as LEADERSHIP IN ECONOMIC GOVERNANCE (LEV) PROGRAM QUARTERLY REPORT OCTOBER 1, 2016 – DECEMBER 31, 2016 Submitted to Evgenia Malikova Agreement Officer’s Representative January 20, 2017 Cooperative Agreement AID-121-A-15-00001 This publication was produced for review by the United States Agency for International Development. It was prepared by the East Europe Foundation in partnership with the Institute for Economic Research and Policy Consulting, the Center for Social and Economic Research (CASE – Ukraine), and the Kyiv Economics Institute The authors’ views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. 2 | Leadership in Economic Governance (LEV) CONTENTS Program Background 4 Key Achievements under the LEV Priority Areas 5 LEV Success Stories 16 Legislative Reform Developments 19 Program Activities and Events in the Quarter 21 Ongoing Activities 21 Specific Events 21 Program Activity under the Objectives 24 OBJECTIVE 1 Identify legal, regulatory, and administrative measures that improve the business environment for Ukrainian SMEs 24 OBJECTIVE 2 Provide support to the central and local governments in drafting, promoting and implementing effective laws, regulations, and procedures in line with the recommendations identified in Objective 1 OBJECTIVE 3 Coordinate with and support stakeholders in the business community to promote economically-practical and fiscally-responsible reforms 41 Plans 48 ANNEX 1 Accomplishments based on PMP indicators and milestones 50 ANNEX 2 Media about the LEV Program 56 3 | Leadership in Economic Governance (LEV) PROGRAM BACKGROUND On December 19, 2014, the USAID Leadership in Economic Governance (LEV) Program in Ukraine was launched under a Cooperative Agreement Number No. AID-121-A-15-00001. LEV in Results The Program is implemented by the East Europe Foundation in cooperation with the implementing partners: the Institute for 5 Road Maps on SME Economic Research and Policy Consulting, the Center for support and development Social and Economic Research (CASE – Ukraine), and the were prepared and Kyiv Economics Institute. advocated by local NGOs from the LEV target regions The LEV Program aims to improve the business environment, combine the efforts of reform oriented civil society LEV and Ukrainian Catholic organizations and government institutions to facilitate the University launched in Lviv oblast necessary changes in policy preparation, and implementation the first in Ukraine Regulatory Hub of the law, as well as ensure specific institutional reforms contributing to development of small and medium-sized 187 representatives of enterprises (SME). The Program focuses its activity on the business associations took following objectives: part in advocacy trainings Objective 1: Identify legal, regulatory, and administrative organized by LEV measures that improve the business environment for Ukrainian LEV supported the SMEs. establishment of 2 SMEs coalitions Objective 2: Provide support to the central and local governments in drafting, promoting and implementing effective LEV and the State laws, regulations, and procedures in line with the Regulatory Service of recommendations identified in Objective 1. Ukraine conducted workshops on the M-Test implementation for civil Objective 3: Coordinate with and support stakeholders in the servants and local business community to promote economically-practical and government officials in 13 fiscally-responsible reforms. oblasts of Ukraine The Program activities at the regional level will be focused on Kyiv, Kherson, Lviv, Ternopil and Vinnytsia oblasts. The LEV Program focuses on the most pressing issues related to doing business in Ukraine. In Year 2016, the following priority areas were selected for the LEV Program interventions: Area 1. State SME Development Policy. Area 2. Administrative Services. Area 3. Regulatory Policy issues related to SMEs Development Area 4. Access to Utilities: Getting Electricity. Area 5. Export promotion of SMEs. The LEV Program concentrated its efforts on establishing effective regulatory policy in Ukraine as one of the most important prerequisites for creating favorable conditions for Ukrainian SME development. The LEV Program focuses on capacity building in both business associations and government institutions, with the ultimate goal to foster sustainable partnership between the private and public sectors, create a favorable business environment and strengthen the civil society in Ukraine. In order to achieve the program goals, the LEV team established effective cooperation with the government institutions, in particular, the Ministry of Economic Development and Trade, the State Regulatory Service of Ukraine, the Parliamentary Committee on Industrial Policy and Entrepreneurship, the National Bank of Ukraine, the National Commission for State Energy and Public Utilities Regulation, etc. This report covers the activities carried out during the period of October 1, 2016 through December 31, 2016. The USAID LEV accomplishments (according to PMEP indicators) achieved during October 1, 2016 through December 31, 2016 are presented in Annex A to this report. 