An economic development strategy for the Donbas with spill-over potential : incentives, investments, and insurance.
Date: 2021-03-24
Institutions: European University Institute
Subjects: EU strategy, Euro-Atlantic Partnership Council, European Investment Bank, European Union, UNO, Ukraine, World Bank, economic development, governance, insurance, investment, tax incentive

On 10 December 2020, the School of Transnational Governance (STG) of the European University Institute, 
Florence, convened the fourth edition of its High-Level Policy Dialogue (HLPD) on Donbas’ Future.1 The 
focus lay on the new Concept of Economic Development of the Donetsk and Luhansk Oblast2 presented by 
Oleksii Reznikov, Deputy Prime Minister and Minister for Reintegration of the Temporary Occupied Ter-
ritories of Ukraine. Representatives from the United Nations (UN), the European Investment Bank (EIB), 
the World Bank, the European Union (EU), and the Atlantic Council, as well as high-level Ukrainian policy 
makers and business representatives critically reflected upon the Concept, that will form the basis for a com-
prehensive development Strategy for the region to be submitted to Cabinet and Parliament by the Summer 
of 2021, and discussed ways to achieve the newly set economic objectives.

This Dialogue series was launched in 2018 and is organised by the STG in Florence, Italy, with the involvement of the Office 
1 
of the OSCE Special Representative in Ukraine. For previous editions see STG Policy Brief 05/2020, STG Policy Brief 04/2020, STG Policy 
Brief 06/2019.

2 

The Concept was approved by the Ukraine government on 23 December 2020.

POLICY BRIEFAN ECONOMIC DEVELOPMENT STRATEGY FOR THE DONBAS WITH SPILL-OVER POTENTIAL: INCENTIVES, INVESTMENTS, AND INSURANCE  Issue 2021/01January 2021EXECUTIVE SUMMARYPolicy Brief authors and Policy Dialogue conveners:Jonas Brendebach (Teaching Associate, EUI School of Transnational Governance), Rémi Duflot (Deputy Special Representative of the OSCE Chairperson-in-Office in Ukraine and in the Trilateral Contact Group), Luigi Narbone (Part-time Professor at EUI School of Transnational Governance, and Director of the Middle East Directions Pro-gramme at the EUI Robert Schuman Centre for Advanced Studies) The opinions of the authors represent personal opinions and do not represent the position or opinion of the European University InstituteTHE DONBAS CONFLICT – AN UPDATE 

One and a half years after the Ukrainian presiden-
tial  and  parliamentary  elections  of  April  and  July 
2019,  the  prospect  of  a  fast  convergence  towards  a 
settlement  of  the  conflict  in  the  Donbas    region  is 
fading  away.  Negotiations  at  the  international  lev-
el  have  come  to  a  standstill,  with  only  part  of  the 
agreements reached at the Normandy Four Summit 
of 9 December 2019 implemented during the year. 
On the ground, while the coronavirus pandemic has 
forced a reduction of hostilities, it has worsened the 
disconnection between government-controlled and 
non-government-controlled parts of the region, and 
the formal ceasefire established in July 2020 – while 
being  relatively  well  observed  to  date  –  has  yet  to 
prove sustainable. 

Encouraging factors are nevertheless on the horizon. 
On  the  external  side,  the  imminent  inauguration 
of  a  new  US-administration  under  President-elect 
Biden may infuse international negotiations with a 
new dynamic. The EU will operate in greater confi-
dence of a reliable transatlantic partner and Russia 
will see fewer chances to exploit lenience or restraint 
on  the  part  of  the  US  leadership.  Internally,  weak 
progress in the Minsk and Normandy formats is no 
longer  seen  as  a  restraint  on  Ukraine’s  capacity  to 
develop its own reintegration tactics and policy. In 
this context, a new approach to the economic rede-
velopment of the Donbas can not only provide the 
key  to  increasing  the  attractiveness  of  the  govern-
ment-controlled  areas  and  improve  the  socio-eco-
nomic  conditions  for  its  population,  but  may  also 
showcase what reintegration could bring to the peo-
ple living in non-government-controlled areas. This 
way, it could become an important incentive towards 
the restoration of Ukraine’s territorial integrity.

