Promoting Regional Development in Albania

Prepared from Institute for Public and Private Policies (IP3) 1

Table of Contents

1

Executive Summary................................................................................................................... 4

2 Density, Distance and Division: The 3Ds critical for regional development and the Albania’s position ............................................................................................................................................ 9

3

2.1

Density.............................................................................................................................. 9

2.2

Albania’s position against Density ................................................................................. 10

2.3

Distance.......................................................................................................................... 13

2.4

Regional disparities in Albania ....................................................................................... 15

2.5

Division ........................................................................................................................... 17

European Integration and Opportunities ahead for Albania to promote regional development... 19 3.1

The European Union as the “Convergence Machine” ................................................... 19

3.2

The EC’s Policies and Perspectives on Urban and Regional Development.................... 21

3.3

Delineation of territories from the regional development perspective ........................ 23

4 Promoting regional development through Regional Operational Program: Review of selected EU countries......................................................................................................................................... 26 4.1 Priority Areas funded by the Regional Operational Programs and selection process in selected EU member states ...................................................................................................... 26 4.1.1

Romania- Regional Operational Program ............................................................... 27

4.1.2 Germany – Nordrhein-Westfalen (NRW) Regional Operation Program: Competitive Calls in Business Infrastructure............................................................................................. 30 4.1.3 Poland - ERDF Regional Operational Programme Śląskie 2007-13: Pre-selection through Sub-Regional Development Programs – Urban Revitalization ............................... 31 4.1.4

Estonia OP for the Development of Living Environment: Open Calls..................... 33

4.1.5 Italy – Lazio ERDF OP: Competitive Calls for Local and Urban Development Plans (P.L.U.S. Lazio)....................................................................................................................... 34 4.1.6 Slovenia – Strengthening Regional Development Potentials OP (ERDF): Competitive Calls in Promotion of Entrepreneurship .......................................................... 36 4.1.7 United Kingdom – West Wales and the Valleys ERDF Convergence Programme 2007-13: Open Calls under the Sustainable Transport Strategic Framework ...................... 36 4.1.8

Ireland- Border, Midland and Western Regional Operation Program ................... 38

4.1.9

Lithuania- Economic Growth Operational Program ............................................... 39

4.2

Some guiding principles to ensure optimal project evaluation and selection .............. 40

4.3

Monitoring and Evaluation System................................................................................ 42

4.4

The Role of Regional Development Agencies ................................................................ 43 2

5 Regional Development in Albania: The current status, main challenges and the way to move forward .......................................................................................................................................... 47 5.1

The current status of regional development in Albania ................................................ 47

Figure 5. Regional Development Fund throughout years ....................................................... 51 6

Conclusions and Recommendations......................................................................................... 55

7

Bibliography ............................................................................................................................ 57

3

1 Executive Summary 1.

The paper builds on the framework developed in the World Bank Group’s World Development Report 2009: Reshaping Economic Geography. The key building blocks of the argument made in this report are that Density, Distance, and Division (the 3Ds, as laid out in the WDR 2009) matter for development and should be carefully considered in developing regional development policies. More specifically, growth in most countries is driven by a few dynamic urban centers with high economic density (i.e., a high concentration of economic activity); lagging regions benefit when the distance to places with high economic density is reduced; and the country as a whole is better off in the long run if divisions with surrounding countries (e.g., “thick borders” and restrictive trade policies) are reduced or eliminated.

The first part of the paper aims at positioning Albania against the 3Ds and based on the 2. analysis highlights some important policy implications. Regarding Density, the paper shows that people are leaving rural regions and moved to urban regions, by increasing the concentration of populations in such urban environment. The region of Tirana is estimated to have a density of 480 inhabitants per km2, the highest nationwide and has experienced the highest population increase by 27 percent, followed by Durres by 21 percent. These two regions altogether account for more than one third of the country’s total population. Additionally, several major and secondary cities in Albania received population from the surrounding rural areas. On the other hand, in all other regions/qarks there is a declining trend, with the highest magnitude in the regions of Kukes, Diber, and Berat. Rapid urbanization in Albania had many consequences, which affected all parts of the country. Although, urbanization is a process that happens naturally, public authorities should play a critical role in guiding this process. Welldesigned public policies should encourage positive market externalities and address the negative side effects of urbanization (e.g., informal settlement, congestion, pollution, social cleavages).

Regarding Distance, the paper shows that Albania has experienced a high internal 3. divergence among regions/qarks, and a much higher external divergence relative to the EU member states. There are three qarks below 75% of the country average, and only one qark is above 125%. The best performing qarks in terms of GDP per capita in EUR (in PPP, 2012) are: Tirana with a GDP per capita of EUR 4,641, Fier EUR 3,720 and Durres EUR 3,436. The worst performing qarks are: Diber with a GDP per capita of EUR 2,212, and Kukes EUR 2,285. When compared with the average GDP per capita of EU 28 of EUR 26,500, the increase in disparities is significant, even for Tirana the best performing region. The twelve regions in Albania have been classified into leading and lagging regions in accordance to GDP per capita and other important economic and social indicators performance.