4 | Leadership in Economic Governance (LEV) KEY ACHIEVEMENTS UNDER THE LEV PRIORITY AREAS During the reporting period, the USAID LEV Program continued its work under the Program priority areas. The key achievement as well as tasks fulfilled are introduced in this Section. Area 1. State SME Development Policy. I. The SME Development Strategy in Kherson Oblast by Year 2020 is one of the key achievements of Q4 2016. The work on the policy documents for Kherson oblast is a part of the USAID LEV Program activities aimed to assist local authorities and businesses in pilot regions in elaborating of policy documents to promote SME development. The draft Strategy of Small and Medium Enterprises Development in Kherson Oblast by Year 2020 was developed by the USAID LEV experts during the latter half of 2016, and presented to local authorities, business community, and business associations in Kherson in late December 2016. Following the presentation, Kherson Oblast State Administration will post the draft SME Development Strategy on its website for public discussion in line with the requirements of Ukrainian legislation. The document is based on the principles of the Small Business Act for Europe. It identifies key objectives aimed at improving the regulatory environment for local SMEs and lists the relevant action steps to reach these objectives as well as indicators of success. The Strategy also includes the SWOT analysis of SME sector in Kherson oblast. The meeting of the working group on development of the Regional SME Strategy for Kherson oblast until 2020 (December 20, 2016): the final comments to the document are taken as the USAID LEV experts present the draft Strategy. The SME Development Strategy in Kherson Oblast is a key document in the regional package of policy documents for Kherson oblast drafted with the support of the USAID LEV Program. Two other documents of the “regional package” incorporate SME Profile and Export Profile for Kherson oblast presented earlier this year. It is important to stress, that based on the USAID LEV Program approach towards the development of the regional strategic documents, participation and input of local authorities and representatives of local SMEs and business associations serve as the key success factor in elaboration of strategic documents. All comments and suggestions received from the stakeholders during the meetings with local businesses and authorities were taken into account and incorporated into the document. During the next reporting period, the USAID LEV Program will start developing a Strategy-based Action Plan for Kherson oblast, which will be the fourth document in the regional package of policy documents. 5 | Leadership in Economic Governance (LEV) II. The greatest achievement in the area is sharing experience of the USAID LEV target oblasts with other Ukrainian regions. Cherkasy Oblast State Administration requested assistance of the USAID LEV Program in developing of the oblast strategic documents on SME development. They studied successful experience of Ternopil oblast – one of the LEV target oblasts - on drafting “The Strategy of Small and Medium Enterprises Development in Ternopil Oblast by Year 2020” and expressed their willingness to include the same activities and outputs for Cherkasy Oblast Strategy. The request from Cherkasy Oblast was focused on the following prerequisites: (1) need in developing of a strategic document that identifies key goals and priority directions of SME development in the region and (2) need in establishing proper communication with the main stakeholders in the course of elaboration and further implementation of the document. The USAID LEV approach to develop such regional strategic documents (“regional package”) meets the above needs. LEV experts helped to draft documents using the best national expertise and competences as well as assisted in establishing and maintaining of proper communication with businesses and other stakeholders in a working group format to ensure that each member has equal rights to the created document. The working group consisting of all key stakeholders will be established under Cherkasy Oblast State Administration and will be facilitated by the LEV experts. During the reporting period, the USAID LEV experts started working with local authorities and