For more than a decade,Ukraine has been attempting to set up conditions for industrial parks.
But it was only in February 2014 that the government officially placed the first such development on its register. Since then, a total of 15 developments have been registered by the state but only two of those are currently operating.
After assuming his position in April, as part of the post-EuroMaidan decentralization drive, Ukrainian Prime Minister Volodymyr Groysman said that he wanted to see an industrial park in every Ukrainian city. The government-led initiative on industrial parks aims to attract multinational investors to Ukraine’s regions, creating jobs and developing local industry.
Despite the growing number of state registrations, industrial parks are failing to take off.
Ukrainian government officials call investor interest strong. Over the past year, The Netherlands, Japan, Germany, China, and Turkey have all expressed interest.
However, the sharp economic decline which hit Ukraine in 2014, coupled with inadequate laws to stimulate their development, has led to difficulties in attracting investors, said Igor Nykolyn, director of Ukraine’s Association of Industrial Parks.
Those registered by the state are eligible to apply for financing from the State Regional Development Fund, though it has yet to fund any industrial park projects. This is a marked difference from countries like Poland and Czech Republic, which offer significantly better tax incentives as well as grants.
Legal changes
Ukraine’s central authorities have tried to mitigate the situation by passing amendments to the 2012 law on industrial parks. For instance, in November 2015, they removed articles which obliged investors to pay for 75 percent of the infrastructure for the site: “This was the biggest barrier to the creation of new parks,” said Nykolyn.
According to Nykolyn, the two legislative initiatives currently on the table, 2554a and 2555a, which are designed to boost tax and customs incentives, are still insufficient, despite being a step in the right direction. Even if passed, he says, Ukraine would still offer significantly lower benefits compared to its regional competitors.
“Even under the current proposals, the benefits are only half of those which exist in Turkey for example,” Nykolyn said.
Rasim Bekmezci, vice chairman of the Turkey-Ukraine Business Council, told the Kyiv Post that the two laws awaiting approval will be sufficient to attract Turkish investment. But until the laws are passed, Ukraine cannot claim it has any industrial parks, said Bekmezci: “Industrial park zones must offer something special, they can’t just be like everywhere else.”
There is strong interest among Turkish textile and agricultural companies, said Bekmezci, attracted by cheap labor costs and natural resources, such as sunflowers, corn and grain.
Local authorities
Bekmezci said that Turkish businesspeople are not looking to move to a specific area of the country. Rather, they are looking for the local authorities who will offer the best conditions.
Additional controls given to Ukraine’s regional governments under the decentralization bill passed in 2015 mean local authorities can play a bigger role in supporting the establishment of industrial parks.
For instance, local authorities can offer subsidized rent on state land, preferential land sales and administrative services, subsidized tariffs for electricity and water, and special loans.
There are very few examples of local authorities doing so, according Daniel Bilak of UkraineInvest, a project under Ukraine’s Cabinet of Ministers which aims to promote investment.
Lviv’s Ryanse-2 Industrial Park is one of the few examples of local authorities “bending over backwards to make investors feel at home,” said Bilak. Significantly, according to Bilak, Lviv City Council sold Ukraine’s branch of Dutch real estate developers CTP land in December 2015 which means that they can attract institutional investors. The Lviv authorities also offered to build all the infrastructure connected to the site, said Bilak.
According to their plans, Ukraine’s branch of CTP, City Park Lviv, plans to invest 50 million Euros into Ryasne-2, which will specialize in sorting garbage and is expected to create 3,000 jobs.
However, in November, Ukraine’s Prosecutor General Yuriy Lutsenko opened a criminal investigation into the land sale, claiming that it was sold for Hr 52 million: Hr 88 million under its value in November 2015 of Hr 140 million.
The city council say an independent valuation of the land before the sale put the price at Hr 52 million, not Hr 140 million.
The head of legal at Lviv City Council, Helena Paionkevych, told journalists on Nov. 15 that no searches had taken place as all the documents were voluntarily handed over. She said that most of the documents relating to the sale were already publicly available online.
Criticising Lutsenko, Lviv’s Mayor Andriy Sadoviy wrote on Nov. 15: “Today’s actions at the City Council provide us with the best answer as to why Ukraine has no investors.”
“The investigation is into whether or not they followed the right procedure. I’m sure they are not completely incompetent,” said Bilak. “I hope that the investigation will bring a good housekeeping seal of approval for industrial parks in Ukraine.”
Overall, says Nykolyn, it’s up to the authorities to instigate changes that ensure conditions, such as long-term tax breaks, remain the same for the next 10 years.
State registered industrial parks in Ukraine as of November 2016. Source: Ukraine’s Ministry of Economy and Trade (Iryna Movchan)
