The Regional Resources of Ukraine and New Opportunities for Economic Development Until 2030
The heterogeneity in the development of the Ukrainian regions leads to rhetoric which states that there are regions which "feed the whole country", but there are also regions which are "eternal dependents". Such rhetoric is extremely dangerous, because it generates a separatist mood. Every region of Ukraine is important and unique – each makes a unique contribution to the overall prosperity of the country. Now in Ukraine there is a situation where the regional development takes place as a competitive struggle between regions for resources (foreign investments, transfers from the state budget, labour resources, etc.), and not as a co-operation. On the one hand, competition supports the strengthening of capacity of the local community, and, on the other, it worsens cooperation between them and prevents the synergy effects from their interaction.
As a result, the regions try to secure their own self-sufficiency by targeting external investors and representing themselves outside the country; while inside the country, such regions can demonstrate depressive indicators of socio-economic development, a lack of local budgets, low employment rates and wages. Consequently, some regions became isolated, for example, the (Zakarpatska) Trans Carpathian region, where it is easier to get through Lviv or Budapest, and not through Uzhhorod (the regional centre). Such situations essentially limit the possibility of implementing powerful interregional projects, weaken the country, making it vulnerable to various threats, as well as exposed to adverse regional conditions.
The disproportions of regional development in Ukraine are apparent in the significant differences of the population income (the existing income per capita in Kyiv in 2017 was 111,739.5 UAH, in the Trans Carpathian region – 30,930.5 UAH, in Lugansk region – 14,077.3 UAH); in labour productivity (gross regional product per capita in Kyiv was UAH 191,736, in Chernivtsi region – 23,365 UAH, in Luhansk – 14,251 UAH); in volumes of investment resources (the volume of direct foreign investments per person in Kyiv was 7, 997.5 USD compared to 42.8 USD in the Ternopil region), etc. The life expectancy varies depending on the region by four years: in Kyiv it is 74 years, in the Kherson region it is 70 years.
The current economic disparity in regional development can be explained by military acts, excessive centralization (the significant decline of all indicators of socio-economic development in Kyiv) and development of regions using the "well" model, as well as their overspecialization. At the same time, in the current conditions of rapid digital technology growth and the strengthening of the processes of integration and globalization, the most important factor of success is the development of mutually beneficial partnerships, entering the global chains of added value. Consequently, the traditional factors of regional success, such as geographic location and natural resources, are becoming less crucial.
In order to ensure the development of the regions, it is necessary to focus on the attraction of modern technologies, the ability to generate resources at the local level and the use of modern management models. And the synergy of interregional cooperation will provide an opportunity to ensure the balanced development of the country.
Solutions
Effective economic development guarantees economic growth in the region, and as the region is part of the state, it contributes to the economic growth in the country, which increases the welfare of the population. Effective regional cooperation ensures the development of the country based on interregional cooperation, not competition. Therefore, the actual task of the regional policy is the implementation of the principle: "strong regions – effective cooperation – strong country".
During September 2017 – May 2018, an expert survey about the potential of balanced development across Ukrainian regions was conducted, which identified the opportunities of the regions, as presented in Table 1.
