UKRAINE’S RECOVERY. REGIONAL ASPECTS

What needs to be preserved and what needs to change in regional policy

article by Anatolyi Tkachuk, Director of Science and Development at the Institute for Civil Society,

Yurii Tretiak, an expert on regional development.

 

Unfortunately, the war will not end quickly, and its consequences will affect Ukraine for more than a decade. Therefore, we should not wait for the end of the war to start rebuilding the country – we will lose time, which we do not have. We need now to concentrate our efforts not only at the front, but also at the rear.

The regional specialization of wartime has already developed independently – the East and the South hold the front and exhaust the enemy; the Center and the West provide the front with everything necessary.

Everyone has a lot of work to do, it will be difficult today and it will be no less difficult tomorrow – when we rebuild the country, so logical transparent and reasonable planning of Ukraine’s reconstruction and development is now perhaps the most important task after winning the front.What needs to be preserved and what needs to change in regional policy to help Ukraine win and get back on its feet faster? 

The impact of the war on the situation in the regions

The development of a new Regional Development Policy requires a comprehensive analysis and assessment of the current situation related to the war and its impact on the situation in Ukraine in general and in the regions and territorial communities.

These shall include issues such as:

1.     Occupation of Ukrainian territories

As of mid-June 2022, a significant part of Ukrainian territory is occupied, some are under active hostilities, the liberated territories are partially mined.

Fig. 1. Map as of June 9, 2022.

As can be seen from this map, a large strip of Ukrainian lands (about 20% of the entire territory of the state) was occupied from Kharkiv to Mykolayiv, ports on the Sea of ​​Azov were completely lost, and Ukrainian ports on the Black Sea were blocked. The enemy is trying to destroy all opportunities for the export of goods by sea, which are essential for the export of Ukrainian products, including food. Alternative transport capacities in the short term will not be able to cover the need.

2.     Forced migration 

Millions of Ukrainians have fled their homes both in regions where hostilities have ceased or continue to take place, and in those where there have been no hostilities. Many people fled abroad. As of June 2022, more than 11 million Ukrainians have been forced to leave their places of residence.

It should be noted here that accurate and updated statistics on the number, age and sex of Internal Displaced Persons (IDPs) could not be gathered for various objective and subjective reasons, so we use other sources that seem to be accessible and fairly objective.

Fig. 2. Estimation of the number of refugees from Ukraine in European countries

According to official statistics, as of mid-May 2022, about 2.5 million people were registered as IDPs. However, people who have settled with their relatives in other regions are often not registered as IDPs, hoping to return soon.

According to international experience, the longer there are no conditions for return, the less people will return to their previous place of residence when such conditions occur. Therefore, with a high probability we can assume that many of them, those who have registered as IDPs at their new place of residence may not return to their place of origin, and this will significantly affect the system of resettlement in Ukraine and the location of productive forces in Ukrainian regions.

Most people left Kharkiv and Kharkiv region, Kyiv and Kyiv region (over 500 thousand people per city and region) and Donetsk region (over 390 thousand), more than 100 thousand people left Zaporizhzhia, Kherson, Mykolayiv, Luhansk, Chernihiv regions. If the probability of returning to Kyiv and Kyiv region is quite high, the situation is not very optimistic about other regions.

In contrast, in the western regions of Ukraine, the share of officially registered IDPs is over 10% of the population. Within the areas of resettlement, IDPs are also quite unevenly distributed. This creates an additional burden on social infrastructure, in part also provokes social tensions.

It is also worth noting that among those who have left Ukraine, a significant proportion are women of childbearing age and children, their return is necessary for the future of Ukraine. For this, they need to understand where they can return to and how quickly.

One study of Ukrainian refugees in Poland has the following data: the average age of refugees is 38, 61% have higher education and only 56% plan to return to Ukraine after the war.

3.     Infrastructure destruction

During the war, Russia destroyed thousands of infrastructure facilities (destruction is still ongoing, so the exact and final amount of destroyed infrastructure is currently impossible to estimate), including these that are very important for the reconstruction of regions and their development – airports, bridge crossings, housing, and social facilities vital for the return of people.

Fig. 3. Russia’s infrastructure destroyed by Russia, preliminary assessment.

