Report on the Assessment of the Actors and Donors Active in the Eastern Partnership Countries in the Field of Local Government

REPORT ON THE ASSESSMENT OF THE ACTORS AND DONORS ACTIVE IN THE EASTERN PARTNERSHIP COUNTRIES IN THE FIELD OF LOCAL GOVERNMENT

May 2017

TABLE OF CONTENTS

Introduction ……………………………………………………………………………………………………………………………….. 3 Background ………………………………………………………………………………………………………………………………... 3 Common trends and main findings …………………………………………………………………………………………….. 4 Key features of the local government systems in the EaP countries …………………………………………... 9 Instruments of local authorities to promote local economic development ………………………………. 15 Major donors active in the field ……………………………………………………………………………………………….. 23 Annex 1. Country reports on each of the six EaP countries ………………………………………………………. 32 Armenia – Country Report ……………………………………………………………………………………………………….. 32 Azerbaijan – Country Report ……………………………………………………………………………………………………. 54 Belarus - Country Report …………………………………………………………………………………………………………. 67 Georgia – Country Report ………………………………………………………………………………………………………. 104 Moldova – Country Report …………………………………………………………………………………………………….. 140 Ukraine – Country Report ………………………………………………………………………………………………………. 164

Introduction

This report was drafted during the Inception Phase of the Mayors for Economic Growth (M4EG) Initiative launched by the European Union in October 2016. The report was revised in April-May 2017 based on comments received. The M4EG Initiative targets local authorities throughout the Eastern Partnership Countries of Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine (EaP).

The focus of the Initiative is on sustainable local economic development (LED) and its overall objective is to support local authorities to become active facilitators for economic growth and job creation by developing their capacities and technical skills while working in partnership with their business sectors and civil society.

The aim of this report is to provide an overview of the core issues which affect the performance of municipalities in the EaP countries and influence the local economic development. A specific part of the report is devoted to the International Donor Organizations active in the field of local government support in these countries with the aim to avoid overlapping activities during the implementation of the M4EG Initiative.

The document is based on the six Country Reports prepared by the M4EG Country Experts and annexed to this report. Moreover, a number of related documents drafted by the International Organizations were carefully examined. Several of their findings were used in the preparation of the report. In this respect, it is worth mentioning two documents: - Study on Roles and responsibilities of mayors and local councilors in the Eastern Partnership Countries prepared in April 2016 within the Council of Europe/European Union Eastern Partnership Programmatic Co-operation Framework 2015 – 2017; - Update on Public Administration and Local Governments Reforms in Eastern Partnership Countries prepared in January 2017 by the Subgroup on Local Government and Public Administration reform of the Eastern Partnership Civil Society Forum.

The European Charter of Local Self Government, hereafter “the Charter”, represents the core source and the benchmark for the improvement of local government systems in Europe and in turn also for the assessment of several aspects mentioned in this report.

Background

Over the past decade, the governments of the majority of the EaP countries, under the influence of various circumstances, have made a number of efforts for decentralization and modernization of their public administration systems including local government systems. In a number of countries, local authorities (LAs) received additional powers and opportunities to influence the situation in their municipalities.

The European Union pays great attention and gives serious support to these processes in the EaP countries. The European Neighborhood Policy (ENP) has been in place since 2004, aimed at supporting and fostering stability, security, prosperity and inclusive economic development in the countries closest to European Union borders.

In particular, it is with the purpose of overcoming a number of obstacles in order to unlock the development potential of LAs that the European Commission reaffirms the importance of LA in partner countries in achieving development objectives.

The Terms of Reference of the M4EG Initiative provides an overview of the EU key messages regarding the role of local authorities in the region. In this respect, it would be important to mention the following issues.

The Communication of the European Commission of July 2014 "The urban dimension of EU policies – key features of an EU Urban Agenda" underlines the essential role that LAs can play in delivering on policy objectives set at other levels of governance. Moreover, the importance of LAs has been confirmed in the conclusions of the Riga EaP Summit in 2015. In the official declaration, the Heads of State and Government encouraged Local and Regional Authorities (L&RAs) to play a key part in the relevant EaP policies. The final declaration at the EaP Summit also suggested that L&RAs should be provided with targeted support.

The EaP Municipal Development Flagship and the European Neighbourhood Instrument (ENI) Multiannual Indicative Programme (MIP) 2014-2017 Regional East put forward the objective of "deepening sustainable economic development and fostering sector cooperation" including through “the creation of a climate conducive to trade, investment and regional/multi-country integration, fostering entrepreneurship, innovation and creativity, with a particular focus on promoting sustainable business models and green growth, promotion of access to finance, support to public- private cooperation. This is to be done both at national and sub-national level.

The Multiannual Programme aims also at strengthening LAs, communities and civil society and business organisations to help develop joint solutions to common social and economic development challenges in the EaP municipalities and to improve good governance at local level.

On economic modernisation and entrepreneurship, the Joint Communication states that “The EU will support partners to modernise their economies for smart and sustainable growth by engaging in economic dialogue, policy advice and the mobilisation of financial assistance. It will promote a better business environment and reforms that allow greater investment, and more and better jobs.”

Common trends and main findings

There are different local self-government systems functioning in the region and the level of decentralization also varies a lot in the EaP countries. But at the same time, these countries often face very similar challenges and have a lot of common trends, which up to now were in a large part inherited from the Soviet past.

The main obstacles which prevent LAs from becoming active facilitators for economic growth and job creation in the region are also, in many ways, similar in these countries. The main of these are the following ones:

1. Weak financial basis.

2. Overlapping and unclear powers and responsibilities between levels of government.

3. Excessive control from the upper levels of government.

4. Institutional deficiencies and lack of capacity at municipal level.

5. Limited citizen participation in local affairs and the politicization of local life.

Below a brief description of each of these issues is presented. It should be taken into account that all these issues are interrelated.

Weak financial basis

The findings of the six country reports clearly show that the main barrier to the full exercise of the responsibilities of local authorities and thus, to become active facilitators for economic growth and job creation in their municipalities, is local finance. The LAs competences/responsibilities and financial resources for their implementation are not inter-linked and allocations are un-predictable. Central government transfers are still the main source of revenue for local government.

The freedom to use local finances are strongly limited in all Eastern Partnership countries, as central government interferes in local government spending decisions through several mechanisms. Real local taxation, with the right of local self-government to determine rates on the base of local needs and priorities, does not exist. Partial exception is Moldova, where local councils are free to establish the rates for local taxes and fees, but are not allowed to introduce new taxes except the ones listed by the fiscal code.

The missing link between the scope of responsibilities and the amount of available finances leads to the fact that the unit costs of provided services are unknown. There are no mechanisms to collect this necessary information and to link it with fiscal decentralization processes.

Another problem is unclear criteria of earmarked allocations (“subventions”) from the state budget. In the majority of the countries the allocation of central grants to the local level is mostly based on subjective decision-making and in several countries is politically influenced. This is also the case in allocations from national funds (environmental, road, etc.). Usually, the allocation of finances from these funds has “relationship” or political background, as often decisions are adopted by taking into account the “administrative resources” or political affiliation of mayors, without consulting other relevant criteria. As a result, the allocation of targeted funding becomes an additional instrument of the central government to influence municipalities. This makes local authorities politically dependent on central government.

According to the recommendations of the Council of Europe’s report mentioned in the introduction, it is evident that major steps towards real fiscal decentralization are required from all governments in the region. Local governments should be free to determine and to use resources connected with their own responsibilities, while simultaneously, the legality, efficiency, economy and effectiveness of their spending decisions should be internally and externally controlled and audited. To manage possible inequalities between revenue and spending, transparent systems of equalization and allocation of extra funds should be created.

Overlapping and unclear powers and responsibilities between levels of government

When reforming their public administration systems, all the EaP countries created their own legislative framework, thereby determining the distribution of powers and responsibilities between levels of government and also the main rules for the functioning of local authorities. However, a lot of gaps and ambiguities remain in different scale in each country. The most acute of them are following.

The distribution of competences between the state and local government is not properly defined by the national legislation, which allows the government to centralize administrative competencies. Therefore, the important problem is the incompleteness of the organizational and legal autonomy: local authorities do not have freehand to exercise their initiatives concerning any matter which is not excluded from their competence nor assigned to any other authority. Powers given to local authorities are not full and exclusive; there is a duplication of powers of local authorities and state bodies.

Along with this, the current legislation in the EaP countries does not clearly distinguish between own and delegated responsibilities, especially regarding rules concerning the financing of delegated responsibilities. Interference between own and delegated responsibilities as well as legal contradictions – different legal solutions for the same issue in different laws – are rather frequent. The main reason for this is that local self-government laws are not effectively harmonized with other state legal acts, especially sectoral ones.

The abundance of competences and responsibilities established by multiple normative acts, laws, regulations, as well as the government decisions, often makes the local authorities to confuse their basic tasks with the delegated ones, making it difficult to identify the competences that come into conflict with the areas of responsibility of other public authorities. As a result, municipalities regularly face difficulties when they are obliged to perform activities that are not included in their areas of responsibility and delegated them from the upper levels of government. In these cases, local authorities become very dependent on financial transfers from higher levels of government, bearing full responsibility for the successful performance of the delegated tasks.

One more issue concerning the relations between different levels of public administration is the unclear division of tasks and powers between parallel structures of public administration. According to the principle of subsidiarity the most important local public competences must be transferred to democratically and politically accountable municipalities, own and delegated responsibilities must be clearly legally and practically separated, and sectoral legislation harmonized with self-government laws.

Excessive control from the upper levels of government

Issues regarding the improper supervision and control of self-government activities were noted in each country of the region. In most of them, the legal bases that determine the methods of supervision are not in compliance with the European Charter of Local Self Government.

In most of the countries the relations between the public authorities at different levels are excessively bureaucratic, creating the situation of marginalization and subordination of local

6 authorities to the central level. Analysis of the legal framework and the practice of local authorities’ activities attest the existence of many obstacles for an effective implementation of the rights of local authorities to solve problems of their communities, to assure the administration of local affairs and to provide good public services.

As a consequence of inadequate legal and financial basis of local government, deconcentrated state administration bodies gradually penetrate into the LAs sphere of responsibilities, greatly increasing the level of centralization of government and obstructing the development and strengthening of municipalities.

In addition, a system of regular and comprehensive consultations between the state and local authorities is not really established. Local governments have no full rights (and sufficient finance) to create their own administrative structures and have no full and real access to legal remedies against improper “state interventions”.

Institutional deficiencies and lack of capacity at municipal level

Central governments have a tendency to argue that decentralization, and especially fiscal decentralization, cannot be fully realized, because local authorities are not ready to deliver effective, accountable and responsible local governance. This can be partly true, especially in small municipalities.

But such a situation, for the most part, is due to the unwillingness of the central government to undertake necessary steps in order to create an adequate institutional structure of local government and increase local authorities professional capacities.

Thus, the level of freedom of mayors and local councils to establish and remunerate their own administrative structures is significantly limited by legal restrictions and also by expenditure restrictions.

In many cases, there are no clear mechanisms allowing the mayor and local councils to supervise delivery of public services such as electricity, water, gas supply, tax services, operation of the real estate cadastre, and the like, by non-municipal entities operating in the community and, if necessary, to intervene in their activities, including by means of providing qualified local staff. Training possibilities for local staff are generally limited as well as the technical support for local authorities.

In some cases, unclear legal definitions and lack of experience create problems between different local authorities. Such as unnecessary disputes between the Mayor and the municipal council which are often related to the execution of several functions, appointment and dismissal of the heads of important departments and institutions, management of municipal property. Due to unclear legislation and missing guidelines, the decision making process is often poorly organized.

Very often elected officials and employed staff lack some necessary skills and their possibilities to improve this situation are very limited. The state systems of vocational training and capacity building for municipal officers do not always meet the real needs of municipalities and are not able to provide municipal employees with the necessary modern knowledge and skills in the field of municipal government. Forms and subjects of training, as a rule, do not correspond to the modern view on the

7 role and functions of local authorities and do not give municipal employees opportunities to modernize the functioning of their municipalities.

This situation, together with already indicated interference of the central government limits the quality of local governance and makes LAs significantly dependent on the political will of the central authorities. It also demotivates at least part of local politicians to become really active.

Limited citizen participation in local affairs and the politicization of local life

An important barrier to the development and efficient functioning of local government in the EaP countries is the rather limited citizen participation in local affairs. Such situation is largely due to the historical past, when in the Soviet system citizens had no real influence on the activities of local authorities and their participation in local affairs was very limited and formal. In this regard, citizens of these countries do not have the necessary culture and social skills to function as defenders of their local rights and interests or as controllers of the activities of local elected bodies. The situation is also enhanced by the fact that the issue of citizen participation in most countries is not sufficiently defined by the national legislation. Top-down policy making at the local level plays also a negative role in this respect. A very specific issue in the region is the political culture at local level. Over-politicization of local life and the influence of national politics might lead to political polarization in local society, instead of joint working of all local public officials for local people. In several countries over-politicization is very visible at local level. Political parties have a strong influence on the activities of local authorities, both through their fractions where they are officially part of LG system and by direct party influence. In most cases, such influence has a negative impact on local authorities’ performance.

The three following tables summarise the main data available in the six country reports:

Table 1. Key Features of the Local Government Systems in the EaP Countries.

Table 2. Instruments of Local Authorities to Promote Local Economic Development.

Table 3. Major Donors Active in the EaP Countries in the Field of Local Government Support.

These tables give an overview of the main features of local authorities in the EaP countries with a special focus on local economic development issues and a possibility to compare local governments in the six EaP countries.

Table 1. Key Features of the Local Government Systems in the EaP Countries

LG – Local Government / LA – Local Authority

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

LG system in LG system has one level. LG system has one level. LG system has two levels: LG system has one level. LG system has two LG system has two levels: levels: the country Publicly elected local Publicly elected 1)Basic: rayons (districts); Publicly elected local self- self-government is municipalities have limited government is exercised 1) publicly elected LAs in 1) Regional (oblast and exercised within powers to deliver services 2)Primary: towns, villages. within municipality level. cities/municipalities and rayon) level. community level. Each to citizens. Publicly elected Municipality represents a villages/ communes. urban and rural settlement (self-governing Publicly elected LGs community consists of At local level there are also Local Councils of Deputies city) or an association of 2) publicly elected LAs in (local councils) and one or more the Local Executive have very limited powers. settlements (self- administrative territorial appointed oblast (rayon) settlements. Authorities, who are Appointed by the upper governing community). A units –rayons, two large state administration. centrally appointed and not municipalities [Chisinau levels of government self-governing city is a 2) Municipal elected locally by citizens, settlement of an urban and Balti], and one Local Executive Committees (community) level: nominally can be referred category and a self- autonomous territorial have the major influence on publicly elected LAs to as a local tier of governing community is unit – Gagauzia. the local development representing individual government as they do not an aggregation of several have independence and issues. and amalgamated settlements: village, communities (councils simply implement decisions borough (town) and city. of the central government. and executive committees) such as cities, city districts, townships and villages.

Number of 1000 settlements which Cities-78, Rural rayons-66, Rayons – 118; 71 municipalities from 1st level: 898 local 488 rayon councils; LAs are unified in 915 Urban rayons-14, Urban- which: 12 self-governing governments in Cities (towns) – 113; 433 city councils; communities of which type settlements-261, cities and 59 self- cities/municipalities and 49 are urban (cities), Centralised village units- Districts in cities (towns) – governing communities. villages/ communes. 47 councils of cities’ 866 are rural (villages). 1727, Rural settlements 24; nd districts; (villages)-4249. 2 level: 32 rayons, two Urban type settlements – municipalities [Chisinau 10239 village and 90; and Balti], and one township councils; autonomous territorial Rural Councils – 1163. unit – Gagauzia.

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

366 councils of amalgamated communities.

LG Legal Constitution Constitution Constitution Constitution Constitution Constitution Framework (Chap. 9, Art. 179 - 190). (Art. 142(I) and (II). (Section 5). (Chap. 7). (Art. 109). (Art. 140–146). Organic Law of Local Self- Law on Local Self- National Laws adopted in Law on Local Government Government Code (2014) National Laws on: Law on Local Self- Governance (07.05.02) 1999 on: and Self-Government government (1997). (2010); -territorial- -status of municipalities, administrative National Laws on: Law on the Status of a organization (1998); -elections of municipalities, Deputy in Local Council of - on local public Deputies (1992); -local public administration (1999) -model municipal charter, administration (2006); - on self-organizing -municipal service, Law on National and Local Assemblies (2000). -administrative bodies of population -local referendum, decentralization (2006); (2001)

-transfer of assets, -local public finances - status of the deputies (2013); of the local councils -municipal Finance. (2002); -on locally elected National Laws adopted later officials (2000); - local elections (2015); on: -on property of local - cooperation of local -municipal territory and public administration communities (2015). lands (2000), units (1999)

-management of municipal lands (2001),

-municipal taxes, (2001),

-merging of municipalities (2009).

Compliance Charter is ratified in Charter is ratified in 2002. Charter is not ratified. Charter is ratified in 2004. Charter is ratified in Charter is ratified in with the 2002. Legislation is 1997. Legislation is 1996. Whilst many of its formally in compliance Legislation is not in Legislation is not in formally in compliance provisions have already European compliance with most of compliance with most of Charter with the Charter. So far, with the Charter. There been implemented in 10

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Armenia has not the provisions of the the provisions of the Georgia declares its are serious concerns Ukrainian legislation, recorded any serious Charter. Charter. commitment to fulfilling related mostly to: much remains to be progress towards all Articles except a few. done in order to achieve development of local -persisting confusions full compliance with the democracy. and legal Charter. misinterpretation

-excessive political interferences on local governments.

Heads of LAs Head of Community is Head of municipality is Head of municipality is Head of municipality is Heads of LAs of both Heads of LAs of both publicly elected for 5 publicly elected for 5 years. publicly elected for 5 years. publicly elected for 4 levels are elected for 4 levels are publicly years. Exceptions are years since 2017. years. elected for 5 years. Yerevan (capital city), Head of Local Executive Head of Local Executive Vanadzor and Gyumri Authority is appointed by Authority is appointed by - Mayors: directly cities where the Mayor the President for 5 years. the Head of upper level of elected by public; executive authority after is elected by the city - Heads of rayons: council. Presidential approval. Head of LEA is employed on the elected by local councils basis of a contract for 1-5 among its members. years (depending on contracting authority).

LAs Financial The share of local The current share of local According to the Ministry of Only 9 municipalities are Since 2014 Moldova is Higher level transfers Autonomy budgets in a country government revenue as a Finance, in 2016, 59.8% of not receiving equalization the first country in finance 57.2% of the consolidated budget - percentage of GDP is the consolidated budget transfers from the central Eastern Partnership that consolidated revenues between 0.05-0.5%. consisted of national government spends over 1/3 of of local budgets. 10%. budget revenues and 40.2% public expenditures Local charges and local - of local budgets revenues. In other municipalities, through local Average share of LGs taxes constitute between 2 The ratio of consolidated approximately 70-80% of authorities. Despite this own source revenues in to 10% (based on the data budget revenues to GDP the local budget financed the execution of local total revenues - 28%. for 2002-2012) of overall was 29.4%, and the ratio of from the central level. public tasks is national income. local budgets revenues to dependent on the GDP - 15.1%. Municipalities have transfers from the state financial autonomy for budget (about 65-70% spending their budget, for both levels). Own including revenues revenues are at about 11

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

receiving via equalization 15% and 5% transfers. respectively.

State Bodies Ministry of Territorial Department responsible for Council for Cooperation of Ministry of Regional State Chancellery of the Cabinet of Ministers of responsible Administration and municipalities under the Local Self-Government Development and Government of the Ukraine. for LG Development. Administration of the under the Council of the Infrastructure; Republic of Moldova: President. Republic of the National Ministry of Regional development Regional Assembly of Belarus. -Department for Public Development, Administrations. Centre of Work with Administration Reform; Construction and municipalities under the Department of Regional Housing. Ministry of Justice. Development of the - Department of Administrative Control. Ministry of Economy.

Number of 1,500 employees The project experts have no 40 employers in the Council. Approximately 20 7 employees in the 18 employees in the employees in access to this information. employees. Department for Public Ministry. out of which 135 are 6 employers in the Administration Reform; State Bodies employees of the Department. responsible Ministry and 1,365 are 5 employees + 10 for LG employees of 10 territorial agencies in development regional administrations the Department of Administrative Control

State Regional Development State Program on Poverty National Strategy for State program "Produce National Strategy for Sustainable programs Strategy for 2016-2025 Reduction and Economic Sustainable Socio-Economic in Georgia” (since 2014). Decentralization Development of Ukraine (2016) encouraging Development in Azerbaijan Development of the Strategy (2012-2015 until 2020; Republic for 2008-2015; Republic of Belarus until expanded to 2018); local 2030; National Public State Strategy of development State Program on Socio- Administration Reform Regional Development economic Development of State Program of the Social Strategy (2016-2020). 2020; the Regions of the Republic and Economic Development of Azerbaijan for 2014-2018 of the Republic of Belarus Public Administration for 2016-2020; Reform strategy for 2016-2020; State program of agricultural business Anti-corruption strategy development in the (2014-2017);

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Republic of Belarus for State Program for Cross- 2016-2020; border Cooperation for 2016-2020. State program on overcoming consequences of the Chernobyl catastrophe for 2016-2020;

State program “Hospitable Belarus” for 2016-2020.

State Armenian Territorial Ministry of Economy of the Presidential Decrees on: Under the mentioned National Fund for Investments from local mechanisms Development Fund. Republic of Azerbaijan. above state program Regional Development; budgets surplus; -measures stimulating supporting there are different implementation of mechanisms encouraging National Environmental Local Development local investment projects with Fund. Funds; development local development and high added value (2013); especially SMEs Projects and Grants -improving legal regulation development. financed by the of the procedure for Government and donor providing support from the organizations. state to legal entities and individual entrepreneurs (2006);

-stimulating entrepreneurial activity in the medium-sized and small municipal settlements and rural areas (2012).

LAs There are 3: Three municipal In 2010, based on the National Association of Congress of Local Public Currently there are over Associations Communities associations representing regulations approved by Local Authorities of Authorities from twenty local Association of Armenia villages, towns and cities, Council for Cooperation of Georgia (NALAG) (2004). Moldova (2010) government (1997); were established in Local Self-Government of associations in Ukraine, Azerbaijan in 2006. the Council of the Republic based on territorial, Communities Finance (Parliament) two functional and industrial Officers Association associations of local self- interests. The most (1998); Association of government bodies influential are: municipal councillors of

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Armenia. The most These associations have no (deputies) were established Association of Ukrainian active is Communities influence on LGs in Grodno and Mogilev. Cities (AUC); Association of Armenia. development. Association of Ukrainian municipalities (AUM)

All Ukrainian Association of Village and Township Councils (VASSR).

LAs The collaboration There is no legal restrictions Overall interaction of the LAs often engage in As result of a vast Numerous participatory interaction between LGs and NGOs preventing such interaction. three sectors of society is dialogue with NGOs and number of donors- mechanisms are in can be characterized as with local However, NGOs are considered to be limited. business but these financed projects, place, including the civic non-systemic and perceived as politically The main problems are the engagements are neither aiming to encourage the advisory councils, public business and largely “pushed” by motivated. LAs tend to following: systematic nor regular. participatory local hearings, and town hall NGOs donor financed projects. abstain from direct Some LAs is now in the development, there is a meetings. In most of cases the engagement with NGOs and -lack of citizens confidence; process (or already exist) general understanding initiative is coming from seek for the approval of the of setting up a business and support by LAs for The efficiency of NGOs which try to -lack of skills and participation of NGOs engage local authorities Presidential Administration. competences in applying consultation board or NGOs and business This is not the case with the Public Council with the engagement into the and businesses in the in their projects. participatory methods; public consultations However, there are official NGOs. As LAs are City Mayor. process of local planning varies and depends cases of successful deprived of any real -poor capacities, lack of and development mainly on the cooperation. powers, businesses have no knowledge, expertise, interventions. incentives whatsoever to experience and information commitment of LAs and interact with the LGs on issues of LG, local local partners in development, project particular community. activities.

Table 2. Instruments of Local Authorities to Promote Local Economic Development

LG – Local Government / LA – Local Authority

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Community annual budget is Municipalities do not have According to the National Mostly, Municipalities Absolute majority of All Ukrainian regions have based on the five-year and enough financial sources legislation all LAs prepare promote local economic (important) Moldovan actual development annual development plans. to influence local following documents: development via municipalities have strategies untill 2020 or The five-year development economic development. preparation of local approved local 2025. A lot of local plan is elaborated by the The majority of their - programs of social and development strategies, development plans, development strategies and newly elected Chief of the annual earnings are spent economic development; local economic elaborated with large plans were developed by Local Community (i.e. Mayor of the on administrative - forecasts of social and development plans and public participation the LAs both on the development city), which is then submitted purposes. economic development of municipal property (many elaborated with initiative of the upper strategies for the approval of the newly management (sell or the assistance of authorities, and on the Local Executive - sector programs. and local elected Community Council. rent properties). international donors). initiative of international Authorities, which are Within Components I and economic Plans set the main direction of Nevertheless, many of donor organizations. city’s future development, centrally appointed II of the EU program A lot of local them are not producing development however, they do not include bodies, are only involved “Support to regional and development strategies “value added”, being plans any mid-term or long-term in the implementation of local development in and plans were rather a formality. financial projections and centrally adopted Belarus” all rayons developed by the LAs

financial aggregates. economic development prepared the concepts for both on the initiative of Development plans are plans. their sustainable the upper authorities, and on the initiative of updated annually but not on a development. rolling basis. international donor organizations.

Due to lack of financial Due to lack of financial Due to systematic lack of Only the big four Self- According to Fiscal Resulting from financial resources local authorities do resources local authorities financial resources local Governing Cities (Tbilisi, Code, the 1st level LAs decentralization local Financial and not have financial mechanisms do not have financial authorities do not have Batumi, Kutaisi, Rustavi) have the full mandate to communities received fiscal to promote local economic mechanisms to promote financial mechanisms to use these instruments. establish the level of 14 considerable resources for mechanisms development. local economic promote local economic local taxes. local development, which in development. development. some cases are still not Some of these sufficient. taxes/fees have direct impact on SMEs sector

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

(e.g. local tax for Several LAs have no enough commercial/service experience in efficient use activities, market tax, of available financial lodging tax, resort tax, mechanisms. tax on publicity devices, tax for land management, advertisement fee, etc.)

SMEs support There are a number of Is not used by LAs due to Support infrastructure is Is not used by LAs due There are over 10 Privately owned incubators infrastructure incubators and accelerators lack of financial resources represented by business to lack of financial business incubators in have been established in (business which are operating in and experience. incubators and business resources. Moldova created by Ukraine’s main cities in Yerevan, but city has no centers. Nowadays, there local governments with recent years with some incubators jurisdiction on them. are 20 business the support of donors public support for office and incubators, 60% of which and governmental space and related services accelerators There are acceleration are located in the city of funds. Nevertheless, the as well as some seed etc.) programs which are Minsk and Minsk Oblast, created infrastructure is finance . implemented mostly in IT the others are situated in rather underused. If the sector and largely major cities. There are 96 situation will not be In June 2015, the concentrated in Yerevan. business support centers. changed, this Government of Ukraine Most of them are located instrument is going announced plans to open in Grodno Oblast and only rather to be disgraced 15 regional business centres seven of them are further. to support SMEs under the situated in the villages, EU 4 Business Project agricultural settlements FORBIZ). and small towns.

Innovation Two technological centres are Is not used by LAs due to 14 organizations are Is not used by LAs due The instrument is not Institutional and operating in Vanadzor and lack of financial resources registered in Belarus as to lack of financial yet used by LAs (no infrastructural support for support Gyumri, which have been and experience. actors of innovation resources and experience in relation to innovative SMEs formally infrastructure established by EIF, the RA infrastructure, including experience. local authorities). exists but in practice it is (technoparks, Government and the World 12 technoparks (2 – in not fully operational. Its technology Bank. Brest Oblast, 2 – in effectiveness remains low transfer Vitebsk Oblast, 2 – in due to funding problems centers etc.) Gomel Oblast, 2 – in and lack of targeted Grodno Oblast, 1 – in support. The linkages Mogilev Oblast, 2 – in between entrepreneurs and Minsk Oblast and 2 – in R&D institutions are weak. 16

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

the city of Minsk), two The National Law on State Centres for Technology Regulation of Technology Transfer (1 – in Vitebsk Transfers envisages the and 1 – in Gomel). development of a national network of technology transfer platforms.

Investment Is not used by LAs due to lack Is not used by LAs due to Each of 6 regions of Is not used by LAs due The National Law on In 2013 the National Law on support of financial resources and lack of financial resources Belarus has a free to lack of financial industrial parks (2010) is Industrial Parks was infrastructure experience. and experience. economic zone, where resources and capacitating LAs with adopted, which defines the business enjoy a range of experience. functional mechanisms measures of state support (industrial benefits including: zero- in creating, developing for creation and function of zones etc.) rate tax on profit for a and promoting IPs in Ukraine. period of 5 years from the industrial parks

moment of declaring (greenfields). Currently 18 IPs are included into the Register of profit; afterwards the tax Nevertheless, the is calculated at the rate instrument is not yet industrial parks. 62% of reduced by 50%; 50% fully explored. Just few them owned by discount on VAT on the Industrial Parks were municipalities, 28% - by products included in the created at the initiative private companies, 8% - by list of import-substitution of LAs (Edinet and state agencies. The goods and sold in the Cimislia) and their remaining IPs have mixed territory of RB; zero performance is still to ownership form. property tax on buildings be advanced. But not all IPs are located on the territory of operational. the free economic zones.

The tools are under direct supervision of central authorities and are not yet used by LAs.

Cluster No systemic approach, is Is not used by LAs due to The Belorussian clusters Is not used by LAs due Is not used by LAs due Is not used by LAs due to development mostly implemented in the lack of financial resources are created by higher to lack of financial to lack of financial lack of financial resources frame of development and experience. authorities. Such resources and resources and and experience. programs mostly in rural areas mechanism does not work experience. experience. (tourism, primary agriculture at the local level. and agro-processing). 17

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Development and implementation of the state cluster policy lays on the Ministry of Economy. Nowadays, clusters are created in Minsk (IT), Vitebsk Oblast (linen cluster in Orsha), and Minsk Oblast (pharmaceutical cluster).

Public- Currently Armenia does not Are not used by LAs The National Law on PPP No Law on PPP. There is a National Law PPP is widely used by public private have a full legal and because there is no Law was adopted on on PPP (2008), authorities of different Only Tbilisi and Rustavi partnership institutional framework for on PPP. December 30, 2015 and describing and levels. The related legal PPPs in place. While a PPP there is no experience of cities use this regulating all aspects of basis was established: projects instrument. policy has been developed, it its practical application at such cooperation. has only partially been the moment. The first - National Law “On Public adopted and not to date pilot project for Nevertheless, the Private Partnership (2010). - meaningfully implemented. reconstruction of 74.6 km instrument is not yet -legal principles of the PPP Importantly however, a of M-10 highway w fully explored. There are are also determined in the number of PPP projects (or identified (USD 350 mln, several good examples, Constitution, the Civil Code projects at least with PPP start in 2017). but also many negative and the Commercial Code. characteristics) have (discouraging and disgracing) projects. The most commonly-used nevertheless been forms of PPP projects are: implemented. (1) concession (85%) and (2) lease of state-owned and municipal property.

The main sectors of PPP projects:

- waste treatment - 47.7% - water supply and sewage - 32.5%

- road infrastructure projects -7%

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

- heat and electricity generation and supply – 5%

- minerals, real estate management, tourism, recreation, culture and sports, irrigation – 7.8%.

In 2016, the Ministry of Economic Development and Trade of Ukraine allocated 312 state-owned assets for PPP projects.

Jobs creation Many donors are currently Are not used by LAs Job creation is the Vocational training is Sporadic experiences, In 2013, the National Law programs actively considering this tools because vocational responsibility of the not responsibility of LAs. but not yet relevant on the Employment of the and for fostering local economic training is not regional government. “best cases” to be Population introduced development. responsibility of LAs Only City of Tbilisi uses replicated nationwide. support measures for Vocational Professional training, these instruments. unemployed people aimed training SME Development National advanced training, on-the- Many donors to open their businesses programs Center of Armenia was job training and retraining /development partners (training course + a small established by Government of are carried out in are currently actively grant), which are provided Armenia in 2002 to provide educational institutions or considering this tools for by territorial state state support to small and organizations according to fostering local economic employment centres. medium entrepreneurship the procedures development. (SME) in the country. It has established by the about 10 offices in every Government of Belarus. region in Armenia.

State employment agency is also actively implementing active labour market policy mechanisms.

Regional and Community development There are no Local There is a number of There are no Local According to the Law on Regional Development local foundations (created as non- Development Agencies. structures with the Development Agencies Regional Development Agencies (RDAs) emerged in development for profit organizations) were functions of development in Georgia. (2006), Regional Ukraine in the mid of 1990s. agencies established as vehicle to agency. Around 50% of Development Agencies Today, RDAs exist in every implement local development them are registered as EU project “Support to (subsidiaries to the Oblast center, as well as in Regional policy 19

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

projects and attract donor and NGOs. Many of them are implementation II” is Ministry of Regional many smaller towns. Most private funding. However no established at local level. supporting central Development and of them have been significant progress has made Only 15-20 funds of local government in creation Constructions) are established as autonomous, yet. development are really of Regional established in 4 (out of 6 non-governmental active and influence Development Agencies. development regions): organizations. In most Examples: Dilijan Development decision making processes Regional Development Balti (North Region), cases, RDAs were initiated Agencies will work on Foundation, Yenokavan at local level. Cahul (South Region), by SMEs and community planning regions level. Development Foundation, Comrat (Gagauzia organizations in order to Gyumri Development Region) and Ialoveni promote local development Foundation, Artik (Central Region). The through civil society Development Foundation, RDAs are not yet participation. In many Jermuk Development established in 2 regions: cases, these RDAs have ․ Foundation Chisinau (on-going received support from local process) and authorities and/or local Transnistria. The RDAs businesses. In April 2001, a are key-institutions in number of leading the process of Ukrainian RDAs formed an implementation of association, the National projects granted by the Association of Regional National Fund for Development Agencies Regional Development. (NARDA) (today 43 members).

Regulatory Local permits. Local permits. Local permits. Local taxes and permits. Despite numerous Local permits. Instruments attempts, the national experience related to the “one stop window” and “public information and service centers” are rather incipient.

Many LAs are missing clear local rules/procedures for issuing/endorsement regulatory documents, which is stimulating practices of corruption, 20

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

misinterpretation and delays in processing.

Many LPAs are missing functional regulatory documents, which is making business activity much dependent on the discretional decisions of particular beaurocrats or elected officials.

Local Sporadic experiences, but not Are not used by LAs due There are several non- Tbilisi Municipality has a Sporadic experiences, Are not broadly used by LAs branding and yet relevant “best cases” to be to lack of experience. systematic attempts to Marketing Strategy. but not yet relevant due to lack of experience. marketing replicated nationwide use territorial marketing Some other “best cases” to be (Yenokavan, Stepanavan). tools in the framework of municipalities have replicated nationwide. international projects and developed touristic Many donors/development state programs to support brands. Many partners are currently actively tourism. donors/development considering this tools for partners are currently fostering local economic actively considering this development. tools for fostering local economic development.

There are no statistics on The available data are There is an extended The available data on Availability of local The available data are very community level which is very limited. official database on municipal level are very development data is yet limited. Data available online or published. different aspects of limited. a challenge in Moldova. availability There might be available business activities in The National Bureau of on local limited number of aggregated Belarus. Each business National Statistics Office Statistics (NBC) is of Georgia (Geostat) can private sector business statistics (e.g. value must provide monthly operating with (i) provide data on private development added by region, by sectors, statistical report aggregated data per employment, number of retail correlated with sector development on country, and (ii) (statistics) request. shops) on regional level which transactions of banks and disaggregated data per is published by national data of tax office. Each districts/municipalities. statistical service. oblast and rayon has its Accordingly, we have: own statistical office. In most of cases communities National statistical agency do not possess proper (Belstat) generates databases/statistics on information and publishes 21

Armenia Azerbaijan Belarus Georgia Moldova Ukraine registered and operating yearbooks such as -adequate statistical businesses, number of “Regions of Belarus” database for Chisinau employees and self-employed (rayon level included), and Balti Municipalities persons, investment, total “SME in Belarus”, etc. taxes paid. -almost inexistent But many data demand statistical data for additional surveys. individual LAs (cities and villages).

Nevertheless, the National Bureau of Statistics could provide (for remuneration) some LED data for any particular LA in Moldova.

Table 3. Major Donors Active in the EaP Countries in the Field of Local Government Support

According to the results of the Assessment the most active Donors in the EaP countries are: the European Union, the World Bank, the UNDP, the USAID, the EBRD, the GIZ.

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Sustainable Municipal Flagship Development Initiative for six Eastern Partnership countries: - Support to the Covenant of Mayors East Secretariat (4,5 mln EUR for 2016-2020 in technical assistance); - Implementation of CoM Demonstration projects through grant financing (12 mln EUR for 2014-2017 and 10 mln EUR for 2016-2020); - Financing of a technical support team to the EU Financed demonstration projects under the Sustainable Urban Development project (4 mln EUR for 2014-2017 in technical assistance); - Technical and scientific support for the development and assessment of the Sustainable Energy Action Plan (SEAP) through the Joint Research Centre (0,5 mln EUR for 2016-2020); European Union - Improving access to financing through a Municipal Project Support Facility led by the European Investment Bank (12,3 mln EUR for 2015-2019 in technical (EU) assistance) and through the E5P (Eastern Europe Energy Efficiency and Environment Partnership) (78 mln EUR for 2011-2019 of EU support under the Multi-donor Trust Fund managed by the European Bank for Reconstruction and Development);

- Mayors for Economic Growth (5 mln EUR for 2016-2020 in technical assistance); - Urban strategies in historic towns (COMUS) (contribution agreement of 0,4 mln EUR with the Council of Europe for 2015-2017). Main country projects: Today the EU remains Cooperation priority Main country projects: Main country projects: Main country projects: Azerbaijan's main donor. areas: 1. Support to the MTA Since Azerbaijan's 1. Support to Regional 1. Regional Business Incubators’ 1. U-LEAD with Europe: in Preparation of independence, the EU has 1. Social inclusion: EUR policy implementation Network - Black Sea BI-NET Ukraine Local Actions in Regional provided over 500 million 11.5 mln for the related II (2017-2018) (0,81 mln EUR for 2013-2015); Empowerment, Development ($1 mln in AZN in grant funding. EU projects; Accountability and 2015-2017); 2. EU-Eastern 2. Support to the Development Program support is channeled in partnership culture implementation of DCFTA

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

2. Pilot Regional two main ways: directly to 2. Environment and creativity process in Moldova (2 mln EUR (2016-2020 EUR 97 Development Program the Government protection, Green program; for 2014-2017) mln) (9 mln EUR). Institutions through the economy: EUR 37 mln European Neighborhood for the related projects; 3. ENPARD II: 3. Improved Regional Statistics 2. Eastern Partnership 3. ENPARD Technical Partnership Instrument, Promoting Rural (2 mln EUR for 2014-2016). Culture and Creativity Assistance: Producer and to Civil Society 3. Local and regional Development in Program (2015-2018 Group and Value Chain development. Georgia in partnership 4. Technical assistance for the EUR 4.0 mln). Organizations through integration of ATU Gagauzia in Development ($1.8 mln dedicated Horizontal with UNDP (2016- for 2015-2017) co- Main country projects: 2018); the national framework for 3. Cross Border Thematic Programs. regional development Cooperation Program financed by Austrian 1. Support to Regional Development 4. Eastern Partnership (Tendering process). (2014-2020 EUR 1.052 and Local Development Territorial Cooperation bln). Foundation and in Belarus (2013-2016 implemented by UNDP, (EaPTC) in partnership EUR 9 mln); with GIZ (2017-2020); 4.Support to Ukraine's FAO and UNIDO. Regional Development 2. Support to 5. Support to Regional Policy Project (2013- Sustainable Tourism Development in 2017 EUR 31 mln). Development in Belarus Georgia - Applied ( 2015-2018 EUR 1.3 Research Facility 5. Project on Budget mln); (phase II) (2017-2019). Support to Ukraine's Regional Policy (2016- 2018 EUR 55 mln).

6. Community Based Approach Project Phase III (2014-2017 EUR 23.8 mln).

Main projects: Active in the following Assistance is focused on Main projects: Main projects: Main projects: sectors: four areas: 1. Social Investment 1. Second Regional 1. Moldova Agriculture 1. UA – Energy and Local Development -Economic Growth - increasing the Development Project Competitiveness Project (over Efficiency (2011-2016 World Bank Project ($42.85 mln for competitiveness of the (2012-2018); 10 mln USD); USD 200 mln); -Infrastructure (WB) 2015-2020); economy; 2. Second Regional and 2. Local Roads Improvement 2. Second Urban 2. Local Economy and -Energy - sector development Municipal Projects (87,5 mln USD); Infrastructure Project Infrastructure and integration into the Infrastructure and District Heating -Democracy and 3. Moldova Second Development Project Governance global economy; Development Project Energy Efficiency (2014-2019); Competitiveness Enhacement -Social Project (45 mln USD).

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

($68 mln for 2015- - improving the quality 3. Third Regional Project (2014-2020 2021); and efficiency of public Development Project USD 300 mln); infrastructure services (2015-2019); 3. Second Community and the use of 3. District Heating Agricultural Resource agricultural and forestry 4. Georgia National Energy Efficiency Management and resources, and Innovation Ecosystem Project (2014-2020 Competitiveness increasing global public (GENIE) Project (2016- USD 332 mln). Project ($42.67 mln for goods benefits; 2021); 2014-2020); - enhancing human 5. Second Regional 4. Irrigation System development outcomes Development Project Enhancement Project through better Additional Financing ($37.5 mln for 2013- education, health, and (2016-N/A). 2017); social services.

5. Social Investment 31 active projects. and Local Development Trust Fund ($2.43 mln for 2016-N/A).

Main project: UNDP supports the The United Nations Main projects: 1.Joint Integrated Local Small Grants Program Government of Azerbaijan Development Assistance Development Program (over $5 in Ukraine “Green 1. Integrated support to in the areas of governance Framework (UNDAF) 1.Fostering regional mln for 2010-2015/SIDA & Growth” (since 2009 Rural Communities ($5 and sustainable and Country and local development DANIDA financing); EUR 6.6 mln). mln for 2015-2020). development and is active programme document in Georgia (2012-2017) 2.Migration and Local United Nations in the issues of youth Belarus (CPD) for 2016- 2.Green Cities: engagement and women 2020 ($80 mln) focuses Development Project ($2,6 mln Development Integrated Sustainable rights. on four strategic areas: for 2015-2018/SDC financing); Program Transport for Batumi (UNDP) 1. Inclusive, Responsive and Ajara (2015-2019) 3. Support to Agriculture and and Accountable Rural Development through Governance; promotion of confidence building measures in Gagauzia 2. Sustainable Economic and Taraclia ($6,5 mln for 2016- Development; 2020 / EU financing);

3. Environmental 4.Support to Confidence Protection and Green Building Measures Programme Economy; (IV) – Transnistria Region and

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

4. Sustainable Security Zone (over 10 mln EUR Development of Human for 2015-2018 / EU financing). Capital: Health, Education, Social Inclusion and Protection, Comprehensive Post- Chernobyl Development.

Main projects: USAID aims to support the Assistance is focused on Good Governance Local Government Support Main projects: following objectives: the following areas: Initiative (GGI) (2015- Project in Moldova ($12,5 mln 1. Partnership for Rural 2020) for 2011-2016) 1. Development Prosperity ($4 mln for -Improving the investment - civil society Initiative for 2013-2018) climate and increasing development: 2 ongoing Advocating Local investment to diversify programs; Governance in Ukraine 2. Advanced Rural economic growth (DIALOGUE) (2010- United States Development Initiative (especially in agriculture); - private sector 2014 USD 4.2 mln); Agency for (ARDI) ($4 mln for development and International 2013-2018) -Increasing the effective entrepreneurship: 5 2.Municipal Finance Development participation of diverse ongoing programs; Strengthening 3. Local Governance (USAID) actors and institutions in Initiative (MFSI-II) Reform Activity (Project - empowering and the democratic (2011-2015); is starting in 2017 and development of the advocacy for vulnerable will support enlarged country; groups: 2 ongoing 3. Public-Private communities. The first programs. Partnership Program projects have launched -Investing in people, (2010-2015 USD 12.5 in Tatev and Dilijan primarily through access mln). communities). to quality health care.

European Bank Main project: Active in the following Projects portfolio Green Cities Provides tailor made assistance Main projects: for sectors: includes 83 ongoing Framework - Pre- & package (preferential credits + 1.Kotayk and 1.Technical Assistance Reconstruction projects for a total of Post- grants) for local development Gegharkunik Solid -Economic Growth 485 mln. EUR of which: projects: Support for Ukrainian and Waste Management -Infrastructure Signing TC Support: Municipalities (2008- Development Project ($11 mln for -Energy 91% private sector Green Cities Action 2016 EUR (EBRD) 2017-2018); support projects.

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

Main projects sectors: Plan & Policy Dialogue - 60 mln EUR loan for 5 mln). (2017-2020) rehabilitation of water supply - Industry, Commerce & system in Chisinau, 2.Second Urban Agribusiness -51%; Infrastructure Project -14,5 mln EUR loan for and District Heating - Financial Institutions – modernization of public Energy Efficiency 35%; transportation system in Project (2014-2020 - Infrastructure -13%; Chisinau and Balti, USD 300 mln). - Energy -1%. -support for foreign direct investment projects.

Main projects: Active in the following Belarus is not a member Action Plan for Georgia Main projects: sectors: of the Council of 2016-2019 includes 1.Donor: Government Europe. the following priority 1. Project on of Switzerland - Democracy and sectors: Protecting and Decentralisation and Governance promoting human Territorial Institutional Support to -Social. rights and dignity, Consolidation in the Communities Ukraine (2015-2017); Association of Armenia ensuring social rights; Ensuring justice; Council of (EUR 0.8 mln for 2014- 2. Strengthening the 2017) Strengthening capacity of local Europe democratic authorities in Ukraine 2.Donor: Government governance; (2008-2017 CHF 1.12 of Denmark Countering threats to mln financed by the the rule of law: Support to Swiss and Danish corruption, money- Consolidating Local Governments). laundering, Democracy in Armenia cybercrime, (EUR 1.8 mln for 2013- manipulations of 2016). sports competitions; Confidence-building measures.

Deutsche Main project: The projects in the Different activities are Local Governance Main projects: Main projects: following areas are being implemented within the Program South Gesellschaft für 1.Strengthening local 1.Local Public Services Project - 1. Reform of municipal Internationale implemented: framework of the Caucasus (2017-2020) governments in the German Government 1 (23,9 mln EUR for 2010-2016 services in Eastern Zusammenarbeit South Caucasus – financing of Germany/Romania GmbH. Promoting transparency 27

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

(GIZ) and citizen participation -sustainable economic Support Program for /Sweden/EU) Ukraine (2010-2016 (EUR 9 mln for 2013- development, Belarus. EUR 4 mln); 2016) 2.Local Public Services Project – -support for legal and 2 (7,4 mln EUR for 2016-2018 2.Municipal judicial reform, financing of Development and Germany/Romania/Sweden/EU) Rehabilitation of the -municipal development, Old City of Lviv (2009- -sustainable management 2016 EUR 4 mln); of biodiversity, -public services reform,

-creation structures for development cooperation.