As encountered worldwide, the essential dynamics of urbanization generate short-term 4. divergence and long-term convergence in living standards. In the long run, as benefits from agglomeration reach a tipping point in leading cities and regions, they begin accruing for lagging regions, provided they have a sound institutional foundation to support economic growth. This includes, among others, access to public utility services, proper schools and hospitals, social services, land rights, functioning housing markets, etc. While most developed countries have witnessed uneven development in their early developing stages, they have managed, to a large extent, to ensure similar living standards across regions. This path of development has critical policy and investment implications, which should be considered by the Albanian national and local decision-makers, including the following:

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ÿ Developing differentiated policies for leading and lagging areas: Opportunities for growth exist in all regions, and national and local government should promote growth accordingly. However, solutions for a rapidly growing city should differ from those recommended for lagging areas or for cities that have reached the optimal level of agglomeration. ÿ Trying to balance out development can have quite opposite effect and may contribute to inefficient spending of scare public funds. Fostering growth, even in the regions that are lagging economically, is in the interest of national government as it contributes to national output, but without hindering growth opportunities elsewhere. Policy makers for a long time have tried to correct the imbalances, by targeting public investments in lagging areas, and by trying to redirect private capital from leading to lagging areas. As evidence shows, such programs rarely achieve expected results. Moreover, as the WDR ’09 indicates, trying to balance out development can have quite the opposite effect and may contribute to inefficient spending of scarce public funds. ÿ Improving connectivity can play a critical role in reducing the gap between leading and lagging areas. In terms of policy implications, decision makers should consider solutions for improving both internal and external connectivity to: (a) internally: cities with large and growing economic mass within the country; and (b) externally: main centers of Europe. With respect to the former, investments should shorten the economic distance between lagging and leading areas, facilitating the flow of people, goods, and services towards country’s growth poles. Additionally, investment should improve connectivity between the country’s leading economic centers to both surrounding areas in their immediate vicinity as well as to more distant, less prosperous cities.

Regarding Division the paper shows that Albania should shorten the distance to European 5. and neighboring markets by improving infrastructure and encouraging cross-border flows of people, capital and ideas. Given that 65.4 percent of Albanian exports go to European Union and 14 percent to neighboring countries, it is critical to improve links to the West and neighboring countries.

Although, Albania has focused to date massively on investments in major road projects, the country still has one of the least developed road networks in Europe. The same consideration is valid for air infrastructure with only one international airport and no domestic connections. Considering that it was not within the scope of the paper, it is recommended to advance further the analysis and determine which infrastructure links are most needed to strengthen synergies between different cities and shorten the distance to European and neighboring markets.

The second part of the paper aims at analyzing a) the EU-level thinking, policies and 6. funding instruments on urban and regional development; and b) the opportunities ahead for Albania as a EU candidate country to promote regional development.

7.

The EU has a long tradition in promoting urban and regional development, although EU has no legal basis for elaborating and implementing urban development policies. These policies are usually left at the discretion of individual member states, following the principle of subsidiarity. Overall, the EU has played a major role in supporting cities to promote economic competitiveness and economic, social and territorial cohesion. Many of these efforts have been part of the cohesion policies.

The EU has not adopted a single pure model for regional development, and EU’s regional 8. development framework has evolved over time toward a more complex mix of interventions targeting sustainable and balanced growth. Generally, the EU prioritizes investments that aim to increase the convergence between member states, both politically and economically. At the same time, since 2000 Lisbon Strategy, the EU has refocused some of its key efforts on promoting economic growth and competitiveness. Similarly, the first priority of the Territorial Agenda of the EU 2020 (TA 2020)adopted in 2011 as the key document guiding EU’s regional development effort- is to improve polycentric

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and balanced territorial development. On the one hand, the TA 2020 notes the importance of major urban centers as drivers of economic growth in their regions and for the entire EU. At the same time, the TA 2020 also emphasizes the importance of developing smaller cities to reduce territorial polarization of economic performance.

This is also reflected in the current EU’s cohesion policy, which has three objectives, 9. including: convergence, regional competitiveness and employment, and European territorial cooperation. Convergence still captures most of the EU’s funding amounting to EUR 283.3 billion and aims at promoting balanced development. The 2014-2020 Cohesion policies are currently based on the priorities of “Europe 2020”, which significantly shapes EU-level thinking, and would ultimately influences how structural funds are managed and what kind of investments they could support, and subsequently, how project selection process would look like. The EC has identified three key drivers for growth, which will be supported through actions at both EU and national levels, including: (i) smart growth (fostering knowledge, innovation, education and digital society), (ii) sustainable growth (making EU production greener and more resource efficient while boosting competitiveness), and (iii) inclusive growth (enhancing labor market participation, skills acquisition, and the fight against poverty).

Based on these goals, the EC presented the Common Strategic Framework (CSF), designed 10. to enable more impactful and integrated spending of structural funds. This is the document that is meant to replace the National Strategic Reference Framework 2007-2013 for the next programming period. The CSF aims to set out an integrated approach for territorial development supported by all the Cohesion Structural Funds (CSF) and includes objectives based on agreed indicators, strategic investments, and a number of conditionalities.

