In the conditions of the ongoing war, the issue of effective interactions between business and local self-government bodies becomes even more urgent, as it directly affects the quality of life of the population today, and it is an important factor for post-war recovery. According to a joint assessment report released in March 2023 by the Government of Ukraine, the World Bank Group, the European Commission and the United Nations, Ukraine’s recovery and reconstruction needs amount to $411 billion. According to the experts, conditions for sustainable economic recovery must be created in the medium term. This is hardly possible without the coordinated work of all actors, including the government, international partners, local self-government bodies, business community and civil society.
Why should the development of business support projects be on the agenda of Ukrainian municipalities?
The possibilities for Ukraine’s recovery and post-war development are actively discussed on the global level. In June 2023, at the Ukraine Recovery Conference 2023, the Ukrainian government, business community and international partners of Ukraine presented a strategic vision of the recovery. There are four sources of funding for this, which Ukraine is currently developing with international partners: international financial institutions (IFIs), private funds, frozen assets of the Russian Federation and direct funds from the state budget. Note that private direct investments are to be a major and substantial source of financing for reconstruction, and investors are expected to have a business interest in joining such a large-scale process. Now, supporting this interest is on us, and it is the task of local self-government bodies.
In the summer of 2022, Ukraine acquired the status of a candidate country for EU membership, which gives the country access to a greater pool of financial instruments of the European Union. On 20 June 2023, the European Union announced the “creation of the Ukraine Facility”, a new instrument ensuring legislative regulation of assistance to Ukraine for its recovery and implementation of pre-accession measures for joining the EU. The overall amount is proposed to be €50 billion by 2027. Significantly, however, the EU emphasises the decisive role of municipalities in the process of recovery and modernisation of the country, from their active involvement in the process of developing the Ukraine Plan to the development of projects and the attraction of investments at the local level.
Let us attempt to sum up the first basic conclusions that local self-government bodies can draw from these complex processes at the global and national levels:
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In order to attract funds from international funds, they must develop projects and develop their own capacity to use the funds;
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In order to attract funds from private investors, they should create the best possible conditions for doing business and develop investment portfolios for their municipalities.
At the end of 2022, U-LEAD with Europe offered a comprehensive training programme for 60 municipalities, pursuing two goals:
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To provide knowledge about current tools for business support and entrepreneurship development that are available to municipalities even in wartime;
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To support municipalities in coming up with ideas for local development projects aimed at creating better conditions for business. In 2023, we continued to provide expert support to the seven selected municipalities and helped them develop detailed project ideas and find sources of funding for them.
This article presents a summary of the main conclusions regarding the development of projects aimed at supporting and developing businesses in municipalities. These recommendations will be especially useful for small municipalities (with a population of up to 50,000).
What should be taken into account when developing a project?
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Move from project development to finding a source of funding.
Project development is a complex and often long-term process. A good project should be based on a careful analysis of needs and demand, as well as clear calculations; it requires systemic work with the business community, coordinated teamwork and, often, the involvement of partners. Months can pass from the initial idea to the development of a complete project proposal. For infrastructure projects that require the development of design and estimate documentation, the process of working out a package of necessary initial data (e.g. forming a land plot, developing urban planning documentation, obtaining the necessary extracts, etc.) alone can often take much more time than the municipality expects.
Fundraising opportunities appear regularly, but the project must be submitted by a defined and usually short deadline. That is why municipalities should have pre-prepared projects on hand that can be adapted to the terms of the competition. We followed this principle while supporting 7 municipalities in developing their projects: first, develop the project, then look for a source of funding. Projects that were created for a specific financial opportunity rather than for the purpose of closing a specific need usually do not achieve the desired impact or generally become a dead weight for the municipality (such as unfinished facilities).
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Define the challenge (problem, need) that you want to solve through the implementation of the project.
This is the step where you should start developing the project. A detailed, thoughtful, logical explanation of why this is a project that is needed by your municipality is the basis of success. Determining the need can be a complex process, but it is based on systematic communication with the local businesses and a deep understanding of the local context.