Main project: KfW in Georgia focuses Main projects: its activities in the Integrated Water following areas: 1. Support for small Resources Management Environment and and medium-sized KfW / Akhouryan River (EUR enterprises in Ukraine Development energy; Sustainable 52 mln) Development of (2012-2014 EUR 2 Bank mln); Economy and Democracy, Civil 2.Ukrainian Social Society and Public Investments Fund Administration. (since 2000 EUR 24 mln);

Main project: Main projects: ApaSan – Swiss Project on Main projects: Swiss agency for Water and Sanitation for Development Improvement of the 1. Support to Regional Moldova (over 16 mln CHF for 1. Strengthening SMEs and Cooperation local self-governance policy implementation 2011-2017). Business Membership system of Armenia (CHF II in partnership with Organizations (2013- (SDC) 5 mln for 2014-2018) World Bank (2014- 2015 CHF 1.98 mln); 2019); 2. SME Crises 2. Fostering Local and Resilience (2013-2015 Regional Development CHF 1.98 mln); in Georgia in

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

partnership with UNDP 3. Energy Efficiency – (2012-2017). Zhytomyr (2014-2017 CHF 16.1 mln);

4. Energy Efficiency and Renewable Energy Infrastructure in Vinnytsia (2011-2015 CHF 16 mln).

International Infrastructure and Rural Socio-Inclusive Resilence Fund for Finance Support Project ($26 mln for 2014-2020) Agricultural Programme ($52.8 mln) Development (IFAD) Armenian-French Government of Decentralized France Cooperation (EUR 1.5 mln each year for 2008- 2017)

Phase 8 of the Support Program for Belarus for 2016-2019. Thematic areas:

-Sustainable development: sustainable regional Federal development, resource- Government of saving primarily in rural Germany areas, sustainable development strategies;

-Social sphere: social partnership, innovation in healthcare and social services.

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

A draft framework Overall objectives of Rehabilitation and agreement between EIB lending in Georgia modernisation of Belarus and the are: water supply and European Investment wastewater collection Bank (EIB0 was signed -Development of social and treatment facilities by the President of and economic to upgrade water supply and wastewater Belarus in March, 2017. infrastructure, including projects in treatment in the City the transport, energy, of Mykolayiv (since water, environmental 2010 115.5 mln. EUR). infrastructure, European information and Investment Bank communication (EIB) technology, health and education;

-Development of local private sector, particularly supporting SMEs;

-Climate action, covering both climate change mitigation and adaptation projects.

Rockefeller Rockefeller 100 Foundation Resilient Cities Program (2016-2020). Activities are focused on Priority areas of Main projects: Swedish democracy, human cooperation: International rights, gender equality, 1. Municipal Local Development environment and -Enhanced economic Economic Cooperation market development. integration with the EU Development Project and development of (2010-2015 CAD 13.8 Agency (SIDA) Total amount of financing is about 69 market economy; mln); mln. SEK, including co- -Strengthened democracy, greater

Armenia Azerbaijan Belarus Georgia Moldova Ukraine

financing of UNDP respect for human 2. Skills for Projects). rights and a more fully Employment (2012- developed state under 2016 CAD 3.4. mln); the rule of law; 3. Evidence-Based -A better environment Economic and reduced climate Development (2010- impact and enhanced 2015 USD 10 mln); resilience to environmental impact 4. e-Governance (2012-2020 EUR 4 and climate change. mln). Main projects:

1. Livable Urban Areas: Integrated Urban Plans for Balanced Regional Asian Development (2017- Development 2018); Bank (ADB) 2. Georgia: Development of Public–Private Partnerships (2015- 2017).

Information for this table was obtained by the project experts on official web-sites and from official publications of the organizations mentioned in the table.

Annex 1. Country reports on each of the six EaP countries

Armenia - Country Report on the results of the in-depth assessment of the actors and donors active in the field

1. The local government system in the country There are two levels of territorial authority in Armenia – the central government (karavarutyun) and the local level – community (hamaynk). The regional/provincial administration is part of central government; there is no separate budget or plan for this level of authority. A state representative is appointed for each province (called “Marz”): Aragatsotn, Ararat, Armavir, Gegharquniq, Lory, Kotayq, Shirak, Syuniq, Vayots Dzor, Tavush, and the City of Yerevan, thus granting capital a special status. The chief executive in each of the ten provinces is the “Marz” governor, appointed by the government of Armenia. In Yerevan, the chief executive is the mayor.

In Armenia local self-government is exercised only within community level. It is a separate branch of the public governance. Each urban and rural community consists of one or more settlements. There are 1000 settlements in Armenia, which are unified in 915 communities of which 49 are urban (cities), 866 are rural (villages).

Three communities (Yerevan, Vanadzor and Gyumri) elect its municipal council via a proportional representation system, and the council then elects the mayor. Communities’ municipal council is elected based on political party (or part alliance) list (proportional vote). In these 3 communities, the person who heads the list of the party that won over 40% of the vote automatically becomes mayor. Local authorities include the municipal council (council of elders) and the head of the community (mayor) who heads the community administration. The mayor nominates members of the community administration subject to approval by the municipal council.

Pursuant to Article 189 of the Constitution of the RA the Councils of Elders of communities may establish inter-community unions. Ministry of Territorial Administration and Development drafted new law on inter-community unions which will set the legal framework for establishing and operating new structure for local governance. In accordance with this draft law, inter- community unions would be separate legal entity, purpose of which is improvement efficiency of local self-governance by delegating some common duties of local self-government unites to unions. To increase the capacities and increase the efficiency of the local governance Armenia is piloting enlargement of local communities in tree regions.. In total 22 communities have been merged in 3 enlarged communities Tatev (Syunik region), Tumanyan (Lori region) and Dilijan (Tavush region) based on the results of local referendums.

Figure 1. Management hierarchy between different levels of government (national, regional, local)

Central Government

Ministry of Territorial Administration and Development

10 Regional administrations Yerevan City “Marzpetarans” Representative Body Executive body

49 Urban communities 866 Rural communities Council of city Mayor (Cities) (Villages)

Representative Representative Executive Body Body Body

Council of city Head of City, Head of village Council of village Mayor Administration

Administration

The main problems of the current system of local government are following:

Revenues Own revenues of local authorities are insufficient to cover recurring expenditures of community. This expenditures are financed by transfers from state budget. The level of financial decentralisation is not high. The share of local budgets in consolidated (local and state together) budget remains at a very low level, about 10%. Tax collection and shared taxes Local authorities receive only property and land taxes; however, tax rates are defined by the central government. The level of tax collection are not high, except Yerevan. The autonomy of communities and their financial independence continues to be at very low levels. Although the legislation foresees the opportunity of sharing taxes between state and local budgets, but no shared revenues were made available to the community budgets so far. Development program implementation capability Despite several communities, such as Yerevan, Vanadzor, Gyumri, the others do not have appropriate transparency and capability for preparation and implementation development programs. The only development programs are the five-year development plan which prepared by the newly elected Chief of the Community (i.e. Mayor of the city). Business centralization

The majority of communities, as units of local government, continue to remain extremely small and weak in capacities. This mainly due to concentration of businesses activity in big cities.

Local democracy

Armenia has not recorded any serious progress towards development of local democracy. Despite the existence and availability of all methods and ways by the law1, budget publicity is still not provided at the necessary level in our country. In many cases, the relevant requirements of the law are simply not met.

2. Legal framework The legislative framework of local self-governance in Armenia includes the Constitution of the Republic of Armenia and its Articles 179-190 of the Chapter 9, the Law of RA on Local Self- Governance (07 May 2002), which is based on European Charter of Local Self-Government, and Law on Local Self-governance in the City of Yerevan (26 December 2008), other laws and secondary regulations. Armenia ratified European Charter of Local Self-Government in 2002.Article 187 of Armenian Constitution establishes Yerevan’s status as a separate community. Under Article 179 of the Constitution, a local self-governance is the right and power of the community to address issues of local significance aimed at ensuring the welfare of its members in accordance with the Constitution and applicable law.

Pursuant to article 3 of the Law of RA on Local Self-governance, a local self-governance is a constitutionally guaranteed right and capacity of local self-governance bodies acting in accordance with applicable laws, to manage community property and financial resources, and to address the issues of community importance for improving community life. Pursuant to Article 181 of the Constitution of the RA, the community exercises its right of self- governance via local self-governance bodies – the Council of Aldermen and the Head of Community, who is elected for a five-year term. The Council manages community property, approves community budget upon presentation of the head of community, oversees community budget performance, defines local taxes, duties and fees in conformity with the procedure defined by the law and adopts legal acts applicable within the territory of the community.

Table 1. Articles on the local government issues in the Constitution of the Republic of Armenia 1. Local self-governance shall be the right and Article 179. Right to Local Self- capacity of local self-government bodies to decide, Governance under their own responsibility, on public issues of community importance — in the interests of residents of the community and in compliance with the Constitution and laws.

1 The Law of the Republic of Armenia on Budgetary System: Yerevan, 1997 34

2. Local self-governance shall be exercised in communities. 1. Community shall be the entirety of residents within one Article 180. Community or several settlements. 2. Community shall be a legal person under public law. 1. Local self-government bodies shall be the Council of Article 181. Community Tasks, Elders and the head of community, which shall be and Powers of Local Self- elected for a term of five years. Direct or indirect Government Bodies election of the head of community may be prescribed by the Electoral Code. In case of direct election of the head of community, the principles of electoral law prescribed by Article 7 of the Constitution shall apply. 2. The procedure for elections of local self-government bodies shall be prescribed by the Electoral Code. 1. Local self-government bodies shall have own powers, Article 182. Community Tasks, for the purpose of performing the mandatory and and Powers of Local Self- voluntary tasks of a community, as well as those Government Bodies delegated by the State. The mandatory tasks of a community shall be prescribed by law, whereas voluntary tasks shall be prescribed upon decisions of the Council of Elders of a community. 2. The powers of state bodies may, for the purpose of more effective implementation thereof, be delegated by law to local self-government bodies. 3. The Council of Elders of a community shall, as prescribed by law, adopt secondary regulatory legal acts subject to enforcement within the territory of the community. 4. The head of community shall execute the decisions of the Council of Elders of the community, shall carry out the general management of the staff of community. The head of community shall be responsible before the Council of Elders of the community. 5. The powers of local self-government bodies shall be prescribed by law. 1. Residents of a community may directly participate in Article 183. Direct Participation the administration of community affairs, by resolving in the Administration of public issues of community importance through a local Community Affairs referendum. 2. The procedure for holding a local referendum, as well as other ways of direct participation of residents of a

community in the administration of community affairs shall be prescribed by law. 1. A community shall have the right of ownership over Article 184. Community land as well as other property. Ownership 2. The land located in the territory of a community shall be under the ownership of the community, except for the land owned by the State as well as by natural and legal persons. 3. The Council of Elders of a community shall dispose of the community property as prescribed by law. 1. A community shall have its own budget which shall be Article 185. Community approved by the Council of Elders of the community Budget, Local Taxes, Duties and upon submission of the head of community. Payments 2. The procedure for community budget revenue formation and expenditures shall be prescribed by law. 3. The Council of Elders of a community shall establish local taxes and duties within the scope of the rates prescribed by law. 4. The Council of Elders of a community may establish payments to be made to the community budget for the services rendered by the community. 1. With a view of performing the mandatory tasks of a Article 186. Financing of community, the law shall prescribe tax and non-tax Community sources which are necessary for ensuring the implementation of these tasks. 2. The powers delegated to communities by the State shall be subject to mandatory financing from the State Budget. 3. The State shall, to the extent possible, allocate funds aimed at ensuring the proportional development of communities.

Article 187. Local Self- Yerevan is a community. The specifics of local self- Governance in Yerevan governance in Yerevan shall be prescribed by law.

1. The authorised body of the Government shall, in the Article 188. Legal and cases and under the procedure prescribed by law, Professional Oversight exercise legal oversight over the implementation of the own tasks of a community. 2. The authorised bodies of the Government shall, in the cases and under the procedure prescribed by law, exercise legal and professional oversight over the implementation of the powers delegated by the State.

1. With a view of raising the efficiency of local self- Article 189. Inter-Community governance, the Councils of Elders of communities may Unions establish inter-community unions. In view of public interests, inter-community unions may be established also by law, upon recommendation of the Government. 2. An inter-community union may exercise only the powers reserved thereto by law or by the decisions of the Councils of Elders of communities. An inter- community union shall be a legal person under public law.

Article 190. Merger and In view of public interests, communities may be merged or Division of Communities divided by law. When adopting a relevant law, the National Assembly shall be obliged to hear the opinion of these communities

3. Powers and responsibilities of local authorities

Under the Law of RA on Local Self-governance, the local authorities have responsibilities in various areas of community life (e.g. healthcare, transport, public order etc.). The law sets the exact functions and duties that the community has under each of its statutory responsibilities.

In addition, in order to secure a more efficient exercise of governmental statutory powers such powers may be delegated to the local self-governance bodies. Such delegation, however, requires necessary financing from the public budget. Armenian Constitution extends the right to the community to manage and administer community property, address issues of community significance, and exercise the authorities aimed at fulfilling community needs. The law may deem certain parts of the community’s authorities mandatory.

Table 2․ Articles on powers and responsibilities of local autorities in Law of RA on Local Self- governance

Article 9. The Principles of Local The following shall be the principles of local self- Self-Government government:

1. General authority shall be the entitlement to carry out any autonomous activity at their own responsibility in relation to the interests of the community and in no contradiction to the law, if not otherwise prescribed by the legislation; 2. Independence and own responsibility in implementing local governance;

3. Correspondence between the powers prescribed by the law and financial resources required for enforcement of such powers; 4. Delegation of the powers of the State authorities to local self-government bodies, if such powers can be more effectively exercised in communities, and ensuring, in an obligatory manner, the adequate financial resources by the law; 5. Judicial protection of the rights, legitimate interests and the property of the community in accordance with the procedure defined by the law; 6. Assistance to financially weak communities through financial adjustment; 7. Creation of intercommunity associations with other communities with the objective to jointly solve individual problems in accordance with the defined procedure; 8. Accountability to the community members; 9. Publicity and transparency in the activities of local self-government bodies. • The powers of local self-government bodies shall be Article 10. The General divided into their own powers and powers delegated Description of the Powers of by the State. Local Self-Government Bodies • Own powers shall be divided into mandatory and voluntary powers. • Mandatory powers and procedure of enforcement thereof shall be defined by the legislation. • Implementation of the powers ascribed to the state authorities may be delegated to communities according to this law, as powers delegated by the state. • The State delegated powers shall be implemented in accordance with the legislation or procedure defined by the Government. The State delegated powers shall be funded from the state budget, in full and obligatory manner, out of the funds envisaged in the budget line of financing the State delegated powers. • Mandatory powers and powers delegated by the State shall be subject to priority implementation as prescribed by the law.

• Voluntary powers shall be exercised in conformity with the regulations defined by the Community Council and in accordance with the financing provided for by the community budget. • Voluntary powers listed in this Law shall not be exhaustive. The communities may implement the powers attributed to the local government bodies by other laws solely as voluntary ones. Local self- government bodies may carry on any activity related to the interests of the community and not conflicting with law. 1. Protection of the Rights of Citizens and Economic In Chapter 4. are presented Agencies activities of Chief of a 2. Finance community in following spheres. 3. Protection of Public Ordinance (from Article 33 – Article 45) 4. Defence 5. Urban Development and Land Use 6. Public Utilities and Provision of Amenities 7. Transport 8. Trade and Services 9. Education, Culture and Works with Youth 10. Public Health, Physical Culture and Sports 11. Labour and Social Services 12. Agriculture 13. Natural and Environment Protection

4. The financial basis of local government In accordance with operational classification, the communities’ budgets are formed from three main sources: • Revenues from taxes and duties • State donations • Non-tax revenues. The community budget revenues can be separated into four groups according to the level of control the local government has on its formation and decision on spending direction:

• Own revenues - Income that can be used by the community to finance its voluntary and mandatory responsibilities and mostly depends on efficiency of operations of the city and its general socio-economic situation.

• State subsidies – donations provided by the state budget based on the principle of financial equalization among communities (according to Law of RA on Financial Equalization). Subsidies are not mandatory in terms of spending directions.

• Subventions – targeted allocations from state budget for specific purposes can be capital and administrative.

• Proceedings from state budget to cover delegated responsibilities. Local governments’ fiscal autonomy is mainly defined by share of its own source revenues in total revenues. Table 3. Income of Local Budgets of Communities by Regions

Name of the 2015 2016 region Total Own Share of Total Own Share of incomes incomes own incomes incomes own (thousand (thousand incomes (thousand (thousand incomes AMD) AMD) (%) AMD) AMD) (%) Yerevan 73,963,382 19,054,153 26% 70,036,988 19,727,710 28% Aragatsotn 3,467,552 977,392 28% 3,587,807 1,018,861 28% Ararat 6,366,125 1,743,726 27% 6,549,960 1,830,231 28% Armavir 6,599,395 2,055,712 31% 6,690,624 2,046,375 31% Gegharkunik 5,478,003 1,215,657 22% 5,666,471 1,269,687 22% Lori 6,415,519 1,661,590 26% 6,301,651 1,667,754 26% Kotayk 6,663,844 2,379,031 36% 6,804,167 2,421,987 36% Shirak 6,782,440 1,828,707 27% 6,424,021 1,774,320 28% Syunik 4,514,871 1,465,598 32% 4,395,898 1,391,293 32% Vayots Dzor 1,901,211 597,749 31% 1,642,195 579,688 35% Tavush 3,491,570 671,206 19% 3,229,719 718,324 22% Total 73,963,382 33,650,519 27% 70,036,988 34,446,229 28%

Source: official website of Ministry of Territorial Administration and Development of RA, author’s calculation

Note: Exchange rate in 2016 was 1 EUR=531.9 and in 2015 – 530.82.

Own revenues limit the dependence of the municipality on the transfers from state budget. Local taxes, duties and fees empower municipality to develop and implement their own development policies. In terms of own revenues, communities in Armenia have slightly lower fiscal autonomy compared to local governments in Eastern European countries. In most of these countries, local governments are legally entitled to share of particular taxes generated under their jurisdiction. Shared taxes are major revenue source for them. The legislation in Armenia allows the local government to have share of income, profit tax and environmental fees. The Law of RA on State Budget must determine the share of income and profit taxes provided to Municipality at the beginning of each fiscal year. However, no such provisions were made so far.

5. Instruments of local authorities to promote local economic development

In fulfilling their role as promoter of local economic development, the instruments and funds of local authorities very limited. Business support infrastructures and programs are mostly implemented by national institutions through their branches such as SME Development National Center, Enterprise Incubator Foundation, and State Employment Agency.

Support instruments Description

Local development Community annual budget is based on the five-year and annual strategies and local development plans. The five-year development plan is elaborated economic by the newly elected Chief of the Community (i.e. Mayor of the city), development plans which is then submitted for the approval of the newly elected Community Council within a period of three months after the latter has assumed its office. Plans set the main direction of city’s future development; however, they do not include any mid-term or long- term financial projections and financial aggregates. The impact of future plans and investment on budget incomes and expenditures are not measured either. Development plans are updated annually but not on a rolling basis.

Financial mechanisms Due to lack of own financial resources local authorities do not have any financial mechanisms to promote local economic development.

SMEs support There are a number of incubators and accelerators which are infrastructure operating in Yerevan, but city has no jurisdiction on them: (business incubators • Entrepreneurship and Product innovation Centre (EPIC) and accelerators etc.) • Enterprise Incubator Foundation (EIF) • Mergelyan Club • IBM Innovative Solutions and Technologies Centre (ISTC) • Microsoft Innovation Center Armenia There are acceleration programs which are implemented mostly in IT sector and largely concentrated in Yerevan.

Innovation support Two technological centres are operating in Vanadzor and Gyumri, infrastructure which have been established by EIF, the RA Government and the (technoparks, World Bank. technology transfer centers etc.)

Investment support The instrument is not yet used by LAs (no experience in relation to infrastructure local authorities). (industrial zones etc.)

Cluster development The instrument is not yet used by LAs (no experience in relation to local authorities).

Public-private Currently Armenia does not have a full legal and institutional partnership projects framework for PPPs in place. While a PPP policy has been developed, it has only partially been adopted and not to date meaningfully implemented. Importantly however, a number of PPP projects (or projects at least with PPP characteristics) have nevertheless been implemented.

Jobs creation Many donors/development partners are currently actively programs and considering this tools for fostering local economic development. Vocational training programs “Small and Medium Entrepreneurship Development National Center” Fund (SME Development National Center of Armenia) was established by Government of Armenia in 2002 to provide state support to small and medium entrepreneurship (SME) in the country. It has about 10 offices in every “marz” in Armenia.

State employment agency is also actively implementing active labour market policy mechanisms.

6. State bodies responsible for local government development

The government (including the Ministry of Territorial Administration and Development) is directly involved in self-government issues, including in the provision and supervision of funding. The Government appoints the heads of regional administrations (Marzpetarans).

The maximum number of employees involved in support of local government in the state bodies are 1,500: out of which 135 are employees of the Ministry of Territorial Administration and Development and 1,365 are employees of 10 regional administrations (“Marzpetaran”).

7. State programs that encourage local economic development

On 29 July 2016 RA Government adopted Decree on confirmation of 2016-2025 Regional Development Strategy which was developed with the assistance of EU financed “Support to Regional Development in Armenia” project. According to this program Regional Development plans for each "Marz" should have been elaborated by the end of 2016.

The main executing public agency for regional development is The Armenian Territorial Development Fund (ATDF), which was established on the basis of restructuring of the Armenian Social Investment Fund (ASIF) to fulfil the requirements of the 2014-2025 Strategic Program on Prospective Development of the Republic of Armenia. Since 1996 ASIF/ATDF has carried out 908 community infrastructure rehabilitation projects. During 20 years of its operation the Fund:

• Developed an efficient mechanism for targeting of communities, based on geographic and socio-economic factors that ensure accessibility of vulnerable communities to the program benefits;

• Ensured proper quality of construction works, which also proved to be cost effective;

• Contributed to establishment of local government bodies and community based organizations and enhancing their capacity; and

• The last, but not least, the Fund’s activities have always been in line with the Government's priorities. The Fund has been established, perceived and used as the Government's main tool for implementation of strategic projects in the area of local development and reform.

8. Role of regional authorities

Public administration in the marzes is governed by RA President’s decree “On public administration in the marzes of the Republic of Armenia” and other legal acts. Marz governors implement the regional policy of the government. They coordinate the activities of local branches of the executive authority, except as otherwise specified by law.

Within the bounds of the authority they are vested with by law, marz governors carry on the government’s regional policy in their respective marzes in the following areas: finance, urban development, housing and utilities, transport and road construction, agriculture and land use, education, healthcare, social security, culture and sports, nature and environmental protection, commerce, public catering, and services. Regional policy in the foregoing sectors is carried on by means of marz administrations, as well as through subordinate organizations. Marz governors coordinate the activities of regional services of central executive authorities in the areas of internal affairs and national security, defense, communication, energy, taxes, emergency situations, civil defense and others.

Marz governors are appointed and dismissed by government decrees. The office of marz governor is a discretionary one. Marz governors are accountable to the Government of the Republic of Armenia. Regional authorities do not possess any tools (programs, budgetary subsidies, PPP etc.) to support local economic development. These kind of projects are mainly implemented by donor organizations. (see section 10)

9. Associations of local authorities Three associations of local authorities are operating in Armenia: Communities Association of Armenia, Communities Finance Officers Association and Association of municipal councillors of Armenia. The most active is Communities Association of Armenia. Short description of each are presented below:

Communities Association of Armenia2: Communities Association of Armenia (hereafter CAA) was founded in December 1997, following the establishment of local self-government system in Armenia in 1996. It presents united voice of Armenian self-governments. Association corporate with Government of Armenia, National assembly, president, European council and other European and international institution. By cooperating with those institutions the association implements legislative changes. Association also participate in democracy development in Armenia. During 2011-2013 the Union of Communities of Armenia has assisted in development of long- term sustainable development strategic plans for 5 communities (Goris, Parakar, Dilijan, Vanadzor and Areni) with financial assistance of EU.

Communities Finance Officers Association3: The association was established on September 24, 1998, after the successfully implemented project organized by the International City Management Association (ICMA) in co-operation with the School of Public Administration of Armenia. The mission of association to assist to strengthening and development of local self- government system in Armenia by participating in the development of respective policies, legal framework and methodical tools. The association serves as a platform of comprehensive professional discussions and dialogues for state bodies, local authorities, civil society and private sector

Association of municipal councilors of Armenia4: The main objectives of the association are to assist the establishment and development of local self-governments and to increase the role of community councilors. The main objectives of the association are assisting in establishment and development of local self-governments and increasing the role of community councilors. Association publishes the “Avagani+” official newspaper.

10. Donor organizations and programs/projects aimed at supporting local authorities

Below are listed the major donor financed projects which have significant component of local economic deve:

Donors Activities

2 www.caa.am 3 www.cfoa.am 4 www.avagani.am 44

World Bank Social Investment and Local Development Project – $42.85 mln for the period of 2015-2020 (www.world bank.org ) (http://projects.worldbank.org/P148836?lang=en)

The project aim is:

(i) Support to socioeconomic development and capacity building at the local level component will implement micro projects that target vulnerable communities to address priority basic needs. (ii) Support to intercommunity social and economic development initiatives component will directly support the Armenia Development Strategy 2012-2015 objectives of reducing regional socioeconomic disparities and promoting harmonic territorial development by financing innovative intercommunity socioeconomic development initiatives. (iii) Armenia Social Investment Fund (ASIF) institutional strengthening and project management component will finance project management and operating costs, including salaries, health insurance, utilities, office equipment, field supervision (by ASIF staff), training, financial audits, fiduciary and safeguards oversight, monitoring and evaluation (M&E), and management information systems. Local Economy and Infrastructure Development Project – $68 mln for the period of 2015-2021

In 2016 Armenian Territorial Development Fund will embark on implementation of the Local Economy and Infrastructure Development Project (LEID). The LEID Project primary objective is to improve infrastructure services and institutional capacity for increased tourism contribution to local economy in selected regions of Armenia. The Project activities are expected to benefit the residents, tourists and enterprises in five regions of Armenia, namely Ararat, Kotayk, Lori, Syunik and Vayots Dzor marzes. Residents, tourists and enterprises are expected to receive improved access to, and quality of, public infrastructure, increased volume of private sector investment in the regions and increased number of small and micro enterprises in renovated cultural heritage sites and cities.

Second Community Agricultural Resource Management and Competitiveness Project - $42.67 mln for the period of 2014-2020

(http://projects.worldbank.org/P133705/second-second-community- agriculture-resource-management-competitiveness- project?lang=en&tab=overview)

Project objective is to:

(i) improve productivity and sustainability of pasture and livestock systems in targeted communities; (ii) increase the marketed production from selected livestock and high value agro-food value chains. Irrigation System Enhancement Project - $37.5 mln for the period of 2013- 2017

(http://projects.worldbank.org/P127759/irrigation-system-enhancement- project?lang=en)

Project objective is to:

(i) to reduce the amount of energy used and to improve the irrigation conveyance efficiency in targeted irrigation schemes; (ii) to improve the availability and reliability of important sector data and information for decision makers and other stakeholders. Social Investment and Local Development Trust Fund - $2.43 mln for the period of 2016-N/A

ADB Seismic Safety Improvement Program - $107 mln for the period of 2015-2017 (https://www.adb.org/projects/49078-001/main#project-pds) (www.adb.or g) The program will support the implementation of the National Strategy for Disaster Risk Reduction during 2015- 2020 by (i) improving school seismic

safety to reduce casualties and damage in schools during earthquakes, and (ii) enabling better use of school buildings as shelters for the general public and as focal points for emergency response after earthquakes. The program reflects the key focus areas advocated by the National Strategy for Disaster Risk Reduction, and is in line with the four priorities identified in the Sendai Framework for Disaster Risk Reduction, 2015- 2030.

Urban Development in Secondary Cities - $0.66 mln for the period of 2013- 2015

Policy and advisory technical assistance (TA) for city development/investment plans (CDPs) in the four secondary cities: Gyumri, Vanadzor, Dilijan, and Jermuk.

IFAD Infrastructure and Rural Finance Support Programme – budget is $52.8 mln

(www.ifad.or (https://operations.ifad.org/web/ifad/operations/country/project/tags/arme g) nia/1690/documents)

This programme is designed to generate income growth and sustainable employment opportunities by strengthening agricultural production systems and linkages to value chains for cash crops. It has four components: • Rural finance • Water infrastructure for rural areas • Awareness raising and support for farmers • Programme management. The programme's infrastructure component will cover the seven regions of Shirak, Lori, Tavoush, Gegharqunik, Vajots Dzor, Sjunik and Aragatsotn, while the rural finance component will be countrywide. The main target group comprises poor farmers and rural households, particularly vulnerable households headed solely by women or young people.

EBRD Kotayk and Gegharkunik Solid Waste Management Project - $11 mln for the period of 2017-2018 (http://www.ebrd.com/work-with-us/procurement/p- (www.ebrd.c pn-170201c.html) om) The project aim is:

• Construction of new landfill (including buildings and structures) • Construction of transfer stations (including buildings and structures) • Purchase of specialised equipment for landfill and transfer stations operation (slice and package) • Purchase of waste collection and transfer trucks (slice and package) • Purchase of waste containers • Purchase of waste collection points (container platforms) KfW Integrated Water Resources Management / Akhouryan River – budget is EUR Developmen 52 mln t Bank The project aim is: (www.kfw- • Construction of an irrigation reservoir in Shirak with a capacity of 25 entwicklungs million m³ (project phase 1) bank.de) • Rehabilitation/ construction of selected secondary and tertiary irrigation canals (project phase 2) • Introduction of efficient irrigation technologies on pilot areas (project phase 2) • Development, implementation and monitoring of sustainable water management plans agreed upon with all water user groups EFSD Modernization and Development of Institutional Capacity of Irrigation Systems - budget is $40 mln (www.efsd.e abr.org)

(http://efsd.eabr.org/e/about_acf_eng/countries_acf_e/armenia_acf_e/Irrig ation/)

EU Support to Regional Development in Armenia – EUR 10 mln.

The prorgramme consists of two components:

Policy and institutional building component (EUR 3 mln.) to assist the MTA and build its capacity in responding to the challenges of regional development, in order to contribute to reducing the economic and social disparities amongst the regions of Armenia in relation to the capital city of Yerevan.

Pilot Regional Development Programme (PRDP) - budget is EUR 7 mln (this component is co-funded by Government of Armenia in the amount of EUR 1.75). The overall objective of PRDP GS is to support the Government of Armenia in progressing towards a more balanced social and economic development between regions of Armenia. The specific objectives of the PRDP GS are: (i) to create economic opportunities and diversify economies in the ten regions of Armenia (support business climate, productive investments, cooperation among companies, especially SMEs, and related infrastructures), (ii) to create employment opportunities (provide relevant skills and promote sustainable employment, specifically in growth sectors, emerging and innovative sectors, especially among the young adults) in the regions.

Covenant of Mayors for Climate & Energy

The purpose of the project is to encourage these local authorities to sign the Covenant of Mayors and support them in the preparation and implementation of their Sustainable Energy Action Plan (SEAP). The key objective focuses on an improvement in quality of life thanks to the significant reduction in CO2 emissions by the municipalities due to an increase in their renewable energy use and energy efficiency measures. Armenia is one of the members the covenant major east project. Ministry of territorial administration and development and Minister of Energy and Natural Resources consider as a project coordinator in Armenia.

Council of Donor: Government of Switzerland Europe Institutional Support to the Communities Association of Armenia – EUR 0.8 mln for the period of 2014-2017 (wcd.coe.int) (https://wcd.coe.int/com.instranet.InstraServlet?command=com.instranet.C mdBlobGet&InstranetImage=2783092&SecMode=1&DocId=2290020&Usage =2) Donor: Government of Denmark Support to Consolidating Local Democracy in Armenia - - E1UR .8 mln for the period of 2013-2016 (https://wcd.coe.int/com.instranet.InstraServlet?command=com.instranet.C mdBlobGet&InstranetImage=2780002&SecMode=1&DocId=2203692&Usage =2)

Swiss agency Improvement of the local self-governance system of Armenia - CHF 5 mln for for the period of 2014-2018 Developmen (https://www.eda.admin.ch/content/dam/countries/countries- t and content/armenia/en/Local%20Self-Government_Armenia.pdf) cooperation The Goal of this program is to contribute to strengthening accountability, SDC effectiveness and efficiency of the local self-governance system in Armenia. Joint programming with other donors and implementers is expected to help overcome the existing fragmentation and replication in the field of local governance and decentralization. SDC‘s local governance program is following a contribution logic, allowing to combine, strengthen and enhance the ongoing and future initiatives of selected implementing partners.

GIZ Strengthening local governments in the South Caucasus – Promoting transparency and citizen participation - EUR 9 mln for the period of 2013- (www.giz.de) 2016 (https://www.giz.de/en/downloads/giz2014-en-local-governance- south-caucasus.pdf)

Government Armenian-French Decentralized Cooperation – EUR 1.5 mln each year for the of France period of 2008-2017

11. Active municipalities

The communities mostly don’t have financial autonomy and capability to implement “local economic development” projects and such projects are implemented mostly by donor financing through the Ministry of Territorial Administration and Development, SME DNC and other organizations. However, communities are taking part in the implementation of such projects by providing premises or lands free of charge or cadastral value. Some projects are delegated to local authorities by central government by including this cost in annual budgets.

The following cities are signatories of Covenant of Mayors: Yerevan, Alaverdi, Aparan, Artik, Ejmiatsin, Goris, Hrazdan, Kapan, Paraqar, Spitak, Tashir, Tsakhkadzor, Vanadzor and Vayk. Eight cities have already adopted Sustainable Energy Action Plan, key elements of which are gas emission reduction per sector (Municipal, residential, public lightening etc.) and expected evolution in terms of gas emissions. The major development projects which can facilitate local economic development are in process or have been implemented in the following communities:

Community Contacts Major projects which can boost LED

Dilijan city Mayor: Armen Development and promotion of the Tourism Santrosyan and Hospitality sector project has been initiated in Dilijan and adjacent communities www.dilijancity.am by IDeA Foundation. The several projects, such as construction of Central Bank of Armenia Dilijan Training and Research Center, AYB School, TUMO center for creative technologies, were fulfilled in Dilijan.

Opening of UWC Dilijan which is delivering International Baccalaureate Diploma Programme - an academic programme recognised by universities worldwide with the curriculum taught in English

Gyumri city Mayor: Samvel Preservation and restoration of historic Balasanyan cultural, religious monuments (churches, religious buildings), as well as building new www.gyumricity.am constructions in “Kumayri museum-preserve” area. This will also modernize the existing general infrastructure of the city.

Also the city has its participation in establishment of technological center.

Due to high level of depopulation the Kololian Foundation have started Gyumri Project Hope (GPH). The mission of this project is to restore hope for Gyumri’s future by creating long- term sustainable economic development initiatives through a collaborative, comprehensive, and regional approach.

Vanadzor City Mayor: Mamikon Vanadzor Municipality has its active Aslanyan participation in establishment of new technological center in the city. www.vanadzor.am

Meghri City Mayor: Mkhitar Free economic zone are going to be Zakaryan established in the area bordering Islamic Republic of Iran. The land is partly belong to www.meghri.am the community and partly privatized. Predicted that community will have it’s active participation during implementation stage of this project.

12. The interaction of local authorities with NGOs and business The collaboration between local authorities and NGO can be characterized as non-systemic and largely “pushed” by donor financed projects. In most of cases the initiative is coming from NGO side which try to engage local authorities in their projects. The main reasons for this situation are lack of capabilities and distrust toward each other. However, there are cases of successful cooperation.

The “NGO Center” CSD NGO, which has started its activities from 1994 as a project of Armenian Assembly of America, launched “LGB Training Center”. It represents a technically well-equipped training room, which has already hosted 11 community heads, city/village council members, in total 200 people. The center has also provided trainings to Lori region- Vanadzor, Alaverdi, Akhtala, Debet, Dsegh, Tsater, Tavush region- Ijevan, Dilijan, Aygehovit, Gandzaqar, Koti, Shirak region- Maralik, Akhuryan, Haykadzor, in the themes like Strategic Planning, Public Budgeting, Property Management, Public Service Provision and Implementation/Performance Management etc.

PPP legal framework and experience

Before 2008 there was no systemic approach towards PPP regulation in Armenia5. Each Ministry or other public body used its own institutional capacity to initiate and implement PPP projects. The relationships between public and private partners were in some instances regulated by sector-specific regulations and contracts. The first systematic approach to PPP regulation in Armenia was initiated by the Ministry of Economic Development and Investments (MoEDI) in 2008. The Ministry drafted a Law on PPP but it was not submitted to government. It was instead changed into a Concept Note, which was approved by government in January 20096. The approved concept set the MoEDI to be the

6 Government Decision on endorsement of the Concept Note of PPP in the Republic of Armenia of 29 January 2009 51 authorised body for the PPP development in Armenia. It also outlined that the Minister of Economy was to submit a draft of a charter and composition of the Trustee Board of the institution that was to coordinate the development of the PPP field. Following the approval of the concept note in October 2009, the government decreed that a PPP regulatory body – called the PPP Agency – was to be established as a subdivision of MoEDI. The PPP Agency was to be responsible for the development of PPP opportunities as well as to support and promote potential PPP projects. However the decree has not been implemented, the PPP Agency has not been created to date and there is currently no government institution effectively responsible for PPPs. While a specific PPP Law has been missing, key points regarding PPPs have been incorporated in other government decisions and laws. The practice of PPP implementation in Armenia has moved further than the legal and institutional framework. Despite the absence of a special law and adequate legal framework, there have been many PPPs (or projects with some PPP characteristics) since independence in the 1990s. A 2008 report on PPPs in Armenia7 noted that fifteen years after the collapse of the Soviet Union, Armenia was one of the leaders in the CIS by the percentage of PPP projects to national income.

Hence in spite of the shortcomings of the legislative and institutional environment, a number of projects with PPP characteristics have already been implemented across several infrastructure sectors in Armenia. The most significant PPP projects to date include:

• Concession of the South Caucasian Railway (South-Caucasian Railway Closed Joint Stock Company (CJSC) established by Russian Railways Joint Stock Company (JSC) (Russia)); • Renovation, expansion, operation and maintenance of the Zvartnots and Shirak international airports (Armenia International Airports owned by Corporación América (Argentina)); • Operation and maintenance of the Yerevan public bus transport system (several private local companies); • Operation and maintenance of the electricity distribution network (ОJSC “INTER RAO UES” (Russia)); • Privatisation of the national postal services operator (HayPost Trust Management BV (Netherlands)); • Provision of management services for the State-owned Armenia Water and Wastewater Company (Saur Group (France)); • Lease of the Yerevan water supply and wastewater systems (Veolia Water (France)); and • Provision of solid waste collection services in Yerevan (Eco Group (Sweden) and Sanitek (Lebanon)).

13. Data availability on private sector on municipality level There are no statistics on community level, which is available online or published. There might be available limited number of aggregated business statistics (e.g. value added by mazes by sectors, employment, number of retail shops) on regional level, which is published by national statistical service.

7 PPP in Armenia, Leonid Polischuk, commissioned by the United Nations Development Program, 2008 52

In most of cases communities do not possess proper databases/statistics on registered and operating businesses, number of employees and self-employed persons, investment, total taxes paid.

Participatory Appraisal of Competitive Advantage (PACA) analysis has been implemented in more than 100 communities by Regional Development Foundation8, Gegharkunik Chamber of Commerce and Industry (GCCI)9 and SMEDNC10. This process started within the framework of the Partnership for Rural Prosperity (PRP) Program together with the funding provided by the USAID. As a result, high value added products have been revealed and their value chains have been created by participatory diagnosing and analyzing the economy of the community, the resources and competitive advantages. Also, we can find deep statistical information about these communities, especially usage of lands by product type and productivity, number of tractors, number of animals by their types etc.

8 http://ruralarmenia.org/content/regional-development-foundation 9 www.gcci.am 10 www.smednc.am 53

Azerbaijan - Country Report on the results of the in-depth assessment of the actors and donors active in the field

1. The local government system in the country The constitution defines Azerbaijan as a unitary state. There is an enclave - the Nakhchivan Autonomous Republic – which is the only one to have a special legal-administrative status within the country, if not considering the other one - Nagorno-Karabakh – which is a disputable administrative territory in the de-jure jurisdiction of Azerbaijan, but remains occupied by the Armenia-supported forces.

Azerbaijan’s system of governance can nominally be considered as two-tiered, with the top or the highest tier of the government being the executive power headed by the President. The President appoints the Cabinet of Ministers and other high-ranking officials. The Local Executive Authority, is an extension of centralized executive power. The Local Executive Authorities, who are centrally appointed by the president and not elected locally by residents, nominally can be referred to as a local tier of government as they do not have independence and simply implement decisions of the central government. The third nominal tier of governance is publicly elected municipalities with limited powers to deliver services to citizens.

Azerbaijan is administratively divided into 59 major districts (rayon) and 10 major cities (şəhər) whose executive heads or mayors are appointed and dismissed by the president as well as 1 autonomous republic (muxtar respublika) which itself contains 7 districts and 1 city (Mamedova et al 2002).

According to administrative-territorial units speficied by presidential library, the territorial units of Azerbaijan are:

Autonomous republic 1

Rural rayons 66

Cities 78

Urban rayons 14

Urban-type settlements 261

Centralised village units111 (Kənd ərazi 1727 dairələri)

11 It means the consideration of several adjacent villages, especially small ones, as one territorial unit. 54

Rural settlements (villages) 4249

The Constitution does not provide clear definitions of local self-government and merely refers to it as being “carried out by municipalities”, which are elected bodies (Art. 142(I) and (II)). Municipalities are established in villages, settlements or cities, rather than on a regional basis. Up to 2009, the total number of municipalities surpassed that of most European countries. Originally, over 2,700 municipalities were established, with over twenty-two thousand elected officials. This number surpassed the total number of municipalities in European countries. The total number of municipalities decreased and their territory became larger as a result of the amalgamation process in 2009. However, it still remains unclear as to which principles guided this process. Election to municipalities adopts a majority election system. The number of municipality members is determined by law and differs depending on respective populations.

Organs of local executive power and organs of local self-government are not, in theory at least, subordinated to each other, their powers are not intermingled or overlapping. However, in practice, more often than not, municipalities seem to function as arms of the executive branch as they are underfunded and do not possess decision-making authority for the most part.

Azerbaijan does not have territories with a special status, with the exception of Nakhchivan Autonomous Republic. The legal status of the NAR is defined in chapter 8 of the Constitution. Article 134 declares the NAR to be an independent state within the Republic of Azerbaijan and an integral component of the republic. However, the Azerbaijani Constitution, legislation, presidential decress or decisions of the Azeri Cabinet of Ministers are all effective on NAR territory.

Although Azerbaijan laid down local self-government as one of the corner-stones of its constitutional system and the government established several laws aimed at increasing the powers of the municipalities, local self-authorities are facing a number of problems:

• Although powers of the municipalities are increasing, the amount of subsidies from the central governments are decreasing yearly. Current revenue bases assigned to municipalities are insufficient to cover expenditures. • The number of responsibilities allocated to municipalities is limited by the law. In most cases municipalities do not have adequate capacity, training or knowledge to carry out even those limited responsibilities prescribed by law. • The inclusion of NGOs in decision-making processes has been limited by insufficient development of the various democratic institutions. 12

2. Legal framework

12 Sources: http://cor.europa.eu/en/documentation/studies/Documents/LRA-SUCCESSFUL- EASTERN-PARTNERSHIP.pdf https://localdemocracy.net/countries/asia-pacific/republic-of-azerbaijan/

Local self-government for the first time received legal recognition in the Constitution of the Republic of Azerbaijan, which was adopted at the general referendum conducted on November 12, 1995. The first municipal elections took place on 12 December 1999.

The fourth section of the Constitution addresses major issues of local self-government, such as the legal status of municipalities, types of local self-government bodies, their basic powers and their relationships to other official entities. The Constitution does not explicitly declare whether the concept of municipalities is founded on the principle of decentralization of state authority or on the principle of local autonomy.

Major legal and regulatory acts, which define the organization and functioning of local governance in the Republic of Azerbaijan are the following:

In 1999 July 2 laws “On the Status of Municipalities” and “On the Elections of Municipalities” were adopted. The Law on Municipal Elections sets forth general principles, the rules governing electoral commissions, procedures for drawing up voter lists and eligibility requirements for candidates. The Law (No.698) on the Status of Municipalities regulates the role and structure of municipal bodies and outlines state guarantees of legal and financial autonomy.

The other normative legal document related to municipal government is the Model Municipal Charter (October 15, 1999) which specifies common issues to be incorporated into all municipal charters, such as territorial boundaries, municipal assemblies, standing and temporary council commissions, executive bodies and administrative procedures.

The Law (No.765) on Municipal Service regulates the activities of municipal employees, their rights, duties, labour conditions and social benefits, and outlines the structure of the executive apparatus and the organization of municipal service (November 30, 1999). The Law (No.764) on Local Referenda defines the issues that may be decided by local referendum and establishes procedures for organizing referenda, publishing the results and enacting them into law (November 30, 1999).

The Law on the Transfer of Assets (December 7, 1999) establishes standards for determining municipal property and transferring it to municipal ownership. The Law (No.772) on Municipal Finance (December 7, 1999) defines principles of local finance, the basis for the local budget and the division of powers between the local council and local executive bodies. The Law on Municipal Territory (December 7, 1999) and Lands, together with the list of all municipalities in Azerbaijan and their territories, defines municipal boundaries (June 13, 2000). Other laws also regulate issues of municipal property, such as the Law on Land Reform, in which article 7 is wholly devoted to the issue of municipal lands. This law was adopted in 1996, prior to the establishment of municipal governments. Other laws have been adopted over the years outlining municipal functions, including the Law on the Management of Municipal Lands (June 29, 2001); on Municipal Taxes (December 27, 2001); and the Law on the Merging of Municipalities (May 29, 2009). As a member of the Council of Europe, Azerbaijan signed the European Charter of Local Self- Government on 21 December 2001 and ratified it on 15 April 2002. The charter entered into

56 force in Azerbaijan on 1 August 2002. Within that framework, CE made several recommendations on the status of municipalities. The most recent one was issued on October 16-18, 2012. According to that report, there are serious concerns related to the non-compliance with most of the provisions of the European Charter of Local Self-Government ratified by Azerbaijan which are specified below: a. the insufficient and ambiguous definition of local-self-government in the law on the status of municipalities (Articles 2 and 3 of the European Charter of Local Self-Government); b. the parallelism in the local self-governance system, which according to the constitution is carried out by both local executive committees, which are State bodies, and municipalities which only have a very limited role (Articles 3 and 4 of the charter); c. the subordination, in practice, of municipalities to local executive committees which are part of the State administration (Articles 3 and 4 of the charter); d. the imprecise division of competences and responsibilities between municipalities and local executive committees (Article 4 of the charter); e. the weak financial potential of municipalities due to low-level State transfers provided to them and the ineffectiveness of the tax collection mechanisms available to municipalities (Article 9 of the charter); f. the gaps in the legislation governing the status and responsibilities of municipal servants on the one hand, and their rights and obligations on the other (Article 6 of the charter); g. municipalities’ lack of property and the slowness of property transfers from the State to municipalities, in particular as regards land; h. the lack of clarity of the law on the status of municipalities, regarding the procedure of supervision of municipalities, and notably the local governments’ obligation provided by Article 146-IV of the constitution, to report to the parliament about their own operations (Article 8 of the charter);13

3. Powers and responsibilities of local authorities

The legal status of local state administration in Azerbaijan is determined by the Provision on Local Executive Authority, adopted on 16 June 1999. In June 2012, the President approved the new Regulation, which granted additional powers to Local Executive Authorities, strengthening their dominant position in Azerbaijan’s local affairs. According to the legislation, the president of Azerbaijan establishes territorial branches of state administration in regions, cities and city

13 For further information: http://files.preslib.az/site/municipal/gl2.pdf List of Laws on Municipalities, Presidential Library, Retrieved, January 2015 http://www.preslib.az https://wcd.coe.int/ViewDoc.jsp?p=&id=1982467&direct=true#P272_28679

57 districts and appoints a head to manage their operations. These heads in turn appoint local administrations in the villages and settlements situated within their territory. Heads of local state administration carry out executive duties in regions, cities and city districts; ensure rights and freedoms of citizens; further the economic, social and cultural development of a given territory; and coordinate the activities of municipalities and territorial divisions of state administration. According to the report of the Congress of Local and Regional Authorities, the legislation ‘provides local executive authorities with almost all the functions of local self-government, including those that would fall within the scope of the powers of municipalities’.

