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Overcoming challenges with innovation. Capacity building in Ukraine

From the very beginning, the European Union’s Support Group for Ukraine has focused on governance issues, for which it has mobilised close to 300 million euros in support between 2015 and 2019. With this and the deployment of other resources, the EU is closely involved in the implementation of key reforms. A lot has been accomplished, but many challenges lie ahead.

Five years ago Ukraine’s Revolution of Dignity signalled the beginning of an extraordinary period of change. This included the enormous reform programme initiated with the signature and implementation of the Association Agreement and the Deep and Comprehensive Free Trade Area (AA/DCFTA) with the European Union. After decades of stalemate, this alignment to western and often specifically European standards, rules and structures was a particular challenge to Ukraine’s institutions, some of which had remained largely unchanged since the times of the Soviet Union.

November 13, 2019 - Berend De Groot Maria Maslowska Peter M. Wagner Stefan Schleuning - AnalysisIssue 6 2019Magazine

Photo Andrew Bossi (CC) commons.wikimedia.org

Ukraine’s international partners are accompanying these changes with significant support. Notably, the European Union and its member states, as the biggest international donor, were from the beginning paying particular attention on how to assist the country in the implementation of the agreements. During the early stages of these joint efforts, the main challenges included the institutional weaknesses and the lack of appropriate administrative capacity. As part of President Jean-Claude Juncker’s promise to reward extraordinary reform efforts with extraordinary support, the EU has developed a number of innovative solutions to address these challenges and promote change.

Challenging environment

One of the most visible innovations is the creation of the Support Group for Ukraine (SGUA), launched in 2014 as a reaction to the Maidan events and the enormous need for reform. The European Commission aimed to provide strong and innovative support to strengthen Ukraine’s management and absorption capacity and enable its administration and institutions to implement the ambitious Association Agreement / DCFTA. For the first time, a dedicated entity of this sort was set up for a non-EU country. It brings together around 40 EU officials from sectoral commission services and experts from EU member states. As a result, there is more – and differently – qualified EU staff working on and with Ukraine in Brussels and at the EU Delegation in Kyiv, thus allowing for a deeper analysis, more co-operation, support and policy dialogue.

The SGUA, beyond working on sectoral reforms, from the very beginning focused on governance issues for which it has mobilised close to 300 million euros in EU financial support between 2015 and 2019. With this and the deployment of other resources, the EU is closely involved in the implementation of key reforms such as decentralisation, the judiciary and law enforcement agencies, public finance management and wider public administration. The challenge of a large number of reforms running in parallel is compounded by the lack of adequately qualified “agents of change” within the administration. Thus, the SGUA gradually developed, and with international partners, notably the European Bank for Reconstruction and Development, implemented a number of instruments and approaches which are often referred to as the “Ukraine Reform Architecture”.

In late 2015, in light of increasing social demand for change, the government saw itself facing mounting challenges. The situation further hindered success. For example, the lack of institutional capacities, notably of post-Soviet administrations, to cope with the transformation challenges was becoming more and more visible as a barrier. In the case of Ukraine and the AA/DCFTA, one can compare this to making available the construction plan for a Ferrari car to those who do not have the necessary skills to put the pieces together; those who, at the same time, have to build new roads. To make things even more challenging, all this was happening against the backdrop of a neighbour’s continuous aggression.

More than a year after the start of the first post-Maidan government, the existing and largely unreformed administration was led by reform-oriented ministers and deputy ministers who mostly joined the government from the private sector and were now living on a salary of around 300 euros per month – an income that does not really allow one to live a comfortable life in Kyiv. Many lived off their savings or other sources and were now reaching the end of their funds. They were often supported by “volunteers” – people who were usually financed by international partners and NGOs. At the same time, there was a very strong sense that civil servants were by definition corrupt and the source of many of Ukraine’s failures. In this way, many thought they should not earn much more than a minimum salary. There was also a growing understanding that the reform effort would take a long time before it was going to deliver, despite a strong sense that things were running out of time and the risk of losing public support. And, finally, Ukraine was experiencing a whole range of other extremely negative factors: the ongoing Russian destabilisation of eastern Ukraine; the very fragile economic situation; no way of increasing the salaries of officials, while the army required better equipment and pensions; and an underfunded health system.

New starting point

In autumn 2015, as part of the SGUA and the EU delegation in Kyiv, we were intensely discussing with the Ukrainian government how the EU could best support public administration reform – a project that had already been under preparation and discussion. The then Prime Minister Arseniy Yatseniuk suggested that international partners should pool their resources to create a special fund from which the government would then increase (top-up) the salaries of those driving the reforms. This is a formula which had been tried out before – by the EU and others – and failed. Other solutions were needed, and fast. Notably pressed by the then finance minister, Natalie Jaresko, to match the short-term needs and medium- to long-term solutions, we developed a new model which accepted that profound reform of the public sector was necessary. The EU also provided high-level technical assistance consisting of senior practitioners from various EU states for the development of a robust strategy on public administration reform which was finally adopted by the government in June 2016.