For example, in 2023, the Broshniv-Osada municipality, Ivano-Frankivsk Oblast, conducted a survey of young people, legal entities and non-profits in order to identify the demand for the services of the Business Support Centre (BSC), which it planned to create. During the research, the municipality not only made sure that such a centre is in demand among local entrepreneurs, but also learned about their urgent needs that the future centre can cover (e.g. the development of a business plan) and planned the functions of the centre (upon learning of a demand for a co-working space). This is how the municipality managed to develop a project that is based on real demand and can really achieve the expected impact. With the support of U-LEAD, the developed project has already been submitted to 2 potential funding sources.
The approach of the Broshniv-Osada municipality can be called top-down, that is, the municipality had a certain hypothesis (the creation of a BSC) and, through communication with the final beneficiaries, verified the need for the centre. There is another, bottom-up approach. For example, the Pidhaitsi municipality, Ternopil Oblast, has been actively developing its business environment for a long time, and entrepreneurs, well aware of the priorities of the municipality, initiate the development of certain projects themselves. It was the idea of local entrepreneurs to create Pidhaitsi Honey, a beekeeping development and support centre with high-tech, automated approaches to research and processing of bee products. This centre will help preserve existing apiaries and create new ones, increase bee colonies, collect honey more productively, organise its sales and strengthen the capabilities of beekeepers. With the help of U-LEAD, the municipality developed this project and has already applied for a potential source of funding.
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Try to divide your large ambitious development project into smaller sub-projects/initiatives.
Instead of waiting for the perfect financial opportunity or investor to come, try to implement smaller projects that fit like jigsaw puzzles into the overall picture of your desired future.
For example, the Baranivka municipality, Zhytomyr Oblast, planned to create a Business Support Centre (BSC) on the premises where the Administrative Services Centre (ASC) was to be located. The municipality managed to get a grant for the repair of the entire premises (for the upcoming ASC and CPB), and for the development of the CPB (training, consulting, etc.), and it plans to attract another grant from another source of funding to develop the CPB. Therefore, instead of looking for a single source that will finance both the hard component of the project (construction works) and the soft component (e.g. training activities of the CPB), the municipality divided the large development project into self-sufficient components, thus increasing the chances of successful implementation of the entire project.
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Be ready to submit the project to several funding sources.
Finding funding is a marathon rather than a sprint. Receiving funds for financing the project often requires submitting application forms to several donors, adapting them to the requirements of each potential funding source.
For example, the Ovruch municipality, Zhytomyr Oblast, intends to turn the city library into a cultural and creative hub, KOLOHUB. The municipality has the potential for the revival of traditional crafts such as woodworking, stoneworking, wickerwork, weaving, etc. Most of the self-employed population (artisans) work at home and do not have the opportunity to develop, exchange information and increase the demand for their products. With the support of U-LEAD, the municipality developed the project and applied for various funding sources, eventually receiving a green light from one of the donors.
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Make sure the project is sustainable.
When developing a project idea, we also recommend in terms of sustainability: How to ensure the functioning of the institution when entering the maturity stage? What will the institutional, organisational and financial sustainability look like? A sustainable project will remain useful for target groups even after the funding (grant) ends. Then your project will have a significant impact on target groups and have the potential to be scaled up to other municipalities.
The Krasylivka municipality, Khmelnytskyi Oblast, has sought to develop a sustainable project. The municipality plans to create an innovation centre in the industrial park. A private company, a resident of the park, will implement part of the Centre’s functions (including dual education, professional training programmes), and the municipality will take over the others (creating a makerspace with free access to equipment for all people living in the municipality). Such interaction between the municipality and private businesses will allow for maintaining the premises and the entire Centre in general, providing both free and paid services; will strengthen all parties and contribute to the sustainability of the project.
Instead of conclusions: Where to start if you have no ideas for project development?
The development of a long-term business support project may sound like an overly ambitious goal for some municipalities, especially if there is little experience in cooperation with the business community. There are dozens of business support tools available to municipalities (such as here or here). We also recommend reading Supporting Business in Wartime: Practical Recommendations for Municipalities developed by the Business People Club Ukraine with the support of U-LEAD.
If your municipality is just starting to support local businesses, start with tools that are relatively easy to implement and will help you get to know local businesses better. Regular meetings, calls, visits, round tables, surveys and informal communication with entrepreneurs are the foundation for the economic development of the municipality. Instead of simply informing the business community about the possibilities or solutions of local government, it is important to create conditions for exchange, to hear first-hand about the challenges of local entrepreneurs and to discuss municipality plans with them. Having established effective cooperation and communication with the business community, you are sure to get project ideas.
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