According to Article 124 of the Constitution and the Law on Local Executive Authority adopted on June 16, 1999 and later amended by new regulations, the head of these authorities should perform the following functions:

• carry out orders of the president of Azerbaijan; • implement state programs authorized by the president of Azerbaijan as well as local programs; • establish and dissolve local state administration departments, services, enterprises and organizations; appoint and dismiss their heads; • annul any documents that run counter to existing legislation; • organize elections, national referenda and public discussions as established by legislation; • submit issues and proposals concerning local development to the appropriate executive bodies; • execute other duties as established by the legislation.

Chapter 9 of the Constitution addresses major issues of local self-government, such as the legal status of municipalities, types of local self-government bodies, their basic powers and their relationships with other official entities. The following functions are assigned to municipalities as per the Constitution:

• Recognition of authority of municipality members, loss of their authority and termination of their authority according to legislation; • Approval of in-house regulations of municipality; • Elections of the chairman of municipality, his/her deputies, permanent and other commissions; • Establishment of local taxes and duties; • Approval of local budget and reports on its implementation; • Possession of municipal property, use and disposal thereof; • Acceptance and implementation of local programs of social protection and social development; • Acceptance and implementation of local programs of economic development; • Acceptance and implementation of local ecological programs. (Constitution, Articles 142-146).

Articles 142-145 of the Constitution define the key principles of local self-government, including those related to municipalities and their competences. Moreover, the European Charter on Local

Self-Government (ratified by Azerbaijan in 2002) requires Azerbaijan to guarantee autonomy and exclusivity of powers held by municipalities. This clause is not reflected in the Law on Municipalities. Meanwhile, Article 124 of the Constitution states that the head of the LEA is responsible for implementation of central government decisions and policies. The same clause allows the President to define the limits of competences of LEAs. That means that the setting of boundaries and limits of municipal powers is subject to Presidential discretion (Constitution, Articles 124; 142-145). In Azerbaijan, the majority of socio-economic functions fall within the scope of the authority of the LEAs. On some issues, the LEAs are required to take into consideration the views and suggestions of municipalities. However, due to the fact that funding from state budget directly goes to the LEA, and this branch of power rather than municipalities is responsible for submitting proposals to the state, the role of municipalities is limited. Again, the biggest problem in this case is ill-defined roles, responsibilities and competences of the LEA and municipalities. Thus, the current framework leaves municipalities little discretion over a significant portion of the responsibilities granted to them by the Law on the Status of Municipalities. According to the Law of the Azerbaijan Republic “On the Status of Municipalities”, municipalities are endowed with powers to take decisions, including via the holding of referenda. The municipal scope of competences in the implementation of public matters is limited and most public services and their implementation or regulation fall within the scope of the direct responsibility of state bodies. No substantial public administration reforms have taken place over the 24 years since Azerbaijan gained its independence. Neither municipalities nor Local Executive Authorities possess independence in decision making. Due to the lack of finances as well as political and administrative powers, municipalities cannot decide on local issues. The LEAs cannot take independent decisions and usually consult the central government prior to taking decisions. . Central level

• Registration of Citizens’ legal documents and acts • Sanitation and epidemiology • Standardisation and metrology • Geodesy and cartography • Police • Fire protection • Communication regulation (telephones, postal and telegraph) • Public traffic management • Education (primary and secondary) • Universities • Health care • Housing management and regulation • Public utilities • Employment • Melioration • Roads maintenance • Renovation activities or regeneration • Environmental protection • Allocation of land plots for individual house building • Museums • Parks and vegetation

Local level

Exclusive competences: Maintenance of cemeteries (only rural ones; urban cemeteries are still under the control of LEAs). The law on the status of municipalities enumerates dozens of functions that fall under the competence of municipalities including those shared with regional authorities such as local road maintenance, renovations, parking and others. However, in reality only a few (namely maintenance of rural cemeteries) of them are solely implemented by local governments.14

All of the functions below are functions shared between municipalities and LEA:

• Road maintenance • Renovation activities and gentrification • Allocation of land plots for individual house building • Parks and vegetation

4. The financial basis of local government Legal acts governing fiscal decentralisation As mentioned earlier, the foundations of municipal finance are established by a triad of laws: the Law on the Transfer of Assets to Municipalities; the Law on Municipal Finance; and the Law on Municipal Territory and Lands. (December 7, 1999). The other key legal document dealing with fiscal issues in the country is the Tax Code of Azerbaijan, which does not however enable fiscal autonomy and fiscal decentralization.

Qualifying fiscal decentralisation The degree of fiscal centralization has remained considerably high in Azerbaijan. The high degree of centralization in Azerbaijan and the closed nature of the country’s political system accounts for the fact that very limited systematic over-time data are publicly available on the revenue, expenditure, and borrowing aspects of municipal governance.

The current share of local government revenue as a percentage of GDP is between 0.05-0.5%. In 2014, 1715 municipalities collected 49.06 m manats (0.08% of GDP. Azerbaijan’s GDP in 2014 totalled around 59 bn manats). Oxut of this number, 27.3% fell on taxes. The remaining share of municipal revenue falls within the revenue scope of the LEAs. Local charges and local taxes constitute between 2 to 10% (based on the data for 2002-2012) of overall national income. Available data (from 2002) indicate that around 35-40% of municipal revenues come from taxes (namely property tax on land), with a record minimum collected in 2007 (18%), and maximum

14 Source: https://portal.cor.europa.eu/divisionpowers/countries/EasternPartnershipcountries/Azerbaijan /Pages/default.aspx http://pdf.usaid.gov/pdf_docs/Pnadf973.pdf

60 in 2003 (48%).

Over the last five years, local government revenues, relative to national GDP, have decreased in percentage share terms but increased in absolute values. Due to the sharp increase in Azerbaijan’s GDP (because of high oil prices) the share of local government revenues naturally decreased although in absolute terms there has been some increase.

Precise data on municipal expenditures are not available. The two main municipal expenditure items are salaries for employees and mandatory fees to the State Social Protection Fund. Information on local budget expenditures has not been recently made publically available on the websites of local authorities. However, available information for the years 2003-2005 indicates that the biggest share of all expenditures in 2003-2005 (between 40% to 30%) fell on administrative costs of running municipalities such as the payment of salaries. The second biggest share of all expenditures (between 12% to 23% of all revenues) fell on repair and pavement of municipal roads.

The composition of municipal expenditures does not reflect the range of competences devolved to the sub-national level. The current fiscal legislation provides municipalities with little discretion over a significant portion of the responsibilities granted to them by the Law on the Status of Municipalities. Municipal expenditures are completely detached from municipal competences and responsibilities.

Deficit, debt at the sub-national level and borrowing capacity There are no legal barriers to municipal borrowing, but formal mechanisms for applying for, or for receiving loans, until recently have not been stipulated in the legislation. According to the Law on The Budget (Article 34.2-24.5), municipal deficit can be covered from state budget within the particular threshold stipulated by the government. In December 2014, amendments to the law on the budget system were adopted, which cover municipal subsidies. According to the amendments, subsidies will be calculated taking into account the number of people living on the territory of a municipality, their share in forming financial resources of the country, income and expenditures of a municipality, location of the municipality on state borders or in the highlands, living standards of the local population, expected social and economic projects, etc. However, the amendments contain no information as to the per capita fiscal capacity threshold within which subsidies would be activated.15

5. Instruments of local authorities to promote local economic development

Local authorities, which are centrally appointed bodies, not municipalities are only involved in the implementation of centrally adopted economic development plans and the input of municipalities is confined to sharing their comments or observations from their respective localities. Also, municipalities do not have strong income sources to finance any local economic development. The majority of their annual earnings are spent on administrative purposes. Also, municipalities are not legally allowed to established their own business as part of their income-

15 Source: https://portal.cor.europa.eu/divisionpowers/countries/EasternPartnershipcountries/Azerbaijan /Pages/4-Fiscal-Powers.aspx

61 generating activities and there is in fact discrepancy in legislation in that while the civil code recognizes such a possibility for the municipalities to be free in creating their own enterprises, they are deprived to do so by the Tax Code.

6. State bodies responsible for local government development

The municipal legislation in Azerbaijan places an emphasis on administrative supervision, along with the public supervision, of the municipalities’ activities. This supervision is governed by the law on “administrative supervision of municipalities’ activities”, which states that the purpose of administrative supervision of municipalities is to guarantee the compliance of municipalities and their officials with the constitution and normative-legal acts in the country. Administrative supervision is essentially under the state control and carried out by the Centre of Work with municipalities under Ministry of Justice, which prepares and submits annual reports to the parliament. This State body mainly regulates the activities of municipalities and provides methodological assistance to them as well as exercises administrative control over the activities of municipalities. In addition to that, the Administration of the President has a specialized department responsible for work with municipalities. In the Parliament there is a standing committee on issues of regional policy. The office of the Parliament also has a specialised department of municipal legislation. There is no such detailed data as the overall number of employees involved in supporting local self-governments.16

7. State programs that encourage local economic development

As part of economic reforms carried out in the country, several State programmes have been adopted from 1997 on to the present. However, those that are directly or indirectly target local economic development are the following:

State Program on Poverty Reduction and Economic Development in Azerbaijan Republic (2003- 2005) and State Program on Poverty Reduction and Economic Development in Azerbaijan Republic (2008-2015) as a continuation of the previous programme majorly targeted macro- economic stability and economic growth in the country. In the meantime, as part of these programmes large public investments were made in order to improve social and economic infrastructure in regions, including transport, water and sewage, amelioration, irrigation, power as well as health and education facilities. The main sources for financing these programmes were funds allocated for these and many other purposes from the State Budget, the State Oil Fund (SOFAR) and the State Social Protection Fund (SSPF) as well as other sources not conflicting with legislation of the Republic of Azerbaijan.

State Program on Social-Economic Development of Regions of Azerbaijan Republic (2004-2008) was approved by the decree of the President of the Azerbaijan Republic in order to implement comprehensive measures on efficiently using labour, natural and economic resources in regions, accelerating development of the non-oil sector, expanding reforms in agrarian sector, increasing employment of population, decreasing the level of poverty, renewing the infrastructure, creating favourable investment climate, modern enterprises and new job places.

16 http://justice.gov.az/bim.pdf

The State Programme on Socio-Economic Development of the Regions of the Republic of Azerbaijan for 2009-2013 and The State Programme on Socio-economic Development of the Regions of the Republic of Azerbaijan for 2014-2018 have been prepared in order to build on what the previous program had achieved. Significant measures taken as part of these programmes included rehabilitating and developing infrastructure in regions, improving access of population to public utilities, including, power, gas and water supply and constructing education and healthcare facilities.

The following funds have contributed to finance the implementation of these programmes: • Local and foreign investments; • State Budget of Azerbaijan Republic; • National Fund for Support of Entrepreneurship in Azerbaijan Republic; • Extra-budgetary funds; • Credits given by commercial banks and non-bank credit organizations; • Financial resources of international organizations and foreign countries; • Other lawful resources.

8. Role of regional authorities

In Azerbaijan, there are no regional governments. All regional public authority is exercised at the central level, and/or by the district-level authorities of the state administration (local executive committees). The governance is rather highly centralised with the administrative districts, which can be considered as an obstacle to any democratic regionalisation. Nevertheless, the traditional centralism of the country and the weakness of the existing local government system are probably the most significant obstacles to the establishment of an effective territorial tier of government based on democratic elections. In the absence of territorial government, there is a democratic deficit as the citizens are not effectively involved in controlling the fulfilment of regional tasks and functions.

Instead of certain regional-level authorities, the government has tentatively divided the region into 10 economic regions and there is no clue that there will be any particular regionalisation based on the powers and responsibilities in Azerbaijan. 17

9. Associations of local authorities

Three municipal associations, representing village, town and city, were established in Azerbaijan in 2006. About 81.5 per cent (up to 1400) village, 13.9 per cent (around 240) city, and the rest are other members of the associations. Although it has already been over 10 years since they were established, no initiatives have been taken to further develop municipalities and thus decentralize the administration system. From its inception up to now, there have been doubts about the operation of the associations in accordance with their mandate and the necessary

17 Source: https://wcd.coe.int/ViewDoc.jsp?p=&id=1982467&direct=true#P272_28679

63 capacity (especially staff) they have. Municipal associations in Azerbaijan carry out none of the important functions that they are supposed to carry.

The legal basis of municipal associations in Azerbaijan is the law on “status of municipalities“, which in its Article 10 states that municipalities can establish associations to protect their rights and interests more effectively. Compared with the Council of Europe’s relevant standards and legislation of associations in other countries, there are some shortcomings in the legal and normative regulation of municipal associations in Azerbaijan. For example, Article 10.2 of the Charter requires the entitlement of municipalities to join similar international associations to be recognized, while there is no such provision in Azerbaijan’s legislation. Article 7 of Recommendation 171 of “Consultations of Local Authorities” underlines the involvement of local authorities in planning and deciding on issues that directly concern local authorities, whereas Azerbaijan’s legislation misses such a provision about the consultations with municipalities. Only in Article 13 of the law on “status of municipalities” states that identification and change of municipal territories, including the identification of the boundaries of municipal territories upon creating, merging, splitting, and reorganizing, or cancelling the municipalities are regulated by the legislation through the consideration of socio-economic condition, historical and other economic peculiarities, and the views of peoples living in the that area. Obviously, even in making significant decisions such as the change of boundaries, the legislation does not consider the participation of municipalities working in that area. Finally, the associations in Azerbaijan do not have a professionally developed strategic plan, while such a plan is a sign of the fact that an entity is not working on an ad-hoc basis and has a clear vision into the future and mechanisms of efficient use of resources at its discretion. Further, municipal associations do not have internet webpage and periodical publications in Azerbaijan, whereas without such tools of communication it is impossible for the associations to regularly provide their members with necessary information and contact each other.

Municipal Address Tel E-mail Association

ASSOCIATION OF ASSOCIATION OF +994 12 499 6608 [email protected] CITY CITY MUNICIPALITIES MUNICIPALITIES OF OF AZERBAIJAN AZERBAIJAN Dilara Aliyeva St 251 A

-BAKU AZERBAIJAN

ASSOCIATION OF Dilara Ailyeva St 251 +99450 304 04 77 [email protected] SETTLEMENT- A MUNICIPALITIES OF -BAKU AZERBAIJAN AZERBAIJAN

ASSOCIATION OF Dilara Aliyeva St 251 +994 12 490 6601 [email protected] VILLAGE- A MUNICIPALITIES OF -BAKU AZERBAIJAN AZERBAIJAN

http://www.coe.int/t/congress/whoswho/associations-nat_en.asp?id=47

10. Donor organizations and programs/projects aimed at supporting local authorities

Until 2013, Oxfam GB was active in the support programmes for municipalities over the country through its special Governance programme. Their target region included south-west Azerbaijan – Tartar, Barda and Agjabedi, - and had a higher vision of alleviate poverty through improved governance and participation of local citizens in local decision-making processes. After Oxfam was forced to close its office in the country, GIZ has become more active in implementing municipality programme in the country, with a special focus on the Ganja- Gazakh region with a vision to developing the local capacity of municipalities as well as citizens to create economic opportunities for livelihood. EU has also programs indirectly through sponsoring some of part of Oxfam’s progammes and then carrying out stand-alone projects through. The other projects related with local authorities are the following:

• http://www.az.undp.org/content/azerbaijan/en/home/library/undp/CPD.html

• http://www.az.undp.org/content/azerbaijan/en/home/operations/about_undp.html

• https://www.giz.de/en/worldwide/367.html

• http://pdf.usaid.gov/pdf_docs/pdacu274.pdf

• https://eeas.europa.eu/headquarters/headquarters- homepage_en/917/EU%20Projects%20with%20Azerbaijan

• http://www.epfound.az/english/programs-activities.html

• http://www.fao.org/fileadmin/templates/lead/pdf/cis_donors_en.pdf

11. Active municipalities

Municipalities are still far removed from being identified as active versus non active ones as they have not been empowered with tangible responsibilities for local services or income sources. Tentatively, those municipalities that Oxfam GB and GIZ have worked can be considered relatively more active, yet not in terms of their growing influences in the dynamics of local development, but largely in terms of having better capacity to operate as a governance institutions.

12. The interaction of local authorities with NGOs and business

By law there is no restriction that would prevent any such interaction. However, NGOs have been perceived rather as politically charged or motivated institutions. Local authorities tend to abstain from direct engagement with NGOs and almost always seek the approval of presidential 65 administration before they can decide to collaborate with NGOs. This is not so much the case with pro-government NGOs as it is with the independent ones. Moreover, the law bans municipalities from setting up their businesses and due to the fact that municipalities are deprived of any real powers, businesses have no incentives whatsoever to interact with the former.

Belarus - Country Report on the results of the in-depth assessment of the actors and donors active in the field

0. Key problems and trends of regional development of the Republic of Belarus

1. Non-diversified economy of small settlements is “the problem of mono-towns”. There are 38 settlements in the Republic where 41 enterprises of traditional for Belarus town-forming industries operate, including light industry, food industry, fuel industry. 7 of the enterprises are in a critical economic state. 644,000 people live in mono-towns of Belarus, thus representing 6.5% of the country population. 2. Growth of disparities in social and economic development of the rayons and cities of regional subordination. Differentiation between the oblasts’ rayons in terms of growth of industrial and agricultural production is increasing, and differences in wages in the rayons remain. The amount of tax and non-tax revenues collected in one third of the republican rayons covers the needs of a rayon budget by less than 45 percent. The average family income in Minsk is 1.2 times higher than in small towns and 1.3 times higher than in rural areas. 3. Unbalanced structure of the economy. There is a relatively low share of services in the value added, small number of employed in the service industry, and a large share of material- and energy-intensive industries, especially in Vitebsk, Gomel and Mogilev Oblasts. 4. Critical loss of demographic and labor potential of sparsely populated rayons and rural areas. All regions experience the population reduction, except for the city of Minsk, with a particularly intense in rural areas and in the areas affected by the Chernobyl disaster. By 2030 the decrease in the number of EAP among rural population is anticipated by 43% relative to 2015, and the rate of retirement burden will multiply by 1.4. 5. The worsening problem of ensuring the living standards in unpromising and small rural settlements. Along with the rural population decline, the amount of small rural settlements is growing rapidly. By 2030 the number of rayons with a population of less than 20 thousand people is anticipated to increase from 33 to 50. In 14 rayons of the Republic the population decline is anticipated 2 times below this level.

1. The local government system in the country

Basic concepts of the Constitution of the Republic of Belarus of 1994, with adopted changes and emendations of 1996 and 2004. According to the Constitution, The President is the Head of the State as the guarantor of the Constitution. In accordance with the principle of the separation of powers (Section 1. Article 6.), the state power is divided into legislative, executive and judicial. Section 5: “Local government and self-government”, Article 117 of the Constitution stipulates that “Citizens shall exercise local government and self-government through local councils of deputies, executive and administrative bodies, bodies of public territorial self-government, local referenda, assemblies and other forms of direct participation in state and public affairs”.

Administrative and territorial division of Belarus is determined by the Law of the Republic of Belarus of May 5, 1998 No. 154-Z “On the Administrative and Territorial Division and the Procedures for Resolving Issues related to Administrative and Territorial Structure of Belarus” (Chapter 2, Articles 6-8) as amended in 2012. The country division into 6 oblasts and the city of Minsk has remained unchanged since 1960, and the oblasts into the rayons – since 1966. The current scheme of 1955-1966 has been optimized for centralized management of agriculture. The administrative and territorial units of the Republic of Belarus are the areas where, as required by the Law, local councils of deputies, as well as executive and administrative bodies are established and operate. The administrative and territorial units in the Republic of Belarus are oblasts, rayons, rural councils, as well as cities/towns and urban-type settlements, where local councils of deputies and executive and administrative bodies are established.

Administrative and territorial division as of 1st January, 2016

Land area, Population Districts Towns Of which of Districts Urban type Rural Rural thous.km2 density, national and in settlements Councils localities persons regional towns per km2 subordination Republic 207,6 46 118 113 11 24 90 1163 23201 of Belarus Regions and Minsk city Brest 32,8 42 16 21 3 2 8 195 2159 Vitebsk 40,1 30 21 19 2 3 24 191 6258 Gomel 40,4 35 21 18 1 4 16 241 2276 Grodno 25,1 42 17 15 1 2 16 163 4309 Minsk 0,3 5632 - 1 1 9 - - - city Minsk 39,8 36 22 24 1 - 18 218 5202 Mogilev 29,1 37 21 15 2 4 8 155 2997

Local government is a form of arrangement of the local executive and regulatory bodies, local councils of deputies and territorial public self-government to address local issues based on national interests and in the interests of the population living in the territory.

The local government system is a set of bodies representing a continuation of the legislature (Parliament – Councils of Deputies) and the executive power (President – Government — Executive Committee) at the following levels: • Oblast level (6 oblasts and the city of Minsk); • Basic level (cities of regional subordination, rayon centers); • Primary level (villages, settlements and towns of rayon subordination).

President’s vertical. The Constitution of the Republic of Belarus determines the vertical hierarchy for executive and administrative bodies and councils, introducing the concept of “a superior executive body” and “a higher representative body” (Constitution of the Republic of Belarus, Article 122). The President of the Republic of Belarus is the highest level of power for executive and administrative bodies, as well as the Parliament and the National Assembly of the Republic of Belarus – for representative bodies. In accordance with the third part of the Constitution of the Republic of Belarus, decisions of local authorities are canceled only in the event of their non-compliance to legislation. Legislation allows for extrajudicial cancellation of decisions taken by local bodies of power. For instance, Belarus’ Constitution, Article 122 says: • decisions by local councils of deputies, which run contrary to the law, shall be cancelled by higher-ranking representative bodies. • decisions by local executive and regulatory bodies, which run contrary to the law, shall be cancelled by relevant councils of deputies, higher-ranking representative bodies, and by the President of Belarus. De-facto that speaks for itself that the President of Belarus, in accordance with the Law “On the President”, is authorized to cancel decisions of local executive and regulatory bodies, if they contradict the law, and also suspend decisions made by local councils of deputies on the same grounds. Suspended by the President, decisions of local councils of deputies are not forwarded 69 to court, but sent for consideration to a higher-ranking council of deputies, which is supposed to take a final (but extrajudicial) resolution.

POSITION OF LOCAL AUTHORITIES IN STATE SYSTEM OF THE REPUBLIC OF BELARUS, SUBORDINATION AND INTERACTIONS

Problems of the current system of local government, according to the local experts: • Local self-government represented by the local councils of deputies is of a state nature and is not detached from the system of state bodies; • There is no clear delineation of powers between different levels and branches of local authorities; • Local self-government does not have its own executive structures; • Legislation on local self-government does not comply with the European Charter of Local Self-Government; • Poor skills of employed in local self-government; • There is no economic basis for local self-government, and its independence in fiscal and budgetary issues is essentially limited; • Exposure of local self-government to the administrative pressure of the state and local authorities of a higher level; • Local self-government is limited in establishing its own bodies, appointing its staff and management;

• Territorial public self-government practically does not participate in state and public affairs; • Loss of tradition of local community and civil society, • Forms of direct citizen participation in preparing and making decision are not applied in practice; • At the national level, there is no concept of local government development. “Lev Sapieha Foundation” http://library.fes.de/pdf-files/bueros/ukraine/08943.pdf)

The government of the country hasn’t taken any significant action to approximate to European standards and reform the existing public administration system at the local level. The European Charter of Local Self-Government is still not signed and ratified; the previous recommendations of European institutions (incl. recommendations on fiscal decentralization, 2012) are mostly not met; the model of "subnational government" existing since 1994 has not undergone any major changes, and the state "vertical" of local government (Executive Committees) has only got stronger.

2. Legal framework

Main normative legal acts: • Constitution of the Republic of Belarus of 1994 (with changes and additions adopted at the republican referenda of November 24, 1996 and of October 17, 2004); • Electoral Code of the Republic of Belarus of February 11, 2000 No. 370-3; • The Law “On the President” of February 21, 1995 No. 3602-XІІ; • Budget Code of July 16, 2008 No. 412-3; • The Law “On Local Government and Self-Government in the Republic of Belarus” of January 4, 2010 No. 108-3; • The Law “On Administrative and Territorial Division of the Republic of Belarus” of May 5, 1998 No. 154-3; • The Law “The Council of Ministers Governance of Local Executive and Regulatory Bodies” of July 23, 2008 No. 424-З; • The Law “On the Status of the Capital of the Republic of Belarus – the City of Minsk” of July 12, 2000 No. 410-3; • The Law “On the Status of a Deputy in Local Council of Deputies of the Republic of Belarus” of March 27, 1992 No. 1547-XII; • The Law “On National and Local Assemblies” of July 12, 2000 No. 411-3; • Land Code of July 23, 2008 No. 425-3; • Forest Code of 14 July, 2000 No. 420-3; • Natural Resources Code of July 14, 2008 No. 406-3; • Water Code of July 15, 1998 No. 191-3; • The Law “On Citizens' and Legal Entities' Applications” of July 18, 2011 No. 300-3. The official website of the National Legal Internet Portal of the Republic of Belarus: http://www.pravo.by/pravovaya-informatsiya/normativnye-dokumenty/

Basic legal concepts of local government: The Constitution, Section 5. “Local government and self-government”, Article 117. “Citizens shall exercise local government and self-government through local councils of deputies, executive and administrative bodies, bodies of public territorial self-government, local referenda, assemblies and other forms of direct participation in state and public affairs”. The Law of the Republic of Belarus “On Local Government and Self-Government in the Republic of Belarus” of January 4, 2010 No. 108-3 “Local self-government is a form of organization and activity of the population living in the relevant territory (hereinafter, unless otherwise specified – citizens) allowing them to take their own decisions directly or through elected bodies on social, economic and political issues of local importance considering the national interests and the interests of citizens, peculiarities of administrative and territorial units development on the basis of their own material and financial resources and borrowed funds”.

The Belarusian system of local government and the European Charter are based on two different theories. The Belarusian system of local self-government is based on the state theory of local self-government and contradicts to the principles of dualism of the European Charter which imply autonomy of local self-government.

3. Powers and responsibilities of local authorities

Overall performance. The existing legislation reproduces in practice the obsolete schemes and patterns of the Soviet period “adopted” decades ago. In accordance with the Law «On Local Government and Self-Government», local government bodies in Belarus are part of the general system of government bodies. Local Councils of Deputies of all levels are in fact representative bodies of state administration, although they are elected and have a status of self-government bodies. Local executive committees are executive or regulatory state bodies and are formed by higher- ranking bodies of state administration. In accordance with the Constitution of Belarus, both Councils of Deputies and executive committees deal with matters of local significance, guided by general state interests, and also implement decisions of higher-ranking state bodies.

Belarus’ legislation distinguishes between general competence and exclusive competence. Among the 18 issues that the law refers to the exclusive competence of the Council, only four issues (specifically mentioned in Article 121 of the Constitution of the Republic of Belarus) are of a real importance: • approval of programs of economic and social development, local budgets and reports on their execution; • establishment of local taxes and levies; • define procedure of the management and disposal of communal property; • decision to hold a local referendum.

Several powers of organizational character mentioned in the Law “On Local Government and Self-Government” are classified as the exclusive competence of a Council of Deputies, which means these powers can be exercised only during a Council session. Other powers of a Council of Deputies, the powers of the Presidium and the Chairman are defined by the Law as general powers, i.e. these powers can be exercised outside Council sessions or be passed on to local or central authorities. The Law defines as general competence all powers of an executive committee or a local administration, the powers of the Chairman of an executive committee and the Head of a local administration. As executive committees and local administrations are included into the single system of state bodies, matters assigned to competence of local executive bodies, can take care by higher-ranking bodies of state administration.

Government. The proof of the serious problem in the delimitation of power between bodies of central and local authorities is in the Law “On the Council of Ministers”, which includes article “The Council of Ministers governance of local executive and regulatory bodies”. In particular, the Government has the right to manage the activities of the executive committees on matters falling within its competence, to control their activities for the implementation of legislation acts, to receive their reports, to pass to local authorities and to perceive from them some of powers. Moreover, the problem is rooted in the fact that the law relies exclusively on the functional principle of competence delimitation between local authorities of various levels. At the same time in the law is no principle of competence delimitation based on the object. As a result, one and the same functions (for instance, healthcare, education, culture, social security, territorial accomplishment, law enforcement, etc.) are simultaneously assigned to bodies of local administration of different levels, and also in some cases to central state bodies. At the same time, the Law does not specify which particular welfare objects are assigned to a local body of the relevant level (for instance, a chemist shop, a rural health post, an out-patient hospital, a general hospital, a specialized hospital, a medical centre, etc.).

Formality of powers of self-governance. However, these powers become a formality, since the major role in addressing the above-mentioned issues is played by local executive committees. Local Councils of deputies do not have the authority to influence the appointment of employees of the executive committees, and have very limited supervisory powers in relation to the activities of local executive committees. For comparison, the total number of the powers of executive committees is 130, and the vast majority of powers are related to providing everyday normal life of citizens, decision of the local municipal and economic problems. Living standards of citizens are directly dependent on the work of executive committees. At the same time, executive committees in their work are accountable to citizens. Councils may pass (the term "delegate" is not in the legislation) some of their powers to Councils of other territorial levels (in most cases - to higher-ranking Council), executive committees (the most common practice), their Chairs, territorial self-government bodies (in practice, this provision of the law is not implemented). 73

4. The financial basis of local government

The local budget is a plan of generation and application of funds in a territorial unit of the Republic of Belarus.

Legal framework. According to Article 133 of the Constitution, “The budget system of the Republic of Belarus shall include the republican budget and local budgets”. The Law “On Local Government and Self-Government in the Republic of Belarus” includes chapter 5 “The economic basis of local government and self-government”. The Belarus budget model is based on a consolidated budget. According to “The Budget Code of the Republic of Belarus”, the budget structure has four levels of hierarchy: • Republican budget • Regional budgets (oblast budgets and budget of the city of Minsk) • Basic level budgets (rayon budgets and budgets of the cities of regional subordination) • Primary level budgets (budgets of towns of rayon subordination, budgets of village councils and budgets of rural councils).

Centralization. The existing state financial management system remains centralized, very conservative and closed from the public. The logic of the Budget Code is that financial resources of the local authorities, referred to as ‘local budgets’ in the Code, are in practice cost estimates approved by the central government through strict regulation of utility costs.

Loss of the subsidiarity principle, manifested in the irrational and baseless division of jurisdiction between local government bodies of different territorial level finds its reflection in baseless distribution of local budgets among territorial levels. For example, the primary level of local administration, the one closest to the citizens (Councils and executive committees of villages and district (‘rayon’)-subordinate towns) is completely lacking funds needed to carry out their objectives and functions. Not only that, but the functions and competences of local government bodies of the primary territorial level are very limited.

According to the data of the Ministry of Finance, in the first nine months of 2016, local budget funds were distributed between the territorial levels in the following way: • regional (‘oblast’) level – 47%; • basic level – 52%; • primary level – 1%.

The Code leaves little freedom to the local authorities in financial and budget planning and uses a regulatory approach in the assessment of budgetary needs of municipalities. In this case the cost of public utilities is determined by the state on a centralized basis and additional funds received by municipalities in excess of the income amount are forfeited in favor of the central government. On the one hand, such a system deprives successful municipalities of the incentives to increase budget revenues, on the other – it generates dependency among financially weak municipalities. According to the data of the Ministry of Finance about the structure of local budget revenue, own revenue (tax and non-tax revenue) on average represents 79.3% of the total revenue. For 2016, 3/4 rayons receive less than 60% of their funding from the government budget, out of which more than half receive less than 40%. Five out of seven regional units have budget coverage that doesn’t cover 2/3 of their real budgetary needs.

All significant tax bases, including VAT, personal income tax, property taxes and CIT, remain under the control of the national government, but the revenue is shared with oblast governments, who in turn share these revenues with rural districts and rayon subordinate towns. The Budget Code foresees the formula for allocating transfers. However, it is not implemented in practice due to its complexity and high demands to data. Communal property, on one hand, is an economic base of activity for local government bodies (both via its material and financial constituents). On the other hand, communal property (according to the Constitution and the Civil Code is a subtype of state property. It can be confiscated and redistributed by the central and higher-level authorities in the administrative procedure. In accordance with Article 13 of the Constitution, “Mineral resources, waters and forests are the exclusive property of the state. Agricultural land is in exclusive ownership by the state.” Based on this, it can be said that the land and other natural resources are, in reality, only used and operationally controlled by the local government bodies performing public administration functions on the local level on behalf of the central Government.

5. Instruments of local authorities to promote local economic development

Overall performance. The application of tools promoting economic development is characterized by a high level of centralization: some tools are technically just continued in detail at a lower level of governance and copy its approaches. In the lack of political will of the State, the effort to introduce new tools can be made only on pilot basis within the framework of international technical assistance:

- Strategic planning. To date, the legal status of strategic planning at the regional and local levels is not defined, which explains the optionality of implementation and monitoring the previously developed strategic documents by the authorities. Within Components I and II of the EU program “Support to regional and local development in Belarus” all six regional sustainable development strategies were developed, publically discussed and approved. Despite their reasonability and constructiveness, their legal status, as well as the status of other local sustainable development strategies of the basic and primary levels remains unclear. Other attempts to develop local strategies within the international technical assistance projects are mentioned in paragraph 10. The Law “On State Indicative Planning of the Republic of Belarus” determining the legal framework and mechanisms for indicative planning implementation which draft was actively discussed in 2014-2016, was not adopted at the state level.

- Regional planning (oblast, rayon). The following documents are developed: • programs of social and economic development of a respective administrative and territorial unit; • local budget;

• forecast of social and economic development of a respective administrative and territorial unit; • regional programs, concepts, activities on housing construction, improvement of territories, road construction, utility and social services, social support to children, youth, veterans, disabled and elderly people and other categories of citizens in accordance with the laws. Measures to support small business, healthcare, education, development of physical culture and sports, environmental protection and rational use of natural resources, improvement of working conditions and labor protection, radiation safety, protection of historical and cultural heritage, and other issues of local importance. The program of social and economic development of oblasts (the city of Minsk), rayons and cities/towns of regional subordination is the basic system development plan at the local level. It is developed by the executive bodies on the basis of the superior plan and the directives of the higher level authorities and is approved by the Council of Deputies. Local budget is developed by the executive authorities and is approved by the Council of Deputies. Local earmarked programs promoting social and economic development programs are often of a declarative nature due to lack of funds for their implementation. Regional packages of measures in government programs will become a completely new tool of the state’s policy in 2016-2025 allowing for funding from local budgets (Presidential Decree No. 289 of July 25, 2016 “On development, funding, implementation and evaluation of the implementation of government programs”).

- Financing mechanisms. The predominant tool for stimulating the oblasts and rayons by the State is the system of both horizontal and vertical financial “equalization”.

Vertical equalization: Establishing a fund for the support of administrative and territorial units at the expense of deductions from the VAT and income tax paid to the state budget. Standard deductions are calculated as the ratio of the total amount of donations/grants to local budgets to the amount of income tax and value added tax paid to the state budget. Grants to the regions from this fund shall be fixed according to the differentiated standards with regard to their financial condition. Transfers: • subventions from the state budget for the maintenance of social and cultural facilities transmitted to local councils; • subventions for communal property construction; • subsidies for house construction. At the expense of deductions from national taxes (VAT, income tax and corporate income tax from businesses of all forms of ownership) to the budgets of oblasts and the city of Minsk according to the differentiated standards. The standards are calculated on the grounds of accounting data based on the average amount of these taxes per inhabitant and the expected growth of population of oblasts and the city of Minsk. The highest standard deductions are in the

78 budgets of Brest and Grodno oblasts and the lowest – in the budget of the city of Minsk. This results from the differences in taxable capacity since agriculture which doesn’t provide great tax revenues in comparison with the industry, is more developed in these regions. General fiscal equalization presumes the establishment of the national average standard of fiscal capacity by non-productive sectors per inhabitant and the scaling factor by oblasts considering regional specifics of institutions in non-productive sphere. Based on these standards and population size by region, the amount of budget allocation is determined. For oblasts with expenditure below standard, the financial resources from the Financial Support Fund are earmarked to bring fiscal capacity to the national average. Fiscal capacity standards are often insufficiently substantiated and do not reflect the real financial needs of non-productive sphere institutions as they are calculated based on the actual cost of the previous years. Novelty in 2017-2020. In order to promote sustainable regional development, standard deductions from national taxes, fees and charges which generate the bulk of revenue of rayons and cities of regional subordination, will remain unchanged for at least three years. This helps to secure the autonomy of local authorities in carrying out the regional development policy and creates additional incentives to support business and create new jobs.

- Entrepreneurship and supporting infrastructure. Framework conditions are created by: the State program to support small and medium enterprises in the Republic of Belarus, the Decision of the Government of the Republic of Belarus No. 1242 of December 29, 2012, Presidential Decree of May 21, 2009 No. 255 “On some measures of state support for small business”, and Presidential Decree of May 20, 2014 No. 229 “On some measures to stimulate innovative projects”. At the oblast level, the public financial support can be obtained, for instance, from the Belarusian Fund for Financial Support of Entrepreneurs www.belarp.by; advice on various possibilities can be provided by business divisions of economy committees of regional executive committees, by department of a government employment service of the committee on labor, employment and social protection of municipal and regional executive committees, by regional institutions of financial support for entrepreneurs, as well as by the Chamber of Commerce (non-profit organization).

- Entrepreneurship infrastructure is represented by business incubators and business centers. Nowadays, there are only 20 business incubators, 60% of which are located in the city of Minsk and Minsk Oblast, the others are situated in regional or major cities. There are 96 business support centers. Most of them are located in Grodno Oblast and only seven of them are situated in the villages, agricultural settlements and small towns. The World Bank is currently involved in elaborating enterprise development strategies. The new “Belarus Competitiveness Enhancement Project” is ready for launch. However, the support at the regional level is still insufficient and, according to statistics, since 2015 employment in the SME sector has been tending to decline.

- Innovation infrastructure. 14 organizations are registered in the Republic of Belarus as actors of innovation infrastructure, including 12 technoparks (2 – in Brest Oblast, 2 – in Vitebsk Oblast, 79

2 – in Gomel Oblast, 2 – in Grodno Oblast, 1 – in Mogilev Oblast, 2 – in Minsk Oblast and 2 – in the city of Minsk), two Centres for Technology Transfer (1 – in Vitebsk and 1 – in Gomel). Innovative development at regional and local levels can be described by: • lack of clear objectives and policy guidelines on SME and innovative development, as well as focus on innovation that does not require the concentration of resources and has rapid pace of commercialization within the short-term period; • imperfect legislation; • insufficient development of actors of local entrepreneurial and innovation infrastructure together with insufficient information and expert support; • concentration of SME mainly in the consumer sector which does not require special knowledge and skills and results in the unpopularity of outsourcing and business underdevelopment.

- Clustering mechanisms. The country clusters are created by higher authorities. Such mechanism does not work at the local level. Development and implementation of the state cluster policy lays on the Ministry of Economy. Nowadays, clusters are created in Vitebsk Oblast (linen cluster in Orsha) and Minsk Oblast (pharmaceutical cluster in Borisov). The program documents provide for creation of innovative industrial clusters on the basis of small and medium enterprises, as well as direct and indirect benefits, however, there is no such practice at the local level. Cooperation among agri-tourism service suppliers located in the same territory hardly can’t be considered as a real cluster (Grodno, Brest and Minsk Oblasts).

- Public-private partnership. The public-private partnership in the Republic of Belarus is in its infancy. The partnership of the government and private investors is encouraged in territories of Belarus with poor revenue position but greater social significance. The law of the Republic of Belarus “On Public-Private Partnership” was adopted on December 30, 2015 and there is no experience of its practical application at the moment. The first pilot project for reconstruction of 74.6 km of M-10 highway is identified (350,000,000 US dollars, start in 2017). The recoupment of capital investments will be provided by payments from the national budget and road toll. The National Infrastructure Plan for 2016-2030 is also developed. It reflects the promising areas of the PPP and proposes pilot projects to promote social and economic development at the local level.

- Job creation is the responsibility of the regional government. Nowadays, this responsibility is placed on ministries and departments in accordance with the State Program on Social Protection and Promotion of Employment for 2016-2020 approved by the Council of Ministers of the Republic of Belarus of January 30, 2016 No. 73. Employment issues fall under the responsibility of regional committees and rayon departments on labor, employment and social protection of regional executive committees. Their main functions are monitoring legislation, restructuring support, developing programs on employment and job creation and preservation, employment of socially vulnerable population groups,

80 unemployed and young people, regulating labor migration, training and retraining of personnel forecasts, etc. New activities in the sphere: - Private companies and entrepreneurs launch and jobs creation on the basis of unused state property; - Transfer of property for the purpose of free use for job creation and free transfer of immovable property to investment projects. The following program document promoting the new job creation at the oblast and rayon levels can be identified: 1) Subprogram 1 “Promotion of Employment” under the State Program on Social Protection and Promotion of Employment for 2016-2020.

- professional training, advanced training, on-the-job training and retraining are carried out in educational institutions or organizations according to the procedures established by the Government of the Republic of Belarus.

6. State bodies responsible for local government development

Legislative and representative authorities:

Council for Cooperation of Local Self-Government. Within the Council of the Republic of the National Assembly of Belarus (Official Website of the National Assembly of Belarus: http://www.sovreg.gov.by/), the Council for Cooperation of Local Self-Government is established. (Decision of the Council of the Republic of the National Assembly of Belarus on April 2, 2007 No. 390-CP3/VII “On Establishing the Council for Cooperation of Local Self-Government of the Council of the Republic of the National Assembly and Approval of the Regulations on it”). Official Website: http: // www .sovreg.gov.by / ru /? guid = 10026. The Council for Cooperation has received the observer status at the Congress of Local and Regional Authorities of the Council of Europe. The Council is a coordinating body and was founded on the basis of and with the participation of local governments of all levels. It performs the following functions: pooling of knowledge and sharing best practices, developing a holistic approach to a certain problem, and informing local government on the state policy. Its general principle of operation is "top-down", in practice it performs supervisory and representative function. The Council for Cooperation of Local Self-Government includes 40 people, mostly occupying senior positions in the public administration system.

Executive power:

The Ministry of Economy, Department of Regional Development. It performs the following functions: • preparing regional parts of concepts, programs, forecasts of social and economic development of the country and planning activities for their implementation; 81

• coordinating work of the republican governmental bodies, other state organizations subordinated to the Government on issues of social and economic development of the regions; • undertaking a comprehensive analysis of social and economic situation in the regions and identifies key issues of development; • developing draft regulatory legal acts together with the governmental bodies; • coordinating interaction of departments of the Ministry of Economy with the regional and Minsk city executive committees on regional development management. The size of the Department – 6 persons. The official website of the Ministry of Economy of the Republic of Belarus – www.economy.gov.by

There is no Regional Development Ministry / Agency in the country. This exacerbates negative trends in development.

7. State programs that encourage local economic development

Fundamentals of the state planning system were laid by the Law of the Republic of Belarus “On state forecasting and programs on social and economic development of the Republic of Belarus” of May 5, 1998 No. 157-3. The regional aspect was reflected in almost all the programs and documents:

Long-term perspective – the National Strategy for Sustainable Socio-Economic Development of the Republic of Belarus until 2030 (http://www.economy.gov.by/ru/macroeconomy/nacionalnaya-strategiya). The strategic goal of the regional policy is the comprehensive balanced development of each region, considering the effective use of its resource potential and competitive advantages in order to ensure high living standards and the positive contribution of the regions to national competitiveness and security (Section 7. Strategy for sustainable development of the regions and distribution of productive forces).

Mid-term – Program of the Social and Economic Development of the Republic of Belarus for 2006-2010 (http://www.economy.gov.by/ru/macroeconomy/programma_soc_econom_razvitia). One of the five priorities is the program “Balanced regional development, establishing new centers of economic growth in the regions on the basis of their competitive advantage”. The main thrusts of the program are as follows: • establishing new centers of economic growth in view of the resource potential and competitive advantages; • improving the regional economic structure, increasing the regional economic potential and reducing income differentiation between rayons; Preliminary assessment of the amount of funding to support regional development is 96,300,000 mln.BYN (about 48,800,000 mln.EUR). Government Activity Program for 2016-2020 82

(http://www.government.by/upload/docs/pdp2016_2020.pdf) is a tool for the Programme implementation.

Short-term prospects – annual forecast of social and economic development, as well as a number of decrees and edicts of the President, and the decisions of the Council of Ministers. These documents encompass only the oblast level and don’t provide further details.

Normative legal acts of the national level: • National Action Plan for the Development of "Green" Economy in the Republic of Belarus until 2020 http://www.economy.gov.by/ru/mtsroot/new_url_239523844/new_url_871172564 • State program on the development and maintenance of roads in the Republic of Belarus for 2015-2019 http://www.pravo.by/upload/docs/op/C21401296_1421182800.pdf • State program “Comfortable Housing and Enabling Environment” for 2016-2020 http://www.government.by/upload/docs/file8c3586a94739667b.PDF • State program “House Construction” for 2016-2020 http://www.government.by/upload/docs/fileecc85cf3e93ac5e3.PDF • State program of agricultural business development in the Republic of Belarus for 2016-2020 http://www.mshp.gov.by/programms/a868489390de4373.html • State program” Hospitable Belarus “for 2016-2020 http://www.mst.by/ru/programma-razvitiya-turizma-ru/ • State program on overcoming consequences of the Chernobyl disaster in 2016-2020. http://www.pravo.by/document/?guid=3871&p0=C21001922 • And others.

EXAMPLES OF TOOLS PROMOTING LOCAL ECONOMIC DEVELOPMENT:

Regulatory legal act, preferential zone Tools Interregional Presidential Decree of July 8, 2013 No. 301 “On Main incentives: measures stimulating implementation of investment • reimbursement of interest on projects with high added value” loans • no requirement to increase the authorized fund Presidential Decree of March 28, 2006 No. 182 “On Main incentives: improving legal regulation of the procedure for • reimbursement of 50% of interest providing support from the state to legal entities and on loans individual entrepreneurs” Regional Presidential Decree of May 7, 2012 No. 6 “On It is applicable to commercial entities stimulating entrepreneurial activity in the medium- within the small and medium-sized sized and small municipal settlements and rural areas” municipal settlements and rural areas. Main incentives: • exemption from capital gains tax for 7 years

Regulatory legal act, preferential zone Tools • exemption from personal income tax • exemption from customs duties when importing goods for the contribution to the authorized fund Free economic zones (The Law of the Republic of Main incentives. Exemption from: Belarus of December 7, 1998 “On free economic • income tax for 5 years; further rate is zones”, Presidential Decrees for promoting the Law) 50% lower than the statutory rate • customs duties on goods imported into free economic zones, partly for exported goods To enter a free economic zone, an investor has to offer an investment project with a minimum investment amount of 1,000,000 EUR. High-Tech Park (Presidential Decrees of January 31, Main incentives. Exemption from: 2006 No. 65” On approval of the administration • income tax for 15 years; statute of the Park of High Technologies” and “On • VAT on sales in the Republic of Belarus certain Issues of taxation of High-Tech Park residents” • customs duties on goods imported for IT of August 30, 2012 No. 392) activities Presidential Decree of June 8, 2015 No. 235 “On social Krichev, Klimovichi, Krasnopolie, and economic development of the south-eastern Kostyukovichi, Slavgorod, Cherikov and region of Mogilev oblast” Khotimsk rayons of Mogilev Oblast. Main incentives: • reduction of income tax on the wages of individuals from 13% to 10 % during 7 years • reduction of pension insurance contributions from 28% to 24% • soft loans to citizens for 20 years at 1% per annum

EXAMPLES OF STATE PROGRAMS FUNDING STRUCTURES:

State program on overcoming consequences of the Chernobyl disaster in 2016-2020 Planned: 262,965,155,000 BYN (12,703,000,000 EUR) including: the republican budget – 87% local budgets – 3%

State program of agricultural business development in the Republic of Belarus for 2016-2020 Planned: 220,973,120,000 BYN (106,750,000,000 EUR), including: the republican budget – 2.2 % subventions transferred from the republican budget to the regional consolidated budgets for financing of expenditure incurred upon development of agriculture and fisheries – 0.4% local budgets, including the budget of Minsk – 1.5% funds of the national centralized innovation fund – 0.1% funds of an investment fund “Belgospischeprom” of the Belarusian State Concern of Food Industry – 0.1% 84 bank loans – 5.3%, including soft loans – 23% loans of the Bank of the Republic of Belarus – 0.2% own funds of entities operating in agro-industrial production – 90.4.

