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SME Project

Outcomes

During the period covered by the project UKR/99/010 the following outcomes and results were achieved:

OUTCOME 1.

Tools and mechanism were created based on public-private partnerships at the level of 8 oblasts of Ukraine to promote community income generation through investment activity and planning the community development based on development of the SMEs located within the municipal territorial borders.

How the component was accomplished:

The strategy, chosen by the project to accomplish this component, was to develop the mechanism and tools for effective investment activity by focusing on capacity building of local SMEs, local governments and NGOs with a special attention to training.

The following tools were developed during the project implementation:

Tool #1: Training Program
The essence of the training program was developing a viable cohesive investment promotion team at the level of oblast, which would consist of the key decision makers of the local government, and the heads of leading private enterprises. The program consisted of two parts: the first part targeted the oblast administration, and was dedicated to the strategic planning, as a result of which an overall framework for the Local Investment Program would be created; the second part targeted local entrepreneurs, with an essential emphasis on business-planning and investment management, as a result of which some certain complementary business projects would be developed to contribute to the Local Investment Program implementation.

Tool #2: Participatory Collateral
The essence of the participatory collateral was to overcome one of the most common stumbling blocks preventing a private sector from accessing credit resources: along with insufficient investment management skills, Ukrainian SMEs often lack sufficient collateral in their possession. Participatory collateral meant that the municipal property was provided to complement the lacking collateral resources of a private enterprise. Local communities, represented by the oblast or municipal authorities would be interested to implement such a mechanism, if the business activity developed as a result of the credit received would increase community budget income, create or save existing work places, and contribute to local infrastructure development.

Tool #3: The Use of Information Technology
The essence of the use of information technology was to ensure an ongoing learning process, where a day-to-day reality helped to improve the process and make it more flexible and thus viable. The project implied two channels of information exchange: the vertical channel, where all project sites periodically could provide their feedback to the central project office, which would process the information and disseminate it back in the form of recommendations and lessons learned; and the horizontal channel, where oblast and municipal administrations could exchange their opinions, problems, and successes between each other through the annual conferences and direct communication. The experience showed, that the vertical way of communication was usually replaced by the horizontal one, along with the evolution of the project.

Tool #4: Insurance of Investment Risks
The insurance of investment risks was an essential chain in any more or less serious and continuous investment process. The challenge for the project was not only to ensure that the mechanism of insurance of investment risks per se took place, but also to utilise this mechanism in order to access more attractive international investment capital, which, among other benefits, was comparatively cheaper. The know-how of the project implied a set of multilateral arrangements between a local government, a local bank, an internationally recognised insurance company, a foreign investor's bank, and a foreign investor itself, which made it possible for the international capital to feel secure in the changing environment.

Tool#5: LIPs - Local Investment Programs
Local Investment Program was the major tool within the process, which a public-private partnership approach tuned into reality, and enabled a mutually attractive cooperation with a potential investor. The process of formulation of the Local Investment Program envisaged the application of all the above mentioned tools with a view of compiling a comprehensive set of well-justified and viable business-projects, which would be profitable and create additional employment, on one hand, and would bear some social sense, on the other hand. Such package considered in the general framework of one Local Investment Program would be more attractive for potential investors to deal with.

OUTCOME 2.

The capacity of local and central governmental institutions to facilitate regional development was strengthened, SMEs management skills and transboundary cooperation for sustainable businesses development and to access information through the Internet were improved.

How the component was accomplished:

The important part of the component were 15 demands driven training sessions, which were implemented in such a way, that stakeholders of the LIP process could have an opportunity to work together and learn from each other. Innovative forms of SME support were also introduced by the project: through the use of municipal and private property of SMEs to satisfy the collateral requirements (if any) for obtaining loans by SMEs - thus bringing together the demand and supply of the community development process through establishing partnership between the above stakeholders within the framework of local investment programs (LIPs).

The following results were achieved:

