Original publication: February 2016
Authors:  Filipa Azevedo and Diána Haase
Short link to this post: http://bit.ly/2Jh6l92

1. Introduction

Small and Medium-sized enterprises (SMEs) are essential to the economies of EU regions, both in terms of employment and competitiveness. In 2014, SMEs employed almost 90 million people and it has been estimated that for every km2 of land surface the EU has an average of 5 SMEs. Almost all SMEs (93%) are micro enterprises and employ less than 10 people and the majority of SMEs are active in the five following sectors: ‘wholesale and retail trade’, ‘manufacturing’, ‘construction’, ‘business services’ and ‘accommodation and food services’;

For the 2014-2020 period the European Structural and Investment Funds (ESI Funds) support investments in SMEs through all thematic objectives, particularly through Thematic Objective 3 (TO3) on enhancing the competitiveness of SMEs, of the agricultural sector (for the EAFRD) and of the fishery and aquaculture sector (for the EMFF). In order to first evaluate the main challenges of the implementation of TO3, the European Parliament Committee on Regional Development (EP REGI) requested the Policy Department for Structural and Cohesion Policies to draw up this briefing in support of the ongoing implementation report on “Enhancing the competitiveness of SMEs” (Rapporteur: Rosa D’Amato).


2. EU Support to SMEs: overview

Notwithstanding their importance, EU SMEs face several challenges related to access to finance, administrative and regulatory burdens, difficulties in attracting and retaining talent and skills and in supporting the internationalisation of their economic activities. SMEs also lack support services for commercialisation of new products and services (please see Graphic 1). Considering this, the EU support to SMEs has several forms and can be provided through a) regulatory measures; b) assistance schemes/financial support and c) advice services and networking, as follows:

a) Regulatory measures: e.g. the Small Business Act (SBA) adopted in 2008 and reviewed in 2011, which provides the framework for the EU policy on SMEs and defines 10 guidelines linked to the “Think Small First” principle;

b) Assistance schemes can be divided in four categories:

  • Thematic programmes (with specific objectives and implemented by the EC), for example the Competitiveness of Enterprises and Small and Medium-sized Enterprises programme (COSME) and the EU research programme Horizon 2020;
  • Cohesion policy support through the ESI Funds;
  • Financial instruments (through financial intermediaries or set up at EU level): COSME facilitates and improves SMEs’ access to finance through two financial instruments, namely the Loan Guarantee Facility and the Equity Facility for Growth; the SME Initiative, etc.;
  • Support for the internationalisation of SMEs: through the ESI Funds for example.

c) Advice, support services and networking: covering many areas and policies, in some cases delivered through internet based platforms offering information. Some examples are: the Enterprise Europe Network (co-financed by the COSME Programme), the European Small Business Portal; EU External business centres in third countries (e.g. China, India), etc.

Graphic 1: Problems facing SMEs in the EU28

3. Cohesion Policy support to SMEs: Thematic Objective 3 on “Enhancing the competitiveness of SMEs”

The ESI Funds play a key role in providing funding to SMEs for the 2014-2020 period and they can support SMEs through 11 thematic objectives (TOs), based on the Europe 2020 strategy:

(1) strengthening research, technological development and innovation;
(2) enhancing access to, and use and quality of, ICT;
(3) enhancing the competitiveness of SMEs, of the agricultural sector (for the EAFRD) and of the fishery and aquaculture sector (for the EMFF);
(4) supporting the shift towards a low-carbon economy in all sectors;
(5) promoting climate change adaptation, risk prevention and management;
(6) preserving and protecting the environment and promoting resource efficiency;
(7) promoting sustainable transport and removing bottlenecks in key network infrastructures;
(8) promoting sustainable and quality employment and supporting labour mobility;
(9) promoting social inclusion, combating poverty and any discrimination;
(10) investing in education, training and vocational training for skills and lifelong learning;
(11) enhancing institutional capacity of public authorities and stakeholders and efficient public administration.

Amongst the thematic objectives, TO3 is specifically related to SMEs – targeting competitiveness of SMEs – and the other TOs that are most relevant for SMEs are TO1 for innovation, TO2 for ICT, TO4 for supporting the shift towards a low-carbon economy and TO8 for promoting sustainable and quality employment and supporting labour mobility. The relevance is explained by the fact that competitiveness for SMEs means “the advantage that a firm gains by lowering its costs, increasing productivity, improving the quality and differentiating and innovating products and services offered, and by improving marketing and branding”. However, research, innovation and entrepreneurship are also drivers of SMEs competitiveness.
In terms of ERDF support, TO3 is one of the four obligatory thematic objectives and has a broader scope than TO1. TO3 can target SMEs which focus mainly on local and regional markets and should cover SMEs’ access to finance, access to business-relevant know how, information and contacts (e.g. business advice, consultancy services) and access to markets (e.g. internationalisation initiatives) as follows:

Enhancing the Competitiveness of SMEs

The ESF, EAFRD and EMFF support to SMEs related to TO3 should contribute to the following main activities:

Enhancing the Competitiveness of SMEs

ERDF funding to TO3 is also linked to the obligation to fulfil the thematic ex ante conditionality 3.1. stating that “specific actions have been carried out to underpin the promotion of entrepreneurship taking into account the Small Business Act (SBA)”. The specific actions include measures with the objective of reducing the time and cost involved in setting-up a business; actions to reduce the time needed to get licenses and permits to take up and perform the specific activity of an enterprise, taking account of the targets of the SBA and actions in place to monitor the implementation of the measures of the SBA which have been put in place and assess the impact on SMEs (an “SME test”).