Table 1 – Opportunities of economic development for Ukrainian regions
№ | Regions of Ukraine | Opportunities to grow |
1 | Vinnytsia and Vinnytsia region | 1. Development of machine-building and military-industrial complex 2. Development of consumer goods manufacturing 3. Development of food industry and agricultural processing 4. Creation of business incubators and industrial technical parks, innovative universities 5. Development of production of construction materials |
2 | Dnipro and Dnipro region | 1. Development of foreign economic cooperation, in particular with the markets of the Eastern countries 2. Investment site 3. Creation of a transport hub, the revival of river navigation on the Dnieper 4. Development of market infrastructure and business infrastructure 5. Creating of business incubators |
3 | Zhytomyr and Zhytomyr region | 1. Development of agriculture and agro-industrial clusters (in particular, berry farming) 2. Development of mechanical engineering (agricultural machinery, machinery for chemical industry, cryogenic equipment, automation facilities) 3. Development of production of building materials 4. Development of the chemical industry (plastic products, pharmacology, paint and varnish products) 5. Development of consumer goods manufacturing |
4 | Zaporizhzhia and Zaporizhzhia region
| 1. Encouragement of budget autonomy of local communities 2. Increase investment attractiveness and building up international technical assistance 3. Diversification of transport through the revival of river navigation along the Dnieper River 4. Availability of modern information technologies 5. Implementation of energy efficiency improvement policies in production, housing and communal services and social spheres |
5 | Ivano-Frankivsk and Ivano-Frankivsk region | 1. Cross-border cooperation and export of products to the European market 2. Development of knowledge-intensive industries 3. Creation of transport corridors 4. Creation of power hub 5. Development of ecotourism - domestic and international |
6 | Kyiv | 1. Infrastructure development 2. Development of innovative potential 3. Development of SMART-CITY concept 4. Creating of e-community and e-openness 5. Inclusive City |
7 | Kyiv region | 1. Hosting production facilities of companies located in Kyiv 2. Development of transport infrastructure 3. Creation of industrial technical parks, innovative universities, Start-Up development hubs |
8 | Kropivnickiy and Kirovohrad region | 1. Infrastructure development 2. A large number of mineral deposits (uranium, graphite ore, combustible shale, gold) and high soil fertility (the 4th place among the regions) - opportunities for the development of agro-industrial complex and processing industry 3. Expansion of markets and strengthening the export relations with Asian countries (in particular India) and the EU 4. Development of the potential of agricultural machinery and food industry enterprises 5. Creation of waste processing facilities |
9 | Lutsk and Lutsk region | 1. Transit position of Volyn between Western and Eastern Europe 2. Self-sufficiency in energy resources, including coal, gas, peat, biomass 3. Implementation of "green" technologies in the region 4. The development of small and medium-sized businesses, including recreational tourism 5. Entrance of agricultural enterprises to the international markets |
10 | Severodonetsk and Lugansk region | 1. Assurance of security in the region 2. Development of chemical clusters for fertilizer production 3. Development of socio-economic infrastructure 4. Development of energy infrastructure and energy saving |
11 | Lviv and Lviv region | 1. Attractiveness of the region from the standpoint of participation in the global processes of EU development, increase in the volumes of exports of services, e-business; development of an IT cluster 2. Active development of agriculture, promotion of the establishment of private farms 3. Implementation of innovations, development of alternative energy sources, increase of energy efficiency in production 4. Attraction of money received from migrant workers for the regional development 5. Formation and development of a recreational and tourist cluster |
12 | Mykolaiv and Mykolaiv region | 1. Shipbuilding and ship restoration 2. Creating a favourable investment climate 3. Effective agricultural production and organic farming development 4. Development of domestic tourism 5. Realization of transit potential |
13 | Odesa and Odesa region | 1. Attraction of investment and implementation of innovations 2. Development of agriculture 3. Efficient use of transport and transit potential 4. Creation of an international tourist and recreation centre 5. Development of alternative energy sources |
14 | Poltava and Poltava region | 1. Development of farms 2. Positioning the region as environmentally friendly - development of green tourism, gastro-tourism, ethno-tourism, eco-shops, etc. 3. Increase in demand for domestic organic products 4. Increase in the number of export-import operations 5. Development of alternative energy sources |
15 | Rivne and Rivne region | 1. Logistics hub development (transportation and warehousing) 2. Development of tourism and recreation 3. Development of chemical production (mineral fertilizers, glass) 4. Production of building materials 5. Nuclear power systems and hydrogen energy systems |
16 | Sumy and Sumy region | 1. Digitalization and development of SMART-region 2. Development of agriculture (organic farming) 3. Development of food industry and agricultural processing 4. Implementation of energy saving and energy efficiency technologies 5. Development of transit possibilities |