State program” Hospitable Belarus “for 2016-2020 Planned: 140,075,056,000 BYN (67,699,000,000 EUR), including: the republican budget – 84,9% budgets of oblasts and the city of Minsk – 14,6% own funds of the Trade Unions Federation of the Republic of Belarus – 0,5% The local level usually fulfils tasks on planning assigned by the central government and the “bottom-up” approach is rarely practiced. Opinions of the regions are largely ignored. In such circumstances, initiatives of the management of subordinate levels are limited to an opportunity to undertake heightened obligations on execution of any Presidential Decree, as well as to make free tactical decisions to achieve the forecast parameters.

8. Role of regional authorities

Competencies of local authorities at all levels: • develop and approve programs of social and economic development, local programs and activities; • draft, approve and execute budgets of the respective administrative and territorial units; • define the legal regime of the property included in the municipal property of the respective administrative and territorial unit; • establish local taxes and fees in accordance with legislation; • regulate land relations within the competence stated in land legislation.

Competencies of oblast authorities: • right to establish rules for the preparation and use of the local budgets; • promote fiscal balance of the administrative and territorial units in the territory; • solve issues related to education, abolition and change of the borders of the rural areas, grant settlements the status of cities of rayon (oblast) subordination.

Competencies of local authorities at the basic level are broader regarding businesses: • placement and development of business entities and institutions in its territory; • right to provide consent for setting up enterprises in the territory; • consideration of plans and programs on setting up, development and specialization of enterprises (corporations) and social and cultural institutions, preparation of decisions on them; • approval of schemes and projects of rayon planning, general plans of cities and rayons, establishment and abolition of village councils, and recording or removal settlements from state recording.

Executive committee is an administrative and regulatory body of local government of general jurisdiction. Activities of executive committees and their structural divisions are governed by the Regulations, which stipulate their functions in relation to economic development as, for example, “taking measures to develop industry and agriculture, services, SMEs, and subsistence farms”. The powers are implemented through departments and services, which are primarily intended to ensure the development and implementation of social and economic development plans and programs in accordance with the state programs, as well as interaction between local government and business entities in addressing the regional development issues.

The main structural divisions of executive committees on economics are the regional (oblast) committees on economics, and at the rayon level - rayon departments on economics. An example of their activity to enforce entrepreneurship today is the implementation and monitoring of activities under the State program “Small and medium business in Belarus” for 2016-2020, in particular, the regulation of provision of soft loans to small businesses at the expense of the regional budget and ensuring compliance with tax and other preferences under Decree №6 of 7.05.2012 “On Stimulating Entrepreneurial Activity in the Territory of Middle, Small Urban Settlements, and Rural Area”.

Competences of authorities at basic and primary levels: - focus on providing public utilities and social and cultural services to the population. There is a strict hierarchy of oblast and rayon local authorities in Belarus. Each of the tools used at the local level is the result of disaggregation of the higher-level tools. “Bottom-up” proactive solutions usually require approval at a higher level. Competences of local councils are very limited. Nevertheless, many of local decisions become legitimate only with the decision of the oblast (rayon) Council of Deputies. For example, the oblast decision of the Council of Deputies sets annual inter-budget transfers from the oblast budget to the consolidated budgets of rayons and cities (see annex), including the size of grants and subsidies (on overcoming the consequences of the Chernobyl catastrophe, developing agriculture and fisheries activities, repayment of local government and self-government debts).

The main issues affecting the priority interests of the citizens are de-facto in the competence of executive committees. The councils of deputies delegate or entrust them to solve most of the issues of their competence because of the lack of their own executive bodies of local self- government. At the same time, the councils of deputies are accountable to the citizens, while the executive committees are not even though they solve almost all issues of everyday life. The executive committee is accountable not to the citizens but to the higher executive bodies, as well as to the Council of Ministers and the President. This leads to the fact that the decisions taken by the executive committee often contradict with the interests of the citizens – the residents of a particular territory. Data availability. There is an extended official database on different aspects of business activities in Belarus. Each business must provide monthly statistical report correlated with transactions of banks and data of tax office. Each oblast and rayon has its own statistical office. National statistical agency (Belstat, http://www.belstat.gov.by/) generates information and 86 publishes yearbooks such as “Regions of Belarus” (rayon level included), “SME in Belarus”, etc. Some of the regional statistical offices publish their own yearbooks, for example, “Brest Oblast”. This information is general and outdated. The up to date and disaggregated data can be requested from rayon statistical offices, but in this case a special arrangement with Belstat or the oblast statistical agency is needed. There are also so called administrative statistic of different divisions of executive committees. Such data as number of really operating companies, current business situation, perceptions of owners and employed on business running or procedures, demand additional surveys.

9. Associations of local authorities

The Law “On Local Government and Self-Government in the Republic of Belarus”, Article 7 provides for such forms of legal non-profit organizations as the Association of Local Councils of Deputies (but this form is not provided for the executive power representatives by legislation.

Associations are intended to represent the interests of deputies of all levels, to coordinate the actions of local councils of deputies on the development of legal, institutional, territorial, financial, and economic bases of local self-government. Association is a legal entity operating at the expense of its own funds and property formed on the basis of contributions, income from operations, donations (sponsor assistance), as well as other sources. National Associations of Local and Regional Authorities. In 2010, national associations of local and regional authorities on the basis of the Council for Cooperation of Local Self-Government of the Council of the Republic were established to improve the efficiency of local government. Today, they operate in Grodno and Mogilev Oblasts http://mogilev- region.gov.by/page/vybory_v_mestnye_sovety_deputatov_- _tema_edinogo_dnya_informirovaniya, https://horki.regiony.by/ business/ (no official web sites). They were established for the purpose of consolidating the efforts aimed at the economic development of their regions.

10. Donor organizations and programs/projects aimed at supporting local authorities

Main actors: WB, USAID, UNDP, EU – support, German Programme

WB GROUP IN BELARUS: http://www.worldbank.org/en/country/belarus • RB joined the WB in 1992, lending commitments to the country have totaled US$1.7 billion, grant financing totaling US$28 million provided to various programs. • active investment lending portfolio: loans – 9, lending - US$973 million; GEF: 1 Grant - $2.7 Million WB Group assistance to Belarus is concentrated in three areas: • increasing the competitiveness of the economy by supporting structural reforms, including reducing the role of the state, transforming the SOE sector, and promoting private and financial • sector development and integration into the global economy;

• improving the quality and efficiency of public infrastructure services and the use of agricultural and forestry resources, and increasing global public goods benefits; and • enhancing human development outcomes through better education, health, and social services. Supported programs with respect to the environment, energy efficiency, and the provision of public services: 31 active projects: http://projects.vsemirnyjbank.org/search?lang=ru&searchTerm=&countrycode_exact=BY Project Commitment

Project Title Country Status Approval Date

ID Amount November 18, Belarus Health System Modernization Project Belarus P156778 125.0 Active 2016 BELARUS PUBLIC FINANCIAL MANAGEMENT Belarus P146997 10.0 Active March 28, 2016 MODERNIZATION PROJECT September 17, Belarus Education Modernization Project Belarus P148181 50.0 Active 2015 Forestry Development Project Belarus P147760 40.71 Active March 27, 2015 Forestry Development Project Belarus P152636 2.74 Active March 27, 2015 December 19, Transit Corridor Improvement Project Belarus P149697 250.0 Active 2014 Improving Efficiency and Transparency of Public Finance Belarus P147073 1.2 Active April 8, 2014 Management Belarus Biomass District Heating Project Belarus P146194 90.0 Active March 31, 2014 Water Supply and Sanitation Project Additional Financing Belarus P146493 90.0 Active March 31, 2014 Additional Financing Belarus Energy Efficiency Project Belarus P133442 90.0 Active June 6, 2013 Integrated Solid Waste Management Project Belarus P114515 42.51 Active June 17, 2010 Belarus Privatization Belarus P125389 5.0 Active March 19, 2010 Energy Efficiency Belarus P108023 125.0 Active May 28, 2009 September 30, Water Supply and Sanitation Project Belarus P101190 60.0 Active 2008 Belarus Competitiveness Enhancement Project Belarus P152276 80.0 Pipeline

Relevant resources: • Belarus Economic Update (December 12, 2016) (PDF, 397 KB) • Special Focus: Strengthening Investment Climate in Belarus (PDF, 287 KB) • Presentation (PDF) • Economy profile, Belarus: http://documents.worldbank.org/curated/en/216391478155754188/pdf/109719-WP-DB17- PUBLIC-Belarus.pdf • Report No: ACS13961, Republic of Belarus, Regional Development Policy Notes, The Spatial Dimension of Structural Change • Belarus to adopt strategy to improve governance of state-owned enterprises

USAID https://www.usaid.gov/where-we-work/europe-and-eurasia/belarus The U.S. Agency for International Development (USAID) worked since 1999 works to assist Belarus in its transition to a more democratic and free market-oriented society. By Integrated Country Strategy (ICS) Mission Objectives by Account and Program Area, total amount for 2017 – $9mln., https://www.state.gov/documents/organization/252734.pdf

USAID assistance in Belarus targets the following sectors: 88

- civil society development – 2 actual Programmes: • Capacity Building for Civil Society Organizations (CBCSO), implemented by a consortium of NGOs (140 CSOs), including the Eurasia Foundation (USA) and New Eurasia Establishment (Belarus); • Community Connections, an exchange program promotes mutual understanding, since 2006, about 600 professionals have successfully visited the U.S.

- private sector development and entrepreneurship, and empowering and advocacy for vulnerable groups – 5 actual Programmes: • Improving Business Regulations and the National Quality Infrastructure (BR/NQI) – co- funded by Sida and IFC since 2010, contributes to developing the MSMEs support strategy; simplifying administrative procedures for businesses; improving the national certification and standardization system in accordance with international standards; and simplifying export and import procedures • Global Entrepreneurship Week (GEW), since 2011, partnered with the Center for Business Communications BEL.BIZ. This annual entrepreneurship forum taking place in 160 countries is a unique experience exchange platform that encourages new initiatives and supports economic reforms for startup development. Annually over 1,000 participants attend USAID-supported GEW events in Belarus and over 2,000 join them online. • Supporting Start-ups and Early Stage Small Business Development, in partnership with BEL.BIZ develops start-up support infrastructure: business training and international experience exchange. TechMinsk - a bootcamp for young entrepreneurs, in three years, over 200 participants from 90 startups graduated and already attracted over $7 million in investments, contribution to include Belarusian IT entrepreneurs into the global startup ecosystem. In 2016, started a partnership with the IPM Business School and the Society for Innovative Business Support (SIBS) to advance entrepreneurship training, including startup schools and entrepreneurship competitions in the regions of Belarus. • Business Education - for over a decade, assisted the development of both academic and non-formal business education in Belarus by supporting the adoption of international business education standards, professional exchanges, modern curricula and innovative formats, including distant learning courses. • Increasing Access to Finance for the Rural Population in Belarus - in partnership with the Republican Microfinance Center aims to broaden economic opportunities for rural populations through raising financial literacy, strengthening entrepreneurial skills, improving access to microfinance for entrepreneurship purposes, promoting improved policies and regulations for microfinance; is implemented throughout the country, with a particular focus on rural areas and small cities in the Minsk and Brest regions., over 2,000 representatives and 900 persons improved knowledge.

- empowering and advocacy for vulnerable groups – 2 actual programmes:

• Expanding Participation of People with Disabilities, enhances social and economic inclusion of people with disabilities by building the capacity of local PWD organizations, in particular, - Art for Inclusion of People with Disabilities, targeted young people aged 16-25; • Countering Trafficking in Persons, since 2005 supports enhancing Belarus’ capacity to counter the challenge of human trafficking by strengthening civil society organizations

UNDP - http://www.by.undp.org/content/belarus/en/home.html present in Belarus since 1992.

Strategic areas The United Nations Development Assistance Framework (UNDAF) and Country programme document Belarus (CPD) for 2016-2020 ($80 mln) focuses on four strategic areas of key national priorities outlined in the National Strategy for Sustainable Socio-Economic Development in the Republic of Belarus until 2030 (NSSSED-2030): 1. Inclusive, Responsive and Accountable Governance; 2. Sustainable Economic Development; 3. Environmental Protection and Sustainable Environmental Management Based on the Principles of Green Economy; 4. Sustainable Development of Human Capital: Health, Education, Social Inclusion and Protection, Comprehensive Post-Chernobyl Development

Priority areas of CPD 2016-2020: Priority Area 1: Stronger systems of inclusive and responsive governance. Priority Area 2: Growth and development are inclusive and sustainable, incorporating productive capacities that target employment and create livelihoods for vulnerable groups. Priority Area 3: Institutions are strengthened to progressively deliver universal access to basic services, with a focus on vulnerable groups.

There are 30 projects for the Belarus office, 4 of them do not have geographic information; the remaining 26 have 54 subnational locations in total. Budget -$21.00M

Top Budget Sources - Budget Expense

Global Fund to Fight Aids, Tuberculosis $9,227,485

European Commission $6,082,001

Global Environment Fund Truste $4,089,736

UNDP Regular Resources $504,625

Sweden $440,936

Office of the High Commissioner for Huma $200,652

United States of America $195,517

Russian Federation $161,676

Thematic areas: Poverty Reduction (7) National Human Development Report: Sources of regional competitiveness in Belarus closed

Local Entrepreneurship and Economic Development - closed Strengthening the role of the private sector in the economies of Brest and Hrodna Regions and in the thriving tourism sector of Belarus. Stop TB Strategy with a focus on taking measures to combat multidrug resistant tuberculosis closed Support to Local Development in the Republic of Belarus - ongoing Assisting government authorities and organizations with improvement of good governance standards through a participatory approach and strengthened dialogue between authorities, businesses, non-for-profit organizations and citizens. Accession to the WTO Through Strengthening National Institutional Capacity and Expertise (Phase 4) - ongoing Assistance to the Republic of Belarus in Establishing Tax Advisory Services ongoing Facilitation collaboration between business and the state in the area of taxation by helping to establish institutionalised tax advisory services Promotion of employment and self-employment of the population in small and medium-sized towns in the Republic of Belarus ongoing The main objective of the project: promotion of effective employment and self-employment of the population in small and medium-sized towns of Belarus. The project aims to support the employment and self-employment of the population through the development of small and medium enterprises (SME), applying the socially responsible approach, and also through strengthening the integration and investment potential of small and medium-sized towns. The support of SME will be focused on three major sectors: i) transport and communication; ii) manufacturing; iii) financial services and business support services, as well as other sectors of economy.

Capacity Development to Support the Implementation of Public-Private Partnership (PPP) in Belarus" closed http://www.by.undp.org/content/belarus/en/home/operations/projects/poverty_reduction/P PP/ To build the capacity and disseminate knowledge on the PPP mechanism among stakeholders; establish the National PPP unit which would coordinate PPP-related work among ministries, regional authorities and investment promotion in Belarus; improve the regulatory environment to attract investments and management capacity to infrastructure sectors, and create guidelines for identification and selection of potential PPP projects

Democratic Governance (4) Capacity Building of Small Arms and Light Weapons Stockpile Management and Security closed Supporting the Republic of Belarus in Addressing Irregular Migration and Promoting Human Rights of Vulnerable Migrants closed Strengthening International Cooperation in Combating Human Trafficking in the Context of Human Rights closed Strengthening Inclusive Local Governance in Belarus ongoing

The project is aimed at improving local governance systems and practices in Belarus through catalytic pilot engagements with government institutions at the central and local level, civil society organizations, the private sector, and academic/training institutions in the country. Improving e-feedback mechanism of state agencies and state-run organizations closed Support to the Functioning of the Country Coordination Mechanism for interaction with the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria completed

HIV (2) Environment & Energy (8) Improving Energy Efficiency in Residential Buildings Initial Implementation of Accelerated HCFC Phase Out in the CEIT Region Developing an Integrated Approach to a Stepped-Up Energy Saving Programme Green Economy on-going Wind Power on-going Landscape approach to management of peatlands aiming at multiple ecological benefits Supporting Green Urban Development in Small and Medium-Sized Cities in Belarus (Green Cities) on-going Clima-East in Belarus - Conservation and sustainable management of peatlands in Belarus

EU - support Delegation of the European Union to Belarus https://eeas.europa.eu/delegations/belarus/945/node/945_en http://cu4eu.by/en/programs_in_belarus/the-european-neighbourhood-instrument-eni/cross- border-cooperation-programme/ The Delegation of the EU to Belarus has the status of a diplomatic mission and officially represents the European Union in Belarus, opened in Minsk on 7 March 2008. The mandate of the Delegation: develop and maintain good and effective contacts; establish a close dialogue with the authorities and other stakeholders; state and explain the EU position to the national authorities and bodies; raise awareness about the EU and ENPI; support the preparation and implementation of the technical assistance programs financed by the EU.

Projects funded by the European Union in Belarus: http://euprojects.by/ Belarus participates in several regional projects funded by the EU, primarily in the fields of border management, environment, energy and transport. Higher education and vocational training is another important sphere of regional cooperation implemented mostly via Erasmus+. Programs of cross-border cooperation (Poland-Belarus-Ukraine, Latvia-Lithuania-Belarus) are important for regional cooperation on the local level. In regional projects, the EU allocated to Belarus nearly EUR 53 million between 2007 and 2013, with most projects still operating. One practical example of bilateral cooperation to foster people-to-people ties is MOST, a mobility program for young professionals. TAIEX, the Technical Assistance and Information Exchange instrument, is always open for Belarusian public administration agencies interested in studying the best European practices in a wide range of fields. 92

The largest EU Research and Innovation programme Horizon 2020 is open for the Belarusian academic community, and so is SOCIEUX (Social Protection EU Expertise in Development Cooperation). This instrument is targeted at supporting the efforts of partner countries to better design and manage their social protection systems. In December 2015, the National Coordinating Unit for the EU Tacis Programme in Belarus was transformed into the Centre for International Technical Assistance of the European Union (EU ITA Centre http://cu4eu.by/en/). The Centre supports international technical assistance beneficiaries in Belarus and participates in development and implementation of EU programmes. Programming of international assistance in Belarus is shaped by the National Programme of International Technical Co-operation. The 2012-2016 programmes continues the focus on the national priorities of (1) human development, improvement of level of life, social development and assistance; (2) sustainable economic growth through innovation, international cooperation, investment and resource and energy efficiency; (3) environment protection, ecological sustainability, rehabilitation of Chernobyl affected areas.

Priorities of development cooperation with Belarus for 2014-2017: • Social inclusion: prevention of non-communicable diseases, social inclusion of people with disabilities and older persons; development of vocational education; fostering gender equality and empowerment of women, demographic security. At present, the EU is supporting a program to help improve healthcare in Belarus. The program includes a range of measures aimed at reducing alcohol and tobacco consumption and promoting healthy lifestyles, thus helping bring down the number of cases of cardiovascular and respiratory diseases; help improve breast cancer detection and reduce child injury rates. Total budget of this program is EUR 8 mln. The new vocational education program will include measures that help bring Belarus' vocational education system into compliance with new economic trends and meet the ever-changing demand of the market and employers. The program is expected to help young professionals find their first jobs more quickly. It is also expected to help Belarus draft the principle of lifelong learning into its education system and make sure older citizens adapt and remain in the workforce longer. The EU allocated EUR 11.5 mln for the program. • Environment remains at the core of sustainable development for both the EU and Belarus. The Delegation of the European Union supports projects in the fields of air and water quality assurance and preservation of biodiversity, in waste management, energy efficiency, renewable energy and green economy. The amount of funding in 2012-2020 is expected to reach EUR 37 mln. • Local and regional economic development remains a key area of cooperation. In the late 2015, the sides have begun designing a new regional and local development program. Greater emphasis will be placed on supporting the development of the private business sector.

Topics of the Projects: http://euprojects.by/: Projects Green Economy, Environment and Sustainable development (12); Energy (6); Private sector development (2); Projects Regional development (6); Projects Health Care and Social Inclusion (6); Culture, Science, Education and Young People (8); Civil Society and Human Rights (1); Good Governance (3); Justice reform and

93 penitentiary system (1); Migration, Asylum and Refugees (1); State border management (1); Peace and security (1); Norms and Standards (1)

Projects Regional development: http://euprojects.by/projects/regional-development/ Support to Sustainable Tourism Development in Belarus: Time: 17.08.2015 – 16.02.2018; Amount: € 1 597 830(100% funded by EU); Implementing Agency: European Profiles S.A. (Greece) in consortium with Archidata S.R.L (Italy), European Projects Management Ltd. (Latvia), Vokrug Sveta Ltd. (Belarus) Location: Minsk, Polack Raion and the city of Polack (Viciebsk Voblast); area adjacent to the Belaviežskaja Pušča National Park detour, Kamianec and Pružany Raions (Brest Voblast); Miadzieĺ Raion and Lake Narač (Minsk Voblast), Mscislaŭ Raion and the city of Mscislaŭ (Mahilioŭ Voblast). Project Website: http://www.europeanprofiles.gr/index.php?option=com_content&view=article&id=1541&catid =96&Itemid=102... ; http://vsglobal.by/rus/eu-project/

Cluster Approach and Information Technologies for Local Administration and Sustainable Development of Rural Areas Time: 01.04.2015 – 31.03.2017; Amount: € 334,700; EU contribution – € 300,000; Implementing Agency: Smarhoń Raion Executive Committee, Location: Hrodna Voblast, the town of Smarhoń, areas of Zaliessie and Kreva Rural Councils. Project Website: http://www.clusters.by/

Expanding Economic Opportunities in Rural Belarus Time: 01.04.2015 – 30.09.2017; Amount: €500,000 (EU funding: €450,000; or 90%); Implementing Agency: New Eurasia Establishment Location: Republic of Belarus Project Website: http://eurasia.by/blog/programs/proekt-rasshirenie-ekonomicheskih- vozmozhnostey-v-selskoy-belarusi/

Support to Local Development in the Republic of Belarus Time: 15.02.2014 - 31.12.2016 (supposed to be prolonged till 31.05.2018) Amount: € 5,400,000; Implementing Agency: United Nations Development Programme: National Partner: Ministry of Economy of the Republic of Belarus; Location: Belarus Project Website: http://ld-inbelarus.by/

Support to Regional and Local Development in Belarus Time: 02.09.2013 – 01.08.2016; Amount: € 2,785,400; Implementing Agency: International consortium led by ECORYS Nederland BV (Netherlands). The consortium also includes ECORYS Polska s.p. (Poland), Oxford Policy Management (United Kingdom) and Project Management Limited (Ireland); National Partners: Ministry of Economy of the Republic of Belarus, Research Economic Institute of the Ministry of Economy and its regional branches, as well as Brest, Viciebsk, Homiel, Hrodna, Minsk and Mahilioŭ voblast executive committees; Location: Belarus Hyperlink: http://ld-inbelarus.by/

Supply of Equipment for Green Energy and Integrated Waste Management to Support Regional Development in Belarus Time: 09.07.2015 – 28.07.2016; Amount: € 2,785,400; Coordinating agency: International Consortium headed by ECORYS Nederland BV (Netherlands); Location: Baroŭka, Brest, Kalinkavičy, Chocimsk, Maladziečna, Navahrudak, Rečyca, Slaŭharad Hyperlink: http://www.regdev.by/ru/node/104

The Support Program of Belarus of the Federal Government of Germany (SPBG) - http://ibb- minsk.by/program “Overcome boundaries” has been implementing in Belarus since 2002 on behalf of the Federal Ministry for Economic Cooperation and Development (BMZ) and the Society for International Cooperation (GIZ). The Program is administered by the Dortmund International Educational Center together with the Minsk International Educational Centre named after Johannes Rau. The amount of funding in 2014-2016 was ≈2,500,000 EUR.

The main goals of the Support Program of Belarus of the Federal Government of Germany are: • enforce cooperation between German and Belarusian partner initiatives in the fields and based on the principles of sustainable development; • support the development processes based on model projects with multiplier effect; • improve the competencies of civil society actors; • organize an effective dialogue between government, business and community.

Thematic areas: • Sustainable development (sustainable regional development, resource-saving primarily in rural areas, and sustainable development strategies); • Social sphere (social partnership development, innovation in healthcare and social services).

Main components of the Support Program of Belarus of the Federal Government of Germany: • Financing and implementation of joint Belarusian-German model projects in the thematic areas intending multiplication (2002-2016 - 220 projects; 2014-2016, during Phase 7 of the Program - 21 partner projects - http://ibb-minsk.by/program/expert-support ) • Support program - activities supporting the results of projects at the regional and national levels, the improvement of the framework conditions in the thematic areas, etc.

2016-2019 – Phase 8 of the Support Program of Belarus of the Federal Government of Germany Overall orientation - assist in the implementation of the National Strategy for Sustainable Socio- Economic Development of the Republic of Belarus until 2030, mainly at the regional and local levels. Focus on the support of the implementation of the existing oblast and rayon sustainable development strategies: monitoring and evaluation; approbation of the "green economy" and social entrepreneurship; expert support, training, etc. Call for Projects 2016 – 53 applications were filed; selection of applications and summarizing will take place in February 2017.

Experience in strategic planning for sustainable development: http://ibb-minsk.by/sites/default/files/posobie_po_razrabotke_sur.pdf; at the level of village councils (7 strategies in Brest, Minsk and Grodno oblasts); sustainable development strategies of organizations, including schools - more than 100.

Cross-areas: WB – overall macro-economic country context and sectoral analyses and forecasts for the selection of pilot projects and expert support; EU – regional strategies on the EU RLD program, the use of experience in specific territories with specific sectors (agri-tourism) and tools. The EU projects under the Covenant of Mayors – the experience in the project administration and the possibility of using a common network of signatories; UNDP – interactions with national agencies, the use of specific practice-oriented tools, information network and work with a wider audience on local development, entrepreneurship, and green economy. Interaction with new projects on enforcing the capacity of local authorities (training) and SME support at the local level would be useful; USAIDS – wide CSOs engagement, particularly with the New Eurasia Establishment (local sustainable development strategies at the rural council level), the educational establishment “Office of European Expertise and Communications” (creative cities), and others in the field of cooperation with local communities of cities and rayons; German programs – experience in support and multiplication of small projects for sustainable development and in drafting strategies for rayons, methodological approaches to strategic planning of sustainable development at the rayon level, and expert support.

One of the problem areas for cooperation is the lack of coordination among donors in the field of project planning and, in particular, the methodological support of the strategic spatial planning. One of the UNDP projects at the final stage envisages drafting rayon economic development strategies, which leads to overlapping of the two projects activities. Possible activities in Belarus to start with: drafting a general review on the experience of strategic planning of territories (the EU RLD program; the German projects – Braslav, Chausy, Bereza, Slavgorod; Eurasia – 12 village councils strategies); informing on support options through information network of donors, projects, and NGOs.

11. Active municipalities

Experience of the joint EU-UNDP project “Support to local development in the Republic of Belarus”, budget – 5,400,000 EUR In the first call for local initiatives within the joint EU-UNDP project “Support to local development in the Republic of Belarus”, 115 rayons out of total 118 rayons from 6 oblasts took part (87 initiatives were funded, the total amount of funding was 1,230,000 EUR). 96

As a result of the first call, 30 pilot rayons were selected according to the following criteria (in order of importance): • availability of initiative groups and local leaders expressed through a number of local initiatives submitted by the rayon; • interest of regional authorities in participating in the project; • involvement of civil society, local businesses and local people expressed through a broad participation of different types of organizations and groups presenting their initiatives and the quality of proposed initiatives based on the activity of the local population and civil society organizations; • availability of the necessary resources to participate in the project and implement the proposed local initiatives (human, financial, etc.). 30 rayons became the pilot rayons characterized by different parameters of development (expert assessments by the Scientific and Research Economic Institute of Ministry of Economy of the Republic of Belarus) (see Table below). The rayons marked in red most clearly manifest the involvement of management in the development of their territories and the commitment of the local community.

Oblast / rayon – Assessment of area Website of Rayon Executive total 30 rayons development by the Committee: Scientific and Research Economic Institute of the Ministry of Economy of the Republic of Belarus 18 Brest Oblast Brest – accelerated http://brest-region.gov.by/ development http://city-brest.gov.by/ 1. Pruzhany rayon accelerated http://pruzhany.brest-region.gov.by/ 2. Kamenec rayon lagging http://kamenec.brest-region.gov.by/ 3. Bereza rayon accelerated http://bereza.brest-region.gov.by/ 4. Brest rayon sustainable http://brestrik.smrtp.ru/ 5. Lyakhovichi sustainable http://liahovichi.brest-region.gov.by/ rayon Vitebsk Oblast Vitebsk – accelerated http://www.vitebsk- development region.gov.by/ru/ http://gorodvitebsk.by/ 1. Dokshitsy rayon lagging http://dokshitsy.vitebsk- region.gov.by/ru/

18 According to the integrated assessment of 17 indicators of social and economic development of 118 rayons and 12 cities of oblast subordination conducted by the Scientific and Research Economic Institute of the Ministry of Economy of the Republic of Belarus in 2015: - 9 rayons of accelerated development, 4 of which are in Minsk Oblast; - 14 rayons of sustainable development, including 5 in Minsk Oblast and 3 in Gomel Oblast; - 36 rayons of uneven development; - 27 problem rayons and 32 lagging rayons. The greatest number of problem and lagging rayons are located in Vitebsk (17), Mogilev (12) and Gomel (11) Oblasts. 97

Oblast / rayon – Assessment of area Website of Rayon Executive total 30 rayons development by the Committee: Scientific and Research Economic Institute of the Ministry of Economy of the Republic of Belarus 18 2. Polotsk rayon Polotsk – area of accelerated http://polotsk.vitebsk-region.gov.by/ development 3. Glubokoye rayon lagging http://glubokoe.vitebsk- region.gov.by/ru 4. Tolochin rayon sustainable http://tolochin.vitebsk- region.gov.by/ru/ 5. Braslav rayon lagging http://braslav.vitebsk- region.gov.by/ru/ Gomel Oblast Gomel – sustainable http://gomel-region.by/ru/ development http://www.gorod.gomel.by/ 1. Buda- sustainable http://www.buda- Koshelevo rayon koshelevo.gov.by/ru/ 2. Chechersk lagging http://www.chechersk.gov.by/ru rayon 3. Bragin rayon lagging http://www.bragin.gov.by/ru 4. Korma rayon lagging http://www.korma.gov.by/ru/ 5. Vetka rayon sustainable http://www.vetka.gov.by/ru/ Grodno Oblast Grodno – accelerated http://grodno-region.gov.by/ru/ development http://grodnorik.gov.by/ru/ 1. Zelva rayon depressed http://www.zelva.grodno- region.by/ru/ 2. Slonim rayon lagging http://www.slonim.grodno- region.by/ru/ 3. Svisloch rayon sustainable http://svisloch.grodno-region.by/ru/ 4. Novogrudok depressed http://novogrudok.grodno- rayon region.by/ru/ 5. Smorgon rayon accelerated http://smorgon.grodno-region.by/ru/ Minsk Oblast Minsk – accelerated http://minsk-region.gov.by/ru/ development http://minsk.gov.by/ru/ 1. Vileyka rayon depressed http://minsk- region.gov.by/ru/region/rajony- minskoj-oblasti/vilejskij-rajon 2. Kopyl rayon depressed http://minsk- region.gov.by/ru/region/rajony- minskoj-oblasti/kopylskij-rajon 3. Volozhin depressed http://minsk- rayon region.gov.by/ru/region/rajony- minskoj-oblasti/volozhinskij-rajon 4. Kletsk rayon accelerated http://minsk- region.gov.by/ru/region/rajony- minskoj-oblasti/kletskij-rajon

Oblast / rayon – Assessment of area Website of Rayon Executive total 30 rayons development by the Committee: Scientific and Research Economic Institute of the Ministry of Economy of the Republic of Belarus 18 5. Cherven accelerated http://minsk- rayon region.gov.by/ru/region/rajony- minskoj-oblasti/chervenskij-rajon Mogilev Oblast Mogilev – sustainable http://mogilev-region.gov.by/ development 1. Chausy rayon depressed http://chausy.gov.by/ 2. Slavgorod depressed http://slavgorod.gov.by/ rayon 3. Klichev rayon depressed http://klichev.gov.by/

4. Drybin rayon depressed http://dribin.gov.by/

5. Krasnopolye depressed http://krasnopolie.gov.by/ rayon

Area Based Development Passports (ABD Passports) as local strategies of public participation in sustainable development of the territory are being drafted in the pilot rayons of the project. The holders of ABD Passports are local initiative groups which represent the interests of the local community. The goal of rayon development stated in the ABD Passports are the priority areas identified on the basis of analysis of the local issues conducted by the local community itself. The development priorities became a basis for the thematic areas of the main call for initiatives as the activities in support of the priorities. Call for initiatives was launched in each of 30 rayons (125 initiatives were funded, the total amount of funding is 2,500,000 EUR). In terms of commitment of the management and local communities, as well as the readiness to engage in M4EG, the base level cities and rayons of the following areas stand out primarily:

The South and South East parts of Mogilev Oblast, which include Klichev, Byhov, Slavgorod, Krasnopolye, Cherikov rayons. The consequences of the Chernobyl disaster are the specifics of the rayons. The active involvement of the representatives of the main committees and departments of Mogilev Oblast Executive Committee and the interaction of local authorities and NGOs. Currently, to enforce the development of the rayons, the Regional Council on Sustainable Development to support local initiatives is being formed, Committee on Economy of the Mogilev Oblast Executive Committee was put on the Council. The South East part of Mogilev Oblast is a special preference economic development zone. Today, the work on identifying development micro regions in being carried out in these rayons, as well as on drafting investment projects based on the real capacity of these rayons. Investment projects for these rayons are tourist and recreational parks, which are already being visited by 50,000 people annually; wood production and processing; restoration of the hydrological regime of the river Sozh, which covers more than

30,000 ha of forest and flood plains; creation of wind and solar power parks; and creation of small production companies based on local resources.

The Central West region includes Berezy and Pruzhany rayons of Brest Oblast, Slonim and Novogrudок rayons of Grodno Oblast. These rayons are also located compactly and feature high business activity in all spheres of development. A great number of enterprises are concentrated here. These rayons tend to develop on the principles of sustainable development introducing new SMART-approaches and green economy principles, and are involved in the Covenant of Mayors 30/30. A wind power park is being constructed in Novogrudok. Tourism is rapidly growing in all the rayons. Development of small and medium-sized businesses is a priority in the economic sphere, both in agriculture and in the processing of agricultural products, light industry, as well as in the field of public services, including health and education. In Bereza rayon, the investment project on the development of an IT-park as a SMART-lab for the design of the region in the future based on the most advanced technologies is being actively discussed. There are experienced non- profit organizations in this area. Local governments in these rayons are highly motivated to innovate.

The South-East region which includes ambitious Bragin and Khoiniki rayons was joined by Korma and Vetka rayons in recent years. The rayons were severely affected by the Chernobyl disaster, and a strong outflow of population persists there today. Currently, the regional programs to support entrepreneurship are being developed in the rayons, in particular in Bragin.

The East region of the Republic. Except for several regions stated in the table above, the rayons can be characterized as rather inert. The management and local communities cooperating with the International Technical Assistance Centre focus mainly on the tourism promotion of the historical, cultural and natural sites of the territories. Interestingly, the change of the rayon management (the Chairman of the Rayon Executive Committee) leads to the fact that the communities of the previously dynamic areas quickly cease to follow the previously selected direction and become passive, for example, in Stolin, to a certain extent, in Braslav, and others.

West and Center regions are widely involved in the great number of the international technical assistance projects and demonstrate a sustainable interest in participating in the international technical assistance projects

Expert rating of readiness of the regions for cooperation (in descending order): Mogilev, Grodno, Gomel, Brest, Vitebsk, and Minsk Oblasts.

A presence of an active public organization in a city mobilizing the community to interact can be considered a kind of a Proxy Indicator of public commitment and understanding between government, business and public.

12. The interaction of local authorities with NGOs and business

100

The nature on interaction and partnership of three public sectors in Belarus – government, business and community – is predetermined by the attitude of population to the importance of individual actors for the rayon development.

Results of sociological surveys. According to the results of “My Rayon” survey carried out in 2016 throughout the country, the most useful and effective development actors from the point of view of population were two key stakeholders: local authorities and business structures.

POTENTIAL EFFECTIVENESS INDEX, POINTS (0-1)

According to another survey “Analysis of the sector of civil society involved in regional and local development” conducted in 2015, the population expressed dissatisfaction with the following areas of local development: participation processes in regional and local development – 77% of responses; economic development at regional and local level – 76%; business involvement in regional and local development – 73%; cross-border cooperation of the regions of Belarus with foreign countries – 72%. The respondents saw the importance of increasing the efficiency of regional and local development in the future in the development of local self-government (92% answered “very important”); decentralization and transfer to regional and local levels of resources and power (89%); development of skills of regional and local government (80%); promoting public participation and inclusion in local initiatives involved in the development processes of the areas (76%).

101

Problems of public-private dialog. Overall interaction of the three sectors of society is considered to be limited. The common problems are the following: • insufficient involvement of business and population in governance and sustainable development planning at the local level, the prevalence of “top-down” co-ordination; poor focus of business on meeting the local needs; • low credibility of the deputies due to the insignificance of powers of the councils of deputies at basic and primary levels; • scarcity of income sources of local budgets and inadequate mechanisms of attracting resources to towns and regions; • small number of primary territorial public self-governance bodies and local NGOs to protect local interests and solve local problems, formalism in work, often unwillingness and inability to influence the local institutional environment; • absence or formal nature of inter-agency and thematic boards (single instants – on PPP, agri- tourism, social issues, housing issues, etc.), fragmentation, and poor knowledge of legislation; • lack of confidence of the population in self-governance ability, lack of territorial structures of public administration in spite of the existing legislative framework; • poor capability of participants to interact: lack of knowledge, expertise, experience and information on issues of self-governance, economy, development of territories, and project activities; • etc.

Experience in strategic planning. The participation of regional and local communities in the development of policy documents is sporadic by nature. Over the past three years, thanks to a number of international technical assistance projects, the involvement of local communities in strategic planning has expanded. Examples of drafting sustainable development strategies involving a broad public participation: - sustainable development strategies of all 6 Oblasts developed in 2014–2015 within the international technical assistance project “Support to regional and local development in Belarus”; - sustainable development strategies of rayons were developed in 2015 supported by the German program for 4 rayons: Braslav, Bereza, Chausy and Slavgorod; - concepts of territorial-based development in all 118 districts of the Republic as a base-line analysis for sustainable development strategies, the preparation of which is expected subject to the law on indicative planning adoption. They were drafted in 2015-2016 within the joint EU- UNDP project “Support to local development in the Republic of Belarus”. - currently, ABD Passports are being prepared as the local strategies for broadening public participation in 30 pilot rayons; - sustainable development strategies for 12 village councils from different regions of Belarus were drafted in 2016 by the New Eurasia Establishment within the project “Expanding Economic Opportunities in Rural Belarus” supported by EU and the United States Agency for International Development (USAID).

The main obstacles to increasing the participation of all social sectors in the strategic planning areas are: 102

• poor understanding of needs for such participation and its benefits for various groups of the local communities; • lack of skills and competences in applying participatory methods; • inadequate secondary legislation in the field of public participation mechanisms implementation; • focus of local executive and administrative bodies on addressing the current operational challenges due to accountability to the higher authorities and as a consequence, lack of time for organizing the process; • distrust of the business community to local governance and other government structures.

The mechanisms of public-private partnership at the local level have not been developed at practice to date. The project “Private-Public Partnership for Sustainable Development of Rural Districts of Belarus” implemented by the NGO International Foundation for Rural Development during which three centers of rural development were organized in Bihov, Krasnopolye and Slavgorod rayons, Mogilev Oblast to develop, support and promote socially important projects of the region and districts, can be considered an attempt to promote and implement the idea. They provided support for the development and promotion of 40 local initiatives. Centers’ efforts resulted in the generation of a portfolio of local initiatives worth up to 10 million EUR that can be regarded as real projects suitable for investing in the sustainable development of each district and the entire region, more than 400,000 US dollars were attracted mainly in the Krasnopolye, Klichev and Slavgorod rayons. Over 75% of the local initiatives were developed on the basis of public-private partnership.

Georgia - Country Report on the results of the in-depth assessment of the actors and donors active in the field

1. The local government system in the country

103

Self-governance has passed several stages in Georgia. This process can briefly be described in the following way: from Local Governing to Local-Self Governance. From 1992 to the end of 1998, municipal governing was carried out only in the form of State governing. The next phase started in 1999 and went on until the end of 2006. During this period, there were two elections of legislative bodies, executive bodies and three city mayors. The authority to appoint the mayor in the capital Tbilisi and the city of Poti resided at the President of Georgia. In 2005, with the adoption of the ‘Georgian Law on Local-Self Government,’ Local-Self Governments (LSGs) were consolidated into their respective districts (rayon). The Law provided for a reduction of the number of LSGs from 1,110 to 69. in 2006, the mayor of Tbilisi was elected by the Tbilisi Council (among the councillors). In other municipalities, municipal councils appointed the head of the executive body. In 2010, nationwide elections of local representative bodies were held in all Georgian municipalities. At the same time, for the first time, through the municipal council elections, Tbilisi population directly elected the Mayor of Tbilisi. In 2014, with the adoption of the Organic Law of Georgia 'Local Self-Government Code', all municipal bodies were formed through elections. Also, 7 additional self-governing cities were established. Now there are 71 municipalities with territory in area under control of Georgian Government: 12 self-governing cities19 and 59 self-governing communities.

Table 1. Self-governing cities in Georgia20

Population Area in Density № Name 2016, 1/17/79 (C) 1/12/89 (C) 1/17/02 (C) 11/05/14 (C) 01/01/16 in 2016 sq.km 1 Tbilisi City 1,066,022 1,243,150 1,073,345 1,108,717 1,113.0 506 2,200 2 Batumi City 122,815 136,609 121,806 152,839 154.6 64.9 2,382 3 Ozurgeti City 22,393 23,279 18,705 14,785 14.6 8.2 1,780 4 Kutaisi City 194,297 232,510 185,965 147,635 147.9 67.7 2,185 5 Telavi City 25,272 27,848 21,805 19,629 19.6 14.8 1,324 6 Mtskheta City 6,860 8,912 7,718 7,940 7.9 2.6 3,038 7 Ambrolauri City 2,639 2,935 2,541 2,047 2.0 1.6 1,250 8 Zugdidi City 45,170 49,614 68,894 42,998 42.7 18.8 2,271 9 Poti City 48,508 50,569 47,149 41,465 41.5 69 594 10 Akhaltsikhe City 19,742 24,650 18,452 17,903 18.0 4.2 4,286 11 Rustavi City 129,084 159,016 116,384 125,103 126.0 76.3 1,651 12 Gori City 55,984 67,787 49,516 48,143 48.3 10.8 4,472 13 Georgia 5,014,800 5,443,300 4,355,700 3,713,804 3,720.4 69,700

Source: www.citypopulation.de, Geostat

What are the levels of local government (district - settlement, etc.) in the country? There is only one level of local government in Georgia, which is the municipality. Municipality represents a settlement (self-governing city) or an association of settlements (self-governing

19 Only 5 Self-governing cities were in Georgia before the 2014 Self-governing elections 20 It is expected, that Georgian Parliament will make desicion to reduce number of Self- governing cities 104 community). A self-governing city is a settlement of an urban category and a self-governing community is an aggregation of several settlements: village, borough (town) and city.

Table 2. Community Municipalities with 50% and more urban population

Population # Municipality Total, 000 in urban area, Region % 1 Samtredia 48.6 56 Imereti 2 Tkibuli 20.8 47 Imereti 3 Senaki 39.7 54 Samegrelo-Zemo Svaneti 4 Borjomi 25.2 60 Samtskhe-Javakheti 5 Khashuri 52.6 64 Shida Kartli

According the Code: • Village – a settlement within the boundaries of which agricultural land and other natural resources are included and the infrastructure is essentially focused on the implementation of agricultural activities. • Borough (town) – is a settlement, which has industrial factories or/and tourist and resort industry or/and curative and socio-cultural institutions in its area, and performs the functions of the local economic and cultural centre. The infrastructure of borough is not essentially focused on implementation of agricultural activities. A borough may be attributed to the category of settlements, if it is the administrative centre of a self- government unit or has the prospects of further economic development and population growth. • City – a settlement, on the territory of which, industrial enterprises, tourist, curative and social-cultural institutions are located. City shall perform the functions of local economic- cultural centre. Infrastructure of the city is not essentially focused on the implementation of agricultural activities. The city can be a settlement with more than 5000 registered inhabitants. A settlement can be assigned a category of a city, if it represents an administrative centre of a self-governing unit or has the prospects of further economic development and population growth or if it is defined as a self-governing city.

What types of municipalities (city, district, village, etc.) exist? Local self-governance is exercised in municipalities – self-governing cities and self-governing communities. A self-governing city is a city-type settlement, which according to the Code, holds or will be assigned the status of municipality. A self-governing community is an association of several settlements, which, according to the Code, holds or will be assigned the status of municipality. A municipality is an independent legal entity of public law.

Table 3. Number of self-governing cities and self-governing communities by region

# Region Municipality

105

Self- Self- Governing Governing City Community 1 Tbilisi 1 - 2 Ajara AR 1 5 3 Guria 1 3 4 Imereti 1 11 5 Kakheti 1 8 6 Mtskheta-Mtianeti 1 4 7 Racha-Lechkhumi and Kvemo Svaneti 1 4

8 Samegrelo-Zemo Svaneti 2 8 9 Samtskhe-Javakheti 1 6 10 Kvemo Kartli 1 6 11 Shida Kartli 1 4 12 Georgia 12 59

What kind of management hierarchy/subordination between different types of municipalities and levels of government (national, regional, local) exists? Municipalities are independent and no hierarchy or subordination exists between municipalities. Relations between the state and municipal bodies are based on the principle of cooperation. Issues related to implementation of local self-governance on the occupied territories of Georgia shall be defined after restoration of jurisdiction of Georgia on relevant territories. Authorities of local self-government bodies do not apply to free industrial zones.

What are the main problems of the current system of local government, according to the local experts? Although Georgia has been making progress, yet there are few focus areas to strengthen economic development at the local level. The key issues are as follows: • There is no agreed position on the role of big cities for country competitiveness, about function of the regional centres and cities as points of economic growth. • Weak connections and coordination with state authorities (e.g. Georgian National Investment Agency (GNIA), Georgia's Innovations and Technology Agency (GITA), Georgian National Tourism Administration (GNTA), etc.) • Absence of functioning coordination between municipalities and joint production of economic development plans • Weak differentiation and prioritisation of local economic development plans • Limited experience to create business support infrastructure • Limited attention to support inclusive economic development and foster citizen participation • Weak coordination structures with the private sector and no experience in setting up local entrepreneurs associations • Weak capacity and capability of LA’s • Limited budget autonomy of LA’s

106

• According to the Code, municipalities can create legal entities – cross jurisdiction associations - in order to cooperate in developments, but the main sources (grants, loans) from state government for these can only accept applications of individual municipalities.