11.

The European Regional Development Fund (ERDF) is the key elements of the EC financial package and aims at promoting regional development through Regional Operational Program (ROPs). This period’s ERDF investment program concentrates on four key themes, including: (i) innovation and research; (ii) information and communication technology (ICT); (iii) support for small and medium-sized enterprises (SMEs); and (iv) promoting a low carbon economy. ROPs are comprehensive programs consisting of priority axes and key areas of intervention targeting investments to support sectors. In general, the regional development from a sector perspective includes -transport, energy, environment, private sector development, competitiveness and innovation, social policies and employment, agriculture and rural development; as well as regional and the territorial cooperation.

However, identification of the sectors is left to the discretion of the beneficiary countries, to enable them to adjust the funding instruments with their national policies.

As the EU thinking is moving towards integrated programs supporting sectors, the key 12. challenge for the EU member states and candidate countries is to develop and implement truly integrated programs supporting sectors. Ideally, integrated development plans (IDPs) would include a comprehensive action plan, with a list of programs to be financed from the ROPs, from other EU sources, as well as from the local and national budget. These programs should also explore ways to benefit larger metropolitan areas and multiple sectors to enable optimal synergies. In this sense, the new instruments planned under the next EU programing exercise, such as Integrated Territorial Investments (ITIs), should be utilized to ensure proper funding and implementation mechanisms for integrated programs. Integrated approaches also entail that EU and state-budget-funded projects are not treated differently or separately, but that they are part of a single, coherent development vision and help achieve the same overall goals.

This means that similar evaluation and selection criteria and procedures should apply to such investments, regardless of the funding source (i.e., EU funds or state-budget financing).

Aligned with this approach, and as outlined in the new financial perspective of the EU 2014 13.

– 2020, the Pre-Accession Assistance (IPA) has also been redesigned to be planned and

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implemented according to programs supporting a sectorial approach. The estimates of the IPA’s impact in the period 2007 - 2010 highlighted the fact that the funding based on strategic projects often lose focus and made it more difficult to achieve the desired impact. This was because projects often addressed very specific problems within the government and were drafted by a small group of specialists; or even that the projects were on an annual basis and rarely the same policy objectives were supported by IPA projects for the coming years. One of the major changes that IPA II projects are expected to bring, is to support more programs in sectorial national strategies and the gradual transition of finances from separate projects in programs to support the sectors.

Albania as a candidate country would significantly benefit from EU financial and 14. investment instruments. The EU through its policies and funding mechanisms has contributed significantly to promoting regional development and closing the gap within EU member states, as well as candidate countries. The EU is considered “the Convergence Machine,” because it has helped more countries develop than in any other region in the world. During both pre- and post-accession periods, the EU makes strategic investments in connecting infrastructure, “shortening” the economic distance to highly concentrated markets in Western Europe and within the new Member States. As a candidate country, Albania will continue to profit from EU funds under the Instrument for IPA as well as have access to ERDF. However, in Albania, there is so far no clear and coherent platform for Regional 15.

Development (RD), neither there are clear and well-defined institutions with respective roles in RD. Albania doesn’t seem to have in place neither the legal, regulatory and institutional frameworks, nor the institutional capacity and financing mechanisms resembling to the sophisticated regional development planning systems of the EU member states. Additionally, regional development policy in Albania lacks the special/territorial dimensions that focus on the region and a development dimension cutting across sectors. Overall, the foreign aid is characterized by low absorption capacities and is also fragmentized with many projects realized in many local places, sub-regions or municipalities scattered all over the country. This fragmented, low absorption, and lack of sectoral approach raises serious concerns if the funded projects will be lasting and stable enough to fulfill the expectations of donators and partners as well as the needs and expectations of the Albanian constituencies.

The Government of Albania (GoA) recognizes the importance of developing a shared vision 16. on regional development which is aligned with the EU-level thinking and move forward with the implementation supported by EU financial and investment instruments. Equally important, it is critical to have in place the adequate capacities and systems as well as a good pipeline of projects ready for being financed. Insufficient efforts in the coming years may result in the lack of viable projects developed to EU standards just when increasing funding is becoming available. Experiences of new member states and accession countries show that there has been under-utilization of EU funds and overall slower progress, deriving from lack of capacities in place and not enough mature projects for funding.

Towards this objective, the third part of the paper by analyzing the experience of selected 17.

EU member states with ROPs, would provide inputs to number of strategic documents prepared by the GoA and help in refining the proposed model for promoting regional development. The experience of nine EU member states, (Romania, United Kingdom, Germany, Italy, Estonia, Lithuania, Slovakia, Ireland, and Poland), with Operational Program 2007-2013 funded by the European Regional Development Fund, was analyzed. This part of the paper provides information on priority axes, key areas of interventions and programs to support sectors funded by the OP as well as selection process. It also provides information on the allocation of funds by priority areas and the source of funds being either EU investment or national public investment and in some cases national private investments. Additionally, based on the international experience a set of principles to guide establishment of an efficient project selection process as well as Monitoring and Evaluation system is provided.

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18.