The up-to-date assessment of the destructions has not been completed yet, as there is currently no access to certain areas. Also, the number of destroyed objects is constantly growing, as Russia continues to launch missile strikes even on cities far from the front, artillery and bomb strikes hit cities and villages along the front line and the northeastern borders of Ukraine.

The border areas of Chernihiv and Sumy oblasts are almost daily subjected to enemy shelling, which hinders the return of people to their places of residence and the restoration of damaged housing or infrastructure.

4.     Loss of transit potential

Before the war, Ukraine positioned itself as a powerful transit country, a bridge between Europe and Asia. Several international transport corridors ran through Ukraine, and several more were planned to be built. At present, this potential has been lost, probably for a long time, which in-turn dooms to a significant reduction in economic opportunities for the development of most Ukrainian territories adjacent to the Russian and Belarusian borders.

Loss of transit potential, closed borders to the east and north change the priorities of planning and reconstruction / construction of roads, opening of new transport corridors.

5.     De-industrialization of industrial cities and regions

Industrial cities and regions of Ukraine have suffered and continue to suffer the greatest damage. Thus, in Mariupol the largest metallurgical plants were destroyed. It refers to the Illich and Azovstal of the Metinvest Group, the total loss of taxes from the destruction of enterprises may reach about UAH 50 billion (~1.7 billion USD).

The Lysychansk and Kremenchug refineries, many enterprises of Kharkiv, Kyiv, Chernihiv, Mykolaiv, Sumy, Okhtyrka and others were destroyed or severely damaged. To avoid destruction or seizure, more than 1,500 companies are trying to move equipment and employees away from the front to the central and western regions of Ukraine.

Thus, the de-industrialization of cities and regions, which determined the industrial potential of Ukraine. This has a significant impact now and will affect the location of productive forces in Ukraine in the future and will determine the possibilities of returning or not returning of people to these industrial cities and regions.

Thus, the war for Ukraine today is not only the current loss of people and the economy, but also has long-term negative consequences and limitations of future development for years. This should be perceived as an objective reality and steps should be taken to minimize the negative impact of these challenges on the existence and development of the state.

Despite the continuation of the war, we must plan today to restore the affected areas and create conditions: for the speedy return of refugees and IDPs to Ukraine and their place of permanent residence; for recovery of local, regional, and national economy.

All this requires: a new re-assessment of existing planning documents, including the State Strategy for Regional Development (SSRD-2027); a review of our new constraints caused by the war and new opportunities related to the expected EU candidate status, and develop realistic but ambitious plans for recovery and development of the country. We must realize that such plans are part of the state regional policy.

At the same time, we must not forget to revive the regional economy of the territories of the rear as soon as possible, which is an important factor of our resilience during the war.  

Recovery. Key theses.

Recovery of Ukraine is not only and not so much about reconstructing what was destroyed by the enemy, it is the full recovery of life in cities and villages, formation of a new economy in view of new realities –  a permanent threat of war from Russia (we must understand that there will also be a permanent threat from the side of Belarus, which is essentially a satellite of the Russian Federation today).

To plan the recovery and future development of the regions, it seems appropriate to single out three macro-regions: Eastern (Frontier) – territories / regions along the border with Russia and Belarus, where the threat of direct military invasion is the greatest and where many military object should be located to deter the enemy; Central (Pillar) – territories / regions bordering the territories of the front, with a moderate level of threat of military invasion; Western (Rear/Back-up Regions) – regions in the western part of Ukraine, located closest to the EU, where there is a minimal threat of direct military invasion by Russia / Belarus.

Given this macro-regional division, it is worth planning the possible specialization of these macro-regions. Determine the best structure of the regional economy, location of production facilities, plan a resettlement system, review transport corridors and logistics.

Priorities and stages of recovery

1. Despite the differences among Ukrainian regions, speculations about different types of Ukrainians that were disseminated by pro-Moscow politicians in various regions (all these speculations were spread by pro-Moscow politicians, media and FSB agents), Ukraine – during the difficult times of unprovoked attack and war – turned out to be quite a cohesive country.

