Interview Ukrainian macroeconomics

With the rule of law, there will be more direct investment

Holger Tausch, Director of the Swiss Cooperation Office in Ukraine, shared with how Switzerland is in solidarity with Ukraine in implementing reforms, how it helps Ukraine implement decentralization, e-governance and other innovations, improve infrastructure and health care, develop agriculture and increase industrial production.

: What was the purpose and when was the Swiss Cooperation Office in Ukraine founded?

H. Tausch: The Swiss Embassy opened just after the independence of Ukraine and then a few years later, now almost 22 years ago the Swiss Cooperation Office was opened. In Switzerland, we have two major state agencies for development. The one is the SDC (Swiss Agency for Development and Cooperation) and the other one is the SECO (State Secretariat for Economic Affairs). Their respective budgets are based on the same law and are transferred to the two ministries, which finance interventions around the world. Ukraine is one of the few countries, where the SDC and the SECO work together and with almost the same weight.

For Ukraine, SECO’s support is slightly higher than SDC’s, especially because of more infrastructure financing.. Still, I want to be talking about support from Switzerland overall and that is why I would rather speak about Swiss cooperation as a whole. Today Switzerland dedicates about 26 Mio. Euros per year to Ukraine.

So why Switzerland is here and why has it come to Ukraine? After the fall of the Soviet Union, there was a general understanding that Switzerland should offer its support during this moment of history. Switzerland wanted to show its solidarity with the people who needed support to reconstruct and to change the governance and economic models – we called that “transition”. So why is Switzerland doing it? It really stems from an uninterested perspective of solidarity with the people of Ukraine. From the cooperation perspective, we are not coming with a hidden agenda, such as for example to sell more Swiss goods, a task typically devoted to other areas of work of an Embassy. To define things simply, the work Swiss cooperation is doing could be summarized as technical assistance. Our endeavour is to talk with the government, civil society and other organizations and help to make reforms happen, based on our deep belief in democracy as a model and long-lived experience.

: So the purpose was to help Ukrainian people and society to get into changes after being separated from the Soviet Union. What kind of projects were implemented within this cooperation?

H. Tausch: I have been here for 3 years now. I know that in the past we used to work on judiciary reform issues as well and entered quite early into organic agriculture programs. As of today, we are still active in the organic sector. The main pillars of the Switzerland’s initial support to all Eastern Europe at that time was to look at typical transition issues, related both to economic and government aspects. Democracy and a liberal economy are main values of Switzerland, as we give a lot of power to our citizens in terms of sharing their opinion and building a strong, but limited to core functions, state system. Switzerland however supported Ukraine in finding its own way, well aware that individual reform paths may be different, when compared for example with Poland. One important explanation resides in the fact that Ukraine was actually part of the Soviet Union, contrary to most of Eastern Europe, except the Baltic States. So, for Ukraine, in my view it just takes more time, but I believe it is on the right track.

: What were the ways of support for Ukraine?

H.Tausch: I can give some examples closer to today. We could look at regulation issues of the economy by improving, changing or introducing laws, easing the process for example to start an entrepreneurship. We have supported initiatives to improve the business climate for investors in such a way. Typically, most of these aspects help companies especially on the savings side, because they face less bureaucracy and gain time. We are currently working on these topics with high-level partners, such as the World Bank Group’s International Finance Corporation (IFC).

We also support agriculture, which is very strong, thanks to excellent resources and entrepreneurs Ukraine is endowed with. We usually try to work with the smaller entities, and especially those, which have the greatest needs. Here, we have to be careful, because maybe the comparison sounds funny, but for the Swiss, when we are talking about small and medium-sized agriculture plots, it would be 10 to 50 hectares, while here you would start with 1000 perhaps. In agriculture, we also looked at trade perspectives related positive measures to be taken in Switzerland to help producers importing to our country. That was the focus of our support to organic agriculture. In the beginning, we concentrated on grains, but later also included dairy products. If you look at the statistics today, it is amazing to see the growth of organic producers and production in Ukraine. It is good for export, because it is still rather cheap to produce in Ukraine, but also finds the local markets within Ukraine, thanks to the size of the country and new consumption habits especially in the larger cities. This is one example of an area where Switzerland has expertise. We seek to share our knowledge and experience that might be useful for the countries we work with.

