RESEARCH PRIVATE SECTOR ENGAGEMENT IN COMMUNITY DEVELOPMENT Kramatorsk, 2019 Author: Valerii Kokot This research was prepared as part of the United Nations Recovery and Peacebuilding Programme (UN RPP) under the financial support Master of Public of the European Union. Administration UNDP Advisor The content of this publication is the sole responsibility of its author and in no way reflects the views of the United Nations Recovery and Peacebuilding Programme or the European Union. The United Nations Recovery and Peacebuilding Programme (UN RPP) is being implemented by four United Nations agencies: the United Nations Development Programme (UNDP), the UN Entity for Gender Equality and the Empowerment of Women (UN Women), the United Nations Population Fund (UNFPA) and the Food and Agriculture Organisation of the United Nations (FAO). Twelve international partners support the Programme: the European Union (EU), the European Investment Bank (EIB) and the governments of Canada, Denmark, Germany, Japan, the Netherlands, Norway, Poland, Sweden, Switzerland & the UK. Table of Contents Summary 5 Introduction 8 1. The private sector and its engagement in community development 9 2. Models for private sector engagement in community development 10 2.1. Charitable support 10 2.2. Pro Bono 13 2.3. Corporate Social Responsibility 14 2.4. Social entrepreneurship 21 2.5. Impact Investment 31 2.6. Cooperation 34 3. Status of private sector engagement in individual communities in Donetsk and Luhansk Oblasts 38 3.1. Donetsk Oblast 39 3.1.1. Novhorodske 39 3.1.2. Druzhkivka 41 3.1.3. Velyka Novosilka 42 3.2. Luhansk Oblast 43 3.2.1. Sievierodonetsk 43 3.2.2. Bilovodsk 44 3.2.3. Shchastia 45 Conclusion 47 List of Abbreviations: AIC — Agro-Industrial Complex NPE — Natural Person- APCS — Automated Process Entrepreneur Control System NPK — Nitrogen-Phosphorus- ATC — Amalgamated Territorial Potassium Fertiliser Community NPP — Nuclear Power Plant ATO — Anti-Terrorist Operation OJSC — Open Joint-Stock CBO — Community-Based Company Organisation PCF — Production and CC — Cultural Centre Commercial Firm CE — European Compliance PFE — Private Farming Label Enterprise CHPP — Central Heating and PJSC — Public Joint Stock Power Plant Company CSO — Civil Society Organisation PR — Public Relations CSR — Corporate Social PR&DE — Private Research and Responsibility Development Enterprise DTEK — Donbas Fuel and PrJSC — Private Joint Stock Energy Company Company EC&I — Electrical Control & R&DE — Research and Instrumentation Development Enterprise EPR — Extended Producer R&DI — Research and Design Responsibility Institute EU — European Union RSA — Regional State Administration FAO — Food and Agriculture Organisation of the United SE — Social Enterprise Nations SFRD — State Fund for Regional HEE — Higher Educational Development Establishment SME — Small and Medium-Size HR — Human Resources Enterprises IDP — Internally Displaced SPA — Scientific Production Person Association ISO — International Organisation SPE — Small Private Enterprise for Standardisation UN — United Nations JFO — Joint Forces Operation UNDP — United Nations LLC — Limited Liability Company Development Programme M&CS — Monitoring and Control USIF — Ukrainian Social System Investment Fund NGO — Non-Governmental WNISEF — Western NIS Organisation Enterprise Fund Summary The armed conflict in eastern Ukraine has radically changed the life of local communities on the 'contact line'. In addition to serious issues of public security and social cohesion, local communities are acutely lacking new approaches, expertise and resources for the reconstruction and development of their territories. Effective collaboration with the private sector is a prerequisite for the success of most communities. Private firms often bring innovation, experience and financial resources into a community. This is particularly important for the reconstruction of communities in eastern Ukraine. This study highlights the main trends, barriers and prospects for socially responsible business development in Ukraine, with an emphasis on the eastern regions. It examines private sector engagement in the development of three communities in Donetsk Oblast (Velyka Novosilka, Druzhkivka, Novhorodske) and three in Luhansk Oblast (Bilovodsk, Sievierodonetsk, Shchastia). This research was carried out based on the analysis of information from open sources, interviews with business representatives, local authorities and civil society organisations in communities on the 'contact line'. While the study confirmed the existence of successful local development experiences involving the private sector, it also identified a number of limiting factors that make it impossible for local communities to interact effectively with the private sector. In communities where large businesses operate, the most common model for collaboration with the private sector is corporate social responsibility programmes. In particular, the communities of Shchastia and Novhorodske cooperate with DTEK and Metinvest Group respectively. Large enterprises also contribute to corporate social responsibility programmes by providing charitable assistance and pro bono services. Small and medium businesses are mainly involved in the development of host communities by providing charitable assistance based on requests from those in need or local authorities. Small businesses sometimes address social and other important issues in the community on their own initiative and at their own expense. Social entrepreneurship is relatively weak both in Ukraine as a whole and in the eastern regions in particular. In most cases, non-profit civil society organisations engage in social entrepreneurship, while local businesses only examine the possibility. Practically the only example of impact investment in Ukraine that meets the majority of applicable criteria is the 'Promprylad. Renovation' project in Ivano-Frankivsk. So far, no such project exists in eastern Ukraine. In most cases, the cooperative model of private sector engagement in community development in eastern Ukraine is represented by a small number of agricultural cooperatives. The potential to develop both rural and urban communities (industrial cooperatives) is barely utilised compared to other countries. 5 Summary The research identified a number of limiting factors that hinder — and sometimes even preclude — greater private sector engagement in the development of host communities. This is primarily due to a lack of understanding by both businesses and local authorities of the shared value of economic and social improvements in the community, which increase the competitiveness of both business and the community as a whole in the long run. The research also revealed a lack of awareness among local entrepreneurs and local government officials regarding effective models of cooperation with the private sector in Ukraine, which can be successfully applied to restore territories on the 'contact line'. There is an element of distrust, and often a bias, among local government representatives towards business structures and vice versa. In many cases, this requires external mediation and/or leadership to develop positive experiences in implementing joint projects. In eastern Ukraine, local development institutions capable of providing service support to engage the private sector in cooperation with the community are poorly represented. These services include (but are not limited to) identifying problems in community, generating ideas to overcome them jointly, attracting additional resources, developing and implementing projects, promoting success stories, etc. An important factor limiting more effective private sector engagement in community life is the lack of human and financial resources, both in local businesses and local authorities. Despite rather strong representation of international organisations in eastern Ukraine, their technical assistance could be more focused on enhancing private sector engagement in affected communities (management and financial consulting, grant support, exchange programmes, etc.). The research resulted in number of recommendations to improve private sector engagement in local development, in particular: • To develop a methodology for involving the private sector in the local development of communities affected by the armed conflict in eastern Ukraine (based on established and effective models of private sector engagement in the development of host communities). • To develop and conduct an applied training course on private sector engagement in local development for owners/managers of business structures, local government officials, and representatives of civil society organisations. • To develop a programme and conduct study visits on the application of different models of private sector engagement in local development in successful communities in eastern and other regions of Ukraine and abroad. 6 Summary • To develop an online course on involving the private sector in local development based on materials from training and study visits to successful communities. • To introduce a grant support programme in communities affected by the armed conflict in eastern Ukraine to implement joint projects involving local socially responsible businesses (co-financing). • To organise and conduct a Socially Responsible Business Forum to demonstrate successful models of private sector engagement in community development. This research can be of use to representatives of local government, businesses, civil society organisations,