Analysis of the international experience reveals that there is no unique approach for regional development. While the EU sets the overarching goals and objectives of the programing period, identification of programs targeting investments to support sectors is left at the discretion of the beneficiary countries to enable them to align the funding instruments with their national, regional and local policies. Experience of selected EU countries demonstrates that there is no unique approach. To the contrary, countries have brought the EU-level strategic thinking and regional development perspective into their country’s context, have identified sectors and developed programs to support a sectorial approach, have embraced different approaches in managing the funds varying from a decentralized approach to a centralized one, and have used unique techniques for project selection.

The proposed Albanian model centers on the investment management approach with 19. establishment of a new Albanian Holding as a key tool for delivering efficiency and enhancing impact. Under the roof of the new Albanina Holding, there will be Regional Management Albania (RMA) and Economy Service Albania (ESA) as the two main pillars to promote the economic development of the whole country. RMA will aim at strengthening economic and social cohesion in Albania by correcting imbalances between regions. As part of the reform, several instruments will be aligned with the EU strategic thinking and perspective, among which the Albanian Regional Fund (ARF) will be aligned with the European Regional Development Funding by moving towards an integrated program approach and funding programs that supports sectors.

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2 Density, Distance and Division: The 3Ds critical for regional development and the Albania’s position 20.

The 2009 World Development Report “Reshaping Economic Geography” of the World Bank Group (WBG) highlights that Density, Distance, and Division (the 3Ds), are key building blocks, which matter for development. More specifically, first, growth in most countries is driven by a few dynamic centers with high economic density, i.e., a high concentration of economic activity. Second, lagging regions benefit when distance to places with high economic density is reduced. Third, the country as a whole is better off in the long run if divisions with surrounding countries, e.g., “thick borders” and respective trade policies are reduced of eliminated. Overall, a country’s economic development is understood as the product of two key factors: the economic mass of cities and the closeness to centers with large economic mass, both within national borders and abroad.

2.1 Density 21.

In general, density is a fundamental characteristic of urban settlements and development goes hand in hand with increased urbanization. In other words, no country can sustain growth in the long term without allowing for a growing concentration of economic capital and human resources in certain locations. Growth will take place where growth is already happening, as density in major cities and adjacent areas help provide a number of positive externalities that make urban agglomeration attractive to people and capital. The emerging theory of the New Economic Geography has also tried to address the question as to why economic activity concentrates in some areas and not in others. An over-simplified explanation of this theory suggests that economic concentration equals economic efficiency, and high sustainable growth rates can only occur in areas where the economy is highly concentrated1.

22.

Consequently, greater density generates a number of benefits such as a more diverse pool of capital to sustain supply and demand. Larger cities will rely on a bigger workforce to support the local economy and, as a result, will typically grow at a much faster pace than the rest of the country. For their part, individuals benefit from urbanization both as consumers (on the demand side) and as employees (suppliers on the labor market)2.

23.

Growing economies around the world teach a simple lesson that growth in most countries is driven by a few dynamic urban centers with high economic density, i.e., a high concentration of economic activity. Worldwide, cities/urban centers are responsible for around 70% of global Gross Domestic Product (GDP) and, within the European Union (EU), they are responsible for 67% of GDP3.

24.

The sources of GDP growth in Europe, as set forth in table below, are on average equally attributable to the capital city, on one hand, and second tier cities on the other hand. Data reveals wide differences between countries, with a more prominent role of capital cities in the former socialist states

1

“How Regions Grow?”, Policy Brief, Organization for Economic Cooperation and Development (OECD), March 2009.

The World Development Report “Reshaping Economic Geography”, World Bank Group, 2009.

3 “Competitive Cities: Reshaping the Economic Geography of Romania”, Romania Regional Development Program, 2013.

2

9

but also in small unitary states (e.g., Cyprus, Malta, Luxembourg). In the case of unitary former socialist block, on average the capital city’s contribution account for 36.6 percent of GDP and second-tier cities for 25.2 percent of GDP. Regionalized and federal state structures seem more conducive to a more balanced development. In the case of federal states, on average capital city’s contribution accounts for 11.5 percent of GDP and second-tier cities account for 40.1 percent of GDP. Within the block of former socialist states, Romania registers the lowest cumulated contribution of capital plus second tier cities to GDP growth- capital’s city contribution accounts for 24.9 percent of GDP and second-tier cities for 20.2 percent of the GDP, both totaling 45.1 percent of GDP. This may be linked to the fact that such cities have been most affected by economic restructuring following the transition from communist regime to market economies. Overall, most other countries in the EU have more concentrated economies (i.e., a higher share of the overall GDP is generated by a few large cities) and seem to be more territorially unbalance.

Table 1: Share of Growth in Total GDP (%), 2000-2007

Source: ESPON and Eurostat

2.2 Albania’s position against Density 25.

Economic activity in Albania is highly concentrated in the Tirana- Durres corridor. Tirana generates about 36 percent of GDP and together with the other two qarks, Durres and Elbasan, they

10

generate more than 57 percent of the country’s GDP. Variation in GDP amongst qarks as measured by the maximum/minimum ratio is very high of 20.5.

26.