We also work on the governance part, which is now very well reflected with the decentralization reform we support. We showed concrete examples in rural communities from different areas of the country. We showed for example how rural water services and its infrastructure can be improved, through new systems or rehabilitation of existing ones. It has shown amazing results in terms of people’s perceptions and has strongly improved the perspective for local government. In turn, it gave Switzerland increased trust from local, regional and national authorities. They saw that now Switzerland was supporting local people, who really started to believe, because they could feel the change. Of course to change the mindset and start thinking, “Maybe my voice can count, I can do something”, is a slow process.

: What branch of economy meets investments more than others?

H. Tausch: A lot about this has to do with private sector involvement, which is not my best field of expertise. However, we as public sector are helping the reforms to happen. In that sense, I think that agriculture is fundamental for Ukraine, because you have a unique natural endowment and a great potential to develop further value added products. Of course, the IT sector is also very important and much more could be done there, especially on a more institutionalized base. Manufacture certainly needs modernization. If you can ensure that you have the right workforce in Ukraine and that it stays in Ukraine then you will also have bigger means to realize the potential to rebuild the secondary sector, which is not as developed as it could be.

I hear that car Industries come increasingly into Ukraine and that more and more parts are produced in Ukraine for European and other markets. In terms of exports, Ukraine is already expanding beyond Europe, thanks to its large production base and increasing reliance on international standards. When we look at the standards set by the EU thanks to the deep and comprehensive free trade agreements, we see that Ukraine now manages to export to other countries, as it becomes a more reliable producer respecting high-level standards. A growing part of exports benefits from this and now go to India, China, and African countries.

From the cooperation point of view, we tend however to work with smaller entities trying to touch people that are more vulnerable. So, while there is not so much cooperation with big corporations, we still look at the big picture and see the environment we are working in. Recently, to support entrepreneurship at a lower scale, we engaged in eastern Ukraine with a grant programs to encourage people to stay in their settlements and have a perspective for the future.

: What other programs have been implemented by the Swiss Cooperation Office in Ukraine?

H. Tausch: For example, an E-Governance programme, as an innovative approach to change the way administrative services can be delivered. We have a very close partnership with the state agency for e-governance. The idea is to ease the day-to-day life of Ukrainians by allowing them to use a variety of online services. Related to this, in my opinion, here in Ukraine IT people are of such high level that you can make leaps even faster than some more advanced European countries. We do our utmost to make these services available in all the regions of Ukraine. The other part of the program seeks to develop E-Democracy, to allow for each citizen to form an idea, lobby, find people to put a signature on the petition. We could also do it the “old” way, and ask people on the streets, like we used to do in Switzerland for a long time. In Ukraine, we developed the electronic tool called E-petitions. It is still at an experimental stage, because there are many different petitions, some may not be receivable, such as the request to being able to carry a gun or other rather unexpected wishes from citizens. We need to find ways to ensure that petitions are receivable and can be managed by the local government. We are working in many regions of the country and in smaller or mid-sized cities.

: So does it work to influence the government authorities?

H. Tausch: Yes, we are quite thrilled with these programs. In terms of success and effective cooperation, we are happy.

: Is it difficult to collaborate with our authorities?

H. Tausch: I would say in general that in areas of decentralization and local governance we are very blessed. Since 3 years that I have been here, we worked with the Ministry of Regional Development, which has enjoyed continuity even with the change of government in 2016. In any case, cooperation goes both ways and I believe that we have managed to set up very good collaboration. We were able to help to organize donors, especially at a moment in 2015 when substantial additional finances came from the EU and the USA to support this reform. Switzerland has been engaged on local governance for many years and was a recognized and respected donor in this field. Different working groups were established under a ”Donor board” co-chaired by the government and one donor, Switzerland being the first. The working groups allowed creating a favorable dialogue platform, to fill the rather empty shell of decentralization with concrete services, such as health, education, security and administrative services.

We also finance projects in the area of energy efficiency, including infrastructure to improve communal heating systems, where we enjoy a fruitful cooperation especially with authorities from the city of Vinnitsya for example. In other domains, such as health, where we conducted successful child and maternal health care programmes for a long time, we saw an important decrease in maternal and child mortality. Now we have shifted our attention more towards non-communicable diseases and enjoy a remarkable cooperation with Minister of Health Ulana Suprun who opened the way for deep reforms. Finally, the economy is another area where we have seen many reforms happening, in close cooperation with the Government. The one area we are not currently working in is the judicial system, despite the fundamental importance of the rule of law and the respect of human rights. I must highlight that since the Revolution of Dignity, we have also started a human security program. We follow a human security and peacebuilding approach through supporting the Minsk process, the OSCE Special Monitoring Mission and the Office of the High Commissioner of Human Rights, which monitors the human rights situation on the entire territory of eastern Ukraine. Last but not least, because of the conflict and the difficult situation in the east, we provided humanitarian goods for all Ukrainians, on both sides of the contact line, where we delivered for example chemicals to VodaDonbassa, the unique water provider for the Donetsk region.