2. Legal framework

What are the main national legal acts, which regulate local government issues and functioning of local authorities? The most important law regulating LSGs in Georgia is the Organic Law “Local Self-Government Code”. The Code defines the legal basis for creating local self-governments, the authority of local self-government bodies, rules on their formation and operation, finances, local government property and relations with citizens. The Code is not fully compatible with other relevant laws, nevertheless it marked an important step forward in the coordinated development of policies and laws on the complex, interacting fields of local self-government, territorial optimization and the reform of local public services. Besides the organic law, the Budget Code and sectoral laws also have provisions for local governments.

Is there an Article(s) on the local government issues in the Constitution? If yes, please quote this article(s) here. The right of citizens to regulate the affairs of local importance through local self-government is recognized by the Georgian Constitution. The main articles about self-government in the Constitution are: • Chapter 1. General Provisions. Article 2. The citizens of Georgia registered in a self-governing unit shall regulate the affairs of local importance through local self-government, without prejudice to the state sovereignty, according to the legislation of Georgia. State authorities shall promote the development of local self-governance. • Chapter 4. The President of Georgia. Article 73. The President of Georgia shall have the right to suspend, on the recommendation of the Government and with the consent of Parliament, the activity of self-government bodies or other representative institutions of territorial units or dismiss them if their activities jeopardize the sovereignty, territorial integrity of the country, or the exercise of constitutional powers by state bodies; • Chapter 71. Local Self-Government.

o Article 1011 1. The establishment procedure and activity of representative and executive bodies of local self-government shall be defined by organic law. Executive bodies of local self- government shall be accountable to representative bodies of local self- government. 2. Citizens of Georgia registered within the self-governing unit area shall elect a local self-government representative body “Sakrebulo” by direct, universal, equal suffrage through secret ballot.

107

3. The procedure for establishment and revocation of a local self-governing unit, also the procedure for revising its administrative frontiers shall be determined by organic law. Consultations with a local self-governing unit shall precede the revocation of a self-governing unit or revision of its administrative borders.

o Article 101² 1. Powers of local self-government shall be delimited from those of state bodies. A self-governing unit shall have its own and delegated powers. The powers and the basic principles of how to define powers of local self-government shall be determined by organic law. 2. A self-governing unit shall exercise its powers independently and by its own responsibility as determined by the legislation of Georgia. The powers defined by organic law shall be exclusive. 3. A self-governing unit shall have the right to take any decision on its own initiative, provided that the decision does not fall within the competence of any other government agency or is not prohibited by law. 4. State bodies may delegate rights and powers to a self-governing unit on the basis of legislative acts and agreements only by transfer of relevant material and financial resources. The procedure for calculation of the amount of such resources shall be defined by law.

o Article 101³ 1. Local self-government shall have its property and finances. 2. Decisions made by self-government bodies within the scope of their competence shall be binding in the territory of self-governing units. 3. State supervision over the activities of local self-government bodies shall be carried out as determined by law. State supervision provides compliance of normative acts of local self-government with the legislation of Georgia and proper implementation of delegated powers. State supervision shall be exercised in proportion to its goals.

Is there a special law on local self-government? If yes, specify the name, number and date of its adoption. According to the local experts, how does this law comply with the European Charter of Local Self-Government? The law regulating local governments in Georgia is the Organic Law of Local Self-Government Code. The Code was signed by president of Georgia in February 5, 2014. Georgia ratified the European Charter of Local Self-Government in 2004 and by this, it has taken a number of commitments to foster the decentralization process in the country. Georgia declares its commitment to fulfilling all Articles except a few. Georgia will guarantee the application of the provisions of all the Charter's articles after regaining full control of the territories occupied by Russia.

3. Powers and responsibilities of local authorities

What powers and responsibilities are provided by national legislation for local governments of different types? Please indicate here these powers and responsibilities, quoting the relevant articles of national legal acts. 108

By Organic Law of Local Self-Governments (Chapter III. Powers of municipality. Article 15-22) types of municipal powers are: • Designated powers; • Delegated powers Designated power of the municipality is power established under the Code, which is exercised by it independently and at its own discretion. The power, delegated to the municipality, is the power of the state/Autonomous republic, transferred to the municipality under the provision of appropriate material and financial resources by the state/Autonomous Republic authorities on the basis of law or an agreement concluded in compliance with the legislation of Georgia. The designated powers of the municipality are exclusive authorities. In accordance with the Code, determination of the scope of authorities of the municipality and the rules of exercising them shall be allowed only on the basis of Law, except for the cases when the Code directly indicates the possibility of regulating designated powers according to the legislation of Georgia. The designated powers of the municipality shall include the following: 1. Preparation, review and approval of the draft municipal budget, making amendments to the approved budget, reporting and evaluation of the implementation of the budget; disposal of budgetary funds in accordance with the legislation of Georgia, carrying out treasury operations and banking transactions; 2. Management and disposal of municipal property in accordance with the procedure defined by the Code and legislation of Georgia. 3. Management of natural resources of local importance owned by the municipality, including water, forest and land resources according to the procedure defined by the law. 4. Introduction and abolishment of local taxes and fees in accordance with the rule established by the legislation of Georgia, definition of their rates within the limits set by the law; collection of local fees. 5. Planning of spatial-territorial arrangements and defining the norms and rules in the respective field; approval of urban planning documents, including the general plan of land use, regulation plan for landscaping, regulation rules for the use and landscaping of settlements; 6. Amenities in the area of the municipality and development of respective engineering infrastructure; cleaning of streets, parks, squares and other public places within the municipality, planting of the territory, outdoor lighting; 7. Collection and disposal of solid (household) waste; 8. Water supply (including technical water supply) and sewerage provision; development of the melioration system of local importance; 9. Creation of pre-school and out-of-school educational institutions of the municipality and provision of their functioning; 10. Management of local roads and organization of traffic in the territory of the municipality; provision of parking places for vehicles and regulation of parking rules; 11. Issuance of permits for regular transportation of passengers within the administrative boundaries of the municipality; organization of public transportation services; 12. Regulation of the outdoor trade, exhibitions, markets and fairs; 13. Issuance of construction permits and supervision over the construction in the territory of municipality, in accordance with the rules set by the legislation of Georgia; 14. Regulation of the issues related to organizing gatherings and demonstrations, in accordance with the rules set by the law of Georgia. ; 15. Assigning names to geographical objects within the administrative boundaries of the municipality, such as: historically formed districts, administrative unit of the self- 109

governing city, certain zones, micro-districts, springs; squares, avenues, highways, streets, lanes, blind alley, embankments, esplanades, boulevards, alleys; public gardens (squares), gardens, parks, forest parks, forests of local importance, cemeteries, pantheons, buildings and facilities; transport system facilities - in accordance with the law of Georgia; 16. Regulation of outdoor advertising placement; 17. Determining regulations for keeping pets, and resolving the issues related to homeless animals; 18. Arrangement and maintenance of cemeteries; 19. Protection and development of the local identity, creative activities and cultural heritage; maintenance, reconstruction, rehabilitation of local cultural monuments; provision of functioning of libraries, clubs, cinemas, museums, theatres, exhibition halls, sports and recreational facilities, and construction of new facilities; 20. Development of appropriate infrastructure at places of local importance including the provision of relevant adaptations and equipment of public meeting places and municipal transport for disabled, children and elderly. 21. Provision of shelters to the homeless, and their registration;

The municipality shall be entitled to make a decision on its own initiative on any issues that, according to the Legislation of Georgia, do not fall within the scope of authority of another governmental body and is not prohibited by the law. The local self-government authority shall be entitled to take actions in accordance to the rules as defined by law, for the purpose of: promotion of employment, facilitation of agriculture, including the support of agricultural cooperation and tourism development, social assistance and health care, support of youth policy development at local level, promotion of sports activities, environmental protection, public education, gender equality; maintenance of archives of local importance, establishment of healthy lifestyle, creation of safe environment, attraction of investments to the municipality, support of innovative development, etc.

4. The financial basis of local government

From what sources are the budgets of local authorities of different types formed? Budgetary revenues of the municipality are the unity of cash funds, received by the budget during the accounting period: a. Revenues; b. Non-financial assets (funds received as a result of operations with non-financial assets); c. Financial assets (funds received as a result of operations with financial assets, excluding the use of balance); d. Commitments (funds received as a result of taking commitments). Municipal budget revenues include own revenues and non-own revenues. The municipality may, within its powers, independently, use its own revenues at its sole discretion. The amount of local taxes (rates) and local fees (rates) is determined by the municipality council, as prescribed by law. Municipal taxes are administered by the tax authorities. Georgia has one local tax: property tax. Local fees are: • Construction fees

110

• Fees for urban cleaning • Fees for Gambling business, • Fees for special (zoning) agreements • Fees for infrastructure in the area with cultural heritage rehabilitation • Expedited service fees for construction permits. The individual Entrepreneurs’ Income Taxes are paid to Local municipality budget.

According to the local experts, what is the level of financial autonomy of local authorities (level of dependency (in %) from higher levels transfers/subsidies)? In 2017 only following municipalities are not receiving equalization transfer from Georgian Government (GoG): Poti City Municipality, Khobi Municipality, Bolnisi Municipality, Gardabani Municipality, Aspindza Municipality, Akhaltsikhe Municipality, Borjomi Municipality, Mtskheta Municipality and Kazbegi Municipality In other municipalities, approximately 70-80% of the local budget originates from the central level. Long-term municipal planning and budgeting are not possible when such a large proportion of the budget depends on central decisions.

Table 4. Budget and per capita for some municipalities # Municipality Budget, 000 GEL Population, Thousand. Per capita, GEL 2016 1 Poti City 15,600.0 41,5 376 2 Khobi 8,193.8 30,4 270 3 Bolnisi 18,066.0 53,8 336 4 Gardabani 22,660.0 82,3 275 5 Aspindza 3,700.0 10,4 356 6 Akhaltsikhe 6,400.0 20,8 308 7 Borjomi 15,400.0 25,1 614 8 Mtskheta 9,704.0 47,8 203 9 Kazbegi 5,062.0 3,8 1,332 10 Tbilisi City 801,302.0 1,113.0 720 11 Ambrolauri City 4,454.1 2,0 2,227

5. Instruments of local authorities to promote local economic development

Despite the fact that municipalities are given the mandate for economic development, their engagement with these issues are limited. All of the municipalities have a designated economic development unit, however they are also part of financial, municipal property or infrastructure department.

111

Table 5. Municipal Units Responsible for Economic Development

Municipality Unit Tbilisi City Municipality • Economic Development Office • Property Management Agency Kutaisi City Municipality • Economic Development and Local Government Property Management Service Batumi City Municipality • Financial-Economic Office Rustavi City Municipality • Property Management and Economic Development Department Poti City Municipality • Budget and Finance, Economic Development and Property Services Gori City Municipality • Economic Development Department. The department units are: o Infrastructure Development and accomplishment o Spatial planning and regulation of architect and construction activity o Property Registration and Management o Transport and Public Services Zugdidi City Municipality • Infrastructure and Economic Development Borjomi Municipality • Economic development and property management Bolnisi Municipality • Economic development and property management Kobuleti Municipality • Economic, Infrastructure and Investment Development

Mostly, Municipalities promote local economic development via preparation local development strategies, local economic development plans and municipal property management (sell or rent properties). Only the big four Self-Governing Cities (Tbilisi, Batumi, Kutaisi, Rustavi) have instruments like financial mechanisms, public-private partnership projects, job creation programmes and vocational training programmes, preparing packaged offers for investors. Georgian municipalities do not use other instruments (SMEs support infrastructure (business incubators and accelerators etc.), innovation support infrastructure (technoparks, technology transfer centers etc.), investment support infrastructure (industrial zones etc.) and cluster development) for local economic development promotion. Free Economic Zones (FEZ’s are established by the national government.

6. State bodies responsible for local government development

What state body(ies) has the authority/responsibility to support the development of local government? The Ministry of Regional Development and Infrastructure (MRDI) is responsible for local development in Georgia. There are following departments responsible for local development: • Department for relationship with regional government and local self-government • Department for Euro Integration and Reforms Support 112

• Department for projects implementing in regions • Department of Legal provision and • s directly responsible for local and regional support

The Ministry have department for EU relation and department for juridical issue. Other relevant national bodies residing under MRDI are: • LEPL Municipal Development Fund of Georgia; • LTD United Water Supply Company of Georgia; • LEPL Vano Khukhunaishvili Center for Effective Governance System and Territorial Arrangement Reform; • LTD Soild Waste Management Company of Georgia. The Ministry of Economy and Sustainable Development (MESD) is responsible for spatial planning and business support on country level. Under MESD are working following agencies for economic development: • Georgian National Tourism Administration • Georgia’s Innovation and Technology Agency • National Agency of State Property • Entrepreneurship Development Agency (Enterprise Georgia)

Ministry of Agriculture is responsible for rural development too. All community municipalities are rural. It’s means the ministry is responsible for development of those municipalities. Except department responsible for rural development Institutions functioning within the ministry for agrosector development are: • LEPL Agricultur Development Cooperative Agency • NNLE Projects Management Agency • NNLE Rurlar and Agricultur Development Fund

What is the approximate number of employees involved in the support of local government in this state body(s)? Approximately 20 employees are working in the Departments MRDI.

7. State programmes that encourage local economic development

What government programmes are aimed at encouraging local economic development? Specify the title, timing and budgets of these programmes (in the national currency and in euro).

A. “Produce in Georgia”

In June 2014, the Ministry of Economy and Sustainable Development together with the Ministry of Agriculture launched a new government programme "Produce in Georgia”. The programme was initiated by the Prime Minister of Georgia and is directed towards entrepreneurship development through establishing new enterprises, advancing existing ones and promoting entrepreneurial culture in the country. The programme also focuses on increasing the competitiveness of the private sector and enhancing the country’s export potential.

113

“Produce in Georgia” incorporates following components: • Access to Finance • Access to Infrastructure • Hotel Industry Incentive • Film Industry Incentive • Micro and small business support • Export Promotion • Trainings & Consulting • Trainings & Consulting • Business Service Centres • Plant The Future • Georgian Tea Plantation Rehabilitation Programme • Programme of Agro-production Promotion • Preferential Agro Credit Project • Agro Insurance • Co-financing of Agro Processing and Storage Enterprises • The programme ‘Produce in Georgia’. Scope: Agriculture

The Programme is implemented by the Entrepreneurship Development Agency, Agricultural Projects Management Agency (APMA), LEPL National Agency of State Property Management and Georgia’s Innovation and Technology Agency.

Access to finance In terms of commercial bank lending: • 10% co-financing of bank loan interest rate for the first 24 months • A partial collateral guarantee (50%) for the first 48 months (not exceeding USD 1 000 000/ GEL 2 500 000) • The minimum loan amount is USD 150 000 and the maximum USD 2 000 000 (or the equivalent in national currency) Programme conditions: • The end-product should be on the programme priority list (see below) approved by the Georgian Government • The new enterprise should be put into operation within 24 months from the loan issuance date • The existing enterprise should start production within 24 months from the loan issuance date Programme target sectors: Building materials, Mechanical engineering, Rubber & Plastics, Paper and paperboard, Textile production, Pharmaceutical, Wood processing, Electrical equipment, Food products, Metal products, Mineral water, Mineral products, Chemical manufacturing and Bitumen products.

In terms of leasing companies: • 12% co-financing of the annual interest rate for the first 24 months; • The initial value of the project should be at least USD 50 000 while the maximum should not exceed USD 2,000,000 US. Programme conditions:

114

• The end-product should be on the programme priority sectors list approved by the Georgian Government • The new enterprise should be put into operation within 24 months from obtaining the lease • The existing enterprise should be put into operation within 12 months from obtaining the lease Programme target sectors: Building materials, Mechanical engineering, Rubber & Plastics, Paper and paperboard, Textile production, Pharmaceutical, Wood processing, Electrical equipment, Food products, Metal products, Mineral water, Mineral products, Chemical manufacturing and Bitumen products.

B. Hotel industry Incentive

Entrepreneurs operating in the regions of Georgia can benefit from the new component of the State Programme “Produce in Georgia” – Hotel Industry Incentive. According to the Government decision and based on market demand, the scheme was introduced to promote hospitality business across the country, attract an increasing number of tourists, create jobs and develop each region of Georgia. The scheme is implemented in all the regions of Georgia, except Batumi and Tbilisi. The scheme promotes the entrance of international hotel brands via franchise or management contracts by co-financing royalty fees.

Enterprise Georgia provides financial and technical assistance in the following manner: • Interest rate co-financing (hotel development/expansion) o 10% interest rate co-financing for the first 2 years – loans in GEL o 8% Interest rate co-financing for the first 2 years – loans in USD or EURO o Minimum loan volume – GEL 200,000 (or equivalent in USD/EURO) o Maximum loan volume – GEL 2,000,000 (or equivalent in USD/EURO) o Partial collateral guarantee for the first 4 years, 50% of the total loan, with upper limit of GEL 500,000 (or equivalent in USD/EURO) o Co-financing of consulting services • Interest rate and royalty fees co-financing (development of international brand hotels) o Co-financing of Franchise/Management agreements for the first 2 years (up to GEL 300,000 annually) o 10% Interest rate co-financing for the first 2 years – loans in GEL o 8% Interest rate co-financing for the first 2 years – loans in USD or EURO o Minimum loan volume – GEL 200,000 (or equivalent in USD/EURO) o Maximum loan volume – GEL 2,000,000 (or equivalent in USD/EURO) o Partial collateral guarantee for the first 4 years, 50% of the total loan, with upper limit of GEL 2,500,000 (or equivalent in USD/EURO) o Co-financing of consulting services • Royalty fees co-financing (development of international brand hotels) o Co-financing of Franchise/Management agreements for the first 2 years (up to GEL 300,000 annually) o Co-financing of consulting services

C. Film Industry Incentive

115

“Film in Georgia” is a newly launched film industry incentive programme that aims to promote Georgia as the Eastern European Filming Destination by offering local and international producers up to 25% rebate on qualified expenses incurred in Georgia.

The programme is implemented by Enterprise Georgia, under the Ministry of Economy and Sustainable Development in cooperation with the Georgian National Film Centre, part of the Ministry of Culture and Monuments protection of Georgia.

Eligibility Criteria: • International and local productions must be registered as legal entities in Georgia; • Projects must lead to the production of a feature film, TV film, TV series or mini-series (pilot episodes are eligible), animation, documentary film, commercial, reality show, or music video; • At least 50% of the total production budget should be in place at the time of application; • Expenses must be directly related to the filmmaking process to qualify; • If production qualifies for the rebate, a refund up to GEL 1,000,000 will be approved automatically. Projects requesting a higher rebate require special approval of the Government of Georgia; • Production in Georgia must be completed within 24 months after acceptance to the rebate programme.

An additional rebate of up to 5% is available if a production promotes Georgia as a destination by meeting the programme’s “Cultural Test”.

To streamline the production process, the Georgian government will help productions directly with the following services:

• Location scouting • Assistance in acquiring permits issued by government institutions • Coordination and communication with various stakeholders

D. Micro and small business support

The programme is designed to render financial support and consulting to micro and small businesses across Georgia, except Tbilisi. Funding is determined by the following principles:

• One entrepreneur receives financing up to GEL 5 000 • Two entrepreneurs receive financing up to GEL 10 000 • Three entrepreneurs receive financing up to GEL 15 000

All beneficiaries will be able to go through training courses for capacity building: Individual and group consultations, drafting of business plans and business administration training.

All participants should meet the following requirements: • Georgian citizen, at least 18 years old • Not a public servant • No overdue tax obligation;

116

• Provide at least 20% of co-financing after successfully completing all stages of the project; • If an applicant has successfully passed the first stage of the selection process he/she is obliged to register as an entrepreneur and obtain one of the following statuses: fixed taxpayer, micro- or small entrepreneur.

E. Export Promotion

When it comes to export promotion, Enterprise Georgia's activities fall into two categories:

1. Export Promotion 2. Export Development

Interested exporters or prospective exporters can benefit from the following services:

• International Trade Fairs: The agency organizes the presence of Georgian stands at international trade fairs. Sectors and fairs are selected based on the requests from the companies; • Local and International Trade Missions: Enterprise Georgia arranges meetings between Georgian exporters and potential international partners, both inside and outside of the country. The number of participant companies and the frequency of their participation is usually not restricted. B2B meetings are arranged according to the specific needs of Georgian companies; • Trade Portal and Online Export Database: www.tradewithgeorgia.com is a trade portal and online export catalogue, with detailed information about Georgian products and services. Using the “Business Inquiry” function companies will be able to publish their requests and offers directly on the website; • Participation of Georgian Products at International Awards: In order to promote Georgian export, the agency actively supports companies in submitting entries into various International Awards; • Easing Access to Knowledge: o In cooperation with Caucasus University, the Agency has launched “Certified Export Manager Course” in order to enhance the qualifications of employees who work for Georgian exporters. The goal of the 1-month training is to increase international sales through improving the skills of export managers, namely marketing, management, logistics, finance and research skills. Participants will also learn about specifics of export, international agreements, strategies of entering into new markets and other relevant fields; o With support from the Agency, export oriented companies gain access to the databases of the leading market intelligence company Euromonitor International. This makes it possible for Georgian companies to obtain detailed intelligence on the foreign market of their interest. • Individuals and companies interested in exporting their product are able to get the following information through the Enterprise Georgia Service Centre: o Identification of HS Codes o Market research o Import Regulations, customs duties and certification requirements in target markets o Export readiness test 117

o Registration in online export database o Information on importers in target markets o Information regarding international trade fairs and missions and registration on said fairs and missions o Georgian trade statistics o Information on export financing schemes o Information on educational programmes organized by the Agency o Assisting the companies in their relationship with public or private sectors.

F. Trainings & Consulting

Enterprise Georgia constantly works towards the development of an entrepreneurial mind-set and culture among SMEs, through trainings, consulting and networking.

Enterprise Georgia established an Open Space Service Centre providing the following services: • Access to online and print resources in an area equipped with computers; • Access to business related literature at the library; • Access to meeting spaces available for both B2B meetings and meetings with the agency representatives; • Access to various lectures, seminars and workshops for interested entrepreneurs and students at the specially equipped auditorium; • Data collection and analysis on the various available business support tools and preparation of the project proposals accordingly, aimed at boosting competitiveness in SME sector.

All the services provided in the Service Centre are available to all interested individuals. The government programme “Produce in Georgia” provides its beneficiaries with assistance in business development and operational optimization as a part of its technical assistance component. This part of the programme involves procuring consulting services for beneficiaries that require it for up to GEL 10 000, with a 10% co-financing rate from the beneficiary.

Beneficiaries interested in consulting services, should provide:

• Filled in Consulting Request Form; • Analysis of current situation and detailed reasoning for the request of the consultation; • Detailed description of the requested consulting service; • Expected results and evaluation criteria; • Required dates of completion. • Evidences of qualification of the selected consultant /consulting company: • CV; • Recommendation letter(s) specifying the reference person according to the past experience provided in the CV.

The application document will be evaluated by a special commission created by Enterprise Georgia. The commission will take 10 working days to review the submitted applications for compliance with the criteria of the government programme.

118

G. Business Service Centre

The Business Service Centre is the place where any interested individual can obtain the following information and services:

• Information about the business support programmes implemented by the government of Georgia; • Matchmaking via Enterprise Georgia database; • Support to SMEs internalization.

One of the tools used in this direction will be Enterprise Europe Network, joined by Enterprise Georgia and Georgia’s Innovation and Technology Agency.

Apart from the services mentioned above, an entrepreneur will be able to use the infrastructure available at the service centre:

• Free access to online and printed resources; • Free library, which contains different types of business literature; • Meeting/conference room (including digital screen for presentations).

The Service Centre will host lectures, seminars and workshops for both entrepreneurs and school/university students.

H. The programme ‘Produce in Georgia’. Scope: Agriculture

An enterprise financed under the state programme must meet the following minimum requirements:

• The loan/lease must be used only to establish a new enterprise or to extend/upgrade the existing one; • The enterprise must meet safety, environment protection, sanitary and food safety requirements determined by the legislation of Georgia; • The facilities and the nearby territories of newly established or extended/upgraded enterprises must have aesthetic external appearance.

1. The loan/lease must be granted for the following purposes: • Financing primary agricultural enterprises: • high-technology greenhouses of vegetables, berries, herbs and mushrooms; • high-technology and intensive animal farms (dairy farms); • high-technology and intensive pig farms; • high-technology and intensive poultry farms (only for meat and breeding purposes); • high-technology and intensive farms of animals with precious coats; • high-technology and intensive fish farms; • beekeeping production; • production of seedlings and saplings; • Gardens, vineyards, plantations of perennial crops. 119

2. Financing enterprises that process agricultural products: • processing fruits, berries, vegetables, mushrooms, citrus; • processing nuts, walnuts, peanuts and other nut species; • processing wool and leather; • processing bay leaves, tea, tobacco; • processing meat and milk; • production of vegetable oil (oil, margarine, butter) and “Khalva”; • production of essential oils and spices; • arranging slaughterhouses; • processing bee products; • arranging slaughterhouses; • production of agricultural feed for animals, birds and fish.

3. Financing infrastructural enterprises: • warehouses for agricultural products; • grain dryers; • coolers for the preservation of agricultural products.

I. Agricultural Direction

The direction implemented by the Agricultural Projects Management Agency (APMA) that promotes rural development in Georgia.

(i) Plant The Future Co-financing will be carried out in two separate components of the programme: a) The component of co-financing perennial gardens (hereinafter referred to as ‘gardens’ component’); b) Co-financing component of the nursery gardens (hereinafter referred to as ‘nursery gardens’ component’); Potential beneficiaries of the programme can benefit accordingly with the terms and conditions of both components. The goals of the project: 1. APMA is implementing the single agro project that is designed for long-term development and its aim is to promote the increase of competitiveness in Agricultural sector field, stable development in the production of high quality products and ensuring of food safety norms and standards. Stimulation with financial support of the creation of perennial gardens and arrangement of perennial plant gardens and plantations; 2. The process of improving quality of the fruit and stabilizing the production will be started and the raw materials base for the processing industry will be increased. Imported products will be replaced and the export potential will increase. The revenues of the person engaged in the fruit growing will increase and the social and economic condition of the village population will improve.

Gardens component The component of co-financing perennial gardens (hereinafter referred to as ‘gardens’ component’) includes provision of financial and technical assistance to the beneficiaries for arranging new perennial gardens. The potential and possibility of arrangement of perennial

120 gardens differs in various regions of Georgia, accordingly this programme determines the types of perennial plants that may be planted in various regions of Georgia. Within the scope of the gardens’ component arrangement of the perennial gardens may be co-financed at all municipalities of Georgia and self-governing cities except for the following cities: Tbilisi, Rustavi, Kutaisi, Batumi and Poti. • Financial assistance: Within the scope of the gardens’ component, financial assistance includes allocation of targeted funds for potential beneficiaries in a form of co-financing for purchasing the saplings of perennial plants and installing a modern drip irrigation system. Within the scope of the gardens’ component 70% of the cost of saplings will be financed in the case of purchasing saplings at the local market as well as in the case of their import. In addition, maximum amount of co-financing is determined for each type of sapling: Within the scope of the gardens’ component maximum 50% (including the VAT), but not more than 2 500 GEL (including the VAT) per 1 hectare, of the cost of installation of the drip irrigation system on the agricultural plots of land will be financed. • Technical assistance: In order to provide the knowledge required for the maintenance of the intensive gardens the beneficiaries, who will be granted financial assistance will also be trained in the following issues: a) practical training in the plant pruning technologies in the cultivated gardens; b) implementation of the Integrated Pest Management systems (IPM); c) the irrigation and plant feeding issues. Participation in the trainings is the obligation of the beneficiary and is included in the agreements concluded with beneficiaries. • Limitations: The target beneficiaries for the gardens’ component is (are) the person(s) interested in arrangement of various perennial gardens / plantations, who are not able to use new areas due to lack of appropriate financial resources and relatively long payback period. A beneficiary may be: a) a natural person or a sole proprietor who is a citizen of Georgia; b) an enterprise incorporated in Georgia, including a registered agricultural cooperative. The enterprise, in which the state directly or indirectly owns shares or stocks, may not be the beneficiary of the gardens’ component.

Nursery Gardens component Co-financing component of the nursery gardens includes provision of financial and technical assistance to the beneficiaries who are willing to make nursery gardens. Under the nursery gardens’ component arrangement of perennial nursery gardens may be co-financed in all municipalities and self- governing cities of Georgia, except for the following self-governing cities: Tbilisi, Rustavi, Kutaisi, Batumi and Poti. • Financial assistance: Within the scope of the nursery gardens’ component, the financial assistance includes allocation of targeted funds for potential beneficiaries in a form of co-financing for the cultivation of nursery gardens. Not more than 150 000 gel the total cost of the project will be co-financed per beneficiar. The remaining cost of project of nursery gardens may be financed though own capital as well as though the bank loan. • Technical Assistance: In order to provide the knowledge required for the maintenance of the nursery gardens the beneficiaries, who will be granted financial assistance will also be trained in the following issues: a) plant propagation technologies; 121 b) sapling certification principles. Participation in the training is the obligation of the beneficiary and is included in the agreements concluded with beneficiaries. • Limitations: The target beneficiaries for the nursery gardens’ component are the persons interested in planting various nursery gardens. A natural person or a sole proprietor who is a citizen of Georgia. The enterprise, in which the state directly or indirectly owns shares or stocks, may not be the beneficiary of the gardens’ component.

(ii) Georgian Tea Plantation Rehabilitation Programme The Ministry of Agriculture has developed a programme for the rehabilitation of tea plantations. Tea Plantations Rehabilitation state programme "Georgian Tea" launched from the beginning of year of 2016. The main goal of the state programme - “Georgian Tea", is the maximum use of Georgian tea potential and promotion of high-quality tea production, including the production of bio (organic) tea. Privately owned as well as state owned feral tea plantations will be rehabilitated and tea primary processing modern enterprises will be established under this project.

This programme will facilitate the increase of Georgian tea potential for export as well as employment of the population and improvement of their socio-economic state. Within the scope of State Programme, the Ministry of Agriculture along with the donor organizations, will provide technical assistance to programme beneficiaries in learning proper processing technology of tea, certification, marketing, creating sales channels and in other directions. The programme envisages the introduction of the standards, which are essential for export of Georgian tea to EU countries. The programme provides special privileges for agricultural cooperatives, which will further contribute to the development of cooperation in Georgia. The list of works to be implemented for the rehabilitation of tea plantations in the frames of the Programme: • clearing the tea plantation (of trees, metal and concrete debris, foreign objects); • heavy and regeneratory pruning of the plantation; • arrangement of drainage channel (a drainage channel may be arranged before the heavy or regeneratory pruning of the plantation); • inter-row tillage/loosening (topsoil tillage to 15-20 cm depth); • purchase of fertilizers and agricultural products (including bio) in the first year.

(iii) Programme of Agro-production Promotion The Programme is implemented within the framework of the “Agriculture Modernization, Market access and Resilience project “(AMMAR). The programme is funded by the International Fund for Agricultural Development (IFAD) and the Global Environment Facility (GEF). The Programme being initiated by the Ministry of Agriculture of Georgia is developed under the "Unified Agroproject" framework of Agricultural Projects Management Agency (APMA). Objective of the Programme: • To support Primary production product quality and maintenance of productivity increase; • To promote the maximum possible utilization of the acting gardens; • To stimulate the growth and modernization of acting processing and warehousing agro- enterprises; • To implement International standards and modern technologies; Components of the Programme

122

The programme comprises the co-financing process of individual/smallholder farmers and processing enterprises and agricultural cooperatives. • Component of Primary Production- funding/financing of smallholder farmers and agricultural-industry cooperatives; • Component of Processing enterprises- funding/financing of active processing and warehousing enterprises and agricultural cooperatives; Priorities of the Programme: The Targeted geographic area for the implementation of the Programme is as follows: Shida Kartli, Kakheti, Samegrelo, Adjaria AR. The Agricultural cultures to be financed under the components of primary Production and processing enterprises are as follows: Persimmon, Apple, Peach, Kiwi, Vegetables, Bay-tree, Honey and Whortleberry.

(iv) Preferential Agro Credit Project The project has been initiated by the Ministry of Agriculture of Georgia and has been implemented by the Agricultural Projects Management Agency since 27 March 2013 under ’The United Agro project’. The purpose of the project is to improve the processes of primary agricultural production, processing, storage and sale by providing farmers and entrepreneurs engaged in agriculture with cheap, long-term and preferential funds. Under the ‘Preferential agro credit’ project, credits will be granted by commercial banks and financial institutions participating in the project according to the conditions determined by the Agricultural Project Management Agency. The Agricultural Project Management Agency is not engaged in the process of reviewing credit applications and allocating credits. The ‘Preferential agro credit’ project consists of the following financial products: • The ‘Preferential Agro Credit’ project: For current assets, For fixed assets • Preferential Agro Leasing • The state programme ‘Produce in Georgia’

(v) Agro Insurance The Agricultural insurance programme was put into force on September 1, 2014 and is purposed to develop the insurance market in agricultural sector, promote agricultural activities, retain the income for the individuals with the occupation of the mentioned activities and reduce risks. The programme is implemented by non-commercial legal entity the Agricultural Project Management Agency under The United Agroproject frame.The Agency concludes contracts with the relevant insurance companies licensed under the rules envisaged by the legislation of Georgia in order to implement the project. The Agency also carries out insurance premium subsidies and their monitoring based on the above mentioned contracts. Following insurance risks will be covered within the mentioned insurance programme: Hail, Excess rainfall and Storm. The beneficiary can insure the land parcel up to 5 hectares. Each insurer of the land parcel (in case of cereals 30 hectares) will receive 70% - co-financing for each crop envisaged under the programme and 50% in case of vine. In case of registration land parcel in the Public Registry or insuring with the existing cadastral code co-financing will be increased in the amount of 10%.

(vi) Co-financing of Agro Processing and Storage Enterprises The project comprises two components: 1) Agricultural products processing enterprises co-financing component. 2) Storage enterprises co-financing component. Co-financing of processing and storage enterprises can be achieved by using 3 sources: 123 a) The Agency co-financing 40% of the total value of the project, but no more than USD 250 000 (or its equivalent in GEL); b) Preferential credit / lease - not more than 50% of the total value of the project, but not more than 500 000 US dollars (or its equivalent in GEL); c) The beneficiary's own participation – at least 10% of the total value of the project, in the form of cash contribution in the enterprise capital. Target segment The target area of agricultural products processing and storage enterprises co-financing covers all municipalities and self-governing cities of Georgia, except for the following self-governing cities: Tbilisi, Rustavi, Kutaisi, Batumi, Poti.

J. Access to Infrastructure Within the framework of this Programme the National Agency of State Property Management is in charge of physical infrastructure Transfer Component i.e. free-of-charge transfer of government owned real property to an entrepreneur under certain investment obligation. The list of this property is published on the Agency website www.nasp.gov.ge An interested person is offered for a symbolic price – 1 GEL, a government owned non- agricultural land plot with or without attachments (buildings and structures): • Establishment and launching of the proposed production no later than 2 years time after the publication of the relevant decree of the government. • The established production value must exceed the market value of the provided real estate 6 times (in Tbilisi city) or 4 times (in other regions). • Entrepreneurial entity interested in applying for the programme and agreeing to take set obligations, should deliver unconditional and irrevocable bank guarantee, covering the 10% of the investment that will valid for no less than 30 months. When two or more applicants apply for the same real estate, priority will be given according to the first come – first serve principle.

I. Creating an innovative ecosystem Components include: • Formation of innovation centres in the regions and villages • Qualified personnel training and training of trainers for future specialties • Support competitiveness of High-tech start-up companies • Financing Innovative projects and Computerization Programmes (including Computer Literacy and e-commerce development)

Table 6. Budgets of implemented agencies / projects (in the national currency and in euro21):

Budget for 2017 (thousand) # Name of Project GEL Euro

1 Produce in Georgia 41,699.0 14,892.5 2 Innovation and Technology Development 8,208.0 2,931.4

21 1 Euro = 2.8 GEL 124

3 Agro Development Programme 25,400.0 9,071.4

8. Role of regional authorities

What is the role of regional authorities (higher level authorities in relation to the local authorities) in supporting local government development? Georgia is a unitary state. It includes two autonomous republics Ajara AR and Abkhazeti AR, the latter being outside Georgia's effective control. The municipalities outside the two autonomous republics and Tbilisi are grouped, on a provisional basis, into nine regions (Mkhare):

Table 7. Regions and Municipalities under control of the Georgian Government

Municipalities # Region Self-Governing Self-Governing City Community 1 Tbilisi 1 - 2 Ajara AR 1 5 3 Guria 1 3 4 Imereti 1 11 5 Kakheti 1 8 6 Mtskheta-Mtianeti 1 4 7 Racha-Lechkhumi and Kvemo Svaneti 1 4 8 Samegrelo-Zemo Svaneti 2 8 9 Samtskhe-Javakheti 1 6 10 Kvemo Kartli 1 6 11 Shida Kartli 1 4 Under control Georgian Government 12 59

Along the Regional Development State Strategy for 2010-2017, Tbilisi is a region as well. The former, Soviet-era autonomous entity of South Ossetia, also not currently under Georgia's de facto jurisdiction, has no final defined constitutional status in Georgia's territorial arrangement. The territory of South Ossetia is part of Shida Kartli. Constitutional law shall determine the territorial state structure of Georgia on the basis of the principle of delimitation of powers after the complete restoration of jurisdiction of Georgia over the whole territory of the country (Constitution, Article 2.3). Governance in these regions is exercised by State Trustees – Governors, who are representatives of the Government of Georgia on the territories of respective local self-government entities. According to the Constitution and subsequent legal acts, Governors are mandated to coordinate activities of regional and local units of the central governmental agencies, implement particular tasks assigned by the Government of Georgia, and carry out state supervision over activities of local self-governments. Activities of the Governors and their Administrations are directly funded from the State Budget. Governors and their Administrations have budget only for functional cost.

125

What is the nature of the relationship between regional and local authorities (rigid hierarchy, partnership, etc.)? The Regional Advisory Council is an advisory body of municipalities acting at the state trustee’s – the Governor’s office. It is created and conducts its activities in accordance with rules defined by the Code. A Regional Advisory Council consists of ‘Gamgebeli’s / Mayors of all relevant municipalities, chairman of the Municipal Council and deputy chairman of the Municipal Council. The purpose of a Regional Advisory Council is to ensure presentation and consideration of municipality interests in the process of planning and implementation of the development of the territory, within which the authorities of the state trustee – the Governor are executed. The Regional Advisory Council has following authorities: • Review of projects, programmes and cost-estimates that are going to be implemented by the state on the relevant territory upon a recommendation of the state trustee - the Governor. • Review of the social-economic development strategy of the territory of the Governor’s authority. • Development of recommendations for the state trustee - the Governor in the process of planning and implementation of the respective territory development.

Which tools are used by regional authorities to support local economic development (programmes, projects, budgetary subsidies, transfers, public-private partnerships, etc.)? Please, give examples. The Ajara Government executes different project and programmes for municipalities such as road rehabilitation, Batumi Stadium construction, development of regional touristic products etc. These types of activities are not possible for other regions (Mkhare) due to lack of competencies and unavailability of state budget.

9. Associations of local authorities

Which associations of local authorities are working in the country, and which ones are the most active and influential? Only one association of local authorities is working in the country. The National Association of Local Authorities of Georgia (NALAG) is a non-governmental, non-profit and non-political organization which unites all entities of local self-governance. NALAG aims to (1) further develop the local self-governance system, (2) develop democracy at the local level, (3) decentralize the government power throughout the country, and (4) develop local self-governance institutions. The National Association of Local Authorities of Georgia was established at the joint initiative of the Council of Europe and European Commission on 17 December 2004.

Give a brief description of the activities of the most active organizations and indicate the addresses of their websites. The activities of NALAG are as follows: • Defend the interests of local self-government bodies at the national and international level; • Promote development of local democracy in Georgia; • Cooperate with the central authorities on decentralization issues; • Provide competent services to the member’s self-government authorities;

126

• Promote raising the qualification level of civil servants and elected officials at the self- government entities and secure social guarantees; • Identify problems of local self-governance and interconnect local self-government bodies, generalize/introduce the existing practical experience and achievements.

Website of the association is www.nala.ge

10. Donor organizations and programmes/projects aimed at supporting local authorities

A large number of donor organisations is active in Georgia and their combined funding constitutes a significant proportion of Georgian GDP. They are listed below.

European Union (EU) EU assistance focuses on support of the following sectors: Justice, Freedom and Security; Human Rights, Democratization and Civil Society; Conflict Resolution; Economy, Trade and Public Finance Management; Infrastructure, Environment and Rural Development; Education, Health and Social Development. EU funding for projects in Georgia is provided in the form of grants, contracts and increasingly budget support. EU funding mechanisms: • ENPI (including TWINNING TAIEX SIGMA, Regional Programmes, Cross Border Cooperation) • Thematic Programmes • Instruments for Stability (Ifs) • Instrument contributing to the Peace and Stability (IcPS) • European Instrument for Democracy and Human Rights (EIDHR) • Macro Financial Assistance • Food Security Programmes • 7th Framework Programmes for Research and Technological Development, Horizon 2020 • Education and Training Programmes https://eeas.europa.eu/delegations/georgia_en

Council of Europe Council of Europe’s Action Plan for Georgia 2016-2019 includes the following priority sectors: Protecting and promoting human rights and dignity, ensuring social rights; Ensuring justice; Strengthening democratic governance; Countering threats to the rule of law: corruption, money- laundering, cybercrime, manipulations of sports competitions; Confidence-building measures. Most common funding mechanisms

• Technical Assistance. www.coe.int/en/web/tbilisi/home

The European Bank for Reconstruction and Development (EBRD)

127

In Georgia EBRD focus on supporting private sector competitiveness through innovation, developing local currency and capital markets, expanding markets through inter-regional connectivity, and renewable energy, resource efficiency and climate change adaptation. Most common funding mechanisms: • Loan • Investment projects • Technical Assistance • Grant www.ebrd.com/georgia.html

Over the years, EBRD has supported almost 200 projects with a cumulative investment of almost EUR 3 billion.

European Investment Bank (EIB) In line with the ELM, the overall objectives of EIB lending in Georgia are: • Development of social and economic infrastructure, including projects in the transport, energy, water, environmental infrastructure, information and communication technology as well as health and education sectors; • Development of local private sector, particularly supporting small and medium sized enterprises; • Climate action, covering both climate change mitigation and adaptation projects, in particular the shift to clean energy in traditionally energy-intensive economy in line with the relevant sector cooperation included in the Association Agreement. Most common funding mechanisms: • Investment Loans • Framework Loans • Multiple Beneficiary Intermediated Loans • Technical Assistance www.eib.org

The World Bank Group (WB) A new Country Partnership Strategy for Georgia outlines a World Bank Group program of support for the country over the period 2014-2017. The strategy identifies key areas where World Bank Group assistance can have the biggest impact on poverty reduction and is designed to promote collaboration and coordination among development partners in the country. The proposed engagement will focus on two key areas: • Strengthening public service delivery to promote inclusion and equity • Enabling job creation and competitiveness to enable private sector led inclusive growth. These two areas of focus work towards greater inclusion from different perspectives. The first area targets inclusion through the effective use of public resources and the second targets inclusion through growth of income opportunities. The importance of a strong and sustainable macro-economic framework, improved gender equity, improved infrastructure and services, and strengthened governance and institutional capacity at the local and central levels is understood as inherently critical to the Government and World Bank Group programs, underpinning both areas of focus. 128

Most common funding mechanisms: • Investment Project • Budget support • Loans • Technical Assistance • Grant http://www.worldbank.org/en/country/georgia

United States Agency for International Development (USAID) The U.S. Government will dedicate its resources to new and continuing USAID programs over the next five years to achieve the goal, Georgia’s democratic, free-market, Western orientation enhanced. Major development objectives include: Democratic checks and balances and accountable governance enhanced; Inclusive and sustainable economic growth; Increasingly stable, integrated, and healthy society. By 2017, USAID programs will contribute to a Georgia that practices more accountable governance, achieves more broad-based and sustainable economic growth and development, and has more tangible progress reaching out to people in the separatist regions and in regions with significant minority populations. Most common funding mechanisms: • Technical Assistance/Training • Grant (including direct government-to-government assistance) • Other mechanisms (e.g. Development Credit Authorities/loan guarantee programmes, risk-sharing agreements used to mobilize local private capital to fill financing gaps.) www.usaid.gov/georgia

Asian Development Bank (ADB) ADB’s 2014–2018 Country Partnership Strategy for Georgia (CPS) focuses on sustainable economic growth and regional connectivity. ADB partners with the Government of Georgia to (i) improve internal and regional market connectivity to enhance private sector competitiveness and to broaden community access to economic opportunities; (ii) make essential drinking water, sewerage, and sanitation services more accessible and reliable, particularly in smaller towns and secondary cities that are potential hubs for agribusiness and tourism; (iii) improve the security and stability of power systems, especially for communities in peri-urban and non-urban areas; (iv) strengthen public sector management for domestic resource mobilization and investment in business and infrastructure; (v) increase private sector engagement in provision of infrastructure and public services through public-private partnerships; and (vi) enhance access to finance and support micro, small, and medium-sized enterprise development. ADB will continue to support initiatives to drive investment that underpins inclusive growth, including through PPPs and capacity development. Such initiatives include rehabilitating Georgia’s strategic road corridors and secondary roads; enhancing the stability of power systems; mobilizing domestic resources to help sustain higher levels of social expenditure; supporting capital market development and pension reforms; and providing technical assistance to develop regulatory bodies, strengthen cost recovery mechanisms, and improve the government’s contract management and project implementation capacity. www.adb.org/countries/georgia/main

129

Deutsche Zuzammenarbeit Germany’s development assistance focuses on the following key areas: Energy and Environment; Sustainable Economic Development; Democracy, Civil Society and Public Administration. The Federal Ministry for Economic Cooperation and Development of Germany (BMZ) is the main commissioning party to the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and Kreditanstalt für Wiederaufbau (KfW), the implementing agencies for German development programmes. GIZ has activities in the following areas: Economic Growth; Rule of Law & Justice; Support local government development; Sustainable biodiversity; Integrated protection from erosion of mountainous regions; Public Financial Management. KfW in Georgia concentrate activities in the following areas: Environment and energy; Sustainable Development of Economy and Democracy, civil society and public administration. Most common funding mechanisms: • Technical Assistance • Grant • Investment Projects • Loan • Budget support (grant) www.tiflis.diplo.de

International Finance Corporation (IFC) Within this Country Partnership Strategy, IFC works to: • Contribute to greater financial intermediation and increase access to finance for MSMEs through the provision of trade finance, risk management products, longer term senior and subordinated debt, and equity; • Promote sustainable private sector-driven growth through increased trade and increased competitiveness of local companies; • Help develop the country’s significant renewable energy potential; • Support improvements in productivity for agricultural processing and food safety; • Foster the development of public-private partnerships. www.ifc.org/wps/wcm/connect/region__ext_content/regions/europe+middle+east+and+north +africa/ifc+in+europe+and+central+asia/countries/georgia+country+landing+page

Millennium Challenge Corporation (MCC) MCC seeks to increase the earning potential of Georgians through improvements in the quality of education in science, technology, engineering, and math (STEM) fields, and strategic investments in general education through technical training or advanced degree programs. The compact promotes shared Americn values through a focus on increasing women’s participation in STEM professions. www.mcageorgia.ge

United Nations (UN) 2016-2020 UN Partnership for Sustainable Development (UNPSD) framework is structured around the following five focus areas: • Democratic Governance 130

• Jobs, Livelihood and Social Protection • Education • Health • Human Security and Community Resilience www.ungeorgia.ge

Japan International Cooperation Agency (JICA) Japan’s key policy towards ODA to Georgia is guided by promotion of sustainable economic growth and stability of society in the fields of Assistance for Promotion of Economic Growth and Stability of Society; Stabilization of the people's livelihood. Most common funding mechanisms: • Technical Assistance • Grant Aid • ODA Loan www.jica.go.jp/georgia/english/index.html

Austrian Development Agency (ADA) Austrian Development Cooperation with Georgia aims at supporting national economic development and democratisation. Besides making tangible improvements to the conditions of life for the people, the central concern is convergence with European institutions, standards and values. Together with representatives of Georgia, the Austrian Development Agency has specified agriculture and forestry and good governance as priority sectors of cooperation. www.entwicklung.at/en/countries/black-sea-region-south-caucasus/georgia

Swedish International Development Cooperation Agency (SIDA) Sweden supports Georgia's efforts to strengthen its ties with the European Union through increased economic competitiveness, strengthened democracy and improved environmental performance. Sweden's support to Georgia is focused on three areas: • Enhanced economic integration with the EU and development of market economy. • Strengthened democracy, greater respect for human rights and a more fully developed state under the rule of law. • A better environment and reduced climate impact and enhanced resilience to environmental impact and climate change. http://www.sida.se/English/where-we-work/Europe/Georgia-/

The Swiss Agency for Development and Cooperation (SDC) Building on the experiences of past years, the Swiss Agency for Development and Cooperation (SDC) and the Directorate of Political Affairs (DPA) of the Federal Department of Foreign Affairs (FDFA), together with the State Secretariat for Economic Affairs (SECO) of the Federal Department of Economic Affairs, Education and Research (EAER), have developed a new strategy for the South Caucasus which also reflects Switzerland’s broader initiatives in the region in terms of mediation and good offices. Three priority domains have been defined to which the mentioned Swiss government

131 entities are contributing their core competences, thereby further enhancing the coherence and efficiency of Switzerland’s support for sustainable development in the region: • Economic Development and Employment • Governance and Public Services • Human Security and Protection www.eda.admin.ch/countries/georgia/en/home/representations/swiss-cooperation-office-in- tbilisi.html

Czech Development Agency Czech aid focuses on: • Self-Government Reform • Disaster Prevention • Health sector www.czechaid.cz/zeme/gruzie

The North Atlantic Treaty Organization (NATO) Three key priority directions for the Program in 2014 - 2017 are: Enable organizational development to facilitate systemic changes in Georgia’s public sector; Build sustainable institutional capacity of Georgia’s professional development institutions by providing assistance in the planning and delivery of courses; Enhance the individual skills of the civil servants, especially those working on Euro–Atlantic integration related issues. Most common funding mechanism • Technical Assistance www.nato.int What international donor projects on local development issues are implemented in the country? Or have recently been implemented? Give a short description of these projects and provide the addresses of their websites.