This was the starting point for our support. It assumed that certain elements would be necessary for success. First, based on Ukrainian strategic documents, there is a budget support programme which lasts until 2021 and foresees an annual EU support of around 20 million euros to the national Ukrainian budget – subject to annually fulfilling progress on pre-agreed reform areas. This partially contributes to the additional fiscal space the government requires to implement the reforms, including increases in salaries. As there would not be sufficient space to increase salaries across the board, the government, at this phase of the reform, decided to increase the salaries of a limited number of the so-called reform posts. These are positions of particular importance for the newly created functions in the ministries, and which had to be filled through transparent and merit-based recruitment procedures. Civil servants already working for the government could apply as well as newcomers – but both had to go through the same rigorous selection process. With an average of seven candidates per position, 17 state secretaries were selected following open competition. With computer-based testing, web streamed interviews and the participation of civil society in the selection panels, these competitions were still not perfect, but were a satisfactory improvement on what used to take place before.

Another important element was the need to recognise the fact that the fully-fledged public administration reform would take decades to implement. To aid this process, we offered reform support teams (RST) for targeted temporary expert support to ministries. Ministries having sectoral reform strategies as well as institutional restructuring plans could apply. This combination of sectoral reforms with a commitment from the ministry to re-organise itself as well as the temporary nature of the scheme were key characteristics. The teams are there to design and implement sectoral strategies and priority reforms as well as to help lead the transformation of the ministries. They are composed of Ukrainian professionals, adequately qualified and often relatively young, selected through a transparent, merit-based process. The RSTs take part in functional reviews of the ministries, reorganisation, planning, and human resource management processes. They assist the leadership to make the ministries more policy-driven and efficient. At the same time, they are supposed to bring new qualities and a new culture to the often over-bureaucratic, process-oriented post-Soviet institutions.

A third component is the Reform Delivery Office (RDO) working with the prime minister’s office. This group is an advisory body to the Cabinet of Ministers, co-ordinated by the prime minister and headed by the Minister of the Cabinet of Ministers. The RDO is primarily responsible for the development and implementation of the annual government reform plan, overall co-ordination and ensuring consistency of reform delivery across the government. The team – which was partly built on the ideas and structures of the post-Maidan reform council, pays particular attention to the implementation of Ukraine’s public administration reform.

Having realised that without quality staff reforms will not materialise, the now former Prime Minister Volodymyr Groysman, in 2017, announced a massive recruitment undertaking to “reform staff positions” in ten ministries, two agencies and the secretariat of the cabinet of ministers. In parallel, those institutions were to transform and create the capacity for policy-making by establishing new policy directorates. So far around 600 people were recruited or selected and close to 38 per cent of them come from outside the civil service.

Agents of change

Our first assessments from within and outside Ukraine have shown that the reform support teams and the Reform Delivery Office seem to be an efficient tool for the quick delivery of particularly complex reforms. With their unique positions within the ministries, the teams tend to integrate more into the internal structure and provide an added quality to the existing civil service. The graphic below presents the architecture of how it works.

Examples of deliverables include a government mid-term action plan 2017-2020, a revamped VAT refund system, a national transport strategy, an analytical report of the Top-100 state-owned companies, a pilot project on the liquidation of non-operational state-owned companies, plus numerous other sectoral proposals. Special in this regard is the additional EU support provided for the roll out of the highly successful territorial reform and decentralisation which, via the U-LEAD with Europe project, saw teams of Ukrainian experts established in all 24 regions.

The most important result, in our view, is that this approach has been bringing new, highly-talented individuals closer to (and into) the public service. As agents of change they can reinforce existing reform drivers and are doing so now in areas such as public finance, agriculture, energy efficiency, environment, economic development and infrastructure. This should be supporting the creation of a nucleus and, over time, may form the critical mass of a new generation of civil servants. Some former RST staff are already applying for permanent positions, thus ensuring the continuation of reforms and a sustainable reinforcement of the civil service in the long run.

Three more elements are important parts of this approach. Firstly, the composition of SGUA allowed us to accompany the processes much more intensely than is usually the case. This included hands-on participation, focusing on the transparent and merit-based recruitment of key officials, the definition of Ukraine’s “Reform Staff” programme, and the swift build-up of the basic capacity needed to manage the public administration reform process. Having recruited some staff permanently in Kyiv, further facilitated this approach. Secondly, comprehensive reforms such as public administration will never work without some international experts involved. The EU is therefore making available very substantial and broad support, ranging from general support to co-ordination and the implementation reforms to very specific issues, such as the development of a human resource management information system.