One of the important factors of the territorial cohesion of Ukraine is a strong framework of major cities: Kyiv – north, Lviv – west, Kharkiv – east, Dnipro – center, Odesa – south. Therefore, the enemy’s strikes on the key cities in this framework are not accidental. Restoration of this framework, connection of these cities with each other, achieving maximum complementarity between the economies, educational and cultural spaces of these cities is the key to Ukraine’s integrity and accelerated development, so it is the number one priority in reconstruction. Within the framework of this priority, the first stage requires rapid steps in the following directions:

1.1.  Restoration of connectivity within the Kyiv agglomeration.

1.2.  Restoration of runways and facilities of Kyiv airports for the reception of critical cargo and international air services.

1.3.  Restoration of bridges around Kyiv, clearing and repairing international road-routes from Kyiv to the west, as well as to Odesa and Kharkiv.

1.4.  Restoration of logistics centers around Kyiv capable of receiving and accumulating cargo from abroad.

2. Recovery of the regions will require rapid delivery of critical cargo and connection of key cities (logistics centers) with Kyiv and other countries, so the priority is to restore airports in Kharkiv, Odesa, Dnipro, Lviv, Vinnytsia to be able to land cargo planes (reopening the airports will only be possible when the hostilities end or the airports are equipped with reliable missile defense systems).

3. Recovery of the war affected territories.

The war affected territories – a new territorial concept/category within the legal and policy regulatory framework needs to be introduced.

These are territorial communities or parts of them affected by various types of hostilities on their territory either or by rocket bomb/artillery strikes. Such territories require a certain systematic categorization depending on the degree of destruction and loss of population, due to casualties or/and evacuation. For each category it is necessary to formulate objective criteria, create a map of such territories, describe each territory in detail in order to make the most optimal decisions on reconstruction or refusal to reconstruct at all.

Recovery of the war affected territories should be based on an understanding of the real possibilities for the return of the population that left these territories. Sociological services need to be involved to assess the willingness of IDPs to return to their places of residence and the conditions for such return.

4.     Construction industry

Physical reconstruction of the destroyed requires a large amount of construction materials. It is necessary to expand the network of modular enterprises to produce modern construction materials in Ukraine as close as possible to the territories that have suffered the most destruction.

Priority should be put on using local raw materials and on creating employment for people who lost their jobs because of the Russian aggression. It is necessary to establish the production of prefabricated structures for the construction of housing and social facilities (based on dry technologies), which can be quickly put on foundations and completed in a very short time.

5.     Reconstruction of destroyed housing, construction of housing for IDPs in their new places of settlement

It is necessary to quickly create conditions for return of people who fled abroad, as well as of IDPs from the Ukrainian regions where they fled running from the war.

At the same time, it must be understood that each additional month spent outside the permanent place of residence reduces the number of those wishing to return. Obviously, the return of residents to towns and villages adjacent to the Russian border will be less attractive due to the constant threat from Russia.

Instead, some territorial communities in the western regions will be short of housing for those IDPs who choose to stay there. Therefore, the problem of providing IDPs with housing in the western and eastern regions needs to be professionally and quickly addressed.

Construction of new housing as well as reconstruction/repairs of partly damaged places, should be planned in regard to modern energy conservation requirements (and other criteria following the policies of preventing climate change), the availability of public spaces and basic public, cultural, commercial services, including recreational and health facilities.

Planning for the reconstruction of settlements should be based on an understanding of their economic capabilities. Housing – employment – rest.

6.     Reconstruction of social infrastructure

Reconstruction of destroyed schools should consider new needs and requirements for school premises. In part, it is worth considering the possibility of adapting (at least temporarily) other public spaces that have remained intact – houses of culture, shopping malls, etc, to the educational needs.Reconstruction of destroyed health care facilities should consider new approaches to the future health care system, which should be sufficiently decentralized and technologically well equipped, with a significant number of private facilities supporting and complementing the future well-developed public system.

7.     Energy

Restoration of damaged electricity and gas supply networks, maximum reorientation from traditional gas supply to electricity – nuclear energy plus green energy.

Construction of enterprises processing coal, peat, corn into liquid or gaseous energy sources.

Given the limited opportunities for Ukrainian grain exports and Ukraine’s high dependence on diesel and gasoline imports, biodiesel and bioethanol production should be rapidly deployed at small, regionally distributed modern enterprises processing rapeseed, corn, beets, potatoes, and other energy crops into biofuels.

In areas close to the border with Russia, where the population is significantly reduced, it is difficult to conduct business, the re-creation of production is hardly possible. Hence it is necessary to expand here alternative activities, such as afforestation of areas with promising types of wood: as fuel and as raw materials for furniture production.

