Newly Appeared Moses: How Ukraine is Turned into an Industrial Desert


I had to stand in a long queue, like that for the Champions League Final tickets, to get to the round table discussion “Industrial parks as a tool of regional development and economic growth”.

The event organized by the Verkhovna Rada Committee on industrial policy and entrepreneurship stirred genuine interest and public attention.

Here I recollected “tea-table gatherings of like-minded” in the live television broadcast of Economists, when the problems of creation of industrial parks were discussed.

As a matter of course, guests of the studio proclaimed the theses concerning the “corruption component” and violation of principles of equal competition among market players.

The arguments were based on the research conducted by VoxUkraine analytical platform by the 25th anniversary of the independence of Ukraine: “Bad decisions: how to build the poorest country in Europe”.

Creation of free economic zones (FEZ) and territories of priority development (ТPD) accompanied by granting of benefits and preferences is among the seven greatest economic mistakes of the government during the period of independence.

In this regard, it is stated that tax benefits for FEZ and TPD exceeded budget revenues from their activities; furthermore, economic landscape distortion and tax evasion occurred.

However, more detailed analysis of VoxUkraine graphics presented in tables allows for drawing entirely different conclusions.

Mainly, highlight is in the analysis of concentration of tax benefits granted to FEZ and TPD: 76% and 90% of benefits were recorded for “Donetsk” FEZ and TPD of Donetsk region, accordingly.

In the most of FEZ and TPD tax revenues exceed tax benefits granted. That is, because of inability of the central authority in the past to secure proper control over the use of FEZ/TPD mechanism at Donbas, the definite conclusion on the “negative experience” and lack of effectiveness is drawn.

One of hosts, Serhiy Fursa (concurrently — the analyst of ІК Dragon Capital IC), noticed this “victory” by the example of Zakarpattya FEZ where the revenues 2.5 times exceeded the benefits, however, this positive version has not evolved.

By analogy with FEZ and ТPD, a threat of creation of internal offshores is the most common argument of industrial parks’ opponents.

Dear Sirs, you are searching in the wrong place. Offshores exist in Ukraine, for example, in the form of VAT payers registered in the АТО zone. These business structures are actively used to form the fictitious VAT credit — selling of tax credit to manufacturers of goods/import VAT.

For example, according to data of the Main Department of the State Treasury Service in Donetsk region, on September 01, 2015 the amount of budget reimbursement of VAT in the region 2.1 bln. hryvnias exceeded VAT revenues from the local companies. However, by September 01, 2016 this figure decreased to 710 mln. hryvnias.

FEZ/TPD analysis from VoxUkraine also includes references to well-known Ukrainian scientists V. Geits and V. Semynozhenko. They conclude on impossibility to achieve the targets of attracting investments and creating jobs with the use of these tools. However, the fact that 25% of investments were of foreign origin, and the others meant reinvestment of profit of domestic enterprises, is ignored.

So, 75% of investments attracted by FEZ/ТPD were not hidden in offshores; instead, they were used for the real sector of economy and creation of jobs.

Actually, we are dealing with the real de-offshorization, and industrial parks can be providers thereof. When projecting this situation at least for the quarter of 117 bln. dollars driven from Ukraine to offshores in 2004-2013, by estimate of the Global Financial Integrity, the international research organization, we shall get the real economic breakthrough and independence from the IMF injections.

Industrial parks allow concentrating the resources on creation of technological and industrial clusters, obtaining specific material results in the form of growth of production output and export share, not mentioning creation of jobs hated by IP opponents.

In the context of European integration they can be an alternative of “cohesion policy” which contemplates funding of countries on the European periphery by EU to eliminate disproportions in territory development, enhance diversification of production, and boost the regional investment and innovation activity.

It is likely that the need in significant subsidies for Ukraine within the framework of “cohesion policy” in rather hard economic times for Europe may slow down our integration processes. The forced repeated industrialization, including that with the use of industrial parks, will limit the potential need for subsidization on the part of European partners.

In the course of discussions, comparison with the desert and oases appeared, but the hosts disregarded the arguments concerning usefulness of oases. For me, this situation triggers the association with Moses who was leading Israelites through the desert for 40 years.

Practices of economic management of “predecessors” and further demonstrative imitation of reforms turn the economy of Ukraine into the desert.

Instead of creating a network of oases, where, after reaching their critical mass, the desert will turn into livable place, our newly appeared Moses – adepts of free market, intend to lead people through the desert for 40 years in search of “Promised land” driven by one compulsive idea: not to distort the economic landscape of our economic “desert”.

Sometimes tired and thirsty travelers see mirages with water bodies and palm trees (investment boom). However, this mirage disappears, leaving them alone with thirst.

The most dangerous fact is that Moses can be transformed into Susanin with unpleasant and irreversible consequences for travelers. Luckily, I feel that common sense overcomes the archaic economic dogmas of newly appeared Moses.


Volodymyr Panchenko


Economichna Pravda


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