Project Name Funding Partner on Period Description State / Local Level Fostering regional UNDP MRDI 2012- Regional action plans and and local 2017 municipal priority documents. development in Georgia

Local Governance GIZ MRDI 2017- By ratifying the European Charter Programme 2020 of Local Self-Government, the South Caucasus three countries of the South Caucasus – Armenia, Azerbaijan and Georgia – have made a commitment to strengthen local governance and democracy and to create the requisite legal and institutional frameworks.

132

Support to EU MRDI 2017- Implementation of regional Regional policy 2018 development policy frameworks, implementation II monitoring and set-up of Regional Development Agencies.

Second Regional WB, Municipal 2014- The Project objective is to and Municipal Swiss Developmen 2019 improve the efficiency and Infrastructure Develop t Fund reliability of targeted municipal Development ment services and infrastructure. This Project (RMIDPII) Coopera will be achieved by investing in tion high priority local infrastructure improvements, and by supporting Local Self-Governments in enhancing their capacity and systems for service delivery in the following direction: spatial planning, asset management and capital investment plans, project cycle management, budgeting and accounting Good Governance USAID MRDI 2015- The Good Governance Initiative Initiative (GGI) 2020 (GGI) in Georgia is a five-year activity funded by USAID/Georgia. Its purpose is to strengthen the overall transparency, accountability, and effectiveness of governance in Georgia. To achieve these results, GGI works with counterparts in the legislative and executive branches of the Government of Georgia (GOG), with selected local self- governing cities (Kutaisi, Batumi, Akhaltsikhe), with stakeholders in Georgian civil society at the national and local levels, and with Georgian and international subcontractors and grantees. Green Cities: UNDP Ministry of 2015- Production of integrated Integrated Environment 2019 sustainable urban transport plans Sustainable , Batumi and functional plans in Batumi Transport for Municipality and other municipalities in Ajara Batumi and Ajara region. Rockefeller 100 Rockefel Municipality 2016- Tbilisi has been selected and is Resilient Cities ler of Tbilisi 2020 eligible for grant to prepare Programme Foundat Resilience Strategy for Tbilisi. ion

133

Green Cities EBRD n/a 2017- Preparation of a methodology for Framework - Pre- 2020 the development of Green City & Post- Action Plans ("GCAPs"). The Signing TC Methodology is designed to guide Support: Green a City through the 5 main steps of Cities Action developing and implementing a Plan & Policy GCAP: establishing a Green City Dialogue Baseline; developing a vision; preparing the GCAP; implementing the actions; and reviewing progress. EU-Eastern EU Ministry of 2015- The purpose of the EU-Eastern partnership Culture and 2018 Partnership Culture and Creativity culture and Cultural Programme is to support the creativity Heritage cultural and creative sectors’ programme contribution to sustainable humanitarian, social and economic development in Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine. As one activities, the EU-Eastern Partnership Culture and Creativity Programme initiated the programme that will help small and medium-sized towns and regions to enhance their creative potential. ENPARD II: EU, Ministry of 2016- The programme builds on and Promoting Rural UNDP Agriculture 2018 sustains the achievements of the Development in of Georgia, first phase of European Georgia Ministry of Neighbourhood Programme for Agriculture Agriculture and Rural of Adjara AR Development (ENPARD). It focuses on driving rural development forward and integrating support to agriculture, food safety, sanitary, infrastructure with an overall goal to advance living and employment conditions in rural areas of Georgia. Eastern EU, GIZ Ministry of 2017- Programme focuses on the Partnership Agriculture 2020 following priorities: Improving the Territorial of Georgia living conditions of local Cooperation communities in the target cross- (EaPTC) border regions through joint economic and social development projects; Addressing common challenges, such as environment, 134

employment, public health and any other field of common interest; Supporting local cross- border “people-to-people” actions in the areas of sports, education and cultural exchange.

11. Active municipalities

In general, Georgian municipalities do not have sufficient budgets to actively stimulate economic development. They produce development plans, but do not have the capacity for implementation. Some LA’s have activities related to tourism development.

Municipality CoM Recent and current relevant activities Signatories Tbilisi Yes • Participant in the Rockefeller “100 resilient cities” programme • Participant in the EBRD Programme “Green Cities” • Investment project “Tbilisi Sea” • Sales activity by the Tbilisi municipal property department • Preparation Tbilisi Master Plan • Local Economic Development Forum, Annually • Member of the City Net Caucasus (GIZ activities) Batumi Yes Batumi Municipality has no resources for economic development. The Municipality in the process of preparation Batumi Development Strategy. Batumi is a member of the City Net Caucasus (GIZ activities) All public development initiatives are managed and funded by Ajara Regional Authority. Recent initiatives of Ajara include: • Tourism Information Centres • Training for tourism professionals • Regional strategies Investors Support Kutaisi Yes Kutaisi is one of the most active cities in Georgia. Mein activities: • Tourism development actions, such as establishment of Tourism Information Centre • In preparation of city “investment fiches” • Annual competition for “Best Business of the City” • Activities for implementation of Kutaisi Development Strategy • Preparation Regional Projects • Kutaisi – University City, together with Ministry of Education and Sciences of Georgia 135

Rustavi Yes Activity in Rustavi is at a low level, only some recent increase of activity by the municipal property department (asset sales) Akhaltsikhe City Yes Under GGI program Municipality will prepare Development strategy Bolnisi Yes Municipality was involved in the EU transborder cooperation programme. Gori City Yes Activity in municipality is at a low level Mtskheta City Yes Activity in municipality is at a low level Telavi City Yes Activity in Municipality is at a low level, but local staff are willing. Telavi City is member of the City Net Caucasus (GIZ activities) Telavi Yes Activity in municipality is at a low level Zugdidi City Yes Activity in municipality is at a low level, but local staff are willing. Borjomi No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy. Lagodekhi No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy. Kazbegi No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy. Akhalkhalaki No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy. Tetri Tskaro No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it

136

supports and finances grant applications to develop the local community and economy. Khulo No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy. Keda No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy. Dedoplistskaro No Municipality participate EU-financed ENPARD project “A New Approach for Rural Development in Georgia”. The project uses local knowledge to outline development priorities and needs in the form of a Local Development Strategy and through a community-led approach it supports and finances grant applications to develop the local community and economy.

12. The interaction of local authorities with NGOs and business

How would you characterize the interaction of local authorities with the NGOs and business in your country? Local Authorities often engage in dialogue with NGOs and business but these engagements are neither systematic nor regular. Some LAs is now in the process (or already exist) of setting up a business consultation board or Public Council with the City Mayor. Members of the councils are CSO and business.

Are there any real public consultative bodies under the local authorities (councils, commissions, committees, etc.)? If yes, give examples and brief description of their work. LAs do not aim to build a public-private growth coalition that will take charge of identifying new sources of growth for local economic development.

Are there any examples of the elaboration of the local development strategic documents with active participation of local NGOs and the business? If yes, give examples. Participation of local NGOs and business society in the preparation of municipal development plans (priority document) is obligatory by the methodology adopted by Ministry of Regional Development and Infrastructure.

137

Does the country have a legal framework for public-private partnership? If yes, specify the related legal acts. No legal framework for public-private partnership in Georgia

Are there any examples of projects based on public-private partnership? If yes, provide information about these projects. A private operator is responsible for administration of parking system in Tbilisi Municipality. Water supplier companies are private in Tbilisi, Rustavi and Mtskheta Municipalities.

13. Economic data and economic development on the local level

Main urban Others municipalities Existing business relevant administrative Activities by Activities by services provided by LAs municipal property municipal property department department Existing pro-development business support Not provided Not provided services provided by LAs Some instances of some notable good LED Until 2015 in Tbilisi: Does not exist practices (other than planning as an end in Cheap loan, training itself!) and consultation, information about markets, promotion via exhibitions, meetings and publications

Existing company –relevant data available and processed in the form of “per municipal area” Number of persons employed/self- Geostat22 can provide Geostat can provide employed – private sector; agriculture, these data based on these data based on services (not public services, and not retail!), request23 request industry Number of companies / self-employed From Geostat are From Geostat are registered available total available total number of: registred number of: registred companies, newly companies, newly registered companies, registered registered companies companies, by kind of activity, registered companies registered companies by kind of activity,

22 National Statistics Office of Georgia 23 Based on request Geostat can provide on municipal level: Production Value, Turnover, Number of Employees, Average wages, Value Added, Investment in fixed assets, Personnel costs, etc. 138

by legal status. registered companies Geostat provide these by legal status. data based on request Geostat provide these data based on request Number of companies / self-employed Geostat or Revenue Geostat or Revenue registered and active (ie have filed company Service can provide Service can provide accounts in last year) these data based on these data based on request request

Moldova - Country Report on the results of the in-depth assessment of the actors and donors active in the field

1. Human Settlements System Being the least urbanized European country [>56% living in rural area], the Republic of Moldova inherited a network of human settlements characterized by: ▪ Dense and fragmented rural network [over 1,700 villages]; ▪ Overwhelming role of capital city of Chisinau [>25% of total country population, while generating almost 1/2 of country GDP, ~55% in industrial production, ~75% of internal trade, ~50% of total number of available jobs, ~60% of total exports and ~90% of total imports, ~60% the country’s consolidated budget tax revenues collection]; ▪ Weak urban network [the second largest city (Balti) is five times smaller than Chisinau, while the third largest city (Cahul) - 20 times smaller].

139

In fact, only 6 Moldovan cities (out of 55) have population over 30,000 residents24:

# City Population (2016) % in Thousands % in national national inhabitants population26 GDP (2013)25 1 Chisinau 814,1 22,9% ~ 47,5%

24 Excepting Transnistrian region of Moldova (Tiraspol – 134,000 inhabitants, Bender – 92,000 and Rybnitsa – 48,000). 25 Based on Expert Group estimations, http://expert- grup.org/en/biblioteca/item/download/1258_bc2e0852a439b3888f77b0eae07e7915 26 Data excluding Transnistrian region of Moldova 140

(incl. suburban area) 2 Balti 150,7 4,2% ~ 6,1% 3 Cahul 39,6 1,1% ~ 1,84% 4 Ungheni 38,4 1,1% ~ 1,44% 5 Soroca 37,6 1,1% ~1,56% 6 Orhei 33,7 0,9% ~1,18% Total cities >30,000 1114,1 ~31% ~ 60% residents Note: The 2014 census results are expected in 2017. It is anticipated a significant decrease in number of population, determined by high external migration.

2. Local Government System

According to the Constitution of the Republic of Moldova [Article 110] the national territory from the administrative point of view is structured in districts, towns and villages. Certain towns may under the law be declared municipalities.

Local governments in Moldova are organized in a two level [tier] system: ▪ The 1st level is represented by 898 local governments [primaria] in cities/municipalities and villages/ communes. ▪ The 2nd level Is represented by 35 administrative territorial units – 32 rayons, two municipalities [Chisinau and Balti], and one autonomous territorial unit – Gagauzia.

All local governments of a particular level [primaria or district] are assigned the same types and number of functional, administrative and regulatory responsibilities, irrespective of size, fiscal or administrative capacity, etc.

The 1st level LPA authorities are represented by directly elected mayors and local councilors and the 2nd level – by elected District Councils and their heads.

The Capital city is granted with special status by the Constitution. According to the Law on Special Status of Chisinau, the municipality is acting as both 1st and 2nd levels LPA. The Municipality is formed of a group of territorial-administrative units: the Chisinau city [divided in 5 districts], six urban localities and 26 rural localities [organized in 12 mayoralties]. Except Chisinau city (de facto identified with Chisinau Municipality), all other administrative-territorial units enjoy autonomy with regard to their patrimony, local public finances and public services. The patrimony of capital city is identified with the patrimony of Chisinau Municipality.

The administration of the Autonomous Territorial Unit of Gagauzia is special. In addition to local authorities of 1st and 2nd level, applied nationwide, in Gagauzia there is a supreme territorial authorities level, established by the special law – the Law on special status of Gagauzia [#344 from 23.12.1994].

According to the law, the relations among levels of local governments and between central and local authorities are based on principles of autonomy, legality, transparency and cooperation in solving common problems.

141

The main characteristics of Moldovan local governments system are: ▪ Excessive administrative-territorial fragmentation, from which a series of challenges to adequate functioning of local governments occur. Over 85% of Moldovan 1st level LPAs (primaria) have a population less than 5,000 residents, and ¼ of them - less than 1,50027 inhabitants. On the other hand, 94% of the settlements (i.e. 844 units) are rural ones. The average 2nd level LPA (rayon/district) size is 77,000 inhabitants and 890 km2. ▪ The administrative and financial capacity of the absolute majority of Moldovan LPAs is rather weak with narrow economic base and lack of economy of scale in service production and provision. 85% of 1st level LPAs have a maximum of 6 staff [including the mayor, the secretary, tax collector, cadastre engineer and accountant] and 25% - less than 4 staff. This staff composition do not allow management and provision of services, and regulatory functions required by the national legislation. Analyzing the information on the execution of administrative territorial units budgets for 2014, only LPAs of 1st level have the administrative capacity (Chisinau mun., Cahul, Comrat, Rezina and Floresti) as defined by the law (administrative expenses of the LPA do not exceed 30% of the total own revenue) - the rest of 1st level LPA, under the law, are not viable28. ▪ The absolute majority of local governments have very limited capacities and resources to create a conducive environment for local economic growth and jobs creation and for promoting social cohesion

The inter-municipal cooperation (IMC) mechanism has been piloted by the Government of Moldova in 2011-2015 as a potential alternative for administrative-territorial reform (with the support of UNDP and GIZ). While the achieved results were considered successful (over 50 small municipalities grouped in 15 clusters for joint service provision), the model is rather too expensive and complicated to be considered as an alternative for administrative-territorial reform29.

3. Legal Framework

According to the Constituction (Art. 109) of the Republic of Moldova, public administration at the level of administrative/territorial units is based on the principles of local autonomy, decentralization of public services, and consultation with local citizens on matters of local interest. On 1 February 1998 the Republic of Moldova ratified without any reservation or declaration the European Charter of Self-Government on 1 February 1998.

There are many legal and regulatory acts, which define the organization and functioning of local public administration in the Republic of Moldova. The key – laws are the following:

27 Though the law provides for a minimal number of 1500 residents necessary for the creation of independent administrative-territorial units. 28 Study on Finance Benchmarks – areas and options for assessing local financial resources and financial management in Moldova 2015 (Council of Europe, Project Strengthening Institutional For Local Governance Programme) 29 Study on mapping the obstacles to intermunicipal cooperation in Moldova 2015 (Council of Europe, Project Strengthening Institutional For Local Governance Programme) 142

# Laws Descriptions

1. Law # 191 from 12.11.1998 on Establish and regulates the administrative- territorial – administrative territorial division of the Republic of Moldova organization 2. Law # 436 from 28.12.2006 on local Regulates the organization and functioning of public administration local public administration of 1st and 2nd level in the Republic of Moldova. 3. Law # 435 from 28.12.2006 on Regulates the general framework for administrative decentralization administrative decentralization and distribution of roles of local public administration authorities (inclusively delimitation of competences between 1st and 2nd levels). 4. Law # 397 from 16.10.2003 on local Establish the system of local finances and public finances regulates the revenues and expenditures of local [significantly upgraded through the budgets, as well as inter-budgetary relations. Law #267 from 01.11.2013] 5. Law # 136 from 17.06.2016 on the Regulates the specific particularities of the special status of Chisinau Municipality organization and functioning of local public administration in Chisinau Municipality 6. Law # #344 from 23.12.1994 on Regulates the self-administration of special status of Gaguzia Autonomous Territorial Unit of Gagauzia 7. Code #1381 from 21.11.1997 – Regulates the modality of election and dismissal Electoral Code of local elected representatives (mayors and local/district councilors). 8. Law #768 from 02.02.2000 on locally Regulates legal status, rights and obligations of elected official elected representatives from the local authorities in the Republic of Moldova. 9. Code # 1163 from 24.04.1997 – Regulates the application of local taxes Fiscal Code (namely chapters VI and (inclusively property tax) by local public VII) administration 10. Law # 523 from 16.07.1999 on Regulates the property relationships related to property of local public the local governments administration units

Generally, according to many monitoring reports of the Council of Europe, the Moldovan legislation comply with the principles European Charter of Self-Government. Nevertheless, there are serious concerns related mostly to (i) persisting confusions and legal misinterpretation, as well as (ii) excessive political interferences on local governments.

With the support of international development partners, in 2012 the Parliament of Moldova approved the National Decentralization Strategy (2012-2015), aiming to overpass the existing shortages and advance the administrative and financial decentralization. Although less than 50% of measures included in the National Decentralization Strategy (extended to 2018) have been implemented, some significant progresses have been made. Particularly, the Law on local finances has been significantly amended, which resulted in a notably increased financial autonomy and improved system of inter-budgetary transfers.

143

Currently, the National Public Administration Reform Strategy (2016-2020) explicitly heralds the restructuring, downsizing and repurposing of the local governmental structure, the main priorities being to: ▪ Overpassing the excessive administrative-territorial fragmentation; ▪ Restructuring (upsizing or eliminating) of second administrative tier – the rayons. ▪ Advancing the unfinished aspects of fiscal and property decentralization reform.

According to the Governmental Centre for Reforms Implementation, the scenario for further Local Government Reform should be defined and endorsed by the end of 2017 and implemented by the middle of 2018, in order to synchronize the next local elections (middle of 2019) with the newly applied administrative-territorial organization of the country.

4. Powers and responsibilities of local authorities

The legal framework governing the competences and responsibilities of local public administration authorities in Moldova is quite impressive, includes a wide range of acts, from constitutional regulations, laws and normative acts of the Parliament, Government and other central public authorities. This large number of legislative acts regulating a wide range of issues empowers local authorities with hundreds and thousands of competences and responsibilities.

According to the Law #435 on administrative decentralization, the local authorities are performing the following exclusive/own functions:

Level Competences 1st LPA ▪ Urban planning and management of green spaces of local interest; level: ▪ Household waste collection and management, including the sanitation and maintenance of lands for its storage; ▪ Distribution of drinking water, construction and maintenance of the sewerage systems and of used water and rainwater treatment systems; ▪ Construction, maintenance and lighting of streets and of local public roads; ▪ Local public transport; ▪ Planning and maintenance of the cemeteries, ▪ Administration of local public and private assets; ▪ Building, management, maintenance and equipping of preschool and extra- scholastic institutions (crèches, kindergartens, art schools, music schools); ▪ Development and management of the urban networks for gas and heat distribution; ▪ Cultural, sports, recreation and youth activities, as well as planning, development and management of the infrastructures needed for these types of activities; ▪ Planning of the agricultural markets, of the trading spaces, accomplishment of any other measures necessary for the economic development of the administrative-territorial unit; ▪ Setting up and management of the municipal enterprises and organization of any other activity necessary for the economic development of the administrative-territorial unit; ▪ Building of houses and providing of other types of facilities for the socially vulnerable people, as well as for other categories of people; 144

▪ Organization of the fire services.

2nd LPA ▪ Administration of the public and private assets of the district; level: ▪ Planning and administration of the construction, maintenance and management works of some public units of local interest; ▪ Construction, management and repair of the roads of district interest, as well as of the road infrastructure; ▪ Organization of the passenger road transport, management of the bus stations and stops of district interest; ▪ Establishment of the general framework for the territory development at district level and protection of forests of district interest; ▪ Support and stimulation of the initiatives referring to the economic development of the administrative-territorial unit; ▪ Development and implementation of projects for the construction of interurban gas pipelines (including the gas pipelines of medium pressure), of other thermal power units of local destination; ▪ Administration of cultural, tourism and sports institutions of district interest, of other activities with educational, cultural and sports character of district interest; ▪ Administration of the municipal enterprises of district interest; ▪ Administration of the social assistance units of district interest; ▪ Development and management of the community social services for socially vulnerable people, monitoring of the quality of social services.

However, many normative and legislative acts do not make distinct difference between public authorities of different levels and do not observe the provisions of Law on administrative decentralization, which stipulates the LPAs’ own fields of activity of 1st and 2nd levels and the delegated from the state. Thus, a series of legislative acts and Governmental Decisions specify the LPA competences, which do not comply with the Law on administrative decentralization.

Particularly, this multitude of acts is stipulating: (i) a number of other competences that are not stipulated by the basic Law (the Law of administrative decentralization; (ii) competences for local authorities that are similar both for level one and level two; (iii) are established competences to be carried out by local authorities but without indicating the source of funding; (iv) competences listed in a general way without being specify who de facto must realize this competence - the mayor or council – the authorities of second level or the first level.

Moreover, the competences of the first level administration authorities were established only formally, without determining the source of financial resources in order to be performed.

The confusions admitted in the normative framework of the local public administration determine the poor awareness of the local public administration authorities and officials regarding their competences, as well as the inability to identify their proper competences from that are delegated by the state.

145

By applying the international standards of classification, the main domains of local government functions in the Republic of Moldova could be clustered as following:

Domain Functions Communal Services: ▪ Producing, transport and distribution of drinking water; management of sewage systems, including water treatment plants; ▪ Collection, transport and disposal of garbage, including the management of landfills; ▪ Management and maintenance of public parks, green areas and cemeteries; ▪ Public lighting Public Transport ▪ Management of the public transport system within locality and/or and local/rayonal rayon; Roads: ▪ Maintenance of locality and rayon roads (streets). Territorial and ▪ Designing, up-dating, implementation, monitoring urban plans; Urban Planning: ▪ Territorial planning; ▪ Public constructions/social houses. Local Economic ▪ Designing and implementation of local economic development Development and strategies; Management of the ▪ Organizing and managing local public enterprises; Public Property: ▪ Management of the public property in the ownership of local government units, including renting and concession. Public Utilities: ▪ Management, maintenance and development of heating systems; ▪ Participation to the development of gas network; ▪ Participation to the development of electricity network. Pre-university ▪ Maintenance of the buildings and facilities of pre-school Education: education; ▪ Maintenance of the buildings and facilities for extra-school activities; ▪ Delegated function from the state to finance pre-university education Social Services: ▪ Planning, financing and providing community social assistance services at primaria level; ▪ Planning, financing and providing specialized social assistance services at rayon level. Public Health ▪ Public health education; Services: ▪ Participation to the development of public health network; ▪ Designing and implementing local strategies in the domain of public health. Human Rights, GE ▪ Implementing at local level the national policies regarding human and Social Inclusion rights, gender equality and vulnerable groups protection of Vulnerable Groups: Marital Status ▪ Issuing, recording, modifying, annulation of marital status Services: documents; ▪ Managing the data basis and the archives of marital status documents.

146

Civil Defense and ▪ Implementing the national policies referring to civil defense and Emergency emergency situation; Situation Services: ▪ Public information activities in this field.

Environment ▪ Implementing the national standards of environment protection Protection: referring to drinking water supply and sewage, garbage collection and disposal, landfill management; ▪ Ecological re-construction of damaged areas under local government ownership; ▪ Implementing the national policies referring to protected areas. Public Order: ▪ Cooperation with the national police – establishing an administrative commission in this domain Agriculture and ▪ Cooperation with deconcentrated services in the field of food Veterinary safety activities and epizootics. Consultancy Services: Culture, Youth, ▪ Management and financing the local/rayonal cultural institutions: Sport and Leisure libraries, museums, theatres; Services: ▪ Building and maintenance of sport and leisure facilities/infrastructure; ▪ Planning and financing the sport and youth activities. National Defence: ▪ Responsibilities in preparing the territory for defense; ▪ Financing the recruitment centres

5. The financial basis of local government

The process of creation and distribution of local finances is regulated to by the Law on local finances. The law has been exposed at the end of 2013 to a significant set of amendments, which transferred to the local governments more power to collect and manage local funds. Consequently, Moldova became the first country in Eastern Partnership that spends over 1/3 of public expenditures through local authorities30. But because of the low economic performance of the country, this sum in absolute value is not sufficient to cover the expected own and delegated responsibilities.

Central government transfers are still the main source of revenue for local government. The analysis of the current system of local finances proves that the financing of local public tasks is dependent on major transfers from the state budget (approx 65-70% for both level 1 and level 2 of LPA). Own revenues are at approx 15% and 5% respectively31.

Between local budgets of 1st and 2nd levels there are no financial reports. Transfers from the state budget to local budgets are allocated directly.

30 Council of Europe, Study ”Roles and respoonsibilities of mayors and local councils in Eastern Partenership countries” 31 Study on Finance Benchmarks – areas and options for assessing local financial resources and financial management in Moldova 2015 (Council of Europe, Project Strengthening Institutional For Local Governance Programme) 147

The financial base of the administrative territorial units’ budget are presented bellow, in respect to 1st and 2nd LPA level, as well as for Chisinau and Balti Municipalities.

For the 1st level LPA: Budget Description revenues Own revenues 14 local taxes and fees Rates decided by Local Councils Private tax Applied on case of LPA property sale (1% of the value) Property tax (on land & Rates decided by Local Councils in the interval of on real estate) max/min regulated by the law Tax on entrepreneurial Some categories of business activities applied to license physical persons Non-fiscal own Income from entrepreneurial activity, revenues administrative taxes and payments, fines and administrative sanctions Capital revenues Sale/renting public property, privatization Shared tax Proportion from 75% (for towns – district centres – 20% personal income tax Central Equalization general transfer, determined by 3 indicators: (i) fiscal capacity governmental per capita (measured as revenue collected from tax deductions on personal transfers (fiscal income per capita), (ii) surface of LPA, and (iii) population number. equalization) Grants In-flows from so-called extra-budgetary funds (Regional development fund, National Environmental Fund, Energy Efficiency fund, etc.) Special means Revenues derived from paid public services, as well as from sponsors/donors Special transfers Transfers from the government for financing delegated competences

For the 2nd level LPA: Budget Description revenues Own revenues Natural resources tax Private tax Applied on case of District property sale (1% of the value) Shared tax Proportion from 25% from total amount collected in district personal income tax boundaries Proportion from road 50% from total amount collected in the district tax boundaries Central Equalization general transfer, determined by 3 indicators: (i) fiscal capacity governmental per capita (measured as revenue collected from tax deductions on personal transfers (fiscal income per capita), (ii) surface of LPA, and (iii) population number. equalization) Grants In-flows from so-called extra-budgetary funds (Regional development fund, National Environmental Fund, Energy Efficiency fund, etc.) Special means Revenues derived from paid public services, as well as from sponsors/donors Special transfers Transfers from the government for financing delegated competences

148

For Chisinau and Balti municipalities: Budget Description revenues Own budget 14 local taxes and fees Rates decided by Municipal Councils revenues Private tax Applied on case of public property sale (1% of the value) Property tax (on land & Rates decided by Municipal Councils in the on real estate) interval of max/min regulated by the law Tax on entrepreneurial Some categories of business activities applied to license physical persons Non-fiscal own Income from entrepreneurial activity, revenues administrative taxes and payments, fines and administrative sanctions Natural resources tax Capital revenues Sale/renting public property, privatization Shared tax Proportion from 50% for Chisinau Municipality personal income tax 45% for Balti Municipality Proportion from road 50% from total amount collected in the tax boundaries of the municipality Central Equalization general transfer, determined by 3 indicators: (i) fiscal capacity governmental per capita (measured as revenue collected from tax deductions on personal transfers (fiscal income per capita), (ii) surface of LPA, and (iii) population number. equalization) Grants In-flows from so-called extra-budgetary funds (Regional development fund, National Environmental Fund, Energy Efficiency fund, etc.) Special means Revenues derived from paid public services, as well as from sponsors/donors Special transfers Transfers from the government for financing delegated competences

6. Instruments of local authorities to promote local economic development

In fulfilling their role as promoter of local economic development, the local public authorities in the Republic of Moldova are capacitated with the following instruments:

Support Description Comments Instrumentaria Fiscal According to Fiscal Code, the 1st level The proper management of local LPAs have the full mandate to taxes by local authorities could (i) establish the level of 14 local taxes. create a simulative business Some of these taxes/fees have direct environment, as well as (ii) avoid impact on SMEs sector (e.g. local tax fiscal constraints and restraints. for commercial/service activities, market tax, lodging tax, resort tax, tax on publicity devices, tax for land management, advertisement fee, etc.)

149

Support Description Comments Instrumentaria Regulatory How transparent and de- Despite numerous attempts, the bureaucratized is the local system of national experience related to the issuing regulatory documents? “one stop window” and “public ▪ Building permits and urbanistic information and service centers” are certificates rather incipient. ▪ Business authorizations (for some particular commercial and service Many LPAs are missing clear local activities) rules/procedures for ▪ Endorsment of different kind of issuing/endorsement regulatory documents documents, which is stimulating practices of corruption, misinterpretation and delays in processing. Predictable and simulative Many LPAs are missing functional regulatory policies: regulatory documents, which is ▪ Local Zoning (land amangement) making business activity much regulation dependent on the “discretional ▪ Other regulations (of LPA decisions of particular beaurocrats or competence) elected officials). Planning Local development could be Absolute majority of (important) supported by pro-active local Moldovan municipalities have development strategies, which have: approved local development plans, ▪ Integrated approach elaborated with large public (harmoniously combining physical participation (many elaborated with and socio-economic planning) the assistance of international ▪ Participatory approach (elaborated donors). Nevertheless, many of them and implemented in close are not producing “value added”, partnership with local business being rather a formality. community) The main causes of the ▪ Pro-active approach (an “misfunctionality” of local strategies administration which is “knocking in Moldova are: the door of potential investors” ▪ not adequate private sector and not waiting to be approached participation into the process by them) (important businessmen and rich persons are not motivated and are not participating into the process) ▪ documents are much oriented on “spending un-available money - mostly expected from donors” for public projects, rather than oriented to a pro-active guidance of LPA activity. ▪ after 20 years of “donors driven machinery in drafting local strategies” there is deficit of trust in utility of such documents.

150

Support Description Comments Instrumentaria Supportive SME support infrastructure There are over 10 business Infrastructure (Business Incubators) incubators in Moldova created by local governments with the support of donors and governmental funds. Nevertheless, the created infrastructure is rather misused. If the situation will not be changed, this instrument is going rather to be disgraced further. Investment support infrastructure The law # 182 from 15.07.2010 on (Industrial Parks) industrial parks is capacitating LPAs with functional mechanisms in creating, developing and promoting industrial parks (greenfields). Nevertheless, the instrument is not yet fully explored. Just few Industrial Parks were created at the initiative of LPAs (Edinet and Cimislia) and their performance is still to be advanced. Innovations support infrastructure The instrument is not yet used by (techno parks) LPAs (no experience in relation to local public authorities).

Engineering and utility The scarcity of local budgetary infrastructure (public investments resources is negatively influencing for connecting economic units to the capacity of LPAs to foster local local utility infrastructure) economic development. Consequently, Important investment projects failed because of lack/deficit of adequate local economic infrastructure (water/sewerage/ electricity/ roads connections) Public-Private The joint use of public property (real There is a special law Partnership estate and land) is an important tool (#179 from 10.07.2008 on PPP, (PPP) for attracting private investors and describing and regulating all aspects boosting job creation. of such cooperation. Attracting private sector in for joint Nevertheless, the instrument is not public services delivery and yet fully explored. There are several development of public good examples, but also many infrastructure could foster local negative (discouraging and economic development disgracing) projects. ‘Soft’ and A set of soft interventions could be Sporadic experiences, but not yet Mobilization used by Moldovan authorities in relevant “best cases” to be replicated Activities fostering local economic nationwide. development, related to: 151

Support Description Comments Instrumentaria ▪ local branding Many donors/development partners ▪ vocational trainings suggesti are currently actively considering this ▪ local events (festivals, fairs, etc.) tools for fostering local economic ▪ local clustering development. ▪ local informational campaigns, etc.

Generally, the local economic development instruments are yet to be developed and promoted as functional/practical tools for local public authorities.

7. State bodies responsible for local government development

Currently, the Republic of Moldova entered into a comprehensive public administration reform process, which is to manufacture significant changes within the governmental structure and functions. At this stage there are not yet clarity related to the further national authority, which will be in charge with local governmental development (several scenarios being considered).

Meantime, the key national authority in the field of local autonomy, decentralization and local development is the State Chancellery of the Government of the Republic of Moldova. The responsibility is placed with the Direction for Public Administration Reform (central and local), which enroll 7 (seven) staff personnel. Additionally, within the State Chancellery is acting the Direction of Administrative Control (5 staff + 10 territorial agencies), responsible for ensuring the state control over the decisions of local public administration.

8. State programs that encourage local economic development

So far, there is no state program designed explicitly with the aim to support directly local economic development. However, some governmental development/financing programs are indirectly targeting also local economic development:

Target Support Description Comments Programme Support National Fund for ▪ Financing development Supported projects in Local Regional projects – mostly ▪ building facilities for Governments Development infrastructure. industrial parks (e.g. [managed by the ▪ 1% of the national Edinet) National Council budget. ▪ building business for Regional ▪ Competitive financing, incubators (e.g. Larga) Development / based on submitted ▪ building enginiring Ministry of projects (local infrastructure (busines Regional economic development units to benefit) Development and – one of the priorities) Constructions

National ▪ Financing development While not specified, the Environmental projects related to collateral result of the Fund implemented projects 152

Target Support Description Comments Programme [managed the environment, inclusive (increased access of Ministry of water and sanitation. business units to basic Environment] ▪ Over 500 mln infrastructure) consists in MDL/yearly (over 25 improving business mln euro/yearly) development conditions. ▪ Competitive financing, based on submitted projects Support PARE 1+1 ▪ Established in 2010 ▪ Within the period of local Governmental ▪ Co-financing business 2010-2016, supported businesses programme, initiatives of returned ▪ 233 new business aiming to stimulate migrants in regions (1$ projects the investment by grant for each 1$ ▪ 83,5 mln MDL granted Diaspora invested scheme) (over 4 mln euro) ▪ Co-generated other 184 mln MDL private investment (over 9 mln euro)

National Agency ▪ Established in 2010 ▪ 400 – 600 mln for Subsidies in ▪ Supports (co-finance) MDL/yearly (20-30 mln Agriculture (AIPA) private investments in euro/yearly) support for rural areas agro-business development in rural areas

Additionally, it is to be mentioned “an informal commitment” of the Government to support any important foreign investment (export oriented) in the regions, by allowing the establishing of Free Economic Zone conditions (setting up a subsidiary to one of the existing 7 Free Economic Zones). Particularly, just recently such successful project was implemented in Straseni city (localization of over €20 mln investment in a ‘greenfield’ instrial zone by an Italian investor – “Triveneta Cavi Development”). Another relevant example (under implementation) – “Sumitomo Electric” (€30 mln) investment in Orhei.

9. Role of regional authorities

There are no proper regional authorities in Moldova. The existing 6 regions (established under the Law on regional development) are not administrative territorial units and are used in the context of planning, evaluating and implementing regional development policies.

153

The 2nd level of LPA (districts) has significantly lost its ”intermediation function” as result of the recent (2013) implementation of the local public finances reform. Moreover, the National Public Administration Reform Strategy (2016-2020) explicitly recognizes that the 2nd level of local public administration (districts) is inefficient and should be restructured. The document specifies that the district authorities have functional goals that are not important for service provision. At the moment there are under examination several reform scenarios, inclusively considering the abolishment of the 2nd LPA level.

Between local budgets of 1st and 2nd levels there are no financial reports. Transfers from the state budget to local budgets are allocated directly.

10. Associations of local authorities

In 2010, with the assistance of international partners (UNDP, USAID, SIDA, GIZ), the local authorities of Moldova succeeded to create a joint non-political cooperation platform – the Congress of Local Public Authorities from Moldova, which in short period became a functional, active and inclusive Association of Local Public Authorities from Moldova.

The CALM has been set up to achieve greater unity between Moldovan local public authorities to safeguard and promote the ideals and the principles established in the European Charter of Local Self-Government, considering that local government is one of the main pillars of any democratic system.

154

Currently, all partners (Government, LPAs, donors and international organizations) recognize CALM as the only representative LPAs Association from Moldova, consisting of over 500 1st level LPAs, as well as incorporating other 3 most important LPA cooperation platforms (National League of Mayors’ Associations, Association ‘Alliance of Mayors – Women’ and Association of Presidents of Rayons and Members of Rayon Councilors).

The Government of Moldova is consulting with CALM almost any important policy/regulatory document in the field of local government. As well, CALM is invited as ”observer” within weekly sessions of the Moldovan Government.

From June 2010, CALM is an active member of NALAS - Network of Associations of Local Authorities in South Eastern Europe.

CALM BUSINESS CARD

Mission: To promote a democratic, decentralized, transparent and efficient local government in Moldova, able to contribute effectively to the development of the local communities.

Adress: str. Columna 106, Chisinau, Republic of Moldova

Web: www.calm.md

Contacts: Phone: +373 22 223509 Fax: + 373 22 223529 GSM: + 373 79 588547

President Mrs. Tatiana Badan (since 2011) [mayor of Selemet village (Cimislia District)] [email protected] +373 67139236

Executive Director Mr. Viorel Furdui (since 2011) [email protected] +373 795 88547 Organization: The governing bodies of CALM are: ▪ General Assembly of the members of CALM – representative and deliberative body ▪ President of CALM ▪ Administrative Council – executive body ▪ Specialized committees ▪ Executive Bureau ▪ Executive Director ▪ Secretariat – administrative and assistance body ▪ Committee of censorships - supervisory body

11. Donor organizations and programs/projects aimed at supporting local authorities

155

Currently, the main relevant projects in the field of local development implemented by international development partners in the Republic are the following:

Donors Activities

UNDP Joint Integrated Local Development Programme (over $5 mln for the www.undp.md period of 2010-2015/SIDA & DANIDA financing) ▪ Supported the elaboration and implementation of National Decentralization Strategy (2012-2015-2018) ▪ Capacity building for national authorities in the field of decentralization ▪ Supported the reform of local public finances (adopted new law /2013/and its piloting) ▪ Piloted 10 IMC Projects in Moldova (joint communal services) ▪ Capacity building and strategic planning for over thirty 1st level LP ▪ LED component: support to ten 1st level LPA to design local economic development plans

Migration and Local Development Project ($2,6 mln for the period 2015-2018/SDC financing) ▪ Developed the model for leveraging Moldovan Diaspora abroad with their communities of origin in Moldova ▪ Developed and piloted the civic crowdfunding mechanism (23 projects) / www.guvern24.md ▪ Supported elaboration of 25 local development strategies with migration fully mainstreamed ▪ Supported the creation of 25 HomeTown Associations (Associations of Natives) ▪ Supporting (ongoing) implementation of 23 community projects with the active engagement of Diaspora (co-financed by emigrants)

Support to Agriculture and Rural Development through promotion of confidence building measures in Gagauzia and Taraclia ($6,5 mln for the period 2016-2020/ EU financing) ▪ Support in elaboration (on-going) of socio-economic development strategies for all localities from Gagauz Autonomous Region and Taraclia District ▪ Grants for community development projects ▪ Grants for local business development (business support infrastructure) ▪ Piloting 5 IMC Projects (communal services)

Support to Confidence Building Measures Programme (IV) – Transnistria Region and Security Zone (over 10 mln euro for the period 2015-2018/ EU financing)

156

Donors Activities

▪ Support the confidence building measures within the Transnistrian Region and Security Zone through implementing local/community development projects in the area ▪ Supporting business development infrastructure in the zone (people to people contact, trainings, capacity building activities, etc.)

GIZ Local Public Services Project - 1 (23,9 mln euro for the period of 2010- www.serviciilocale 2016/financing of Germany/Romania/Sweden/EU) .md ▪ Capacity building for LPA and Regional Development Agencies in the field of local public services delivery ▪ Supported the design of National and Regional Development Strategies ▪ Implementation of pilot IMC projects in waste management and water supply (with solid hard interventions/investments in infrastructure)

Local Public Services Project – 2 (7,4 mln euro for the period of 2016- 2018/financing of Germany/Romania/Sweden/EU) ▪ Capacity building, technical assistance for Regional Development Institutions (Ministry and Regional Development Agencies) ▪ Support the elaboration of Regional Development Strategy for Gagauzia Development Region ▪ Support implementation of regional development projects

European Union Regional Business Incubators’ Network - Black Sea BI-NET( €0,81 mln for the period of 2013-2015/implemented by ODIM) ▪ Building and launching the activity of 8 business incubators in Moldovan small towns (Rezina, Leova, Stefan Voda, Cimislia, Ceadar Lunga, Nisporeni and Sangerei)

Support to the implementation of DCFTA process in Moldova (€2 mln for the period of 2014-2017/implemented by GFA Consulting Group) # Relevant interventions in the field of local economic development: ▪ Building and launching 2 business incubators (Calarasi and Cahul)/implemented by ODIM ▪ Co-financing for Pare1+2 program (support for business initiatives in the region, initiated by migrants)/implemented by ODIM

Improved Regional Statistics in the Republic of Moldova (€2 mln for the period of 2014-2016/implemented by GFA Consulting Group) # Relevant interventions in the field of local economic development: ▪ Developing regional statistics (indicators for development regions) 157

Donors Activities

Regional Project “Covenant of Mayors II” (€4,5 mln for the period of 2016-2019/Moldovan partner - Alliance for Energy Efficiency and Renewable] ▪ Act as the Covenant of Mayors secretariat for the Neighbourhood East region (CoMO-EAST II): capacity building in signatory cities, liaison with stakeholders, strengthening the network of Covenant Supports and Coordinators, strengthening the capacities of cities with regards project development ad access to finance.

Programme 'Covenant of Mayors – Demonstration Projects' (CoM- DeP) # Supporting the Eastern Partnership cities in the implementation of Sustainable Energy Action Plans (SEAPs) under the Covenant of Mayors/ Action Grants (2014-2016) ▪ Ungheni city: Renewables and Energy Efficiency for Public Buildings /REEPB/ - €0,85 mln [implemented by Asociatia Obsteasca Asociatia Pentru Studii Sociale Aplicate Asstreia] ▪ Orhei city: Comprehensive demonstrational project for sustainable energy development in the town of Orhei – €0,76 mln [implemented by Orhei City Hall] ▪ Ocnita, Soroca and Cantemir cities: Green Light Moldova - Modernisation and Saving Energy at Street Lighting- €0,4 mln [implemented by Alliance for Energy Efficiency and Renewables]

Technical assistance for the integration of ATU Gagauzia in the national framework for regional development (Tendering process)

USAID Local Government Support Project in Moldova/ implemented by Chemonics ($12,5 mln for the period of the period 2011-2016) ▪ Supported elaboration of socio-economic plans for 32 towns (all towns – residents of districts ▪ Supported the elaboration of General Urban Plans for 8 towns ▪ Supported the establishment of Citizens Information Centers in 3 towns ▪ Grants/Procurement of equipment for communal services in towns – residents of districts ▪ Elaborated and implemented of the Muncipal Property/Assets Management System in 19 towns ▪ Capacity building program for LPAs and local communal service providers (Excellence in Municipal Management Programme). *** Project implementation report: http://www.chemonics.com/OurWork/OurProjects/Documents/Mol dova_LGSP_FinalReport.pdf

158

Donors Activities

SDC (Swiss ApaSan – Swiss Project on Water and Sanitation for Moldova (over 16 International mln CHF for the period of 2011-2017) Development and ▪ Built over 24 water supply systems in rural areas (over 36,000 Cooperation) people benefited). Other 6 systems are under implementation. ▪ Built over 25 eco-toilets systems for rural schools. Other 26 systems are under implementation. Project site: www.apasan.md IFAD IFAD Socio-Inclusive Resilence Project ($26 mln for the period of 2014- 2020) ▪ Support development of economic infrastructure in rural area (to benefit private sector for expanding public infrastructure – water/roads/irrigation, etc.) ▪ Capacity building activities for rural entrepreneurship European Bank for Providing tailor made assistance package (preferential credits + Reconstruction grants) for local development projects: and Development ▪ For public sectors (LPAs) on water/sanitation, public transportation (e.g. 60 mln euro loan for rehabilitation of water supply system in Chisinau Municipality, 10+4,5 mln euro loan for modernization of public transportation system in Chisinau Municipality and Balti Municipality) ▪ For private sector (inclusive supporting foreign direct investment projects)

Currently, as discussed with the majority of donors agencies, there is a tendency for changing the accent in approaching local development: from “community development” to “local economic development”. Particularly, USAID, EU, UNDP and GIZ are considering further important interventions in the field of local economic development. There are no yet project documents drafts, but more clarifications are expected by the middle-end of 2017.

12. Active municipalities

So far, no one Moldovan municipality could be considered as “an absolute champion in promoting local economic development”. Nevertheless, the job creation target is becoming an absolute priority of the majority of local public authorities.