Albania is recognized for its small but growing population and intensive urbanization during the last 20 years of transition from communist regime to democracy and market economy. Free movement and settlement after 1990 significantly changed the geography of development. The Albanian official statistics suggest that the country’s urbanization rate was around 49 percent in 2008. Although it has increased from the low level of 43 percent in 2001, it is considered to be one of the lowest amongst the EU member states.

27.

Albania recorded a positive population growth from 2001 to 2008, with an average population growth of 2.23 percent, which is moderately different from the EU27 average, by representing approximately 78 percent of the EU27 growth rate and 53 percent of the EU15 rate4. The official statistics on population density and dynamics suggest that the Albanian population is highly concentrated. Around 57 percent of the total population is located in the four main regions/qarks, including Tirana, Durres, Fier, and Elbasan, and 25 percent of the total population is located in the region/qark of Tirana alone.

28.

The average national population density is 111 inhabitants per km2 and is relatively high in comparison to other countries in South East Europe (SEE). Tirana and Durres have the highest population density of 434% and 383% of the national average respectively, followed by Fier (178%). All other qarks are below the average, with the lowest density in Kukes (30%), Gjirokaster (32%), Diber (49%), Shkoder (62%), and Korce (63%). As set forth in Table 2 below, there is a high and rapid increasing differentiation in population density over years, with a maximum to minimum ratio of more than 14 times5.

Table 2: Evolution in the population density at region/qark level, 2001-20086 Population Density Berat Diber Durres Elbasan Fier Gjirokaster Korce Kukes (Min) Lezhe Shkoder Tirane (Max) Vlore Albania

2001

2002

2003

2004

2005

2006

2007

2008

107.10 72.82 332.13 113.79 202.73 39.10 72.19 47.09

105.50 70.30 345.00 113.20 203.80 38.80 71.90 45.70

104.15 68.09 360.41 112.95 204.03 38.36 72.07 44.82

101.17 64.33 366.84 110.60 201.45 37.25 71.03 42.98

97.85 59.27 379.99 108.09 198.57 36.33 69.73 38.04

96.19 55.92 397.64 107.82 198.39 35.95 69.55 32.96

96.20 55.55 407.72 108.93 200.15 35.81 70.17 31.91

95.04 54.54 402.16 107.20 197.45 35.50 69.25 33.37

98.93 72.84 376.84

99.30 72.00 371.60

100.05 71.78 385.42

98.69 70.28 410.33

97.40 69.33 446.36

97.76 69.45 472.81

98.82 70.19 486.63

97.57 68.98 480.05

72.18 108.27

72.60 107.80

74.22 108.74

74.76 108.78

75.65 109.30

67.26 109.60

56.48 109.97

77.77 110.68

Source: National Institute of Statistics, INSTAT * Population data are estimated based on 2001 census.

4

Regional Disparities in Albania” prepared under “Integrated Support for Decentralization Project: Working for Regional Development”, Tirana, November 2010.

5 “Regional Disparities in Albania” prepared under “Integrated Support for Decentralization Project: Working for Regional Development”, Tirana, November 2010.

6 Table is extracted from the Study on Regional Disparities in Albania, page. 32.

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Table 3: Evolution in the total population per region/qark, 2001-2008 7 Total Population Berat Diber Durres Elbasan Fier Gjirokaster Korce Kukes Lezhe Shkoder Tirane Vlore Albania

2001

2002

2003

2004

2005

2006

2007

2008

192,557 188,301 254,409 364,003 383,154 112,774 267,892 111,782 160,259 259,453 622,538 195,331 3,112,453

189,637 181,741 264,285 362,125 385,097 111,954 266,950 108,500 160,889 256,325 613,804 196,544 3,097,851

187,258 176,077 276,073 361,343 385,617 110,629 267,442 106,407 162,089 255,665 636,710 200,846 3,126,156

181,901 166,367 280,996 353,825 380,737 107,416 263,585 102,037 159,882 250,351 677,870 202,296 3,127,263

175,937 153,277 291,070 345,793 375,297 104,790 258,784 90,298 157,780 246,949 737,387 204,703 3,142,065

172,953 144,598 304,592 344,912 374,948 103,690 258,100 78,239 158,377 247,394 781,087 181,996 3,150,886

172,975 143,649 312,317 348,465 378,288 103,287 260,408 75,765 160,094 249,331 803,909 152,847 3,161,335

170,887 141,043 308,054 342,926 373,181 102,372 257,005 79,225 158,062 245,700 793,037 210,457 3,181,949

Source: National Institute of Statistics, INSTAT * Population data are estimated based on 2001 census.

29.

The above data reveals the following patterns on population and density dynamics. There is an immense population movement from the mountainous areas (south, north, and east) towards the western coast and central locations. More specifically, population increased mainly in Tirana by 27 percent, and to a lesser extent in Duress by 21 percent, and Vlore by 8 percent. On the other hand, in all the other regions/qarks there is a declining trend, with the highest magnitude in Kukes (-29 percent), Diber (-25 percent) and Berat (-11 percent). This has led to a rapid concentration of the population in a limited number of qarks, especially Tirana and Durres, with more than one third of the country’s total population located in the Tirana-Duress corridor. Another important trend is also present. Several major and secondary cities in Albania (urban centers of qark and centers of the former districts8) received population from the surrounding rural areas.