A STRATEGY OF ECONOMIC 
DEVELOPMENT OF THE DONETSK AND 
LUHANSK OBLAST 

The  Strategy  is  one  of  the  two  major  projects  cur-
rently pursued by the Ministry for Reintegration of 
the  Temporarily  Occupied  Territories  of  Ukraine.3 
It foresees the designation  of  priority  development 

territories,  state  incentives  for  economic  develop-
ment and new economic development models that 
are  meant  to  boost  the  economy  in  the  govern-
ment-controlled areas of the Donbas. This can ulti-
mately assist in the reintegration of the non-govern-
ment-controlled areas. 

Concrete  measures  are  envisioned  to  attract  inter-
nal and external investment and improve the insti-
tutional framework for development. Among them 
are: 
• 

incentives in the spheres of taxation, financing, 
and customs, 
tools for the protection of investments and prop-
erty  rights,  including  a  readily  accessible  inter-
national  arbitration  mechanism  based  on  En-
glish common law, 
insurance mechanisms for military and political 
risks, 
a simplification of regulatory frameworks. 

• 

• 

• 

Further  measures  will  aim  at  strengthening  spe-
cific  economic  sectors,  developing  essential  infra-
structure,  reviving  the  regional  labour  market  and 
improving public communication internally as well 
as  externally  on  the  economic  development  of  the 
Donbas. Economic connectivity with the non-gov-
ernment-controlled  areas  will  be  under  discussion 
as the Strategy shapes up.

The Strategy is guided by a focus on improving the 
living  conditions  of  the  population  in  economic 
terms  but  also  regarding  infrastructure  and  social 
systems (health, education) as well as environmen-
tal  conditions.  It  emphasises  local  communities  as 
the basis of economic growth and targets, especial-
ly the development of small and medium-sized en-
terprises. While aiming at the creation of attractive 
investment regimes, the Strategy takes into account 
Ukraine’s commitments to international agreements 
such as the Association Agreement with the EU or 
the accession agreement with the World Trade Or-
ganization.

The Strategy is thought of as an economic and legal 
experiment that could become a model for the eco-
nomic development of the whole Ukraine. 

3 
The other project is a law ‘On the Transition Period’ that will define the main stages and procedures for gradually restoring, 
during the transition period, the constitutional order, the rights of citizens (including the internally displaced persons and refugees), 
and the legitimate interests of local legal entities that have been violated by the conflicts in Crimea and the Donbas.

2

STG    Policy Papers Issue   2021/01  January 2021THE PROPOSALS BY THE INTERNATIONAL COMMUNITY 

As in previous editions of this STG policy dialogue on Donbas, concrete proposals emerged from discussion 
and are presented here as advice from the international community:

1.  Damage assessment: A detailed damage assessment is a prerequisite for any development effort. Car-
ried out by credible actors, it can serve as a common platform for national and international develop-
ment partners to design assistance programs. The World Bank study on the economic recovery of the 
Donbas, currently being finalised for presentation to the Ukrainian authorities, marks a significant step 
and broadens the basis for evidence-based policy formulation.

2.  Need  for  a  strong  Recovery  Institution:  A  Recovery  Institution  (or  Coordination  Council)  should 
have a comprehensive mandate to pull together government resources and international assistance. It 
would take charge of entire project cycles leading the way from the identification and planning to the 
realisation and implementation of projects. A supervisory board would bring together the interests of 
the major actors concerned from the Ukrainian central government, the Parliament, regional and local 
administrations, business, donor institutions, NGOs and civil society. A high-ranking member of the 
Ukrainian Cabinet of Ministers would head this institution. It would be staffed by local personnel with 
deep knowledge of the region and international experts able to devise rules and procedures acceptable 
to international donors and investors. 

3.  Insurance/reinsurance: The state needs to create a system that guarantees companies and investors ac-
cess to insurance tools. The state can additionally step in as reinsurer or seek to negotiate the creation of 
an ad hoc funding mechanism to that effect with private-sector and/or international partners.