The following local governments could be mentioned as pioneers and innovators in promoting local economic development interventions:

Mayoralty Contacts Comments Soroca city Mayor: Mr. Sau Victor The most successful project on www.primsoroca.md “business incubator” in the Republic of Moldova Edinet city Mayor: Mr. Cojocaru Constantin The first Moldovan city piloted the www.primariaedinet.md development of “greenfeld industrial zone”, which is well progressing. Currently initiated a a cooperation

159

Mayoralty Contacts Comments with UNDP Moldova for a more pro- active promotion (2017). Ungheni Mayor: Mr. Alexandru Ambros One of the most dynamic LPA in Municipality www.ungheni.md Moldova (mayor with 3 mandates consecutive), succeeded to develop good cooperation with the residents of Free Economic Zone from the city. Integrated socio-economic-phisical plan (elaborated with the support of EU) Straseni city Mayor: Mrs Valentina Casian A very active mayor, succeeded to www.straseni.md boost the revitalization of local industrial brown- and greenfields. Recently, a large Italian investor opened a new factory in the city (“Triveneta Cavi Development” – over €20 mln) Cimislia city Mayor: Mr. Gheorghe Raiolean An active mayoralty, succeeded to www.cimislia.md initiate 2 important projects for local development: business incubator and greenfield industrial zone. Need support in further advancing of the projects. Telenesti town Mayor: Mr. Vadim Lelic With the support of UNDP, the www.primariatelenesti.md mayoralty changed the approach in investment attraction. As result, succeeded to attract the biggest local investment since the independence of Moldova – a textile manufacture (250 jobs created) - /ongoing project Colibasi village Mayor: Mr. Ion Dolganiuc The administration is piloting (with www.colibasiblog.wordpress.com the support of UNDP) a LED project related to local clustering and branding (vegetable processing)

On the same time, it should be mentioned the case of 3 very important municipalities for local economic development in Moldova, which are facing important challenges to be taken into consideration:

Capital city / Chisinau The economic dominant of the country is challenged by a continuous conflict between the Mayor and Local Council. The internal conflicts do not allow a pro-active local economic development policy [e.g. the local budgets are approved normally at the middle of the year, the decisions to be taken by Local Councils are seriously delayed, for over 5 years not appointed deputy mayor for economic development, etc.]

160

Second largest city /Balti The mayor of the 2nd largest municipality [so called ‘North capital of Moldova’] is a leader of an opposition political party. For several months already is out of the country. Prosecuted for some criminal cases.

Orhei Municipality The mayor of Orhei municipality (one of the most important urban centre in the centre of Moldova) is for long time under “domestic arrest”, being accused of being among the key-actors of the biggest bank fraud in the history of Moldova [over 1 billion $ stolen from 3 Moldovan banks in 2014].

13. The interaction of local authorities with NGOs and business

As result of a vast number of donors-financed projects, aiming to encourage the participatory local development, there is a general understanding and support by local authorities for NGOs and business engagement into the process of local planning and development interventions: ▪ All 32 towns – district centers – have approved socio-economic development strategies, which have been elaborated through a wide participatory process [with the financial and logistical support of USAID – Local Governance Project”]. ▪ Estimative over 250 of Moldovan villages [30% of total] have been supported by various donors to elaborate local development strategies through a participatory process ▪ The capital city of Chisinau have been supported by UNDP Moldova to engage civil society and business community in the process of its 2025 Development Strategy (part of Integrated Master Plan). ▪ Many international projects [e.g. UNDP, USAID] developed detailed guides on participatory planning for Moldovan communities.

Within all these participatory processes, different kind of (mandatory) consultative bodies were created and activated – Local Strategic Committees, Local Participatory Planning Commissions, Local Task Force Groups, etc. With different level of engagement/activism, there are examples of very good cooperation [e.g. Ungheni, Telenesti, Colibasi, Carpineni], as well as very artificial behavior [e.g. Chisinau].

Based on the existing [over 15 years of participatory planning experience in Moldova], there could be mentioned the following conclusions and lessons learnt: ▪ A rather ‘formal approach’: the participatory mechanism looks frequently as a “donors driven/required instrument”. Local authorities do not feel yet the practical utility of such exercise. ▪ The participatory local development partnerships are rather over-represented by social sector (education, vulnerable, etc.) and under-represented by business community. Generally, influent local business leaders do not understand their personal gain from such engagement. They are usually ignoring such participatory groups - there are exceptions, but per general they lack a practical motivation. ▪ An overwhelming dominant of participatory planning is rather focused on “expenditures’ (on what to spent money) and not on “revenues” (how to cooperate to gain something together).

161

▪ The most relevant local partnerships are build on the projects requiring community co- financing (e.g. water/sanitation, roads, public lighting): everybody understand the personal gain from such cooperation.

Currently, the UNDP – SARD Project (with the financial support of European Union) is going to pilot the EU-driven model - LEADER (large local development partnerships) in South of Moldova (Gagauzia Autonomous Region and Taraclia district). 14. Local Development Data Availability

Availability of local development data is yet a challenge in Moldova. The National Bureau of Statistics (NBC) is operating with (i) aggregated data per country, and (ii) disaggregated data per districts/municipalities. Accordingly, we have:

▪ Adequate statistical database for Chisinau and Balti Municipalities [for capital city of Chisinau, even a yearly separate statistical report is elaborated – “Chisinau in figures”] ▪ Almost inexistent statistical data for individual LPAs [cities and villages].

Nevertheless, the National Bureau of Statistics could provide [on commercial base – for remuneration] some economic development data for any particular LPA in Moldova. The provided data are based on the processing of the “financial reports provided by the firms/economic units”.

Consequently, the availability of data could be summarized as following:

Indicators Chisinau and Balti The rest of LPAs Comments Municipality Districts (Rayons) Regional Gross Not calculated yet in territorial profile Product In 2016, with the support of EU (STRATEG Project – Enhancing regional statistics in Moldova) there has been calculated the Regional Gross Product for development regions for the period of 2013-2014)

Employment (total Yes No Could be required and per branches) (on commercial base) from the NBS* Number of registered Yes No Could be required companies –(total (on commercial and per brances) base) from the NBS* Number of active No No Could be required companies (have (on commercial filed last year base) from the account form) NBS* Company turnover Yes No Could be required (on commercial base) from the NBS* 162

Indicators Chisinau and Balti The rest of LPAs Comments Municipality Districts (Rayons) Fixed capital Yes No Could be required investment (on commercial base) from the NBS* Productivity No, but might be No calculated VAT returns No No

(*) Note: The information is based on the aggregation of financial reports provided by the firms/economic entities. According to the Moldovan legislation, the financial reports are provided at the place of legal registration of the enterprise. Therefore, the available data could be much inaccurate (e.g. the firm is registered in Chisinau, but their production branch is in the village – the turnover is accounted for Chisinau, etc.).

To be note that the Moldovan experience in elaborating the local socio-economic strategies/initiatives for municipalities reveals that the most appropriate “diagnostic tool” is “analytics” rather than “statistics”. Consequently: the most relevant information is to obtained through the wide consultation processes with local business community representatives, rather than assessments based on statistical data.

163

Ukraine - Country Report on the results of the in-depth assessment of the actors and donors active in the field

Terms and Definitions

• Cabinet of Ministers — the highest body in the Ukrainian system of executive power • Local self-government — the right and real capability of a territorial community, guaranteed by the state, to resolve issues of local importance within the framework of the Constitution and laws of Ukraine, either independently or through local self- government bodies and officials 164

• Mayor /Holova— the highest official in territorial communities such as cities, villages, townships or • Raion and oblast councils — local self-government bodies that represent the common interests of territorial communities located in raions and oblasts • Representative local self-government body — a council consisting of elected members, with the right to represent the interests of a territorial community and make decisions on its behalf in accordance with the law • Territorial hromada — a community of inhabitants united by permanent residence within the same administrative-territorial unit. • Verkhovna Rada — the Parliament (legislative body) of Ukraine

1. Local government system in the Ukraine:

Ukraine is a unitary state with three tiers of sub-national government: oblast, raion, as well as city, village and township councils, which as on 01.01.2017, comprised: • 24 oblasts councils +the Autonomous Republic of Crimea (ARC) and the councils of 2 cities with special status – Kyiv and Sevastopol; • 488 raion councils; • 433 city councils and 47 councils of cities’ districts; • 10239 village and township councils According to article 5 of the Law of Ukraine on Local Self-government, the system of local self- government includes the following components:

• the territorial hromada (community); • local councils at the municipal level (i.e. village, township, city councils); • village, township, city mayors (holova); • the executive bodies of village, township, city councils; • raion and oblast councils to represent common interests of territorial communities of villages, townships and cities; • community organizations;

At the oblast and raion levels (also defined as regional level) the model of public administration established by the Constitution envisages two types of power: • bodies of local self-government, or local councils, which are responsible for political and strategic decision-making; • executive power, or local state administrations, which implement these decisions.

The bodies of power at regional level represent the common interests of territorial hromadas (communities of citizens) such as villages, townships and cities located within administrative territory of particular oblast or raion.

The municipal (or community) level refers to local self-governments in individual administrative units, such as cities, city districts, townships and villages. Local self-government bodies in these units consist of:

• local councils, which form the representative branch of local authority; • executive committees, which compose the executive branch 165

The community organizations deserve mentioning as a component of local self-government. According to article 14 of the Law on Local Self-government, these organizations may be set up by citizen initiative or local council decision and may be assigned own authorities, funds and property. Community organizations play a significant role in the solution of issues of local importance, such as control over the quality of public services, consumer services and the observance of environmental requirements and regulations. Since these organizations are established at the initiative of local inhabitants, they can be classified as a form of direct self- governance.

Structure of Executive Power in Ukraine

Tiers Governmental Authorities Municipal Government

Centre National level: National level:

• Legislative authority

Central • Executive authority n/a

Government • Judicial authority Oblasts, Regional level: Regional level:

Raions • Oblast state • Oblast (region) councils; administrations; • Raion councils

• Raion state administrations; • Territorial bodies of central executive authorities

Cities, Municipal level: Municipal level: Local GovernmentLocal City districts, • City Councils; • City districts Councils Townships, n/a • Township Councils; Villages • Village Councils

System of local self-government in Ukraine is an exclusive model of political leadership at the first tier of government. The only exceptions to this are villages with fewer than five hundred inhabitants, large cities containing city districts and cities with special status (Kyiv and Sevastopol). Legislation provides small villages with the option to vest executive functions in the village head rather than set up executive committees. In the cities with special status, Kiev and Sevastopol, the system of local self-government coexists with the system of state administration. For example, the local self-government in Kiev, the

166 capital of Ukraine, essentially possesses all of the elements found in cities with city districts. The inhabitants of Kiev elect a mayor, who then manages the Kiev City Council and its executive body. At the city district level, district councils elect a chairman from their number to act as head. The city state administration and city district state administrations represent public executive power; their functions are managed by the mayor and district council chairmen, respectively. The mayor appoints and dismisses his or her first deputy and other deputies in coordination with the president and the Cabinet of Ministers, respectively. The councils’ executive bodies (committees) are established only at the city, township and village councils. At oblast and raion levels the local state administrations act as executive authorities as according to the law, oblast and raion councils delegate their powers, except for the powers reserved solely for them, to respective local state administrations.

Management/hierarchy/subordination links between various government tiers are outlined in the below scheme:

Verkhovna Rada President of Ukraine

(Parliament)

Cabinet of Ministries

Ministries and other central governmental bodies

Oblast Council Oblast State Administration

Raion Council Raion State Administration

City, township, Council’s Executive village councils Committee

- administrative - organizational links; - functional links

167

Under Ukrainian legislation, the fundamental powers and responsibilities of the local tier of government are set out in Part II of the 1997 Law on local self-government in Ukraine (Organisation and legal basis). The system for allocating powers is fairly complex. It makes a distinction between the different organs of an authority (council, executive body, mayor) and between its own and delegated powers.

Competences (areas of responsibility) re service provision at the Local Levels of Governance32

Oblast Raion Community (city, township, village) Culture, sports, tourism Education of children in Housing and utilities, central boarding schools water- and heating supply, collection and utilization of waste, maintenance of communal housing Specialized secondary Secondary healthcare Development of local education infrastructure (roads, supply networks for water, heat, power, and sewage, informational networks, social and cultural facilities) Specialized healthcare Transport infrastructure Development (land allocation, (tertiary level) of raion significance permits, legalization of constructed facilities) Regional development Maintenance of facilities Culture and physical culture planning co-owned by the (maintenance and organization of territorial communities work of clubs, libraries, stadiums, of a region sport grounds) Transport infrastructure of Maintenance of the territory regional significance Maintenance of facilities Social support via territorial co-owned by the territorial centers communities of a region Planning of the development of territory (strategic planning and master plan, zoning) Public security (district policemen and patrolling) Ambulances, primary healthcare, prophylactics of Communal roads in the settlements Transit of passengers on the territory of the community

32 As per the Concept of reforming local self-government approved by the Cabinet of Ministers on 1 April 2014 168

Pre-school education

Local economic development

1.1. Main problems of the current system of local government in Ukraine33:

As local government reform is still under implementation, several outstanding questions need to be considered. Experts indicate the still existing discrepancy between the legal situation of local self-government in Ukraine and the reality. A number of factors restrict the substance and scope of self-government:

• a tendency by national institutions to centralise powers;

• absence of a stable economic basis at local level;

• weakness of local and regional authorities’ financial architecture;

• absence of a clear division of powers and administrative activities between central government departments and local and regional authorities, which may give rise to overlapping or duplication in the exercise of powers;

• local self-government is still undermined and its scope for action restricted;

• plan regarding how the national budget will redistribute funds to assist hromadas with substantial revenue shortfalls, particularly with regards to funding for education and health care requires increased detalization;

The USAID funded assessment34 of local governance and decentralization based on semi structured interviews, outlined the communicated problems and their ranking as follows:

33 according to the local experts 34 LOCAL GOVERNANCE AND DECENTRALIZATION ASSESSMENT: IMPLICATIONS OF PROPOSED REFORMS IN UKRAINE, USAID, 2014

169

Not enough money -26,3%

Not enough power - 17,1%

Corruption - 14,7%

Limited capacity of officials - 17,1% Weak cooperation with the central government - 3,9% Lack of citizen envolvement - 6,5% Struggles bw political parities - 2,6% Other - 11,8%

1.2. Legal framework

Main legal acts of Ukraine which regulate local government issues and functioning of local authorities:35 • Constitution of Ukraine (1996) • Constitution of the Autonomous Republic of Crimea (1998) • Law on National and Local Referenda (1992) • Law on Local Self-government (1997) • Law on Elections of Local Councils and Village, Township and City Mayors (1998) • Law on Local State Administrations (1999) • Law on the Capital of Ukraine (1999) • Law on Local Public Administration (1999) • Law on self organizing bodies of population (2001) • Law on Services in the Local Government Bodies (2001) • Law on Status on the Deputies of the Local Councils (2002) • Law on Associations of Local Government Bodies (2009) • Law on Local Elections (2015) • Law on Cooperation of Local Communities (2015) • Law on a Voluntary Association of Local Communities (2015) • Law on Fundamentals of State Regional Policy (2015) • Law on the National Budget (adopted annually) • Budget Code of Ukraine (2011) • Tax Code of Ukraine (2011)

The law of Ukraine on Local Self-Government in Ukraine (1997) as a special law dedicated to local government determines the basic principles of the activity of local self-governmental bodies. The 1998 amendments to the Law on Local Government in Ukraine establish the principles, functions

35 Note: all below listed legal acts, except recently adopted have numerous amendmentas and/or extentions 170 and responsibilities of local governments and officials. It regulates the basis of the financial and material powers attached to local self-government. Chapter III of the law defines the content and procedures applicable to the drawing up and implementation of local budgets. It specifies the entitlement of local authorities to state grants and stipulates that the independence of local self- government must be guaranteed through authorities having their own resources. It also defines the forms of citizen participation in the decision-making process at local level.

Adopted by the Cabinet of Ministers of Ukraine on April 1, 2014 the concept of the reform of local self-government and territorial organization of power in Ukraine (the Concept) determines the main ways of solving the problems of the system of local self-government.

Key issues that define the essence of change are: • determination based on territorial basis for the activities of local self-government bodies and executive bodies; • creation of appropriate material, financial and organizational conditions to ensure the implementation of local governments own and delegated powers; • distribution of powers between the local governments and authorities at various levels of administrative-territorial system on the principles of subsidiarity and decentralization; • maximum involvement of the population to management decision-making, promotion of the development of the forms of direct democracy.

The approval of the concept for ensuring the development of the system of local government directed the adoption of the following laws of Ukraine «On cooperation of local communities» from 17 Jun 2014 № 1508-VII, «On voluntary association of local communities» from 5 February 2015 № 157-VII, «On fundamentals of state regional policy» dated 5 February 2015 № 156-VIII.

The law «On voluntary association local communities» from 5 February 2015 № 157-VII [14] opened the way for consolidation of communities enabling them through its own taxes and fees to ensure the provision of public and administrative services to residents of the communities, and qualitatively performs the delegated state authority with public funds.

Presidential Order №545 (Dec 2016), on “Priority Measures for Development of Local Self governance in Ukraine in 2017, which assigns the Cabinet of Ministers to elaborate jointly with the representatives of local self governments the corresponding measures and activities for 2017. The main priority for 2017, as defined by this order is “Increase of institutional capacity of local self-government”. Recent draft laws and amendments to the actual legal acts relevant to local governments:

Related to Decentralization Reform: In the second half of 2016, the Ukrainian government continued the efforts to implement the decentralization of the regional governance system. The tasks for 2016 with regard to these reforms were defined and approved via the Priorities Action Plan (PAP) for 2016, Order 418-p of 27 May 201636. The document provided for a comprehensive well-grounded inventory and analysis of what has been done so far in terms of the implementation of the reform of local self-

36http://www.kmu.gov.ua/kmu/control/uk/publish/article?showHidden=1&art_id=249106523& cat_id=244276375&ctime=1465568219430) 171 government (decentralization) and regional development policy. It also set clear steps and indicators with regard to what had to be achieved by the end of the year 2016. Transfer of authority to local self-government, optimization of the number of land users: Land ownership and management issues remain to be central to the success of the reform. A draft law was developed for the purpose of providing regulatory support to sustainable development of Hromadas through the expansion of their jurisdiction to territories outside the built-up areas, creating conditions for the implementation by local authorities of new opportunities that opened through fiscal decentralization.

Optimization of the remuneration system for local self-government bodies: Conditions of work and salaries in the local self-government remain to be a hugely de-motivating and de-stimulating factor which has been gradually turning into a major outstanding issue. It needs to be addressed to make sure civil servant and employees of local self-government bodies do stick to their jobs and perform them well. The second big round of elections in amalgamated Hromadas took place in December 2016. Thus, at the end of 2016 – early 2017 the total number of amalgamated Hromadas which had had their election is 367. On 22 September 2016 the Government has adopted amendments to the Action Plan on the implementation of the Concept of 2014. This would facilitate adequate revision of tasks, deadlines as well as executors for the purpose of furthering the work to implement the Concept37.

Draft law “On fundamentals of administrative-territorial structure of Ukraine”: The draft law was designed and widely discussed, but little progress has been made in terms of the key stakeholders coming to a consensus with regard to key stipulations of the bill defining the architecture of the administrative-territorial system. Draft Law of Ukraine on amendments to some legal acts of Ukraine with regard to increased competences of local self-government authorities over the whole area of a corresponding village, township and city Hromada38.

Constitution of Ukraine - Articles related to local government aspects:

Adopted by the 1996 Constitution of independent Ukraine acknowledged the General principles of local self-government (Articles 140–146), assuring the legal basis for separating local self- government the state government.

Fixed by the Constitution of Ukraine the system areas of the local organization of power is archaic and inefficient, it does not answer the issue to the European standards and does not ensure the provision of the public administrative and social services at the appropriate level.

The Constitution guarantees broad democratic rights to Ukrainian citizens. Article 38 stipulates the right OF Ukrainian citizens to participate in the administration of public affairs, to take part

37 http://www.kmu.gov.ua/control/uk/cardnpd?docid=249350402

38 http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=60230

172 in national and local referenda, to elect and to be elected to bodies of public administration and local self-government. Article 132 of the Constitution provides an outline for territorial structures and establishes the principle of the unity and indivisibility of the country.

Article 133 provides a detailed list of the different types of regional authorities: the Autonomous Republic of Crimea, the 24 oblasts and – for the cities of Kyiv and Sevastopol – the status of an oblast to which special regulations apply. Article 133 paragraph 1 lists the different types of territorial unit (seven separate types in total).

The principles of local self government outlined in articles 140 to 146 of the Constitution are transposed with a view to their application in the Law on local self-government (1997), which as mentioned above, sets out the governing principles, functions and legal status of local authorities, as well as the status of their organs and officials.

Compliance of Ukrainian legal framework for local self-government European Charter of Local Self-Government:

Ukraine signed the European Charter of Local Self-Government (ETS No. 122, hereafter “the Charter”) on 6 November 1996 and ratified it, all provisions included on 11 September 1997, with entry into force on 1 January 1998.

The Ukrainian constitution (Article 140) recognises the organisational, financial and legal autonomy of local self-governmental bodies, in accordance with the European Charter of Local Self-Government. Yet, these principles do not always find practical implementation. Furthermore, whilst many of its provisions have already been implemented in Ukrainian legislation, much remains to be done in order to achieve full compliance with the European Charter of Local Self-Government39

The details of local governance are set out in the Law on local self-government of 21 May 1997, and also in other special laws (see paragraph 42 above). Ukrainian legislation (both constitutional and ordinary) therefore complies with article 2 of the Charter.

As a result, local self-government is undermined and its scope for action restricted. The trust of the local population is, according to Article 2 (1) of the Law on local self-government in Ukraine, fundamental to any local or regional authority, and therefore to the right to self-government. The population’s trust in the ability of local and regional institutions effectively to manage a significant portion of public affairs has been weakened in Ukraine. The rapporteurs therefore feel certain that local self-government in Ukraine needs, both in the legislative sphere and in terms of political practice, a comprehensive reform in order to achieve a sufficient level of compliance with the provisions of the Charter.

With reference to the consultation for which Article 4 (6) of the Charter provides, Article 146 of the Constitution states that “Other issues of the organisation of local self-government, the formation, operation and responsibility of the bodies of local self-government, are determined by law”. Ukraine therefore adopted, on 16 April 2009, Law No. 1275-VI on the associations of

39 (UNDP, 2008: 49) 173 local self-government entities, which came into force on 2 June 2009. According to the law, interaction mainly takes the form of “participation in consultations”: (Section IV: Principles of the interaction of the associations with public authorities, Article 17, paragraph 2.a and 2.b). The national associations are entitled to be consulted by the President, Supreme Court, Parliament and Cabinet.

The Ukrainian authorities are committed to promoting the development of civil society in Ukraine in order to adapt Ukrainian legislation to European standards. The Decree 342/2013 contains a series of obligations and recommendations to local authorities. The rapporteurs consider that reinforcing civil society activity creates a favourable environment for the rights of citizens within the meaning of Article 3 of the Charter and can improve the democratic process within local communities.

Regarding content, Ukrainian legislation is, at first sight, more restrictive than article 3 paragraph 1 of the Charter, as it limits autonomous decision-making and management to "matters of local importance", whereas the Charter refers to "a substantial share of public affairs". Furthermore, the basic principles defined in article 4 of the Law on local self-government include the "principle of combining local and national interests" in the exercise of self- government. Here we can see a certain entanglement between the levels of competence and the steering of local action towards the national interest.

Although Ukrainian legislation places at the disposal of local authorities a set of impressive local powers, its complexity, absence of a clear and traceable vision of the division of powers between the different tiers and the interference that occurs between activities at different levels of governance (particularly through the local and regional activities of central government departments). The above limits both the scope of Article 4 (2) of the Charter and the full discretion of local authorities to “exercise their initiative”. 40

2. The financial basis of local government:

All local budgets are independent, i.e. they have necessary revenue sources and the local governments are entitled to decide about budget expenses in accordance to the law of Ukraine. Respective local councils can discuss and adopt local budgets by themselves and independently from each other.

Local Budget System of Ukraine:

State Budget Budget System Local Budget of Ukraine

40 Local and regional democracy in Ukraine, Council of Europe, Congress of Local and Regional Authorities, 25th Session, https://wcd.coe.int/ViewDoc.jsp?p=&id=2113065&direct=true

174

Region Raion Budgets Budgets of (Oblast) Local Self- Budgets governments

Budgets of territorial communities

Budgets of Budgets of City budgets Villages incl Townships (incl. budgets united city districts) communities

Presently, active work is being pursued to build up capable municipalities, which is in line with the Concept for the reform of local self-government and territorial government structure of Ukraine. The budgets of united municipalities to be created in accordance with the current legislation and the plan for the territorial structure of municipalities shall be linked directly with the state budget. This is how one of the goals of the budgetary reform will be achieved – transition from the three- to two-level budgetary system.

The reform of the budgetary system shall achieve the following goals:

• local governments can elaborate and adopt their local budgets by themselves without having to wait for the adoption of the state budget; • ministry of finance does not impose revenue targets on the local budgets; • local budgets have more revenue sources which are needed to finance the functions of the local self-government; • the previous system of balance between the revenues and expenses of the local budgets is replaced by a totally different system securing horizontal compensation of tax-collection capacities of different territories depending on the income per capita; • new types of budgetary transfers are introduced (education and health subventions, subventions for the education of high-skilled workers, basic and reverse subsidies); • calculation of the new types of budgetary transfers is set up in the legislation; • municipalities are entitled to set tax rates by themselves within fixed limits set by law as well as to grant preferences regarding tax payment.

Ministry of Finance of Ukraine only informs the local governments about the mechanism of draft budget calculation for the respective year and about calculation of expected budgetary transfers as well as methodic for their identification.

175

The composition of local revenues in the main portion is common to the budgets of republican41 and regional significance, the cities of Kyiv and Sevastopol, district budgets, budgets of united territorial communities, villages, towns and cities of district significance. Village, settlement and city councils, within their powers, make decisions on the establishment of local taxes and fees, in the manner prescribed by the Tax Code of Ukraine.

Aside from setting local taxes and fees, local government may not influence the taxation system.

Local budgets under Budget Code include revenues and expenditures for implementation of assignments of bodies of power of the Autonomous Republic of Crimea, local state administrations, or local self-governmental bodies. These revenues and expenditures represent the single balance of the relevant budget.

Revenues assigned to budgets of local self-government and taken into account in defining the amounts of inter-governmental transfers shall include the following taxes, fees, and mandatory payments:

• portion of the personal income tax as defined under Article 65 of this Code; 42 • portion of the stamp duty that belongs to relevant budgets; • fees for licenses authorizing certain categories of entrepreneurial activity and certificates issued by executive bodies of local councils (radas); • fees for State registration of business entities collected by executive bodies of local councils (radas); • fees for trade patents authorizing certain categories of entrepreneurial activity (except for fees for trade patents authorizing to sell petrochemicals (by filling stations and points) collected by executive bodies of local radas; • proceeds from administrative fines imposed by executive bodies of local radas or administrative commissions set up thereby in keeping with the established rules; • portion of the single tax payable by small-sized businesses that belongs to relevant budgets.

Taxes, duties, and mandatory payments referred to local budgets shall be considered as the basket of revenues assigned to budgets of local self-government and taken into account when defining inter-governmental transfers.

Expenditures of local budgets shall include budget appropriations defined by a local budget decision for concrete purposes related to the implementation of programs, whose list is defined under Articles 88-91 of the Budget Code.

41 the Autonomous Republic of Crimea 42 Article 65: (1) One hundred percent of the personal income tax collected on the territories of the cities of Kyiv and Sevastopol shall be paid to the budgets of these cities. (2) Seventy five percent of the overall amount of the personal income tax collected on the territories of cities of Republican (in the Autonomous Republic of Crimea) or oblast significance shall be paid to the budgets of the respective cities; (3) Twenty five percent of the overall amount of the personal income tax shall collected on the territories of towns, villages, settlements, and associations be paid to the budgets of respective units. 176

2.1. Level of financial autonomy of local authorities (level of dependency in %) from higher levels transfers/subsidies

Since 2014 a new system of intergovernmental fiscal relations has been introduced. It is based on a completely new mechanism of horizontal equalization of taxpaying power of territories. The main elements of this mechanism are basic and reverse subventions. The basic subvention is a transfer provided from the national budget to the local budget to ensure horizontal equalization of taxpaying power of a territory. The reverse subvention stands for funds transferred from the local budgets to the national budget to ensure horizontal equalization of the taxpaying power of territories. The system of total balancing/compensation/balance-sheet of all local budgets was replaced by a system of horizontal equalization of taxpaying power of territories, depending on income level per capita. This being said, the equalization is applied only for one tax, e.g. an individual income tax. The rest of the payments remain at the disposal of the local authorities. New subventions have been introduced to the national budget to be then given to the local budgets. They are educational and health care subventions. These subventions will make sure that funds for the implementation of the government’s mandate in these areas are allocated. At the same time, thanks to the changes made to the Tax Code, local self-government bodies enjoy a higher degree of fiscal independence when it comes to local taxes and fees; in particular, they are entitled to decide on the taxation rate and respective tax incentives on their own. The study on local budget performance in 2015 has shown that the implementation of the intergovernmental fiscal relations reform produced good results despite pessimism that accompanied the initial phase when changes were originally introduced. The increase of receipts of the general fund has amounted to 42.1% when compared to 2014. The growth tendency remained in 2016: 49.3% compared to previous year. The revenue base of the local budgets has been increased by transferring some taxes and fees to the local budgets. In 2016 the higher level transfers totaled 57.2% from the consolidated revenues of local budgets.

3. Instruments of local authorities to promote local economic development:

Local authorities apply the combination of tools with various levels of intensity and efficiency for local economic development in Ukraine, namely: local development strategies and corresponding action plans in some cases together with implementation monitoring systems, cluster development, public-private partnership and inter-municipal cooperation projects, jobs creation and vocational training programs.

Despite certain progress, local economic development programmes and initiatives in Ukraine in many cases remain fragmented and often not fully implemented as a result of lack of political will, insufficient funding, or limited institutional capacities of local governments.

The effectiveness of policy making is impaired by frequent changes to the central institutions responsible for SME policy design and implementation, weak co-ordination across ministries and agencies, impacting the execution of corresponding delegated functions by regional and raion administrations.

177

The opportunities of local authorities are very limited to assure access to financial resources. Currently it is assured either by selected banks, or by non-banking institutions, international loans, donor grants and by interbudgetory transfers.

Banks loans are nor attractive as the interest rates are high (over 20%), though banks remain the main source of finance for businesses.

Several examples of international financial organizations provide targeted loans to Ukrainian banks to support local economic development. As an example credit lines by IFIs arranged through Ukrainian partner banks proved in general to be successful in recent years due to the implementation of many joint projects supporting SMEs in selected municipalities in Ukraine.

Micro-financing is still an operational non-bank finance channel in Ukraine, primarily offered through credit unions. The 589 active credit unions are regulated by the 2015 Law on Credit Unions.

The Ukrainian leasing sector was previously well developed amounting to approximately 3% of GDP in 2010. However, in 2014 the amount of leasing contracts decreased by 82% compared to previous year.

Venture capital remains underdeveloped in Ukraine and venture funds operate under the law on Institutes of Joint Investment.

Targeted programmes and projects of international financial and Technical Assistance contribute to various aspects of local development: e.g. the grant facility of the EU funded SURDP projects supported 32 projects aimed at local/regional development for total amount of almost 25 MEUR. The €12 MEUR from the total budget of EU4Business (FORBIZ) programme are directed to loans for Ukrainian SMEs. 43

Provision of business support services on the local level requires further developed in Ukraine, mainly due to the lack of funding and absence of national SME programme in Ukraine. The demand for such services is growing, so the authorities starting to pay more attention to the promotion of private BDS. Donor-funded programmes (e.g. EBRD’s Small Business Support programme) are active in all EaP countries and play a key role in encouraging the use of private BDS providers and building their capacity; however, its coverage is limited. In June 2015, the government of Ukraine announced plans to open 15 regional business centres to support SMEs under the EU FORBIZ programme44.

Very limited progress has been made since 2012 in developing and implementing targeted initiatives to improve the competiveness of local businesses. The private market for business development services is relatively developed by regional standards, but the government has not yet put in place any structured co-operation mechanisms. Privately owned incubators, for

43 As from 2016 44 Orinally known as “EU Support to Ukraine to Re-launch the Economy” (EU SURE). 178 instance, have been established in Ukraine’s main cities in recent years with some public support for office space and related services as well as some seed finance45.

Business development services provided include entrepreneurship training programmes, engagement of SMEs in public procurement, information support and various business consultancy services. Local authorities also sometimes provide support, such as a rent discount for start-ups looking for an office. These actions remain very limited in terms of number, scope and impact.

In 2013, the Law on the Employment of the Population introduced free support for unemployed individuals wanting to start and manage entrepreneurial activities (training course+ a small grant), which is provided by regional state employment centres.

The limited reach of business support measures has been confirmed by the 2015 OECD survey, in which more than 80% of respondents declared being unaware of any business support services provided by the government.

Institutional and infrastructural support for innovative SMEs formally exists, but in practice it is not fully operational. Its effectiveness remains curtailed by funding problems and lack of targeted support. A specific state programme was developed between 2009 and 2013 to scale up the infrastructure. In 2014 there were 82 incubators for innovative start-ups, though only 27 of them were functioning according to SARPED data. Adopted in 2011 and amended in 2013, the Law on Priority Directions of Innovative Activities in Ukraine aimed to define the strategic priorities for innovation policy between 2011 and 2021.

Largely unimplemented, the law requires further development in the form of a comprehensive strategy and a clear roadmap for reform. Though the legislation envisaged the adoption of one- year action plans with measurable targets, none of these has been developed to date. Currently, innovation policy is scattered across more than 70 legal and policy documents, including the Law on State Regulation of Activities in Technology Transfer, adopted in 2007; and the Law on Science Parks adopted in 2009. . Since October 2014, Ministry of Education and Science and its departments /units within territorial state administrations are in charge of implementing innovation policy and technology transfer.

The state budget for R&D is allocated mainly to academia and research organisations with limited emphasis on the commercialisation of innovations. Financial support for innovative SMEs was expected to be available through the Fund for Small Innovation Business Support, but no state funding has been provided to this facility since 2013.

Of the 50 technology parks, only 13 were operational. The linkages between entrepreneurs and R&D institutions remain weak. The Law of Ukraine on State Regulation of Technology Transfers envisages the development of a national network of technology transfer platforms. Some higher educational institutions have their own technology transfer centres.

45 15 privately owned incubators as in 2013 179

In March 2015 Ukraine joined Horizon 2020, the European Union’s research and innovation funding programme. This agreement opens up a wide range of new opportunities to Ukrainian research institutions, universities and businesses across the whole research and innovation value chain, from fundamental research to close-to-market activities.

In 2013, considering the potential of industrial parks (IPs) in job creation, activation of economic activity and socio-economic development of the territories, the Law on Industrial Parks was adopted, which defines the following state support for creation and function of IPs: • financing from State Regional Development Fund of IP projects related to creation of IP related infrastructure; • exemption from import duties46. • attractive terms and conditions for foreign and national investors.

The above law outlines the following kinds of local support to IPs: - tax exemptions from land tax and property tax;47 - minimum rents for leasing of state and municipal land plots; - assistance in registration, issuing all permits and other documents required; - allocation of funds from local budgets for creation of required engineering and transport infrastructure; - organizational and financial contribution to the recruitment and capacity building of existing and new employees of the companies within industrial park;

Currently 18 IPs are included into the Register of industrial parks. The majority of them are communal (62%), followed by private (28%), 48state (8%), the remaining IPs have mixed ownership form. As at 14.02.2017 five private industrial parks49 operate in Ukraine. Under creation are the industrial parks in Zaporizhia, Zakarpattia, Zhytomyr, IvanoFrankivsk, Lviv, Mykolaiv, Rivne, Kherson, Chernihiv, Chernivtsi, Kirovohrad Oblast and Kyiv.

Regional Development Agencies (RDAs) emerged in Ukraine in the mid 1990s, with their position and effectiveness gradually improving since the adoption of the Constitution in 1996 and the Law on Local Self-Government in 1997. The May 2001 Presidential Decree distinguishes RDAs as potential partners and supports the involvement of RDAs in the design of local and regional development strategies. Regional and local governments are encouraged to consult RDAs in the areas of improving the environment for innovative technologies in the regions, developing local and regional investment profiles, human resource development, and coordination of the technical assistance programs aimed at supporting local development.

Today, RDAs exist in every Oblast center, as well as in many smaller towns. Most of them have been established as autonomous, non-governmental organizations. In most cases, RDAs were initiated by groups of people from small businesses and community organizations that saw a need to organize them to more effectively promote community led sustainable development through civil society wider participation in local and regional policy development and

46 when importing equipment and materials that are not produced in Ukraine and imported with the purpose of IP creation and function within IP; 47 by the decision of the local authorities if the legal entities within IP take into account the development priorities declared in the program documents of economic and social development 48 Not included into the Register of Industrial Parks

180 implementation. In many cases, these RDAs have received support from local authorities and/or local businesses – an attestation on the RDAs’ importance as felt by many other local and regional organizations.

In April 2001, a number of leading Ukrainian RDAs formed an association, the National Association of Regional Development Agencies (NARDA). 50As of today there are 43 RDAs NARDA members

REGIONET is a national network of experts and practitioners for regional and local development. REGIONET was actively supported by EU funded SURDP project and will continue as an on-going initiative after completion of this project51. To ensure support to this continuous function, REGIONET will be transferred to the Association of Oblast and Raion Councils and be supported by other institutional partners of the network in the future. Development budgets as a part of special fund of local budgets is supposed to become the realistic financial instrument for local socio- economic development assuring funding of implementation of development strategies, target programmes and corresponding action plans of territorial communities. Currently, the local revenues are not sufficient for assuring full execution of local self governance functions, so the state budget transfers still perform the major role 52 in the formation of income part of the local budgets (57.2% in 2016).

4. State bodies responsible for local government development:

Cabinet of Ministers of Ukraine coordinates the activities of state executive bodies in facilitation of efficient functioning and development of local self-government, as per article 39 of Law of Ukraine” On Cabinet of Ministers of Ukraine (2014). Number of staff members engaged in the relevant actives is estimated in - 7

Ministry of Regional Development, Construction and Housing is the main central executive body responsible for local self-government development (CMU Order N197, from 30.04.2014 Number of staff members engaged in the relevant activities is estimated in - 18

Department of Verkhovna Rada of Ukraine for relations with local self-government http://depsam.rada.gov.ua/depsam/control/uk/index is responsible among other functions, for provision of methodological assistance to the local self-governments and active collaboration with associations of local councils. Number of staff members engaged in the relevant activities is estimated in - 7

5. State programs encouraging local economic development

The Strategy for Sustainable Development of Ukraine until 2020, approved by presidential decree in January 2015, determines goals and indicators of their achievement, as well as directions and

50 http://www.narda.org.ua

51 As from March 2017 52 57.2% in 2016 181 priorities of state development. The purpose of reforms is to achieve the European standards of life and decent place in the world for Ukraine. The Strategy includes 62 reforms. 8 reforms and 2 programs are the top priorities among them. The Strategy also defines 25 key indicators of successful state development. The top priorities are: reform of the national security and defense system, renewal of authorities and anti-corruption reform, judicial and law enforcement reform, decentralization and public administration reform, deregulation and development of entrepreneurship, healthcare reform and tax reform.

State Strategy of Regional Development 202053 outlines the general strategy as well as goals, objectives, tasks, priorities, main activities which should be achieved/implemented till 2020. It is envisaged that the programme ensures effective horizontal and vertical coordination of the actions of central authorities and local governments in the sphere of regional development.

Three main objectives of regional development policy are identified in the Strategy:

• Strengthening the competitiveness of the regions; • Territorial socio-economic integration and spatial development; • Effective governance in the regional development sphere

Decentralisation Reform is an integral part of the Strategy for Sustainable Development of Ukraine until 2020. The essence of the transformations suggested by the decentralization reform consists in the following: the local self-governance bodies and executive bodies finally will start perform the functions pertinent to them, while people will have the opportunity to form local self-governance bodies (through elections) in the community, raion and oblast’.

The local self-governance bodies of various levels (community, raion and oblast’), in their turn will obtain the authority vested in them and the resources necessary to meet their competences. The local self-governance bodies will be held accountable to their voters for the efficiency of their operation, and to the sate – for its legality. It is expected that among other benefits the transformation will have positive impact on local economic development.

EU provides support to Decentralisation Reform in Ukraine through 'U-LEAD with Europe: Ukraine Local Empowerment, Accountability and Development Programme". The total budget –EUR 97 mln

Public Administration Reform strategy for 2016-2020, was approved Ukraine’s Cabinet of Ministers in June 2016. The document concerns only the issues of operation of central executive power branch and local public administrations in part of civil service. It does not touch local self- government agencies. One of the priorities is harmonization of civil service and service in the local government. European Commission support to Ukraine's public administration reform in the amount of €104m, this is one component of a larger package totaling€300m of EU support for accountable and

53 http://zakon5.rada.gov.ua/laws/show/385-2014-%D0%BF 182 transparent government in Ukraine, developed over past months in order to back Ukraine's own reform efforts.

The Anti-corruption strategy (2014-2017) has been approved as well and, if implemented successfully would undoubtedly contribute to local and country economic development. State Programme for Cross –border Cooperation for 2016-2020 54(approved 23.08.2016) The Programme defines key directions and tasks to further develop cross-border cooperation in 2016 – 2020, the mechanisms for implementation, amounts and sources of funding. The Program envisages 25 cross-border cooperation projects aimed at the development of infrastructure of border regions of Ukraine, economic development, protection of environment. The implementation of the Program will facilitate the consolidation and concentration of resources towards balanced development and higher competitiveness of the border regions of Ukraine.

6. Role of regional authorities

The bodies of power at regional level represent the common interests of all territorial hromadas (communities of citizens) such as villages, townships and cities located within administrative territory of particular oblast or raion.

Local state administrations cooperate with the oblast and raion councils within their territory. Their particular interaction determines the mechanism for distribution of competencies between the public executive bodies and local self-governments.

The model of public administration established by the Constitution envisages two types of power at the oblast and raion levels: • bodies of local self-government, or local councils, which are responsible for political and strategic decision-making; • executive power, or local state administrations, which implement these decisions;

The Constitution of Ukraine stipulates that local state administrations are accountable to and controllable by the local councils with regard to authorities delegated to them by the corresponding raion or oblast councils.

At regional level (oblast/raion) there are two types of authorities: “own” and “delegated authorities.” The latter authorizes are those delegated by the central government to local self- governments. The state must compensate for resources spent by local self-governments to fulfill the delegated functions and second. The local self-governments are accountable to the central government for performance of delegated authorities.

54 http://www.kmu.gov.ua/control/uk/publish/article?art_id=249277427&cat_id=244274160 183

Local self-governments execute own authorities autonomously and independently.

Considering two types of authorities, some of the departments and units of oblast/raion state administration have dual subordination, i.e. to respective body of central executive power and to the bodies of local self-government.

Implementation of national economic development and social programmes, e.g., refer to delegated functions of local state administrations.

A regional development department of an oblast state administration, for instance, is responsible for assurance of implementation on the region’s territory of: • state policy for socio-economic development of Ukraine; • state regional policy; • state policy in the sphere of trade and services; • for external relations; • for interaction with economic and international organizations; • for entrepreneurship development; • for tourism development;

7. Nature of the relationship between central, regional and local authorities

Relations between the state administration and local self-governments are based on the accepted distribution of authorities to provide own and delegated public services. Local self- governments execute own authorities autonomously and independently. The state administration has the authority to control the legality of local self-government decisions and the suitable use of financial resources, but does not otherwise have the power to control the appropriateness of local self-government decisions made within their competence.

If local council decisions violate legislation, presidential decrees or government resolutions, then they may be cancelled by the state administration.

Article 20 of the Law on local self-government in Ukraine states that “central government supervision of the activities of the bodies and staff of self-governing authorities may be exercised only on the basis, and within the limits, of the powers and procedures for which the Constitution and the laws of Ukraine provide, and may not extend to interference by the bodies or staff of central government authorities in the exercise by self-governing authorities’ bodies of the exclusive powers delegated to those bodies”.

Furthermore, the Law of Ukraine on local state administration lists several principles of cooperation between central government units and local authorities, namely: interaction, assistance to local officials by central government experts, statutory limitation of the supervision, consideration of the proposals of the bodies and officials of local self governments, participation in discussions and consultations, etc.

The relations between authorities of various levels are still impacted by the inherited hierarchy, whereas the partnership is becoming the growing tendency within recent years.

184

8. Tools used by regional authorities to support local economic development

Regional authorities play the increasingly high role in consolidation of financial tools for local economic development, applying in particular such tools as:

• Investments of local budget proficit to the LED projects; • Local Development Funds; • Projects and Grants (national and international).

The above tools serve as supplementary source to the revenues from local taxes which serve as financial basis for local self governance.

Subsidies and interbudgetory transfers are still of high importance for the local budgets: in 2016 the higher level transfers to the local budgets totaled 57.2% from the consolidated revenues, which is 0.6% lower than in 2015 compared to the previous year.

Public-private partnership: The most common form of cooperation between the public and private sectors in Ukraine remains a concession (approx. 85%) Regarding main areas of economic activity of the PPP projects waste treatment is leading with 47.7% of all concluded PPP agreements, followed by water supply and sewage - 32.5%, by road infrastructure projects -7%, heat and electricity generation and supply – 5% of the concluded agreements). The remaining 7.8% of PPP projects deal with exploration/extraction from mineral deposits, real estate management, tourism, recreation, culture and sports, irrigation and drainage and others. As for the state property concession seven agreements and 15 cooperation agreements are signed, including:

• Minenergouglya concluded three concession agreements for a period of 49 years. • Donetsk Regional State Administration signed a contract on concession assets under construction Novoazovsk wind power plant for a period of 50 years. • Kherson Regional State Administration signed a contract on concession assets under construction Sivashskoe wind power plant for a period of 49 years. • Lviv Regional State Administration signed two concession agreements for 49 years. Concerning municipal property 203 concession contracts and 18 cooperation agreements are signed, mainly in the provision of housing services such as water supply of villagers, production and supply of heat and electricity, providing services for the collection and removal of debris, providing services in the housing maintenance sector. On the request of Ministry of Economic Development and Trade local executive authorities identified 321 objects of municipal property which could be considered as potential projects using the PPP mechanism in various areas of economic activities.

185

Example of the PPP project implemented in Vinnitsia Oblast 55

Tourism - the guarantee of dynamic social and economic development of rural communities (Vinnytsia region)

Vinnytsia District Council in cooperation with Vinnytsia District State Administration The Project will contribute to creating good conditions for development of Vinnytsia district through practical activities, such as development of the tourist area to promote small and medium-sized business, in particular in the eco-tourism sector. Place of implementation: Vinnytsia district, Vinnytsia region Project target group: Residents of Vinnytsia district who work in the tourism sector, in particular, for public institutions (district and rural museums) and private sector (farm owners), prospective tourists and visitors of Vinnytsia district Project goals: To promote favourable environment for development of the economic potential of Vinnytsia region by renovating the tourist area which will contribute to SME development, including eco-tourism applying PPP approach Project activities:

• Reconstruction and restoration of target tourist sites, ensuring better conditions for rural museums • Organisation of a best farm contest for farms engaged in rural tourism and organisation of training for winners • Development of promo and information products (such as books, leaflets and websites) • Designing tourist routes

http://vinnitsya-tur.in.ua/ https://www.facebook.com/turismVinnitsyaDistrict

9. Associations of local authorities

The Constitution of Ukraine and the Law on Local Self-government stipulate the right of local self- governments to form voluntary associations. The only stated restriction is that they may not transfer local self-government authorities to these associations. Currently there are over twenty local government associations in Ukraine, based on territorial, functional and industrial interests.

The Association of Ukrainian Cities (AUC):

AUC is the most influential organization, uniting local self-governments from over 250 cities.

Its activities include the following: • establishing the legal basis for local self-government; • providing information to improve city government functioning;

55 EU Funded http://surdp.eu/en/Tourism-the-guarantee-of-dynamic-social-and-economic- development-of-rural-communities 186

• supporting programs for municipal development; • promoting the interests of municipal servants; • fostering international cooperation.