30.

As noter in the WBG Urban Sector Review (2007), the spatial structure that was established under the central planning system prior to 1990, has been naturally corrected by the demographic movement as an adjustment to the market economy: “The swell of migration seemingly chaotic and spontaneous has reflected Albanians natural responses to the new geography of opportunities�. Overall, these development trends have show that urbanizations has occurred within all regions, although Tirana and Durres qark/regions encountered a rapid urbanization and population growth, turning them into urban agglomeration. The urbanization rate in Tirana is 73 percent and in Durres around 57 percent and the regions with the lowest urbanization rates are, Diber with 18 percent, Kukes with 23 percent, Lezhe with 32 percent, Fier with 32 percent, and Elbasan with 36 percent9.

31.

Rapid urbanization in Albania had many consequences, which affected all parts of the country.

These are: significant increase of informal settlements, rural regions loose manpower, social structures will change into an aging society, productive generations leave for work in the centers, the sociological structures in the centers and in the rural regions get polarized; provision of housing and public services become a major challenge for cities which have already weak and poor infrastructure to accommodate the increasing demand, subsequently the cost of providing public services rise and quality of services lowers;

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8 9

Table is extracted from the Study on Regional Disparities in Albania, page. 33.

Prior to the administrative reorganization, which took place in 2000, the country was divided into 36 districts.

Regional Disparities in Albania, page 36.

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agriculture will soon no longer provide the necessary basis for life and reinforce the exodus.

Consequently, achievement of social cohesion, growth and shared prosperity will be more challenging.

32.

Although, urbanization is a process that happens naturally, public authorities should play a critical role in guiding this process. Well-designed public policies should encourage positive market externalities and address the negative side-effects of urbanization (e.g., informal settlement, congestion, pollution, social cleavages).

2.3 Distance 33.

Distance refers to the ease or difficulty of transporting people, goods, services, capital, information, and ideas over space. When considering the movement of goods and services, economic distance takes into account time and monetary costs, which depend on available infrastructure and transport options. With respect to the migration of people, economic distance includes, in addition to the factors relevant for transporting goods and services, the cost of adapting to a new environment, which may include new taxes, language barriers, etc. The economic distance – whether for people, goods, or services – is closely tied to ease of access to markets. The underlying assumption is that the easier it is for people to access places with high economic density and better opportunities, the more productive they are likely to be. Because distance does matter for development, particularly at the country level, some regions will enjoy an inherent advantage over others if they are geographically closer to bigger, more vibrant markets. Along with dynamics around density, distance will often contribute to uneven development with the emergence of leading areas or growth poles and lagging ones.

34.

The leading areas or growth poles are usually the places with most opportunities – higher education, jobs, people, and firms. As such, policy makers have to enable access to these places. For people that already live in a leading area, access to opportunities may be enabled by good public transportation, connecting peripheral poorer areas to the richer central business district.

35.

On the other hand, lagging areas are the ones which struggle to break through a vicious cycle of poverty, low economic competitiveness, lack of education and skills, and possibly marginalization. Such places have few professional opportunities, public institutions and services often function poorly on account of a crumbling infrastructure (e.g., lack of running water, inadequate sanitation, poor healthcare services, low-quality schools, etc.), and many people struggle with poverty and, in special cases, discrimination and isolation. Even the best-qualified people have a hard time in finding adequate employment because there are few profitable firms, if any, so they often move away in search of better opportunities. People who are less mobile (e.g., children, the elderly, other vulnerable groups, low-skilled workers, etc.) are left behind, often struggling with poverty and the lack of basic necessities. Needless to say, those who are born and grow up in a lagging area typically have a much weaker shot at fulfilling their potential and boosting their productivity, which ultimately represents a cost for the entire society10.

36.

As encountered worldwide, in the early stages of development, there is an increased divergence between growing (leading) and lagging (stagnating or shrinking) local economies. This evolution is the expected consequence of some primary cities growing rapidly and accumulating more economic density and higher shares of a country’s economic output. As Figure 1 below suggests, this process eventually slows down when the benefits of greater agglomeration start to level off. At that point, diseconomies of scale – when the costs of further concentration (e.g., pollution, congestion, etc.) outweigh the benefits –

10

The World Development Report “Reshaping Economic Geography”, World Bank Group, 2009.

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trigger a spillover of resources to adjacent areas. As such, uneven development eventually generates benefits for lagging areas as well.

Figure 1: City population as a share of national population

Source: The World Development Report “Reshaping Economic Geography�, World Bank Group, 2009

37.

In a nutshell, the essential dynamics of urbanization generate short-term divergence and longterm convergence in living standards. In the long run, as benefits from agglomeration reach a tipping point in leading cities and regions, they begin accruing for lagging regions, provided they have a sound institutional foundation to support economic growth. This includes, among others, access to public utility services, proper schools and hospitals, social services, land rights, functioning housing markets, etc.

While most developed countries have witnessed uneven development in their early developing stages, they have managed, to a large extent, to ensure similar living standards across regions.