4.  Expert teams can increase visibility for investors: Under the volatile conditions of an unresolved con-
flict in a region where economic actors, supply chains and the industrial landscape have changed radi-
cally in the past seven years, up-to-date knowledge of local conditions and existing economic structures, 
based on field experience, is of the essence for investment decisions. Credible expert teams able to pro-
vide such knowledge would increase the visibility and attractiveness of local investment opportunities 
for both domestic and international investors. The state could incentivise the constitution of such teams. 
While establishing credibility takes time, a nascent basic network of expert teams could already make a 
difference. Knowledge itself should be seen as an investment of direct interest to implement the Strategy.

5.  Social  infrastructure  to  attract  human  capital:  Labour  and  education  migration  have  depleted  the 
population and work force in Donbas. To attract talent and to facilitate the return and resettlement of the 
local population, improvements to the social infrastructure are necessary. This includes the provision of 
primary health care, the rebuilding of a school system, and providing opportunities in higher education. 
In addition, addressing environmental issues will positively affect the quality of life. 

6.  Rule of law remains top priority for investors: To create a stable and safe environment for investment, 
the rule of law needs to be strengthened. An independent judiciary, better law enforcement and anti-cor-
ruption measures remain indispensable elements of a positive investment climate.

7.  Policy coherence across the whole territory of Ukraine: Special economic incentives in the Donbas 
region, as currently foreseen by the Strategy, should not lead to a distortion of the national economic 
landscape. Clarity and transparency regarding differences between local and national regulations is es-
sential. The development model for the Donbas needs to be consistent with the macroeconomic frame-
work of Ukraine as a whole and should feed into a national reform agenda. The national dimension of 
the regional economic strategy needs to be developed more clearly.

The Strategy is expected to be finalised by the summer of 2021 and to be subsequently introduced to the 
Verkhovna Rada of Ukraine together with a legislative package on the implementation of the Strategy. The 
next STG High-Level Policy Dialogue on Donbas’ Future, tentatively envisaged for March, would provide 
further input useful for the modelling and forecast phase of the Strategy. 

3

STG    Policy Papers Issue   2021/01  January 2021The School of Transnational Governance (STG) delivers teaching and high-level training 
in the methods, knowledge, skills and practice of governance beyond the State. Based 
within the European University Institute (EUI) in Florence, the School brings the worlds of 
academia  and  policy-making  together  in  an  effort  to  navigate  a  context,  both  inside 
and outside Europe, where policy-making increasingly transcends national borders.

The School offers Executive Training Seminars for experienced professionals and a Policy 
Leaders Fellowship for early- and mid-career innovators. The School also hosts expert Pol-
icy Dialogues and distinguished lectures from transnational leaders (to include the STG’s 
Leaders  Beyond  the  State  series  which  recorded  the  experiences  of  former  European 
Institution  presidents,  and  the  Giorgio  La  Pira  Lecture  series  which  focuses  on  building 
bridges between Africa and Europe). In September 2020, the School launched its Master-
of-Arts in Transnational Governance (MTnG), which will educate and train a new breed 
of policy leader able to navigate the unprecedented issues our world will face during the 
next decade and beyond.  

The STG Policy Papers Collection aims to further the EUI School of Transnational Gover-
nance’s goal in creating a bridge between academia and policy and provide action-
able knowledge for policy-making. The collection includes Policy Points (providing infor-
mation at-a-glance), Policy Briefs (concise summaries of issues and recommended policy
options), and Policy Analyses (in-depth analysis of particular issues). The contributions
provide topical and policy-oriented perspectives on a diverse range of issues relevant to
transnational governance. They are authored by STG staff and guest authors invited to
contribute on particular topics.

School of Transnational Governance
European University Institute
Via dei Roccettini, 9
I-50014 San Domenico di Fiesole (FI)
Tel. +39 055 4685 545
Email: stg@eui.eu

stg.eui.eu — www.eui.eu

@STGEUI 
@EuropeanUni

The European Commission supports the EUI through the European Union budget. This 
publication reflects the views only of the author(s), and the Commission cannot be held 
responsible for any use which may be made of the information contained therein.

© European University Institute, 2021

doi: 10.2870/179969
ISBN:978-92-9084-976-6
ISSN:2600-271X
QM-BA-21-001-EN-N

4

STG    Policy Papers Issue   2021/01  January 2021