Land reform will allow Ukraine to capitalize on its economic potential and improve the lives of Ukrainian people – but a lot still needs to be done before a successful land market opening.
I have now had the privilege of being the World Bank’s Regional Director for Eastern Europe for a little over two months. Returning to Ukraine after almost twenty years, I have been impressed by many recent achievements on Ukraine’s reform path. Many of these are complex, and consequential – creating an independent gas transmission system operator that is already helping safeguard Ukraine’s gas transit revenue; continuing, in the face of opposition and setbacks, to strengthen anti-corruption institutions; undertaking the difficult process of resolving non-performing loans in state-owned banks; and moving, amidst the unprecedented global pandemic, to protect pensioners and other poor and vulnerable Ukrainians.
Today, the immediate challenge Ukraine faces is the COVID-19 pandemic – first to immediately reduce both the mounting toll on health and lives, and then to rebuild livelihoods and incomes. But what reforms are most needed to restore and even improve incomes for the average Ukrainian in the aftermath of the epidemic?
There are many that are required. But for me, the greatest promise is offered by the set of measures around agricultural land reform. Here again, much has been accomplished, most notably when, this past March , the Rada voted to end the nearly two-decade old moratorium on the sale of farm-land. This was a critical first step to unlocking Ukraine’s greatest source of growth. But it is not enough. The next and necessary step is to advance fundamental measures around the governance of land – to allow ordinary people and local governments to benefit from their land without intimidation, bureaucratic interference or corruption.
Land reform that truly allows owners and users to take control of their land can be transformative. By World Bank calculations, for Ukraine as a whole, this can permanently add almost one percentage point a year to economic growth. For landowners currently leasing out their land, this could provide up to $3 billion every year. For rural residents and small farmers, this can create some $24 billion of collateralizable assets that allow them to invest in irrigation, horticulture or non-agricultural small enterprises. And for local communities and local governments, this can provide an income stream of up to $2 billion annually to better the lives of Ukrainians.
The Ukrainian authorities have already made enormous strides in this direction by passing a package of legislation that reduces raider attacks and land-related schemes, makes land data publicly accessible, and allows local communities to plan land use.
But there is much more legislation around land governance that is needed to ensure all the benefits of land reform for every Ukrainian. And just passing the laws is not enough – once that is done, there is the need to draft implementing regulations, to set up institutions to administer these regulations, and to actually implement measures.
Moreover, for improved land governance to lead to more investment, and thus income, it is especially important that Ukrainian landowners or land users be aware of their rights and how to exercise them, and have these rights protected. This is particularly true for small and medium farmers. They must be able to have any actual or attempted violations of their rights redressed quickly. Farmers and other private participants must know how to use land as collateral to access credit. Banks and other financial institutions must be able to professionally assess the value of the collateral and have the incentives to lend to smaller borrowers. Once relevant laws and regulations are in place, there is thus a need for a broad-based legal awareness and a financial literacy campaign.
All of this takes time – and time is running out.
By the most conservative estimates, the needed regulations, institutions and implementation could take at least nine months. The land market opens on 1 July 2021. So, it is essential to pass the appropriate laws by the end of September, at the very latest.
If this deadline is missed because of entirely avoidable delays, there is a real risk that on the date the land market opens, Ukraine will miss this golden chance. Even more, there is the danger that opening the land market in the absence of these strong legal and regulatory safeguards will result in an echo of the 1990s privatization – leaving the market vulnerable to the powerful and well connected and actually worsening land-related corruption and inequality.
Together with our partners, the World Bank has long advocated land reform as a key for Ukraine to develop the productive potential of its abundant land resources. We see this as central to revitalizing the incomes of average Ukrainians, especially in rural areas.
This is a once-in-a-generation opportunity to unlock the sector’s growth potential through investment in high value-added crops and agri-processing and, most important, to transform the welfare of millions of Ukrainians. Ukrainian parliamentarians and policymakers have to ensure that we do not miss it.
AUTHOR: Arup Banerji
WEBSITE: World Bank in Ukraine