17 | Ternopil and Ternopil region | 1. Tourism: favourable conditions for the development of ecotourism and recreation 2. Providing educational services to foreign students 3. Development of agro-industrial complex 4. Construction of a waste recycling plant 5. Logistics hub development (road haulage and storage) |
18 | Uzhhorod and Zakarpattia region | 1. Development of cross-border cooperation with other countries 2. Attraction of foreign investment 3. Participation in international development programs of the Carpathian region 4. Introduction of non-waste raw materials technologies 5. Creation of interstate agriculture clusters |
19 | Kharkiv and Kharkiv region | 1. Development and efficient use of gas fields 2. Access to new markets with existing products, geographic diversification 3. Development of tourism infrastructure 4. Development of military-industrial complex enterprises 5. Potential of development of creative industries of the region |
20 | Kherson and Kherson region | 1. Increasing the power of ports 2. Development of recreation and tourism complex |
21 | Khmelnytskyi and Khmelnytskyi region | 1. Development of alternative sources of energy (solar, hydro and bioenergy) 3. Significant natural resource potential (Khmelnytsky region is a region with explored fields of saponite clays; developed electricity network: Khmelnitsky NPP operates in Neteshin); 4. Development of the infrastructure and transport network 5. Development of tourist-recreational potential of the region 6. Availability of certain machine-building enterprises that produce unique products to fulfill foreign demand |
22 | Cherkasy and Cherkasy region | 1. Perspectives of the formation of a Ukrainian air hub in Cherkassy 2. Possibilities of efficient development of water transport (Dnieper River) 3. Development of tourism through the development of new tourist routes, stimulation of "green tourism", reconstruction of historical monuments 4. Development of organic agriculture 5. Stimulation of the development of high-tech industries - IT sector, military-industrial complex, mechanical engineering 6. Shifting from dumping to the industrial processing of solid waste through the construction of a number of waste recycling plants, garbage collection stations |
23 | Chernivtsi and Chernivtsi region | 1. Development of recreational and tourist potential 2. Development of production of organic and processed products 3. Development of industrial and business clusters 4. Development of road infrastructure (transport corridors) 5. Creation of an energy hub 6. Development of ecotourism – domestic and international |
24 | Chernihiv and Chernihiv region | 1. Popularization among population of Ukraine and foreign tourists of tourist highlights of the region 2. Significant potential in the development of agricultural production, food processing industry within the framework of the Association Agreement and the Free Trade Agreement between Ukraine and the EU 3. Dynamic development of IT technologies and new opportunities alongside with realization of the strategy of transformation of Chernigov into a smart-city 4. Exploration of new hydrocarbon fields in the region 5. Development of transit and logistics potential and its infrastructure |
25 | Donetsk and Donetsk region | 1. Modernization of industrial sector and development of scientific and production clusters 2. Creation of new sectors of economic activity 3. Attraction of internal and external investments 4. Reconstruction of the transport system 5. Cross-border cooperation, development of transport networks: sea and air ports |
26 | Donetsk and Lugansk region (zone of delimitation) | 1. Termination of military bombardment and clearing of man-made hazards from territory 2. Implementation of post-conflict rehabilitation programs (special economic regimes, including amnesty of capital) 3. Restoration and development of socio-economic infrastructure (energy supply, transport and logistics, restoration of safe operation of main railway junctions) 4. Development of industries whose products are aimed at meeting the needs of the local population (food and light industry, waste treatment plants, development of services sector) |
27 | Donetsk and Lugansk region (territory under occupation) | 1. Programs of full-scale population integration (through cultural policy, restoration of broadcasting, Internet communication); 2. Integration of infrastructure (energy, transport and logistics). |
28 | Autonomous Republic of Crimea | 1. Programs of full-scale population integration (through cultural policy, restoration of broadcasting, Internet communication); 2. Recovery of water and energy, development of integrated infrastructure |
The basic SWOT analysis of the Ukrainian economy through a regional study makes it possible to develop strategies to support the development of the strengths of Ukrainian regions considering external opportunities; to utilize the strengths to mitigate (eliminate) threats; to overcome weaknesses by using opportunities provided by the external environment. Solutions for the development of the potential of the regions were proposed considering the need to develop interregional cooperation, the development of strategies aimed at overcoming the threats and addressing the weaknesses, as well as taking into account the influence of industry 4.0 (robotization, artificial intelligence, the Internet of things and cyber-physical systems). The basic SWOT analysis, which became the basis for the proposed solutions, is presented in Table 2.