8.     Industries

First it is necessary to rebuild the food industry enterprises operating in the domestic market, as well as high-tech and defense industries. Production of finished defense products based on Ukrainian know-how and cooperation with enterprises of Ukraine’s allies should be a high priority. If the defense companies are restored according to such an approach, it is advisable to create joint ventures with American corporations/arms manufacturers and various European manufacturers (with a special consideration of the Polish defense industry).

In the Central and Western macro-regions, a network of design and production structures should be opened for the development and manufacture of advanced military equipment, through cooperation with Western companies, using the tools of industrial and technology parks. It is worth noting the need of relocation of production of critical weapons and ammunition from the eastern and northern regions of Ukraine to the central and western regions.

Reconstruction of the industry should also consider the strengthening of its resistance to missile strikes. Ukraine needs a network of smaller, closely cooperating, enterprises as an alternative to large corporations as well as universalization of design solutions for interchangeability of individual elements of machines, mechanisms, equipment, especially for defense purposes.

For the development of the regions most affected by hostilities and located within the Eastern macro-region, special attention and support should be given to the micro-business, small and medium-sized enterprises that use local raw materials, labor, and which focus on the regional market and is of less interest of hit by the aggressor.

Approaches to planning of regional recovery

On April 21, 2022, the National Council for the Recovery of Ukraine from the Consequences of War was established by the Decree of the President of Ukraine №266 / 2022.

It refers to a complex recovery strategy for Ukraine, which includes all spheres of society, economy, and the state. The complex work to elaborate this strategy is being performed by 24 Government-run working groups. Since, however, the Council itself has a clear formal status as a professional but advisory initiative/body only the Council’s work must be implemented through the political and regulatory system of Ukraine, including the adoption of necessary laws, acts of the Government or/and the President. Therefore, without questioning the important intellectual and coordinating role of the Council in preparing the overall recovery plan, it can be predicted that the actual planning and reconstruction of Ukraine and its regions will be carried out within the legislation that exists or needs to be elaborated for this.

In our view, when considering the various sectors listed in the Council’s Regulations, it is important to remember that when we talk about recovery, we are not talking primarily about the sector, but about the territories that have been directly or indirectly affected by the war. That is why it is extremely important that the reconstruction measures of regions and territories are comprehensive, based on reliable information and sufficiently reliable forecasts of internal and external threats and opportunities for the regions or territories concerned.

In view of the above, in our opinion, it would be advisable not to create a new legal base for recovery of the country but to develop the system of already existing Planning Documents that have been elaborated and in the recent years and mostly already reflect the European regulations and best practice of legal regulation of regional development.

We understand that Ukrainian regions and territorial communities have suffered significantly different losses as a result of the Russian aggression, and therefore there is a need for diversified approaches to development/recovery planning. After all, even within one region, there are communities where most settlements were either destroyed by fighting or looted during the occupation, and there are communities that have no destruction at all and which were bypassed by the Russian occupation.

Therefore, for some communities it is important to quickly recover through the reconstruction of the destroyed, and for others – to develop under the new conditions.

Both cases are about the need for some synchronized/well-coordinated planning for the recovery of some and the development of other territorial communities within one region.

All this requires amendment or adoption of a new version of the State Strategy for Regional Development until 2027 (SSRD-2027), which may include the Plan for the Recovery of Regions.

What needs to be done to achieve this?

1. It is necessary to identify and assess the new challenges, which Ukraine is facing as a whole country and which are faced by individual regions as the result of the Russian aggression on Ukraine.
   To work on the challenges it is necessary to gather information on the degree of destruction of residential, industrial, road and other infrastructures; on the number of IDPs: where they left from and where they settled; on the availability / destruction of export potential by regions, etc.
2. The new version of the SSRD-2027 should, in essence, become the leading Strategic Planning Document for the recovery of the country as a whole, stabilization of the situation in the regions most affected by war and stimulation of the development of all regions of Ukraine in the postwar period.
3. The SSRD-2027 should clearly define the typology of macro-regions according to their proximity to the front, according to the consequences of hostilities/bombings/shelling, and give directions for macro-regions specialization in the post-war Ukrainian market based on the post-war opportunities.
4. The SSRD-2027 should identify and classify the war affected territories – micro-regions / territorial communities affected by hostilities, depending on objectively verifiable indicators reflecting the degree of destruction of infrastructure, local economy, demographic situation, etc.
5. In the SSRD-2027 we need to review the objectives, including operational, and reduce the number of tasks that refer to these objectives. The strategic objectives mostly still meet the needs of the country’s recovery, development of regions and do not need to be changed.
6. The SSRD-2027 should be implemented through Operational Programmes arising from the operational objectives of the strategy and be financed from sources such as the State Fund for Recovery and Regional Development (SFRD).
7. The Operational Programs are aimed at: the recovery of regions belonging to a particular macro-region; the development of certain functional areas; territorial cohesion of Ukraine.

