As Governor of Lviv Oblast on the borders of the European Union, former businessman Mykola Kmit finds himself at the cutting edge of Ukraine’s developing relationship with the EU. He has seen international investment into the region rocket in the past few years but remains skeptical about the political will of the country’s EU partners to support Ukraine’s integration into the mega-bloc.
The expansion of the EU’s Schengen Zone to the borders of Ukraine in December 2007 was hailed as ushering in a new era of bilateral relations, but it has also brought with it a whole range of practical problems which have made life more difficult for those living close to the border itself. “Ukrainian tourists have found themselves facing new barriers,” explains Mr. Kmit. While agreements have been reached with the Slovak and Hungarian governments easing restrictions on those living within close range of the border itself, the country’s main border with Poland remains a sticking point. “We’re having difficulties with the Polish Embassy, which cannot cope with the volume of demand for visas. This has created discontent. People living close to the border have seen their small businesses destroyed,” the Lviv Oblast Governor states.
EU support in the fight against borderland corruption
Mr. Kmit is optimistic that the planned deep free trade zone agreement between Ukraine and the EU, which is expected to be inked in late 2008 as part of a new far-reaching partnership agreement, will open up new opportunities for Ukrainian business, but he is in no rush to see the country fast-tracked into the EU itself. “At the moment we can reform our legislation and take steps that would not be possible once we are inside a huge bloc the size of the EU,” he reasons. However, Mr. Kmit concedes that without support from the EU, Ukraine is unlikely to be able to muster the requisite political will and strength to overcome the country’s corruption woes alone.
One of the Tymoshenko administration’s showcase anti-corruption projects has been the “Contraband-Stop!” initiative, which has targeted the illicit smuggling trade that has hampered the reform of Ukraine’s border service since independence. As a borderland transit nation, the quality of Ukraine’s border controls has been identified as a strategic priority by the current government, and as Governor of one of the country’s most heavily populated border oblasts Mr. Kmit has been an eye witness to the impact of the project. “I can state with confidence that there is no longer an open contraband trade as used to be the case. We see evidence of this in the increased contributions to the budget by customs services,” he says. This tightening of border controls has led to an increase in prices as the flow of untaxed imports has been systematically squeezed, but Mr. Kmit points out that this has been part of broader inflationary processes which have pushed prices up across the country.
Record FDI and the need for a better business climate
Ukraine has posted record Foreign Direct Investment figures for the past year, and Lviv Oblast has been a case in point, attracting investors from across Europe thanks to its close proximity to the EU coupled with what Mr. Kmit terms as the European work ethic and mentality of the Lviv population. Last year saw a record USD 300 million in FDI flow into Lviv Oblast, with the vast majority coming via international acquisition of Lviv banks. In order to build on this promising development, Mr. Kmit is focusing on developing a better business infrastructure which he hopes will eventually open the door for more long-term investment into industry and production. “We are fighting to improve the investment climate and hoping to attract big construction projects for machine building. At the moment Polish companies lead the way in FDI, followed by Danish companies. These are often not large scale investors but there are a lot of them.”
Lviv’s long history as an eastern European regional capital stands in stark contrast to much of Ukraine’s Tsarist and Soviet heritage, something which Mr. Kmit believes has created a legacy of European thinking which is particularly appealing to international investors looking at Ukraine. “Attitudes in Lviv differ from those you’ll encounter elsewhere in Ukraine,” he argues. “First and foremost, this is evident in the way people relate to personal freedoms like freedom of speech and freedom on conscience. There is no political agitation in Lviv’s many churches. In the east of Ukraine priests offer political instruction to their congregations, but here in Lviv it would not be considered acceptable. The mentality here is more European.”
Dealing with Brussels and the EU’s double standards
While FDI is growing throughout Lviv Oblast and interest in the region continues to grow, Mr. Kmit argues that Ukraine has seen its integrationist ambitions stalled by economically motivated double standards which have seen the EU adopt a hesitant attitude to the country while welcoming in other former Eastern Bloc countries which do not fall into Russia’s self-proscribed sphere of influence. “My personal opinion is that if there were no double standards in attitudes towards Ukraine then everything would be fine. Today I would say that Europe doesn’t like us very much. In recent years European democracy has undergone serious changes as a result of the influence of Russia. We saw this most obviously during the May Bucharest NATO summit. Today economics influences the EU’s political positioning more so than was the case a few years ago. Ukraine has long deserved to be granted the status of associated member of the EU, as the Czech Republic, Poland and other eastern European countries were in the 1990s. I don’t want to denigrate Bulgaria or Romania but their economies cannot be compared to Ukraine’s, which is far larger. They became EU members thanks to support and lobbying from within the EU, while Ukraine has relatively few friends in Brussels.”