The Association of Ukrainian Cities plays an active role in forming the system of governance in Ukraine. For example, the association developed and adopted the Charter of Ukrainian Cities as well as producing drafts of several important laws, including the Law on Local Self-government, the Law on Local Public Administration, the Law on Community Property and others. In recent years, the Association of Ukrainian Cities has held six national hearings on the most urgent issues of municipal reform. Due to the activity of association members, Ukraine was represented at the European Association of Local and Regional Governments. Web-site: http://www.auc.org.ua/ Contact details: 73 Sichovykh Striltsiv Str., 04053 Kyiv, Ukraine, tel. 380 44 486 28 78; [email protected]

Ukrainian Association of Raion and Oblast Councils (UAROR):

UAROR is the All Ukrainian voluntary union of local self-government bodies. Founded in 1991 it unites now 455 members representing 100% of all regional councils and Krym Autonomous Republic and 87.1% of Raion councils. The association has some collective members, like regional association of local self-government bodies “Rady Ternopilschiny”, Association of local self- government bodies of Kharkiv Oblast and Vinnytsa Oblast Association of local self-government bodies.

The Association has 11 regional branches which together with the main office serve as important instrument assuring the efficient dialogue between local self-government, government, civil society and business community in elaboration of consolidated position required for state building process.

Representatives of association participate in the activities of various working groups of central executive bodies, parliamentary committees for elaboration of decisions concerning the activities of local self government organizations.

Web-site: http://uaror.org.ua/ Phone: (044) 484-05-64; e-mail: [email protected]

All-Ukrainian Association of Village and Townships Councils (VASSR)

VASSR is a voluntary association of local governments in Ukraine registered in 2009. The membership structure includes village, township councils representing more than 8,000 local communities, which accounts for 10 million of Ukraine's population. VASSR has 24 regional offices and 8 executive directorates in the regions. The association employs four specialized commissions involved in the discussion of legislative initiatives to respond to the request of the association members, actively cooperate with relevant ministries and agencies.

187

To the main tasks of the association refer: consolidation of efforts of rural communities to jointly protect the rights and interests of their members, assuring conditions for efficient execution of the local self government authorities, contributing to interaction with state governmental bodies in solving the issues of local and regional development.

Web-site: http://vassr.org/ Contact details: 73 Sichovykh Striltsiv Str. (13th floor), 04053 Kyiv, Ukraine; phone: Phone: (044) 5859012; e-mail: [email protected]

10. Donor organizations and programmes/projects aimed at supporting local authorities

10.1. International donor organizations active in Ukraine:

Donor Priorities for Ukraine Web-site CIDA Economic Growth http://www.international.gc.ca/dev Local Economic Development elopment- Advancing Democracy developpement/countries- Responding Humanitarian Crisis pays/ukraine.aspx?lang=eng

EBRD Business environment; www.ebrd.com/ukraine.htlm Accessibility and transport; Environmental protection; Energy efficiency; Capacity Building

EIB SMEs www.eib.org Employment Regional development http://www.eib.europa.eu/infocentr Environmental sustainability: e/contact/offices/ukraine.htm Innovation Trans-European Networks: Energy: building competitive and secure supply EU EU association and economic http://eeas.europa.eu/delegations/ integration (AA and DCFTA) ukraine/index_en.htm Good governance and rule of law Sustainable development: (including energy, environment, nuclear safety, transport, regional, local and rural development) Civil Society Agriculture and Food

GIZ Democracy, https://www.giz.de/en/worldwide/3 Civil society and public administration, 02.html Decentralisation Energy 188

Sustainable economic development

KfW Energy https://www.kfw- Environment entwicklungsbank.de/International- Sustainable economic development financing/KfW-Development- Municipal development Bank/Local- presence/Europe/Ukraine/

OECD Corporate affairs http://www.oecd.org/countries/ukr Public Governance aine/ Education Environment Integrity Investment SME Policy Taxation SIDA Market development http://www.sida.se/English/where- Democracy and Human rights we-work/Europe/Ukraine-/ Decentralisation of public sector Energy efficiency Humanitarian support SDC Sustainable Economic Development, https://www.eda.admin.ch/countrie &SECO Sustainable Energy Management and s/ukraine/en/home/representations Urban Development, /cooperation-office.html Governance and Peace building Health USAID Agriculture https://www.usaid.gov/uk/ukraine Global Health Economic Growth Energy and Energy Security Democracy, Human Rights and Governance Humanitarian and Transition Assistance UNDP Recovery and Peace building http://www.ua.undp.org Democratic Governance, Rule of Law and community justice Poverty elimination, Capacity development, Environment and Energy Inclusive growth Bioenergy

WB Good Governance and Anticorruption http://www.worldbank.org/en/coun Institutions try/ukraine Fiscal and Financial Stability Growth and Competitiveness Efficient, Effective and Inclusive Service Delivery 189

Number of bilateral donors provides financial and technical assistance to Ukraine: • Czech Republic: Contributes to Ukraine, although in the recent past the contributions have been inconsiderable. For the time being there are no bilateral assistance projects for Ukraine. Web site information is available at: http://www.czda.cz/czda/en_126.htm?lang=en. In particular, the Czech Republic Development Cooperation Strategy for 2010-2017 is available at: http://www.czda.cz/editor/filestore/File/strat_dok/FINAL__Development_Cooperation _Strategy_2010_2017.pdf.

• Denmark: provides bilateral assistance in Ukraine through the Embassy and DANIDA. Information on the wider programme is available at www.um.dk/en (or at www.danida.dk). In total 7 development projects have been implemented in Ukraine until 2014 (http://openaid.um.dk/en/countries/). Ukraine is eligible for investments and development projects by some State Investment Funds, like IFU and KIF http://www.ifu.dk/en.

• Estonia: Development cooperation is a relatively new foreign policy field for Estonia. It became a donor country in 1998. Ukraine is among priority countries of Estonian bilateral development cooperation, although the assistance it is very limited (http://vm.ee/en/ukraine). Information and contacts on the programmes can be found at: http://vm.ee/en/taxonomy/term/55.

• France: The French development assistance mechanism has undergone major changes in recent years. Among the major reforms undertaken, the strengthening of the management capabilities of French assistance should be highlighted, with the creation in 2009 of the Directorate-General of Global Affairs, Development and Partnerships (DGM) and a Crisis Centre (CDC) within the Ministry of Foreign Affairs, which is responsible for French humanitarian assistance. France operates several technical cooperation programmes with Ukraine. Information on the programmes is located at: http://www.ambafrance-ua.org/-Tehniichne-ta- iinstituciijne- • Hungary: The country participated in Hungary Slovakia-Romania-Ukraine ENPI Cross- border Cooperation Programme in the period of 2007-2013 http://www.huskroua- cbc.net/en/objectives-priorities-and-measures. Priority dimensions of bilateral cooperation within in science and technology focusing at: basic research on some urgent problems of natural, social sciences and humanities, new technologies in energy industry, including metallurgy, environmental protection and sustainable development, new technologies of diagnosis and treatment of most common and complex diseases, cultivation and crop protection, microbiology, information technologies.

• Japan: Japan operates a number of programmes in Ukraine. With respect to large investments, it provides soft loans for infrastructure projects, although does not offer significant grant programmes in this area. Grant Aid is targeted mainly at developing countries with low income level. This type of aid covers a wide range of cooperation related to the future of developing countries, including development of social and 190

economic infrastructure, such as the construction of hospitals or bridges, as well as education, HIV/AIDS awareness, children's health, the environment and other areas. Japan International Development Agency (JICA) uses an array of development assistance schemes to meet the diverse needs of developing countries around the world. http://www.jica.go.jp/english/our_work/types_of_assistance/index.html Japan official development assistance (ODA) provides number of inputs including grass roots projects targeted at environmental and nuclear safety issues, energy efficiency, healthcare and culture. http://www.mofa.go.jp/policy/oda/data/#europe.

• Latvia: Latvia commenced the implementation of bilateral co-operation projects with Ukraine in 2007. The priorities were oriented towards local authorities’ capacity development, capacity building of NGOs, training professionals in veterinary services and food safety, investments attraction and export promotion, dissemination of information on EU and NATO. Ukraine was one of the main partner countries of the Latvian ODA programme, although unfortunately Latvia has suspended its ODA programme in 2009, excepting the mandatory contributions to existing and multilateral programmes. Information on the programmes can be found at: www.mfa.gov.lv/en/ukraine/DevelopmentCooperation

• Lithuania: On joining the EU Lithuania has become a member of the international donor countries’ community. It implements the bilateral development cooperation programme through the Ministry of Foreign Affairs. The objectives of the programme are focused at: implementation of the Millennium Development Goals, ensuring peace, economic growth, social stability, reduction of economic disparities between countries, integration of developing countries into global economy. Information on the programme can be located at www.urm.lt/index.php?-588416158.

• Netherlands: The Netherlands operates programmes in Ukraine, especially in support of the Ministry of Finance of Ukraine, State Agency for Land Resources and some other public institutions. The current grant programmes offered by the Dutch Ministry of Foreign Affairs are: FLOW; PDP Fund against poverty-related diseases; Choices and opportunities fund; MDG Fund; Sexual and Reproductive Health and Rights Fund; Human Rights Fund.

The provision of bilateral assistance for Dutch and international civil society organizations is based on The Standard Framework for Development Cooperation (Standard Framework), which came into force on 1 January 2011. Full and comprehensive information on existing and future programmes can be accessed at:

http://www.government.nl/issues/development-cooperation/grant-programmes.

• Norway: The Embassy funds a number of projects supporting the work of civil society in Ukraine. The main focus areas for current Embassy and MFA funds are Human Rights and democracy related projects. In addition, a number of larger scale grants are awarded directly from the Norwegian Ministry of Foreign Affairs in Oslo.

191

Read more about the annual call for proposals on the MFA webpage: http://www.regjeringen.no/en/dep/ud/about_mfa/grants/calls_proposals.html?id=612 816. Information on bilateral development cooperation programmes can be accessed at: http://www.norway.com.ua/News_and_events1/Grants_and_projects/

• Poland: Ukraine, together with other Eastern Partnership countries continues to be the most important geographical priority for Poland’s bilateral development cooperation in 2014. Ministry of Foreign Affairs of Poland is the main state body responsible for all aspects of ODA. The Development Cooperation Policy Council functioning alongside the Ministry of Foreign Affairs was established pursuant to the Development Cooperation Act of 16 September 2011. The Council is an advisory and consultative body. In particular, its tasks include: tabling geographical and thematic priorities for development cooperation, assessing draft annual and multiannual development cooperation programmes, evaluating Government administration bodies' annual reports on fulfilling development cooperation tasks and issuing opinions on development cooperation documents drafted by the Government. The official web site, dedicated to all aspects of bilateral development cooperation is: www.polskapomoc.gov.pl. For the period 2012 – 2015, two thematic priorities have been selected: 1. democracy and human rights; 2. political and economic transformation. The full version of Multiannual Development Cooperation Programme for 2012-2016 is available at: http://www.polskapomoc.gov.pl/files/dokumenty_publikacje/PW_EN-po_reas.pdf

• Slovakia: Having committed itself to the fulfilment of the Millennium Development Goals in compliance with the main objective of EU development cooperation, i.e., poverty reduction, the Slovak Republic contributes to reducing poverty and to promoting their sustainable development. In the case of middle income countries, including Ukraine, Slovakia provides development assistance to, the crucial objective is their sustainable development based on good governance, respect for human rights and addressing political, economic, social and environmental issues. The Slovak Agency for International Development Cooperation is the main bilateral aid organization. The web site is: http://www.slovakaid.sk/en

• Slovenia: International development cooperation is regulated by the International Development Cooperation of the Republic of Slovenia Act, adopted in June 2006. The Act defines the objectives and methods of long-term planning, financing and implementation of international development cooperation of Slovenia. In July 2008, the National Assembly of the Republic of Slovenia adopted the Resolution on International Development Cooperation of the Republic of Slovenia until 2015. The Resolution sets out the geographical and sector-specific priorities for Slovenia's international development cooperation until 2015, along with mechanisms for its implementation. The Slovenian government established or co-established several institutions for implementation of development cooperation: Centre for European Perspective (CEP), Centre of Excellence in Finance (CEF), ITF Enhancing Human Security (ITF), Centre for International 192

Cooperation and Development (CMSR). Until recently Slovenia has two projects implemented in Ukraine (nuclear safety and healthcare). http://www.mzz.gov.si/en/foreign_policy_and_international_law/foreign_policy/intern ational_development_cooperation_and_humanitarian_assistance/international_develo pment_cooperation_of_slovenia/bilateral_development_cooperation/

• Turkey: Turkey operates a programme in Ukraine. Until Russian invasion of the peninsular the main geographic priority of Turkish aid was the Crimea Autonomous Republic. The Turkish International Cooperation and Development Agency (TIKA) is the Turkish Government’s Development Cooperation Agency. Information on the programme can be found at: http://www.tika.gov.tr/en/ Tika has no coordination office in Ukraine. Related information can be received from the Turkish Embassy in Kiev at: http://kiev.emb.mfa.gov.tr.

10.2. Donor projects on local development implemented in Ukraine:

There are numerous donors involved in local economic development, support to local self government, promoting decentralization in Ukraine, and many of them have been involved for numerous years, including in the later 1990s when the first law on local self governance was adopted. The detailed overview of related donor programmes and project of financial and technical assistance could be found in the Annex 2:

11. Socio economic development ranking of the regions and the most active municipalities56,57

To the top five territorial units58 in Ukraine refer: city of Kyiv, Zakarpatska, Odes’ka, Lvivska and Dniprovska Oblast 59. The most active municipalities are concentrated in the above mentioned regions, although there’s a number of municipalities in the remaining oblasts, which actively participate in numerous national and international development programmes and projects.60

The cities Dnipro, Nikopol, Pavlograd, Ternivka, Kryvyi Rig, Pershotravensk, Lviv, Chervonograd, Mykilaiv, Drohybych, Zhydachiv and Novyi Rozdil have new capacities and are inclusively implementing locally developed LED strategic plans and demonstration projects financed with newly generated funds as a result from participation in Municipal Local Economic Development (MLED) Project implemented by Federation of Canadian Municipalities in 2010-2014. http://www.mled.org.ua/eng/about/description

Number of municipalities and village councils in Cherkassy, Dnipro, Ivano-Frankivsk, Odesa, Rivne, Vinnytsia, Volyn, Zakarpatska oblasts implemented numerous local development projects,

56 In terms of participation in programmes, projects of TA and financial assistance 57 Official statistics in Ukraine is aggregated to the level of regions. Ranking the municipalities by socio- economic indicators requires separate research. 58 Consolidated ranking of 12 indicators as per methodology for monitoring of state policy for regionaldevelopment. Ministry of Regional Development, Construction and Housing 59 The full ranking and description of 12 indicators in the Annex 1. 60 Selected examples out of numerous projects and programmes implemented within five recent years and those under implementation 193 supported by EU funded Support to Ukraine’s Regional Development Policy (SURDP) project, implemented in 2013-2017: http://surdp.eu/en/EU-grant-projects

Vinnytsia, Lutsk, Ivano-Frankivsk and Mykolayiv participated in EU funded “A Transparent Ukrainian City” project which helped to increase citizen access to information about local government functions, resources and administrative services in order to build citizen capacity to participate in decision-making and monitor the efficiency of local authorities, and develop a reference model for transparent e-governance to raise the quality and efficiency of administrative service delivery in the pilot cities in Ukraine.

Lviv, among other projects, benefited from the implementation of GIZ funded The Municipal Development and Rehabilitation of the Old City of Lviv (2009-2016).

Numerous municipalities and rural communities from all over Ukraine participate (-ed) in UNDP Community Based Approach for Local Development. The overall objective of all three phases CBA Project is to promote sustainable socio-economic development at local level by strengthening participatory governance and encouraging community-based initiatives throughout Ukraine. Specific objectives of the Project are to: promote community based approach to local governance and sustainable development; enhance energy efficiency at local level; support the creation of the locally owned and managed repository and network of good practices and knowledge on community mobilization and participatory governance. http://www.ua.undp.org/content/ukraine/en/home/operations/projects/democratic_governa nce/CBA-III.html Lviv, Chervonohrad, Drohobych, Nikopol, Kryvyi Rih and Dnipro participated in CIDA funded Evidence-Based Economic Development, (EBED), aimed at strengthening the capacity of regional and municipal officials to conduct evidence-based analysis and to use the results to inform economic development plans aligned at all three levels of government (central, regional, and municipal). www.ebed.org.ua Cities of Kyiv, Dolyna, Boryspil, Lutsk, Chernihiv and Baranivka cooperated with NEFCO’s Facility for Energy Saving Credits which is a loan programme that provides funds to finance energy saving measures in municipally owned buildings such as schools, day-care centres, hospitals and sports facilities http://www.nefco.org/contact

12. The interaction of local authorities with NGOs and business

Numerous mechanisms exist for citizen input into local governmental decision-making and oversight, including the civic advisory councils that are attached to both local councils and ministerial representatives on the local level, public hearings, and town hall meetings.

The municipalities/local authorities actively involved in national and international local economic development projects are outlined in the previous section as well in the Annex 2: donor programmes and projects. Frequently TA projects and grants foresee the interaction of local self- governments with civil society and businesses and strive to contribute to the enhanced dialogue and consultations.

194

As per Law of Ukraine “On local state administrations” the LAs should interact with political parties, civil society, religious organisations, as well as with organizations of employers, trade unions, professional organizations and others (including businesses) to assure consideration of their political, ecological, social, economic, cultural and other concerns within national and territorial goals and interests. Representatives of CSOs and businesses have the right to participate in discussion of draft of local legal initiatives, development programmes, etc. The representatives of civil society organizations and businesses participate in the community councils as permanent members or invitees. The community (public) councils are created within central bodies of executive power as well as within all regional and raion administrations, which are set up and function in line with the Decision of CMU “On assurance the participation of the public information and implementation of state policy” (N 996, 03.11.2010). The public consultations are applied as additional form of interaction. The consultations are organized by the executive governmental bodies, responsible for implementation of the state policy in particular sphere. Information on public consultations is placed on the web resources of executive bodies in the section “Consultations with the Public”

The efficiency of community councils and participation of civil society and businesses in the public consultations varies and depends mainly from the activeness and commitment of the stakeholders and civil society in particular community.

12.1. Elaboration of the local development strategic documents with active participation of local NGOs and the business:

Participation of civil society and businesses in elaboration of strategic documents and legal acts is determined by numerous legal acts of Ukraine. The capacity and involvement of local civil society actors and businesses has become more sophisticated in recent years, and it has also become both more politicized and broader in its constituency since the EuroMaidan protests began in November 2013.

In Kyiv, civil society actors from analytical centers have played a substantial role in drawing up designs for decentralization and working with the Ministry of Regional Development to produce draft constitutional amendments and legislation intended to empower local self-governance. Furthermore, regional NGOs, especially in Oblast’ centers, have worked with analytical centers in Kyiv to contribute to these efforts. However, the assessment team found consistently that regional civil society groups had less capacity and resources to engage government than was the case in Kyiv. This phenomenon appears to be a product of donor organizations supporting national reform projects through larger NGOs in Kyiv, which subsequently sub-contract regional work to local organizations. The result has been that most stronger and resource-rich NGOs are in the capital city and focus on national-level policy issues and oversight.

195

If the decentralization reforms are duly implemented, the need for local civil society actors for direct oversight of local governance and provision of analytical services to local councils is expected.

The political will (influence of dominating parties) prevails over citizen oversight and input in matters of local governance. However, it was noteworthy that an equal number of responses from civil society actors noted that one of the reasons for a lack of citizen involvement was due to inadequate local capacity. In particular, many civil society actors stressed that few local organizations had the skills to conduct oversight over such technical issues as government expenditures and tender competitions.

12.2. Legal framework for public-private partnership

The related legal act is 61” The Law of Ukraine “On Public Private Partnership (2010). The legal principles of the public-private partnership are also determined in the Constitution of Ukraine, the Civil Code of Ukraine, and the Commercial Code of Ukraine (436-15). In 2016, the Ukrainian Parliament attempted to rectify the situation. In May an amendment to the On Public-Private Partnership Act came into force and expanded the scope of guarantees for investors. For instance, investors now have the right to suspend the fulfilment of their obligations, if the prices for their products, which are regulated by the state, are economically unjustified. Another improvement is the newly introduced right to settle disputes via international arbitration. The Parliament is also considering changes to budget laws that would allow the state to provide long term financial guarantees in PPP projects. In 2016, the Ministry of Economic Development and Trade of Ukraine allocated 312 state-owned assets for PPP projects. The focus of these projects was healthcare, transport infrastructure, energy, mechanical engineering, and agribusiness. Now the question is whether Ukrainian PPP projects are promising enough in the eyes of private investors. Today the Ukrainian healthcare market is estimated at USD 4.9 billion. However, state-owned and municipal clinics in Ukraine that provide 90% of services fail to satisfy the market`s demand in both the scope and quality of healthcare services needed by the patients. The most commonly-used forms of PPP projects are: (1) concession and (2) lease of state-owned and municipal property. Currently, large infrastructure and industrial structures such as plants, ports, and roads may be among the objects of concession. Concession is one of the few forms of PPP (along with financial lease) which allows private investors to eventually obtain priority right to buy-out of the state-owned property. Lease remains the most regulated and safe option for investors. An investor may lease the whole property or some part of it (i.e., a building or its section), and may also renovate or introduce technical modernization or other improvements to the leased property at its own expense, and be compensated for it. In some instances, following these improvements, the investor may become an owner of this property. The law does not state the maximum period of lease, but usually the assets are leased for at least 10 years. A joint venture agreement prescribes for combination of the assets and/or organizational resources (stake) of the public and private sector parties to carry out a joint project. In Ukraine, the state’s stake in a joint venture can be no lower than 50%, which cannot be overruled by

61 http://zakon2.rada.gov.ua/laws/show/2404-17

196

contract. The maximum lifespan of a joint venture is not legally defined and is up to the partners to determine. So far management contracts have been seldom used in PPP, which is partly due to their novelty in the Ukrainian business environment. At the same time, this is the most flexible form since the law does not yet dictate any mandatory provisions. Acquisition of management services by the state will be carried out through the mechanism of public procurements, including e-system “ProZorro”. The law does not limit the duration of management contracts, though the default term is five years. The amended version of the On Public-Private Partnership Act mentions management contracts alongside concessions and joint ventures, so we can expect it to be used more often. Ukraine carries significant potential for PPP projects. And while in the past legislation did not provide solid procedures and guarantees for private partners, the situation now is rapidly changing.

Examples of projects based on public-private partnership: Sectoral PPP project example: http://www.eastagri.org/meetings/index.asp?id=83 LED PPP project examples 62 http://surdp.eu/en/Regional-Development-Projects Useful links: • Contact details of local government bodies: http://depsam.rada.gov.ua/depsam/control/uk/publish/article?art_id=45145&cat_id=45143 • web sites of regional councils: http://depsam.rada.gov.ua/depsam/control/uk/publish/article?art_id=45110&cat_id=44727 • Association of Industrial Parks of Ukraine (AINPU) http://www.ainpu.com.ua/en/association-of-industrial-parks-of-ukraine-is-seriously- concerned/ • Regionet - http://regionet.org.ua • National Association of Regional Development Agencies (NARDA) - http://www.narda.org.ua

REFERENCES: • Ministry of Finance of Ukraine: http://www.minfin.gov.ua/en/news/bjudzhet/local- budg; • ALDA Report 2015: Public Administration and Local Governments Reforms in Eastern Partnership Countries; • The history and structure of local governments in Ukraine, Warsaw University, 2016; • Department for Relations with Local Self Government of Apparatuses of Verkhovna Rada of Ukraine, http://depsam.rada.gov.ua/depsam/control/uk/index; • Concept of the Reform of Local Self-Government and Territorial Organization of Government in Ukraine http://mfa.gov.ua/en/news-feeds/foreign-offices-news/21459- koncepcija-reformuvannyamiscevogo-samovryaduvannya-ta-teritorialynoji-organizaciji- vladi-v-ukrajiniajini ;

62 to be selected from the below link) 197

• LOCAL GOVERNANCE AND DECENTRALIZATION ASSESSMENT: IMPLICATIONS OF PROPOSED REFORMS IN UKRAINE, USAID, 2014 Council of Europe, Congress of Local and Regional Authorities, 25th SESSION, October 2013, https://wcd.coe.int/ViewDoc.jsp?p=&id=2113065&direct=true ; • LOCAL FINANCE BENCHMARKING: A SHARED TOOL FOR IMPROVED FINANCIAL MANAGEMENT, Council of Europe, 2015 • Local Government in Ukraine by Yuri Navruzov, UNDP http://unpan1.un.org/intradoc/groups/public/documents/APCITY/UNPAN008030.pdf • Budget Code of Ukraine 2016 http://gogov.org.ua/wp-content/uploads/2016/05/THE- BUDGET-CODE-OF-UKRAINE.pdf ; • Public Private Partnership in Ukraine. New Investments Environment, http://www.ilf- ua.com/eng/publications/articles/publicprivatepartnershipinukrainenewinvestmentenvi ronment/ • Decentralisation Reform Portal: http://decentralization.gov.ua/legislation • E-Library of EU Funded SURDP Project: http://www.surdp.eu/RD-Library ; • German Advisory Group Institute for Economic Research and Policy Consulting Policy Paper Series [PP/02/2016] Improving SME Access to Finance in Ukraine • SME POLICY INDEX: EASTERN PARTNER COUNTRIES – © EBRD, ETF, EU, OECD 2015 • В.Ю. Ніколенко С.М. Свешніков В.В. Юрченко В.І. Крижановський МІСЦЕВІ БЮДЖЕТИ ЯК ЧИННИК СТАБІЛЬНОСТІ РОЗВИТКУ РЕГІОНІВ, ДФС http://www.centre- kiev.kiev.ua/bib/files/nmm/MB16.pdf • Industrial Parks in Ukraine 2017 http://www.me.gov.ua/Documents/Detail?lang=en- GB&id=defb7ddc-0a7b-4915-a7f2-a858af8a6b3f&title=IndustrialParksInUkraine

Annex 1: Ranking of the regions by various socio-economic indicators

Consolidated Rank of region by Oblasts ranking indicators (pls. see below) 1 2 3 4 5 6 7 8 9 10 11 12 Kyiv city 1 1 1 1 1 1 1 6 15 2 1 8 2 Kharkivs’ka 2 10 12 11 3 5 7 14 2 1 9 6 3 Chernivets’ka 3 9 13 17 4 2 15 3 18 16 3 5 19 Ivano-Frankivs'ka 4 7 6 10 24 6 16 17 6 14 5 3 18 Dniprovs'ka 5 5 3 4 8 22 4 1 10 6 15 13 21 Kyivs'ka 6 6 10 6 2 17 6 4 5 18 14 14 23 Vinnits'ka 7 16 4 19 7 11 2 5 1 9 10 20 17 Zakarpats'ka 8 2 16 2 6 7 9 10 7 25 4 23 8 L'vivs'ka 9 4 9 13 12 13 10 7 11 22 7 10 16 Cherkas'ka 10 15 7 23 13 14 11 16 14 3 13 9 5 Rivnens'ka 11 14 20 21 11 15 18 23 3 24 2 1 20 Volyns'ka 12 18 8 8 10 19 12 13 9 20 8 2 25 Khmelnyts'ka 13 20 14 14 23 10 19 9 13 8 11 7 12 Poltavs'ka 14 11 2 3 20 20 23 11 21 12 12 11 7 Ternopils’ka 15 12 21 18 9 23 22 2 23 23 6 4 4 Zhytomyrs'ka 16 19 17 20 21 3 20 12 4 15 17 18 6 Zaporiz'ka 17 8 5 12 18 21 5 15 20 10 18 15 14 Odes'ka 18 3 22 15 22 9 3 8 17 21 21 16 22 Sums'ka 19 23 18 9 15 16 13 21 8 5 16 22 10 198

Khersons'ka 20 13 19 5 5 8 21 22 22 13 22 17 11 Kirovograds'ka 21 22 15 22 19 4 17 18 12 7 19 21 24 Mykolaivs'ka 22 17 11 7 17 18 8 20 19 11 20 25 15 Chernigivs’ka 23 21 23 16 16 12 14 19 16 4 23 24 13 Lugans'ka 24 25 24 25 14 25 25 25 24 19 - 12 1 Donets’ka 25 24 25 24 25 24 24 24 25 17 - 19 9

INDICATORS: 1 - Economic and social cohesion; 2 - Economic effectiveness; 3 - Investment/innovative development and foreign economic cooperation; 4 - Financial self-sufficiency; 5 - Development of small and medium entrepreneurship; 6 - Labour market effectiveness; 7 - Infrastructure development; 8 - Renewable energy and energy efficiency; 9 - Accessibility and quality of education services; 10 - Accessibility and quality of healthcare services; 11 - Social protection and security; 12 - Rational natural resource management and quality of environment.

199

Annex 2: Relevant donor programmes and projects in Ukraine

Donor Programme /Project Period Budget Web-site or contact details MULTI Eastern Europe Energy Efficiency and Environment Partnership Fund (EP 2011-2018 EUR 90 http://e5p.eu Sustainable Municipal Development Flagship Initiative ) million EBRD, E5P is a multi-donor fund w managed by the EBRD designed to promote EIB, KfW, IFC, energy efficiency investments in Ukraine and other eastern European NEFCO, countries. Grants under E5P are allocated to four priority areas: district NIB, WB, heating, other energy efficiency projects, environment projects in Ukraine as CEB well as additional projects in other eastern European countries. In addition to promoting energy efficiency in district heating projects, funding also supports other investments aimed at making substantial energy savings. Environmental projects, such as waste water or renewable energy, will also be within the scope of the grant funding.

CIDA Municipal Local Economic Development, MLED The project aims to 2010-2015 CAD 13.8 www.mled.org.ua/eng/mai contribute to improved economic opportunities for Ukrainians in a million strengthened democracy. The project supports improved planning and delivery of services that foster and support economic growth and development in 12 cities in Lviv and Dnipropetrovsk oblasts. MLED promotes intergovernmental cooperation models through work with cities and selected national and oblast level enabling institutions to support the achievement and dissemination of results.

200

CIDA Skills for Employment The goal of the project is to contribute to increased 2012-2016 CAD 3.4. http://www.siast.org.ua/en/pro employment and self-employment in the Micro, Small and Medium-sized million jects/sfep Enterprises (MSME) sector in Ukraine. The project aims to improve the quality of business training programs offered in three local training institutions to enhance the skills level of graduates, and to strengthen the capacity of the institutions to improve access to training for women and other equity groups - particularly in economically disadvantaged areas. The project is designed to benefit 14,000 students over the course of the project.

Council of “Decentralisation and Territorial Consolidation in Ukraine” 2015-2017 n/i http://www.slg-coe.org.ua/goal- Europe Overall objective: to strengthen institutional and administrative capacities and-objectives/?lang=en of the Government of Ukraine to promote, co-ordinate and implement decentralisation and local government reforms, and to support the preparation and implementation of territorial amalgamation throughout the entire country. EBRD Technical Assistance Support for Ukrainian Municipalities 2008-2016 EUR http://ec.europa.eu/europeaid/ 5 million blending/technical-assistance- support to several investments that the EBRD is currently developing in support-ukrainian- Ukrainian municipalities in the water and wastewater, district heating and municipalities_en urban transport sub-sectors EIB Rehabilitation and modernisation of water supply and wastewater since 2010 EUR 15.5 Mr Dušan Ondrejička collection and treatment facilities to upgrade water supply and wastewater million [email protected] treatment in the City of Mykolayiv (southern Ukraine) and EUR 100 million +352 43 79 - 83334 +EUR100 to finance small and medium-sized investments in the areas of SMEs, +352 621 45 92 34 million energy efficiency and the environment in Ukraine

201

EaP Sustainable Municipal Development Flagship Initiative Since 2015 https://ec.europa.eu/neighbour EU The flagship encourages LAs in EaP countries to cooperate with civil society hood- organisations to enhance accountability, exchange best practices and enlargement/sites/near/files/ne strengthen the LAs’ capacities as efficient and effective administrations for ighbourhood/pdf/riga/2015051 local development and sustainable economic growth. The Municipal 8_flagship_smd.pdf Flagship addresses both the capacity of LAs to create an attractive economic environment and to respond to the administrative challenges and https://ec.europa.eu/neighbour governance issues that go together with it. hood- It supports LAs in their efforts to achieve and implement more sustainable enlargement/neighbourhood/ea local policies in different sectors. stern-partnership The municipal flagship consists of: • Covenant of Mayors (CO2 emissions reduction • Sustainable Energy Action Plans) • Mayors for economic growth (Development and implementation of local economic strategies) • Urban strategies in historic towns (COMUS) • Access to finance - Municipal Project Support Facility (MPSF): investment projects in the local authorities • Eastern Europe Energy Efficiency and Environmental Partnership (E5P): development of municipal projects EU Covenant of Mayors for Climate & Energy (EaP Sustainable Municipal 2016 -2020 EUR 4.3 http://www.covenantofmayors. Development Flagship Initiative) million eu/The-Covenant-of-Mayors- Providing support to a branch of the CoM Secretariat in the EaP, Covenant for-Climate.html of Mayors Office East (CoMO East), to help cities in the region to sign up to the Covenant of Mayors and design and implement the Sustainable Energy http://www.covenantofmayors. Action Plan (SEAP) or similar actions; eu/about/covenant- works to increase the capacity of L&RAs to tackle climate change-related supporters_en.html?stru energy issues and strengthen the administration to develop investment projects; grant scheme, the EU has financed demonstration projects

202

EU EU 4 Business provides: 2016-2020 EUR 75.0 http://www.eu4business.eu Support to National authorities, helping to change and improve laws and million regulations, building a better ‘regulatory framework’ to improve investor (for confidence (TA- 7MEUR); Ukraine) Support to Business Support Organisations (BSOs) as membership organisations enable a dialogue between government and business. EU4Business can organise PPD (Public-Private Dialogue), co-operation and networking (28MEUR); Direct support to small and medium sized enterprises (SMEs), for example by providing finance, training, coaching and advice, import and export support and matchmaking (40 MEUR) EU Eastern Partnership Culture and Creativity Programme, supports the 2015-2018 EUR 4.0 https://www.culturepartnership contribution of cultural and creative sectors to sustainable social and million .eu/en/page/about economic development in the countries of the Eastern Partnership.

EU Cross Border Cooperation (CBC) – sustainable economic development along 2014-2020 EUR 1.052 https://ec.europa.eu/neighbour the EU's external borders, thus reducing differences in living standards and billion hood- addressing common challenges across these borders. For each of the new enlargement/neighbourhood/cr programmes the participating countries can select up to four thematic oss-border-cooperation_en objectives such as SME development, culture or environment and climate change, fight against poverty, education and research, energy, accessibility, border management.

EU, U-LEAD with Europe: Ukraine Local Empowerment, Accountability and 2016- EUR 97 Under construction Germany Development Programme, the goal is contribute to the establishment of 2020 million https://www.giz.de/en/html/se Sweden multilevel governance which is transparent, accountable and responsive to archresult.html?doc- the needs of population, types=html&query=u- lead&send_button_search.x=13 &send_button_search.y=12 203

to enhance the capacity of key actors at central, regional and local levels to implement the regional policy and decentralisation reform, to improve delivery of local administrative services for the benefit of the citizens EU Support to Ukraine's Regional Development Policy supports the 2013- EUR 31 http://surdp.eu/en/ decentralised implementation of Ukraine’s regional development policy and 2017 million provides a valuable case study in the requirements and difficulties of decentralisation (project selection and implementation; sound financial management and auditing; evaluation and monitoring; achieving a balanced partnership between national or central policy-making and decentralised implementation; etc.). Also it is visible to the Ukrainian people through a range of investment projects as well as projects designed to ease the problems of Internally Displaced Persons. 32 projects are currently being implemented: 14 are regional development projects. 18 are projects put forward by regional and LAs to address urgent needs of conflict-affected communities (infrastructure, housing, restoration of public services, promotion of economic activities etc.). EU Budget Support to Ukraine's Regional Policy (EUR 55 million, 2016-2018). 2016- EUR 55 n/a additional 2018 million financial resources to implement the State Strategy for Regional Development 2020 EU Community Based Approach (CBA) Phase III 2014- EUR 23.8 http://www.ua.undp.org/conte Build capacities of local communities and authorities in applying community- 2017 million nt/ukraine/en/home/operations based approach, participatory local planning and public service delivery, /projects/democratic_governan rehabilitating basic social and communal infrastructure, and developing small ce/CBA-III.html farm and non-farm businesses. Enhance energy efficiency through energy planning and efficient energy use, innovative technologies and awareness campaigns. Share best practices and knowledge on community mobilization and participatory governance through the knowledge hub and advocate for policy changes towards decentralization and local democracy. 204

Integrate community-based approaches to local governance and development in the curriculum of academia and educational institutions EU ENPI Complex regional cooperation to increase local employment in the 2013-2014 EUR 0.096 Mr Vasyl Mattiy, CBC Hungarian-Ukrainian border region million Transcarpathian Regional Centre for Investment and Support to implementation of measures based on best practices to increase Development, Ukraine; the local employment [email protected] .ua

EU ENPI INTER-URBAN 2013-2014 EUR 0.144 Joint Technical Secretariat CBC million Cross-border Cooperation Elaboration and introduction of monitoring system for sustainable Programme Poland - Belarus - development process Ukraine 2007-2013 Paweł Słowikowski - Head of JTS tel. +48 22 378 31 25 [email protected] EU ENPI Promotion of investment opportunities and cooperation Promotion of 2013-2014 EUR 0.202 Paweł Słowikowski - Head of JTS CBC investment opportunities and cooperation between small and medium sized million tel. +48 22 378 31 25 enterprises through development of cross-border ties in the Carpathian [email protected]

region

EU Urban Cycling Development for public benefit 2014-2017 EUR 0.250 https://www.facebook.com/pag million es/Urban-Cycling-Development- The proposed action aims at achieving positive changes in the national and for-Public- local transport policies to favour cycling infrastructure developments. Benefit/554819861275368

EU Local Sustainable Development for Rural Communities in Poltava Region 2013-2015 EUR 0.089 project: The project's purpose is to build partnerships on local sustainable million Telephone: +380 (44) 390 8010; development issues between local authorities, non-state actors, Ms Olena KULBAKA communities and the private sector to promote constructive cooperation and Email: [email protected] 205

dialogue. The objectives of the project are: - to strengthen the capacities of Tel: 00380 5322 2 26 84 non-state actors and local authorities; - to research and introduce best practices in the area of tourism and cultural heritage preservation; - to support local initiatives aimed at cultural heritage preservation, diversity and tourism development

EU Increasing governance integrity of the Lviv City Council - to enhance 2012-2015 EUR 0.149 Ms Iryna Fogel, Director of study governance integrity of the civil servants of the Lviv City Council. This will be million programs of City Institute Email: achieved through training of civil servants to act in integral way, as well as [email protected] through introduction of practices of compliance and institutional improvement.

EU Strengthening civil society in assisting the government with the 2013-2015 EUR 0.16 Project: Mr Igor Studennikov implementation of the Danube strategy The objective of the project is to million Email: [email protected] strengthen the Ukrainian civil society involvement in the implementation of Tel: 0038048719 8536 the EU Danube Strategy, as well as to promote dialogue between civil society organisations and the Ukrainian authorities responsible for the coordination of Ukraine's involvement in the Strategy implementation.

EU Strengthening the capacity of local civil society organisations in Mykolayiv 2013-2015 EUR 0.184 Project: Ms Olga ZHUKOVA and Kherson regions. The project's purpose is to enhance the role of civil million Email: [email protected] society in implementing the reform of administrative service delivery and Tel: 00380 552 420322 improving the quality of administrative services. The specific objectives of the project are to develop the capacity of local civil society organisations and promote their effective influence on the reform of administrative services through training programmes, sharing of best practices, and organisational networks

206

EBRD Technical Assistance Support for Ukrainian Municipalities: technical 2008-2016 EUR 5 European Bank for assistance in support to several investments that the EBRD is currently million Reconstruction and developing in Ukrainian municipalities in the water and wastewater, district Development heating and urban transport sub-sectors Email: [email protected] Tel: +380 44 277 11 00 EBRD and Second Urban Infrastructure Project and District Heating Energy Efficiency 2014-2020 USD 300.00 http://projects.worldbank.org/P EIB Project Improvement of water and waste water services; solid waste million 132386?lang=en services; energy efficiency and quality of service in selected municipalities

EIB Rehabilitation and modernisation of water supply and wastewater since 2010 EUR 15.5 Mr Dušan Ondrejička collection and treatment facilities to upgrade water supply and wastewater million [email protected] treatment in the City of Mykolayiv (southern Ukraine) and EUR 100 million +352 43 79 - 83334 to finance small and medium-sized investments in the areas of SMEs, +352 621 45 92 34 energy efficiency and the environment in Ukraine

GIZ Reform of municipal services in Eastern Ukraine: Improving conditions for 2010-2016 EUR 4.0 https://www.giz.de/en/worldwi the provision of municipal services (administrative and public utilities) in the million de/30635.html ; http://ims- pilot cities of Lugansk oblast (Alchevsk, Krasnodon, Lysychansk Lugansk, ukraine.org/en/reform- Rubizhne, Severodonetsk, Sverdlovsk and Stakhanov) municipal-services-eastern- ukraine-project

GIZ Municipal Development and Rehabilitation of the Old City of Lviv Training 2009-2016 EUR 4.0 http://www.urban- and vocational education; Public relations, awareness raising and million project.lviv.ua/en/index participation; Supporting renovation measures Developing instruments for urban renewal

NEFCO Loan agreements with selected Ukrainian municipalities aimed at From 2013 EUR 5.0 Facility for Energy Saving promoting energy efficiency that provides funds to finance energy saving million Credits; measures in municipally owned buildings such as schools, day-care centres, http://www.nefco.org/contact hospitals and sports facilities. At the moment, the facility only provides

207

loans to Russian and Ukrainian local authorities and publicly owned companies. The agreements will pave the way for a wide range of energy efficiency measures in municipally owned buildings. The projects concern the cities of Dolyna, Boryspil, Lutsk, Chernihiv and Baranivka.

CIDA Evidence-Based Economic Development, (EBED) - to strengthen the capacity 2010-2015 USD 10.0 www.ebed.org.ua of regional and municipal officials in Lviv and Dnipropetrovsk to conduct million

evidence-based analysis and to use the results to inform economic development plans aligned at all three levels of government (central, regional, and municipal). The project also builds the capacity of Ukraine's National Academy of Public Administration to competently offer courses in evidence-based economic development planning, to ensure that knowledge transfer can occur in other regions and municipalities beyond the life of the project.

KfW Support for small and medium-sized enterprises in Ukraine Financing the 2012-2014 EUR 2.0 [email protected] project of support for small and medium-sized enterprises in Ukraine; The million loan facility will be used to finance SME investment projects through Ukrainian banks - German-Ukrainian Fund partners in the hryvnia and euro, and the grant funds - to finance accompanying measures for implementation of the project, in particular for consulting support banks - German-Ukrainian Fund and SME partners.

KfW Ukrainian Social Investments Fund. The Fund finances infrastructure Since 2000 EUR 24.0 https://www.kfw- projects in villages and small towns with up to 50,000 inhabitants. The million entwicklungsbank.de/PDF/Entwi proposals are made by the municipalities which, together with citizens and cklungsfinanzierung/Länder- regional administrations, bear up to a fifth of the costs und- Programme/Europe/Projekt-

208

Ukraine-Kommunalentwicklung- 2014.pdf

Sida e-Governance Improved capacity for service delivery, increased citizens’ 2012-2020 EUR 4.0 http://www.ega.ee/services/ participation; enhanced capacity of a selected oblast to implement ICTs for million

better and transparent governance and local democracy; examples created for the central level authorities for further multiplication of the process

Suisse Strengthening the capacity of local authorities in Ukraine Implemented by 2008-2017 CHF 1.12 http://www.slg-coe.org.ua/wp- Confeder CoE, million content/uploads/2014/07/Annu ation alreport-2013_new.pdf Governm to improve the quality of local self-governance in Ukraine. The project ent and objective is to improve the capacity of local authorities to deliver good DANIDA governance through the preparation and implementation of a comprehensive series of impact-oriented programs Provide support for the establishment of a strong, effective local government system by implementing innovative European approaches to governance at the local level, developed by the Centre of Expertise for Local Government Reform. Build the capacity of local authorities for public ethics benchmarking, performance management, local finance benchmarking, and developing the leadership potential of local mayors. SDC Strengthening SMEs Business Membership Organizations (BMOs) Swiss 2013-2015 CHF 1.98 www.swiss- Agency for Development and Cooperation million cooperation.admin.ch/ukraine/ Support to strengthening Business Membership Organizations

SDC SME Crises Resilience Introducing non financial services for SMEs to banks, 2013-2015 CHF 1.98 www.swiss- disseminate non financial advisory best practices million cooperation.admin.ch/ukraine/

209

SDC Energy Efficiency – Zhytomyr Improvement of municipal energy 2014-2017 CHF 16.1 www.swiss- infrastructure, renewable energy. million cooperation.admin.ch/ukraine/

SDC Energy Efficiency and Renewable Energy Infrastructure in Vinnytsia to 2011-2015 CHF 16.0 www.swiss- improve municipal infrastructure and its energy efficiency, including million cooperation.admin.ch/ukraine/ increasing energy efficiency in the district heating system, building capacity and raising awareness about energy efficiency and renewable energy

UNDP GEF Small Grants Programme in Ukraine “Green Growth” as a solution for since 2009 EUR 6.6. http://www.gefua.net/en/topics addressing the development challenges on the local level; Local million /donor-funded-projects/162-- communities In selected regions gef-.html Mitigation of the effects of the Climate Change: through promoting energy efficiency and assessing the possibilities to use renewable energy resources, and, promoting and use of alternative transport means; Creation of partnership between local citizens’ associations and local governments to address and jointly act to solve community environmental problems USAID Development Initiative for Advocating Local Governance in Ukraine 2010-2014 USD 4.2 http://pdf.usaid.gov/pdf_docs/P (DIALOGUE) Training and constancy to Ukrainian public servants, civil society million A00KKD8.pdf organizations, and the public to help build a positive environment for local government reforms and ensure broad-based support for decentralization. The project seeks to create a constructive dialogue between local governments and the central government, and expand the legal and institutional framework for the development of local government in Ukraine.

USAID Municipal Finance Strengthening Initiative (MFSI-II) Roll-out Providing 2011-2015 USD million http://www.ibser.org.ua/en/oth legislative, methodological, and organizational support to central and local er_projects/project-municipal- governments in disseminating the performance program budgeting (PPB) finance-strengthening-initiative- method to all local budgets of Ukraine; developing and implementing mfsi-ii-roll-out-usaid financial practices that promote energy efficiency in selected cities; 210

improving public awareness about the process of State budgeting, revenues and expenditures.

USAID Public-Private Partnership Programme. The main goal is to expand 2010-2015 USD 12.5 http://ppp-ukraine.org/en application/ability to broadly apply PPPs. The project is designed to promote million the use of public-private partnerships (PPPs) to expand public infrastructure and improve public services for the citizens of Ukraine.

WB UA – Energy Efficiency to contribute to improved energy efficiency by 2011-2016 USD 200.00 http://projects.worldbank.org/P industrial and commercial companies, municipalities, municipal sector million 096586/ua-energy- enterprises and energy service companies by facilitating sustainable financial efficiency?lang=en intermediation for the financing of energy efficiency investments. The

components of the project includes: Ukreximbank has a successful track record of lending to industrial companies for energy efficiency projects under a parallel credit line provided by the European Bank for Reconstruction and Development (EBRD). Lending to municipal energy efficiency projects is inherently more risky, as municipalities creditworthiness is challenged by political interference in tariff setting, limited borrowing capacity and collateral limitations

WB Second Urban Infrastructure Project and District Heating Energy Efficiency 2014-2020 USD 300.00 http://projects.worldbank.org/P Project Improvement of water and waste water services; solid waste million 132386?lang=en services; energy efficiency and quality of service in selected municipalities

WB District Heating Energy Efficiency Project to improve the energy efficiency 2014- USD 332.0 http://projects.worldbank.org/P and quality of service of selected Ukrainian DH companies, improve their 2020 132741/district-heating-energy- financial viability and decrease their CO2 emissions. million efficiency?lang=en

211