In our opinion, it is important that the recovery plans of the regions and of war affected territories are not considered separately from the general development planning of the regions and territorial communities.

This, in turn, requires some improvements in legislation on regional development, in fact, it is necessary to adopt a new version of the law “On the Foundations of the State Regional Policy”.

Financing the recovery and development of regions

As the recovery of the regions and the reconstruction of the war affected territories requires significant financial resources, which are not available at the local level and are not enough in the state budget of Ukraine, the State Fund for Recovery and Regional Development – SFRD (conditional name) should be established.

The fund should be replenished from various sources – primarily confiscated assets of the Russian Federation, contributions from donor countries, loans from international financial organizations, etc. It is this Fund that should finance various programs aimed at the recovery of regions to be prepared in accordance with the Recovery Plan (part of the State Strategy for Regional Development).

At the time of writing of this article the EU informed about creation of a platform for the recovery of Ukraine. Detailed information on this instrument is not yet available, but even the emergence of such a “financial pool” does not contradict the existence of a special recovery fund, which should be regulated by the Ukrainian law. Whatever the title, this instrument is acceptable and conceptually familiar to the European Union.

To fund recovery and further development of regions and territories, donors will require assurances that management of assistance will be accountable, transparent, and used in the public interest; will be distributed fairly on the basis of planning documents agreed with the donors in the form and content, developed in an inclusive/participative manner and on the principle of “no funding without plans, no plans without funding”; will be used quickly and efficiently enough.

The key element in ensuring the effective use of assistance is adaptability and maneuverability in management: that is why the best solution is to create a special fund – SFRD. Donors may also wish to have the aid labeled accordingly (e.g., “This demining project is funded by the EU”).

It is important for Ukraine to demonstrate in advance that it can properly manage recovery funds. Proof of that is that the Government operates a proper financial management system, this will be for sure a prerequisite in the run-up to the EU membership. It will be very important to establish operations of the State Recovery and Regional Development Fund in such a way, that it is matching the rules for the EU Pre-Accession and Structural Funds. This will have a double benefit – donors trust and preparation for EU accession.

As EU rules are constantly being improved and adapted to certain key tasks in a seven-year planning cycle, or to requirements to EU candidate countries, Ukraine needs to develop financing rules jointly with the relevant EU institutions. We must use the period of recovery of the country also for a proper preparation for the EU membership.

The EU Structural Funds finance regional policy (or Cohesion Policy), which is the EU’s main investment policy.

EU regional policy is designed to ensure the harmonious and balanced development of all countries and regions, as well as to strengthen the EU’s economic, social and territorial cohesion. Particular attention is paid to rural areas, areas affected by the industrial transition and regions in special natural or demographic conditions, such as the EU’s remote regions with very low population density, as well as islands, cross-border and mountainous regions – in our case close these territorial typologies are similar to the ones defined by the SSRD-2027.

EU enlargement is taking place in accordance with Article 49 of the Treaty on European Union. Of course, there is no mention of Ukraine in any document on the EU enlargement, but with Ukraine’s EU candidate status, the EU will update its legislation and make new decisions on pre-accession funding for Ukraine.

In fact, the rules of preparation for the EU accession should encourage the Ukrainian authorities in the process of planning of the recovery of regions and war affected territories to act according to the rules as identical as possible to the European ones, and we already have a certain basis for this. In 2015-2022, Ukraine made a significant progress in reforming its regional policy with the support of the EU and other partners.

Read this article by Anatolyi Tkachuk and Yurii Tretiak in russian and Ukrainian.