Bureaucratic wrangles and the Euro 2012 boom
Lviv will serve as one of the designated Ukrainian host cities for the Euro 2012 European Football Championships, with a number of infrastructure projects which should serve to physically bring Lviv into the loop of European communications networks. Kmit is hopeful that a European gauge railway linking the city to Krakow, Wroclaw and Dresden will be a major breakthrough in the growth and development of the region, offering easier access to the EU via rail and allowing people to travel across the Ukrainian border without the extended delays and psychological departure involved in changing over to Soviet gauge tracks.
A number of international-class highways are also planned which will link Lviv Oblast with the eastern borderlands of the EU and greatly improve the transport infrastructure of the region, opening up huge opportunities for the establishment of production facilities on Lviv Oblast and removing the old differential which would see smooth surfaces give way to rutted and potholed single track roads as you crossed over into Ukraine. “The planned Krakow – Lviv highway will be the first truly European standard stretch of motorway in Ukraine,” offers Mr. Kmit. “We have already opened the Lviv – Chop highway [linking Lviv to the border with Hungary] and have been impressed by the quality of the surface, for which we have to thank international contractors. Our road workers do not currently have the expertise or machinery to produce such quality,” he notes.
Many of the complaints over Ukraine’s preparations to host Euro 2012 have centred on a lack of coordination in the country’s efforts, with what many would term as a stereotypically confused collection of competing government agencies and state bodies managing to block and stall one another as they wrestle for the right to take control of lucrative regional projects. “Lots of international companies have expressed an interest in getting involved in Ukraine’s Euro 2012 preparations, but we are aware of the need to simplify existing legislation. At present it is simply too complicated. There are numerous difficulties with the existing division of power within the country which has created a situation where it is unclear who is responsible for what. Potential investors are being asked to go through a plethora of administrative processes including village councils, district administration and oblast council. Different branches of power often contradict one another and share similar responsibilities, meaning that anyone who wishes to become involved must secure a huge number of documents and permission slips.
Building on a rich historical heritage
While much of the international investor community remains focused on the possibilities presented by Euro 2012, Lviv remains one of the country’s largest regional tourism destinations, with the industry growing in leaps and bounds over the past four years. The lifting of visa restrictions on EU citizens has opened the floodgates to thousands of visiting Poles, Austrians, Germans and others from across Europe who now view the city as a chance to catch a flavour of the unspoiled eastern Europe which proved such a hit with hip 1990s backpackers and weekenders. While Prague and Krakow may have since become distinctly mainstream destinations, Lviv maintains the air of a mysterious and romantic city which remains off the beaten track and yet can now offer the kind of facilities which even the hardiest and most adventurous of European travelers now expects. Mr. Kmit is enthusiastic about the progress made in the tourism industry but would like to see it expand far beyond its current size. “To put it bluntly, we would like to have many more tourists than we currently have. Lviv can receive a million tourists a month. We have the right location and an ever-improving tourism infrastructure, while 60% of the country’s UNESCO architectural treasures are located here in Lviv.”
While the Lviv city centre has long since been given a facelift and brought up to European standards, attention is now slowly turning to the many tourist attractions dotted throughout the Lviv countryside. Kmit recounts how his administration recently signed an agreement with an Austrian company with a view to renovating and maintaining the many historically important castles and palaces which are located in Lviv Oblast. “This will be a pilot project which will allow us to gain some experience of protecting our heritage and developing the tourism business at the same time. Other areas we are looking to build on include eco-tourism in the Carpathian mountains. In the past people only traveled there for winter sports but now this trend has given way to year-round tourism and summer visits. The more tourists we can attract, the stronger our economic base will be to build up our infrastructure and secure a greater slice of the regional tourism industry.”