Finally, there is an element of the reform architecture that goes beyond public administration: since mid-2016 the Strategic Advisory Group of Support to Ukrainian Reforms. This is a group of international and Ukrainian experts, around ten people in total. Originally set up with a double leadership of Ivan Miklos and Leszek Balcerowicz, it was later solely led by Miklos. His team of former ministers and high-level personnel from transition countries, such as Poland and Slovakia, was working directly with Prime Minister Groysman, the presidential administration and a few other key ministries.

How is all of this managed and financed? Here an important distinction needs to be made. First, budget support and technical assistance are paid and managed by the EU as part of a dedicated EU reform programme following the usual procedures of bilateral EU–Ukraine co-operation. Second, for the implementation and further development of tools like reform support teams, Reform Delivery Office, and others outlined above, we have joined forces with the European Bank for Reconstruction and Development (EBRD) and a Multi-Donor Account that has been running for a while in Ukraine, which receives financial contributions from 17 countries and supports other innovative reform activities such as the Ukrainian Business Ombudsman. The EU is by far the largest financial contributor to this reform support.

As already noted: it is too early to assess the long-term impact but the initial results are encouraging, and a discussion about the replicability of some of these elements has started. However, it is important to keep in mind that the reform architecture is not an end in itself, but rather a means to an end and part of a much wider effort.

Key lessons for what’s ahead

The EU Global Strategy for Foreign and Security Policy anticipated that the years ahead would be a time of “predictable unpredictability”. Indeed, the global system has become more uncertain and less stable. Electoral processes in several of the Eastern Partnership countries this year – not least in Ukraine, but also in Europe with the European Parliament elections in May – haves impacted the dynamics of the transformation and reform paths. Future success will require sufficient flexibility and adaptation skills on both sides to match ambition and expectation with reality in order to continuously search for innovation to overcome the challenges. It will have to be seen how the new administration intends to use the possibilities offered by the URA. The instrument is flexible and allows for adaptation to changing structures and working methods. The EU is demonstrating that it stands by its partner countries in their ongoing reform efforts. Sustained and effective reform is key to the continued success of the Eastern Partnership. The scope and depth of co-operation are determined by the EU and its partners’ ambitions and needs, as well as the pace and quality of the reforms.With the AA/DCFTA as the staple of our co-operation and the roadmap for our success, the EU on its side also has to be innovative. Ukraine, the EU and other international partners are constantly trying to find ways to notably address a key challenge on the domestic front: the current weakness of the public administration (which will take time to reform while also requiring help to deliver visible successes in the short-term).

It is difficult to imagine how a country like Ukraine can achieve such ambitious objectives without substantial and comprehensive change. As seen in other countries, such change has to be addressed in many ways, which includes making the government a competitive employer and attracting the best national talent. We have started to see a new generation of Ukrainians working on developing and reforming society – and, as international partners, we are trying to assist in this effort.

There are already some key lessons learnt about how the EU and the international community at large can assist Ukraine on its transformation path. First, there has to be strong buy-in from the country’s leadership as well as a genuine momentum to introduce structural reforms. This has been the case of Ukraine after the Revolution of Dignity. As a response to this, we were able to roll-out very comprehensive reform programmes in areas such as public administration, decentralisation, energy efficiency and the fight against corruption – all of which are directly or indirectly benefitting from the reform architecture.

Second, support needs to be conditional upon more comprehensive and structural reforms being implemented in parallel. The success of both the Ukraine reform architecture and the wider public administration reform are, in fact, strongly co-dependant. Reform support teams and the Reform Delivery Office have been “enablers” for wider reform processes. By joining efforts and combining their respective strengths and areas of expertise, the EU and European Bank on Reconstruction and Development have achieved stronger leverage and higher policy impact. Indeed, there is scope for even more of this among Ukraine’s international partners.

This paper is based on a presentation given by Peter M. Wagner at a conference of the EU-STRAT project (11 April 2019, The Hague; http://eu-strat.eu/wp-content/uploads/2019/04/EU-STRAT-final-conference-programme.pdf). We thank notably Ilze Milta, Tetyana Kovtun, Anton Yashchenko, Kataryna Wolczuk for valuable comments and suggestions for improvement.

Berend De Groot, Maria Maslowska, Stefan Schleuning and Peter M. Wagner are officials of the European Commission and have been involved / are involved with Ukraine as part of their work in the Support Group for Ukraine in Brussels and/or the European Union Delegation to Ukraine in Kyiv. The views in this article are their own and they do not necessarily reflect the views of the European Commission.

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