Table 2 – Basic SWOT analysis of Ukrainian economy based on regional research
Strengths | Weaknesses |
Powerful scientific and innovative potential Intellectual potential: the presence of high-class specialists Geographic location (transitional position, proximity to the EU) Territory, rich mineral resources The presence of knowledge intensive industries Developed infrastructure (including rail transport) Creative potential of the population Trade potential Food and processing industries | Lack of strategic vision of the country's development by the central authorities Corruption High level of shadow economy Raw-material-oriented structure of the economy Unfavorable investment climate Low level of SMEs in the structure of GDP High level of hidden unemployment Ineffective usage of natural resources Social stratification of the population (low purchasing power) Opportunism and passivity of the population Weak interaction "business-education-science" |
Opportunities | Threats |
Development of international cooperation. Powerful industrial potential The emergence of new types of economic activities Development of creative sector of economy (design, IT sphere, different kinds of art) Development of alternative energy and alternative fuels production in Ukraine The platform for internal and external investment The development of market infrastructure and business infrastructure Creating business incubators Development of tourism and recreation Development of agribusiness Efficient use of transport and transit potential - creation of a transport hub | Socio-economic crisis Political instability The outflow of human capital into EU and other countries Emergencies of natural and man-made nature disasters Degradation of the village settlement network Moral obsolescence of enterprises due to the inability to modernize production Low motivation of business and population Weak national currency position, high inflation Dependence on external loans |
According to experts, the balanced development of Ukraine is hampered by weaknesses, among which they distinguish corruption, lack of a strategic vision of the country's development by the central authorities and raw-material-oriented structure of the economy. At the same time, Ukraine has a wide range of important opportunities, in particular, the creation of business incubators, the emergence of new promising economic activities of the Ukrainian economy (the development of robotics and AI technologies, telemedicine, alternative energy, etc.) using cluster and integrated-network approaches, the development of international cooperation and attraction of investments that can be realized with the help of powerful intellectual, creative, entrepreneurial potential of domestic experts. Despite the outflow of human capital abroad, Ukrainians continue to create start-ups (according to World Startup Ranking[1], 232 startups were created in Ukraine in 2017), local and international businesses, communities and public organizations. People are aware that all successful countries have undergone a difficult and long period of formation, which Ukraine is experiencing right now.
Actions to take
Regional innovation systems are created to consolidate the assets of a region and optimize the use of its potential, which, first of all, increases local budget revenues, secondly, attracts and retains high-skilled personnel, and, thirdly, increases the competitiveness of the economy. The performance of such systems requires not only high investment in scientific and educational activities, but also institutional infrastructure, among which experts distinguish:
- Competitive business sector;
- Integration into the global innovation system.
The governments of the United States, Japan, China, the EU (industrialized countries) promote innovation through the use of economic, investment and credit policy instruments, as well as through the creation of organizational infrastructure for the rapid commercialization of new products (widespread use of tax and depreciation privileges, legal protection of intellectual property, promotion of international scientific and technical cooperation, support for innovative projects, etc.). However, if the country and its regions are struggling to gain global competitive advantages in the context of the deployment of new technologies of the fourth and fifth industrial revolutions, then an appropriate strategy is needed at both the national and local levels. This approach can effectively attract investments in research fields and infrastructure development that facilitates design, implementation and commercialization of new products or processes.