38.

The Figure 2 below, makes this exact point with respect to the development of the United States: with the urbanization process largely complete, economic mass is now concentrated in a number of coastal cities, which are denser and better positioned in terms of their distance relative to each other and to main trade routes inside and outside the U.S. Still, people across America enjoy similar living standards regardless of where they are located.

Figure 2: Economic production per square miles in the USA

14

Source: The World Development Report “Reshaping Economic Geography”, World Bank Group, 2009

39.

The existence of both leading and lagging areas is part of the process and encountered everywhere. The World Development Report 2009: Reshaping Economic Geography indicates “development is inherently unbalanced, with some regions developing faster than others”. This framework of WRD has critical policy and investment implications for local and national decisionmakers. These are the following: ÿ Developing differentiated policies for leading and lagging areas: Opportunities for growth exist in all regions, and national and local government should promote growth accordingly. However, solutions for a rapidly growing city should differ from those recommended for lagging areas or for cities that have reached the optimal level of agglomeration. ÿ Trying to balance out development can have quite opposite effect and may contribute to inefficient spending of scare public funds. Fostering growth, even in the regions that are lagging economically, is in the interest of national government as it contributes to national output, but without hindering growth opportunities elsewhere. Policy makers for a long time have tried to correct the imbalances, by targeting public investments in lagging areas, and by trying to redirect private capital from leading to lagging areas. As evidence shows, such programs rarely achieve expected results. Moreover, as the WDR ’09 indicates, trying to balance out development can have quite the opposite effect and may contribute to inefficient spending of scarce public funds. ÿ Improving connectivity can play a critical role in reducing the gap between leading and lagging areas. In terms of policy implications, decision makers should consider solutions for improving both internal and external connectivity to: (a) internally: cities with large and growing economic mass within the country; and (b) externally: main centers of Europe. With respect to the former, investments should shorten the economic distance between lagging and leading areas, facilitating the flow of people, goods, and services towards country’s growth poles. Additionally, investment should improve connectivity between the country’s leading economic centers to both surrounding areas in their immediate vicinity as well as to more distant, less prosperous cities.

2.4 Regional disparities in Albania 40.

In the case of Albanian, the country has experienced a high internal divergence among regions/qarks, and a much higher external divergence relative to the EU. As set forth in Figure 3 below, there are three qarks below 75% of the country average (indexed at 100), and only one qark is above 125%. The best performing qarks in terms of GDP per capita in EUR (in PPP, 2012) are: Tirana with a

15

GDP per capita of EUR 4,641, Fier EUR 3,720 and Durres EUR 3,436. The worst performing qarks are: Diber with a GDP per capita of EUR 2,212, and Kukes EUR 2,285. When compared with the EU28, the increase in disparities in terms of GDP per capita is significant, even for the best performing region, Tirana- the average GDP per capita of EU 28 is EUR 26,500.

Figure 3: Increase of Disparities between regions and with EU/GDP per Capita in PPS versus Average EU28 (Eur) 30,000

26,500 25,000

20,000

15,000

10,000

5,000 4,641 3,720

3,436 2,212

2,285

2,336

2,311

Kukes North

Lezhe

Shkoder

2,472

2,652

Elbasan

Berat

2,802

2,298

3,015

Diber

Durres

Tirane

Fier

Gjirokaster South

Korce

Vlore

Average EU28, 2012

Source: INSTAT and EuroStat

41.

The best performing regions characterized by a high GDP per capita are also performing well in other economic indicators. These are11: ÿ Employment: During the period 2001-2008, Korçe, Durres, Elbasan, Fier and particularly Tirana experienced a high increase of number of people employed, while employment of Diber, Kukes, and Lezhe shrunk considerably. ÿ Newly established enterprises: In 2008, the max/min ratio for newly established enterprises was 3.4 (Tirana with 88.5 compared to Kukes with 25.9). The overall growth of newly established enterprises in 2001-2008 was 4.5 times. Growth was especially impressive in Shkoder, Lezhe, and Kukes (around 15 times), Diber (9 times), and Gjirokaster (7 times). Investments in public infrastructure in the northern region could somehow explain the positive results. ÿ Foreign Direct Investments: The number of foreign enterprises (FE) increased on average by 99 percent during the period 2001-2008 at country level, with the highest rates marked by Lezhe (233%) and Gjirokaster (200%). However, Tirana, with an increase of 100%, continues to count 11

Numbers and examples presented above in the main text to demonstrate the regional disparities in Albania are taken from the Report on Regional Disparities in Albania.

16

for the biggest share of FE in the country, 70% in 2008, which is nearly the same as in 2001 (69.5%). ÿ Credit to businesses: It is highly concentrated in Tirana and accounts for 72 percent of the total credits and have a per capita value (expressed in thousand ALL) nearly 3 times higher than the country average. Only Durres (78%) and Vlore (67%) are relatively close to the country average, accounting both for 12% of total credits. Most of other qarks are ranging between 27% and 39% of the country average. Extreme cases are Diber (2% of the country average) and Kukes (6%), followed by Berat (14%). One of the explanations of such extreme differentiation could be the large crediting activities of Tirana’s branches of commercial banks even for businesses from other qarks.