3.1. State of play of Thematic Objective 3 in the EU Member States
With the programming phase of the ESI Funds coming to an end, first conclusions can be drawn on the involvement of SMEs in the whole process and on the state of play of the implementation of TO3.
Regarding the implementation of the European code of conduct on partnership (Article 5 of the CPR), a 2015 survey conducted by the European Association of Craft, Small and Medium-sized Enterprises (UEAPME) indicated that:

  • Regarding the process: “the initial level of consultation was broadly satisfactory but it was difficult to reach the responsible people outside of consultation meetings, there was lack of permanent involvement and of concrete influence on the decision-making process; public consultations were not always seen as enough/satisfactory”;
  • Regarding the involvement of social and economic actors: it appears that “there was no balanced representation of large, medium and small companies in several countries” and that “positive involvement of relevant social and economic actors was more obvious for ESF than for other funds such as ERDF”;
  • Regarding the content/outcomes of the Partnership Agreements/Operational Programmes: “Positive experience of participating in selecting thematic objectives in just 8 countries, negative in 11”; “in some countries consultations merely formal exercises (and limited to public consultation involving several stakeholders), not a real exchange”;
  • Joint recommendations by ETUC, BUSINESSEUROPE and UEAPME on the implementation of the European code of conduct on partnership: “a) to conduct a more in depth analysis on the full implementation of the partnership principle and of Article 5, as well as of the specific provisions of the Code of Conduct on Partnership; b) to give serious considerations to the application of partnership principle in the analysis of ex ante Conditionalities for OPs;”

From the point of view of the authorities responsible for coordinating, managing and implementing the OPs, a recent EP study on the “Implementation of Cohesion Policy 2014-2020: Preparation and Administrative capacity of Member States” highlighted that “TO3 was one of the themes where authorities had the most-effective management capacity” and also indicated that thematic concentration was a challenge for the EU12, especially in terms of support to SMEs and this was due to the fact that for 2007-2013 “the focus was on improving infrastructures.

Another recent EP study on the “Review of the Adopted Partnership Agreements”, indicates that the TO3 ex ante conditionality has been either fulfilled or is partially fulfilled by all Member states and TO3 is one of the thematic objectives with the highest percentage of overall funding, after TO6 and TO7. According to the EC, Member States support TO3 through ERDF with around EUR 33 billion, through EAFRD with around EUR 27 billion and through EMFF with around EUR 2 billion. In total, approximately 20% of the ERDF resources will be allocated to SMEs (EUR 57 billion, other TOs included).

More specifically and according to the latest data, TO3 has the highest budget allocation in Italy, Poland, Portugal, Spain and France (see Table 1). In terms of ERDF allocation, TO3 comes in second position after TO1 (around EUR 33 billion and EUR 41 billion respectively), showing the redirection of funding to Europe 2020 priorities and a general support for thematic concentration among Member States.

Table 1. Financial allocation to TO3 (ERDF, EAFRD, EMFF in EUR billion)

3.2. Financial Instruments in support of Thematic Objective 3
Cohesion policy support to TO3 can be implemented through Financial Instruments (FIs),designed based on an ex-ante assessment “which has established evidence of market failures or sub-optimal investment situations and the estimated level and scope of public investment needs”. FIs “shall target the establishment of new enterprises, early stage-capital, i.e. seed capital and start-up capital, expansion capital, capital for the strengthening of the general activities of an enterprise, or the realisation of new projects, penetration of new markets or new developments by existing enterprises, without prejudice to applicable Union State aid rules”. These FIs can be set up at a) Union level, managed directly by the Commission or b) national, regional, transnational or cross-border level, managed by or under the responsibility of the managing authority.

FIs at Union level are referred in Article 39 of the CPR, which allows Member States to use ERDF and EAFRD funding in favour of SMEs. This ESI Funds allocation to the SME Initiative can be combined with other resources such as the ones from the COSME and/or Horizon 2020 programmes, or the ones from the EIB Group. However, according to preliminary analysis, the usage of new implementing options such as the SME Initiative is not consistently successful in all Member States. Spain, Italy, Malta, Bulgaria, Romania and Finland are participating in the SME Initiative. Spain, Italy, Bulgaria and Malta have ERDF OPs exclusively dedicated to TO3 and delivered through this financial instrument. In Spain, for example, the ERDF funding (EUR 800 million) is being combined with funding from Horizon 2020 and with senior risk coverage by the EIB group. It has been estimated that between 32.000 and 40.000 Spanish SMEs could benefit from this instrument.

Some reasons for the lower uptake of the SME Initiative might be related to the fact that this initiative was “introduced later in the regulatory process (…) when many Member States were already negotiating the OPs” and it seems that Member States fear “losing control over their allocated ESIF funding by channelling funds back to EU level” instruments.

3.3. Synergies between TO3 and other instruments
The Common Strategic Framework (CSF)28 provides strategic guiding principles in order to achieve synergies between ESI Funds and other Union instruments and policies (e.g. combining ESI Funds and Horizon 2020).

Such synergies cannot be evaluated at this early stage but in many EU regions there have been clear synergies between TO3 and TO1 (“strengthening research, technological development and innovation”), including with the TO1 ex ante conditionality on smart specialisation strategies which encourage SME innovation (e.g. incubation, voucher schemes, process, design and service innovation, university-business cooperation, clusters and networking).

Another example of synergies is the SME Initiative for funding TO3, where resources can be grouped from the ESI Funds and COSME and/or Horizon programmes (please see point 3.2 above).

More broadly, synergies between Horizon 2020 and ESI Funds might trigger some challenges related to the fact that these funding schemes have different strategies, objectives and implementation mechanisms; it should also be taken into account that synergies are a tool, not a target in themselves, and, according to some of the ESIF’s Partners Group of Experts, synergies should be measured through a place-based approach and not through a “project based approach”.

Link to the full study: http://bit.ly/563-426

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