A regional innovation strategy is a necessary tool for successful development of a local economy, which is especially useful for regions with high innovation potential. The international competitiveness of the country is determined primarily by the innovative regional environment. Thus, according to the World Economic Forum, the key innovator over the past 10 years is the United States, although half of the research and development work in this country is concentrated only in six out of fifty states, while twenty states account for only 5% of all research and development. The state governments of less innovative regions are also trying to be engaged in innovation processes and create the right conditions for industrial research. Therefore, R&D funding is considered to be a strategic investment for them.
In support of economic growth, innovation systems and relevant strategies are being developed in most regions of Europe, confirming the thesis that under current conditions active innovation is necessary not only for highly developed countries but for all regions of the world. Since the mid-1990s, the European Commission has been stimulating and supporting the development of regional innovation strategies through the special programs of RITTS and RIS, through which more than 120 European regions have received support from experienced consultants for the analysis of innovation potential and the development of regional innovation strategies. With regular European contests, regional innovation projects were funded, with depressed territories receiving 75% of the funding. In addition, the EU is making significant efforts to create a network for information exchange between regions. An example of this, we mention the Innovative Region in Europe (IRE) network, which includes different regions of the EU.
Therefore, it is necessary to create an appropriate innovation infrastructure in the regions that would include the organization of activities related to computerization, networking and technology transfer, including small business incubators, venture capital support, and partner institution cooperation between research universities, businesses and state government. The practice of highly developed countries shows that innovative strategies are largely able to help depressed regions to overcome their status through new technological solutions. An example is Hungary, where most of the high-tech companies are concentrated in several western industrial regions. These regions were depressed in 1998, and the stimulation of the climate for attracting foreign investment into the "new economy" led to a reduction of the gap in the level of development of the regions of this country.
An important step towards Ukraine's integration into the global innovative space is the development of its own National Innovation System and active regional policy in the field of innovation. The Ukrainian economy’s competitive growth will depend on how far the regions will pursue an active innovation policy and stimulate the innovative activity of business entities.
Inclusiveness of the Ukrainian regions
While calculating inclusion based on the UN method (inclusive development assessment) and comparing the regions with each other in terms of this indicator, then we find that the first positions belong to the regions with the highest employment rates and the lowest levels of public sector debt. At the same time, the last three positions were occupied by regions with depressed indicators in almost all areas that were considered for evaluation - Chernivtsi, Zaporozhye and Lviv regions.
A particular nuance is that, according to the estimates of investment attractiveness, the regions occupy quite different positions. On the one hand, the undisputed leader in both indicators is the city of Kyiv. However, the next category of cluster-separated analysis reflects the opposite trends: Poltava and Dnipropetrovsk regions, which have high attractiveness for investors according to the parameters of investment activity, potential and risks, are of low importance in the index of inclusive development. Luhansk region, which is least attractive for investment, surpasses most regions of Ukraine in terms of inclusive development, indicating that the recent significant regional risks have not been taken into account, which has affected its low results in accordance with the investment attractiveness index.
In the process of inclusive development analysis, it was determined that outsider-regions have the opportunity to improve their performance if they receive larger capital inflow. According to the investment attractiveness index, it can be concluded that applied measures to achieve the goal will vary in different regions; they will require an individualization and a targeted approach in the design, implementation and control. Indeed, according to the results of the investment attractiveness rating, Zaporizhzhya region out of three regions with the lowest index of inclusive development has the most favourable conditions for attracting FDI. In Chernivtsi region, attention should be paid to improving the indicators of both investment attractiveness and inclusive development, by implementing effective public policies.