: So did you face some difficulties or pressure in doing this humanitarian help?

H. Tausch: Our humanitarian aid is always in full agreement with the Ukrainian authorities. So all the relevant entities are involved and everything is well prepared. Of course, we also need agreements from the “other” side, which were usually sought through the supported water utility or hospital (for medical equipment), thus avoiding a formal recognition of the local power structures. We believe that we have an important role to play as a trusted, neutral broker to the benefit of every citizen living within the Ukrainian boundaries.

: You give them what they are really need or what you can give?

H. Tausch: Definitely what they ask. This is all about interaction. For example we do not give them chemicals they already have from other sources, such as the ICRC, but we rather respond to their needs, based on facts and early assessments. We have delivered dry chlorine, but also small special devices that can produce chlorine locally. We have even managed once to deliver sand for the water filtration station by train. We also support hospitals in the conflict region with essential medical equipment. Here it must be said, that while some of this equipment comes from Switzerland, most of our humanitarian support is procured locally, therefore benefitting at the same time the Ukrainian economy.

: Back to the topic of business, how do you estimate the investment climate in Ukraine? What should be done to attract the investors?

H. Tausch: Whilst I am not very qualified to talk about the investment climate, I can relate to voices that I have been hearing in Ukraine over the past years. From the cooperation side, as mentioned before, we are supporting a number of steps towards de-regulation. Ukraine has made great progress in this area, easing the investment climate. Still the big problems entrepreneurs from Switzerland, France and other countries see, are the judiciary system, the respect of the rule of law, and not well functioning courts to ensure the safety of their investments. Corruption, which I had not mentioned so far, is certainly part of that broader set of issues. Changing the attitude to corruption is not so easy, and that is why we need to concentrate on the judiciary system. On the other hand, I firmly believe that Ukraine made progress , as it managed to reduce the space for corruption, for example with the introduction of e-procurement (ProZorro) and by raising energy prices to market levels So, amazing changes are happening already from today to tomorrow, it only takes some time. Unfortunately, international headlines regarding Ukraine are too often negative, making investors think twice when choosing this country or some other opportunity.

: High risk is high profit.

H. Tausch: Yes, that can be. But, look also at the companies that stayed in Ukraine during and after the revolution: they made losses, but thought in a longer time perspective. Therefore, we should have a more balanced picture. At any rate, once the rule of law will enjoy more respect, foreign direct investment should pick-up and may support an economic boom period.

LDaily: What sectors of economy we have to invest?

H. Tausch: For example IT, but as I said before it should be more institutionalized, because today I hear that there are many good professionals, but often they work from their homes , are extremely mobile and likely to just move to another country.

: Is it right that the Swiss Embassy supports the Ombudsman?

H. Tausch: Yes. We have been supporting its office through EBRD. Like other donors, we have joined a common pot – we call it the multi-donor account – to support some areas of reform, also dear to the EBRD. That is how we supported also the Ombudsman. Many of the most important donors have provided finances to support these reform oriented actions.

: What are your plans for the next year?

H. Tausch: We have a quite a number of plans. First, we prepare a next strategy for a period that should extend from 2020 to 2023 or 24. Today we are engaged in those sectors where we believe we are most productive or effective from the cooperation point of view. We will now look into our programs and see what we should maintain and what we may need to change. The one area, which we are going to explore further, is vocational education and training. At this stage, we have one very interesting partnership in this area with a private company, Geberit. Right now, a plumber education curriculum, which had started with 6 schools in 2015 is now including 25 schools all over Ukraine, thanks to very good collaboration with the Ministry of Education and their scaling up of the initial initiative. Professional education is indeed an area where we could be stronger. Currently we are also starting a program of medical education to help improve the whole system of medical standards and curriculum – for doctors and nurses – and efficient management practices. The other work stream we will be starting is in support of the mental health reform. It will also look specifically at conflict-related disorders, with a special emphasis on the east of Ukraine to look at post-traumatic stress disorders, including the children, because we often underestimate what happens in their heads. We look very much forward to a long term and continuous engagement of Switzerland in Ukraine, based on the country’s needs and the possibilities for us to engage.

Please read: Establishing fair and transparent rules of the game begins with the business itself

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