to host Youth European Championship in 2009. All this implies European standards and a lot of responsibility.
Anyways, why is this project so important?
- 'I've talked with a couple of analysts from international companies and they all have confirmed what I thought: it is prestigious for Lviv to have Monitor Group cooperate with the Lviv City Council, bring completely new standards and new insight into problems', says Lviv City Mayor Andriy Sadovyy. 'It's like preparing for hiking in the mountains: if you want to climb up without difficulty, you need to know what you have, sort it out and pack it nicely. Otherwise, it'll take you longer to get to your final destination and your backpack will make your shoulders and back sore…'
'It's the beginning of interesting work for everyone involved: Monitor Group, city authorities, Lviv economists. Many interesting ideas will appear in the course of the systemic analysis of the situation and we are looking forward to hearing preliminary conclusions. Monitor Group experts have been to other countries and cities and they have a systemic approach to the whole matter. At our very first meetings we felt that communication and cooperation with them were going to be useful and critical.'
'In January we started to design a development strategy for Lviv together with our colleagues from Vilnius as to our mind this capital demonstrates very good development dynamics in comparison with other post-Soviet capitals. But now after we started working with Monitor Group we can see which aspects should be strengthened.'
'We expect to obtain the first results of the project at the end of the first quarter of the next year. The city authorities want to receive not just recommendations, but also a robust action plan on how to boost the city competitiveness.'
'I hope we will be able to have a better understanding and assessment of the profits our city could potentially get. For example, our partner Krakow received 10 mln tourists last year. Even if each tourist spends just 100 Euros, it's already 1 bln. I'm convinced that after the Football Championship in 2013 or 2014 we'll be able to receive 10 mln tourists, too. However, if we want to make it real, we need to get ready and know where to invest.'
Mr. Sadovyy is very optimistic about cooperation with Monitor Group, even though he reiterates that it's just the beginning. As he is Vice-President of the Cities' Association of Ukraine, he promises to share the best Lviv project outcomes and accomplishments with his colleagues from other cities.
Head of the Donetsk Regional Council Anatoliy Blyzniuk is one with the Lviv Mayor, but his thoughts are concentrated on the whole region. We touched upon numerous issues during our conversation: a decline in metallurgy and the related drop in incomes of hundreds and thousands of people, urgent need for new hydro insulation on the canal that supplies the whole region with water, relatively low rating of the most industrially developed region competitiveness wise.
- 'Monitor Group has brought world-class experts that have shaped development policies in 58 countries. Their approach is of importance for me because they are not fixed just on the specific regional issues. They are like a doctor who accurately makes two cuts, removes the cause of the disease and lets the sick one go home. We ourselves can't do this here because the instruction says otherwise.'
'Our sore issues are well-known. These are coal and metallurgic industries. Along with the Foundation for Effective Governance we initiated the search of a strategy and were preparing in cooperation with science and business representatives to look for a way out of the complicated economic situation. We realize that metallurgy makes up 51% of the regional economic structure, plus coal and energy. It's a very complex structure. That's why the recommendations of the Foundation for Effective Governance and Monitor Group will be focused on these industries.'
By Mr. Blyzniuk's words, his task is to unite the efforts of all the stakeholders and form a platform for joint work. Donetsk region has a lot to offer in any cluster, be it machine-building, metallurgy or agriculture. The task of the local authorities is to give the consultants a field for activity as wide as possible, lots of options to choose from. If you want, you can meet with the top management of a company that has a vertically integrated scheme of pork production, or drop by a farmer's place that uses innovative technologies in vegetable-growing, or go and "take the temperature" in a hospital and talk to people of the old school.
American consultants will definitely express their opinion and make some prescriptions for the region. However, Mr. Blyzniuk is convinced that companies of one industry even if it's the regional breadwinner - metallurgy - won't be able to move the regional competitiveness ahead.
- 'I'm 1 mln % positive that you cannot boil everything down to one prospective cluster. In October during the International Summit in Donetsk I asked the Deloitte and Ernst&Young representatives which cluster is the most promising one. They answered "Agriculture". No one mentioned metallurgy. As a former director of a plant, I could spend hours telling you about metallurgy and economy, but believe me: they are built on different principles than in the rest of the world.'
'I'm sure that Monitor will call a spade a spade. That's our common advantage in this project. We'll see the real picture, not the wants of some top officials. Monitor Group will limit their recommendations to 3-4 clusters, but these will be the clusters that will resolve the issue of economic diversification and increase the regional competitiveness.'
- You know it all, Mr. Anatoliy. Why do you need Monitor then?
'They will give a real picture and most importantly - get the message across to the central authorities for them to see that not everything is ok in the country. We do have some problems. And in cooperation with the Foundation for Effective Governance we are going to suggest ways of their solving.'
Nataliya Betina
Zerkalo nedeli
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Foundation for Effective Governance
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