Conclusions
Consequently, regional development state policy should be based on the inclusion principle, including the total inclusion of all regions in cooperation, which reduces regional inequality. The key goal of such policy is to create effective mechanisms for the reduction of imbalances in the development of regions, the implementation of interregional cooperative projects and the provision of modern infrastructure. Solving these problems is possible by implementing the following initiatives:
- modernization of production and transport infrastructure (first of all, highways, railways, air connections, communications, access to high-quality Internet);
Modern infrastructure development in the regions can create economic growth multiplication effects through increased interregional cooperation, formation of new, alternative and centrally oriented routes, and the reduction of the burden on the capital region. Increasing household access to the Internet will stimulate digital economy development.
- digitalization and the creation of regional digital atlases, which will provide reliable operational data on the socio-economic situation, reduce the level of the informal sector of the economy in the region, will enhance the attractiveness of the regions to potential domestic and foreign investors.
The study of Ukrainian regional development opportunities which was conducted during September 2017 – May 2018, showed that most regions developed better than it seems in the analysis of the data of the State Statistics Committee of Ukraine, which is explained by the method of data collection.
- search for a new SMART specialization and new markets for their products;
The raw material basis of the economy, as has been repeatedly described, has exhausted its development resources and has led country into a "circle of poverty", so regions, along with their traditional specialization, should try to form a new specialization. Examples were suggested by comparing global needs and strengths of the regions based on the principles of inclusive development. When choosing from several alternative specialization options, in order not to disperse resources, it is advisable to choose the option that potentially can generate the biggest added value.
- development of interregional cooperation for implementation of joint projects and solving environmental problems (waste, cleaning of rivers, soil erosion and deterioration);
Creating effective interregional partnerships will provide a powerful resource for projects that cannot be approached by any single region, while other priorities are identified at the state level. The most urgent, which was named in all regions, is the solution to the problem of recycling garbage and clearing the landfills. Garbage processing plants construction can take place under parity conditions as an interregional project serving multiple regions. Similarly, projects on purification of rivers, soils, etc. can be implemented, as environmental problems affect each region equally.
- development of innovative culture and leadership of the regional communities.
The task for regional policy is to ensure the development of regions and change their specialization in line with global megatrends and the fourth industrial revolution. Currently, most regions are researching their own development strategies based on the industrial paradigm that is based on the existing industrial production infrastructure and natural resources, without market research, search for innovative solutions, and a pragmatic assessment of alternative solutions.
- local action consolidation in the regions around national priorities of development and the strengthening of regional financial capacity.
At the regional level, development strategies must be formulated in accordance with balanced development principles and national interests aimed at improvement of quality of life and the well-being of the local population. The implementation of these strategies will replace competition between the regions with co-operation in order to implement them. Greater financial capacity of the regions is possible due to the decentralization reform, and changes in the payment of personal income tax so that it accrues not in the registration area of the company, but at the place of actual residence of the citizen.
- stimulation of the economic development of Donbas and mountain areas.
Ukraine has territories that have difficult conditions for development due to military actions, destruction, or underdeveloped infrastructure. In order to stimulate the economic development of these territories, a special regime for economic activity may be introduced. At the same time, taking into account the experience of the functioning in Ukraine of special economic zones, it is important to clearly define the timing of the special regime of the economic activity, the procedures for its termination and the rules of application.
- attracting investment in the regions through the use of marketing strategies (positioning, promotion, branding) and development of business plans for territorial development.
The correct positioning of the territory, the formation and development of its brand attract investors and greatly enhance investment flows.
In turn, attracting investment resources to the regions will help to align their economic development, create jobs and reduce labour migration. Important factors for attracting investors are the protection of private property rights, the calculation of return on investment and the availability of labour resources. The protection of private property rights is ensured by the independence of the judiciary and the transparency of the acquisition of these rights. The local authorities must develop a marketing strategy for promoting their own region, brand, positioning and investment business plans. The creation of comfortable living conditions for the population – the provision of educational and medical services, convenient public transport, cultural space – ensures the development of human potential. It is this responsible management that provides the growth of the gross regional product which is expected by citizens at the local level.