The program of training sessions for local authorities and business entities that would produce R/LIP with a focus on municipal social infrastructure was elaborated.
248 key decision makers from local governments and oblasts' leading enterprises passed through the training in "Investment Management in Self-Governance" based on the UN-Habitat methodology.
123 Local Investment Programs (LIP) at the level of local governments were developed as a tool for the community income generation.
701 business project drafts were developed as the key LIP implementation instruments and additional 1,888 investment projects were revised, all of which were integrated into the LIP.
As a result of implementation of 701 investment projects included in LIPs, the following quantitative results would be achieved:
- 32,389 working places created and 51,395 ones saved;
- 76,759 thous.UAH of additional budget revenues generated;
- 1,038 enterprises involved in the LIP;
- 155 human settlements covered by the LIP.
Tools and procedures for LIP implementation based on mutual responsibility of parties (Local Government, Investor, SMEs, Insurance companies) such as municipal letters of guarantee, securities, collateral etc. were developed.
The skills of local government target departments and SMEs on design and management of LIPs and investment projects as the instruments for the LIPs implementation were upgraded
The knowledge and project experiences were bridged to other Ukrainian communities through organising 6 conferences (2 conferences annually)
The Regional Fund for the Support to Entrepreneurship "Ukraine-Habitat" was established with the purpose to enhance access of SMEs, participating in the LIP, to necessary resources.
As a result of transboundary cooperation meetings Ukraine-Romania and Ukraine-Hungary the urgent transboundary environmental problems were identified, and approaches for resolving them through multi-stakeholder cooperation and business involvement were suggested.
The UN Electronic Information Center started its work in July 2000 and its branches in Lutsk, Mykolaiv and Vugledar were established.
7 business consulting focal points in the regions to participate in the project were established and made operational.
Mechanism for replication of the project achievements to other oblasts of Ukraine was elaboroated.
Methodology and recommendations for the elaboration of the LIP were developed.

As an outcome of the results achieved was also the preparedness of local governments, including the key decision makers, as well as the business community in the oblasts, to negotiate with financial institutions and to handle the investment processes based on the public-private partnership approach.

In the presence of favorable environment at macro-level, in terms of appropriate legal framework for investment promotion, the project had created the enabling environment at micro-level (in oblasts involved), in the form of increased cooperation and cohesiveness between all the stakeholders and the key links in the investment promotion process, which had made this process more effective.

Throughout the project implementation the following partners participated in the process, and they could have the following advantages out of their participation:

Local Governments. Their advantages from participation could be as follows:

Social infrastructure development as called for in local programs for economic and social development.
Increased community income generation and social security.
Creation of additional work places and poverty alleviation.
Increased capacity of local authorities to develop and implement investment programs in partnership with private sector.
Accountability and transparency of investment process that is based on existence of an Advisory Board, which is in charge of a strategic planning, NGO participation, which keeps a local community informed about the progress achieved, and the participatory (municipal plus private) approach towards collateral.

Potential Investors or Lenders. Their advantages from participation could be as follows:

Getting an advantage of becoming a portfolio investor/lender into the LIP thus dealing with one client de facto, such as the "LIP investment fund", but de jure with individualised corporate clients launching their investment business projects as part of the LIP.
Backing-up from the side of communities, represented by local governments, which become interested in the final success of the entire LIP due to social impact and income-generation advantages.
Minimized investment risks due to local governments' guarantees and participatory (municipal plus private) collateral, and due to insurance and reinsurance mechanisms.
Accountability and transparency of investment process that is based on existence of an Advisory Board, which is in charge of a strategic planning, NGO participation, which keeps a local community informed about the progress achieved, and the participatory (municipal plus private) approach towards collateral.

Private Enterprises. Their advantages from participation could be as follows:

Political support from the side of local communities, represented by local governments, which are interested in the final success of a LIP.
Economic benefits received as a result of being a part of the LIP, such as participatory municipal collateral, which allows to access larger credits, and, in some cases, temporary tax exempts.
Possibility of accessing cheaper capital (having to pay lower interest rate against a credit) being a part of a "bulk borrower" represented by the investment fund servicing the LIP.
Minimization of risks, related to the unexpected decisions of investors about the withdrawal of funds, due to the insurance mechanisms.
Increased capacity of local SMEs to promote and implement their investment projects due to the training/mentoring provided in the framework of a LIP.
Increased networking, and clustering opportunities inside the business community both at the level of an oblast, and at the national level due to the information exchange.

Non-Governmental Organizations. Their advantages from participation could be as follows:

Ability to play a catalyst role in a LIP preparation and implementation by joining dispersed local entrepreneurs and enterprises into a local business association.
Ability to monitor the LIP implementation and disseminate this information in the community.
Accountability and transparency of investment process that is based on existence of an Advisory Board, which is in charge of a strategic planning, NGO participation, which keeps a local community informed about the progress achieved, and the participatory (municipal plus private) approach towards collateral.

Geographic coverage:
So far the described approach has been piloted in Volynska, Ivano-Frankivska, Rivnenska, Khmelnytska, Mykolaivska, Vinnytska, Cherkaska, Chernigivska oblasts and Vugledar-town (Donbass region).

Local governments of the above oblasts and of the Vugledar-town included their LIPs into the economic and social development programs of the areas. The Autonomous Republic of Crimea and the City of Kiev are currently considering the possibilities to join the approach.