42.

The Report on “Regional Disparities in Albania” prepared under “Integrated Support for Decentralization Project: Working for Regional Development”, Tirana, November 2010, classifies the regions into leading and lagging areas. A short summary for each of the categories is provided below: ÿ Tirana is the national economic growth pole. It has the highest GDP per capita, strong economic structure with highest employment share in non-agriculture sector. Tirana is also very well performing in other indicators such as the number of active and newly created enterprises, attracting foreign enterprises, and credits to business. ÿ Durres and Vlora are the secondary growth poles. These two regions perform well in the high economic indicators, weaker than for Tirana but significantly above other qarks. Durres seems to be in a more advantageous position due to its proximity to Tirana with which it constitutes the economic ‘engine’ of the country. Tirana and Durres, together they generate almost half of total GDP. Gjirokaster is not included here as probably favored by the methodology used in estimating the GDP, and has a weaker performance on the other indicators. ÿ Diber and Kukes are the worst economic performer, the lagging regions–almost uniformly weak on all indicators (with reservations made about registered unemployment situation). ÿ Remaining qarks–mixed economic performance – Lezhe, Shkoder and Beratare considered to be at the bottom of the group.

2.5 Division 43.

Division refers to the ease with which people, goods, services, capital, and ideas flow from a country to another. While physical borders play some role in division, the focus is on economic borders to distinguish between countries that are integrated in functional economic communities and, at the other end of the spectrum, states that impose significant restrictions on trade flows and migration. Countries that benefit from “thinner” economic borders are better connected to international centers of economic mass and have an easier path to taking advantage of available opportunities, thereby facilitating quicker, sustained progress.

44.

Multiple factors explain the existence and persistence of divisions. For their part, governments have used a range of instruments to “thicken” borders, typically with negative consequences over their long-term economic development. Restrictions include: trade tariffs; capital flow controls; regulation of entry and exit for citizens, residents, and visitors; and barriers against the free flow of ideas (e.g., government control of the media, restrictions on Internet traffic, etc.). At the same time, certain divisions are beyond the control of governments: country size, landlocked or sea-locked territories, and ethnic and cultural differences within countries and regions. There is significant evidence showing that countries

17

with lower restrictions on the cross-border flows – of people, goods, services, capital, and ideas – are more likely to achieve and sustain economic growth. Consequently, a country as a whole is better off in the long run if divisions with surrounding countries (e.g., “thick borders” and restrictive trade policies) are reduced or eliminated.

45.

Given that 65.4 percent of Albanian exports go to European Union and 14 percent to neighboring countries, it is critical to improve links to the West and neighboring countries., it is critical to improve links to the West and neighboring countries. Although, Albania has focused to date massively on investments in major road projects, yet the country has one of the least developed road networks in Europe. The same consideration is valid for air infrastructure with only one international airport and no domestic connections. Considering that, it was not within the scope of the paper, it is recommended to advance further the analysis and determine which infrastructure links are most needed to strengthen synergies between different cities and shorten the distance to European and neighboring markets.

18

3 European Integration and Opportunities ahead for Albania to promote regional development 3.1 The European Union as the “Convergence Machine” 46.

Marked variations in economic performance among EU regions reflect the regions’ great diversity in income levels, employment rates, mixes of high and low productivity, assets, comparative advantages, stages of development and public policies. There are several factors, which influence variation in the economic performance of the regions, including: geography, demographics, specialization, productivity, physical and human capital, infrastructure and the capacity to innovate.

Sometimes these factors reinforce each other, while in other cases, they may counteract one another.

47.

The EU through its policies and funding mechanisms has contributed significantly to promoting regional development and closing the gap within EU member states, as well as candidate countries. The EU is considered “the Convergence Machine,” because it has helped more countries develop than in any other region in the world. Proximity to the EU and inclusion in the common market have allowed countries like the Czech Republic, Hungary, Slovakia, or Slovenia, to quickly join the ranks of developed countries, overcoming the so-called “middle-income trap.” During both pre- and post-accession periods, the EU makes strategic investments in connecting infrastructure, “shortening” the economic distance to highly concentrated markets in Western Europe and within the new Member States. The common market also ensures consistency in regulation and the virtual elimination of trade barriers, opening markets to competition and an infusion of workers and capital from all across the EU. The effect has been dramatic.

48.

As Table 4 below highlights, new Member States benefited from EU’s proximity even before their integration, but their post-accession growth has been even more impressive. Between 1995 and 2005, they have more than doubled their GDP per Capita. Primary cities in these countries grew even faster, well exceeding the EU average by 2009. Bucuresti, Sofia, Prague, Bratislava, Warsaw, and other urban centers have not only become economic engines for their respective countries, they have emerged as economic engines for the EU as a whole, with stronger economies than those of the key urban centers in more established Member countries-Greece, Portugal, or Spain. This is a phenomenal achievement by any standard.

19

Table 4. GDP per Capita in Selected EU Countries and Cities (in Euro PPP) EU27 Romania Bucuresti Bulgaria Sofia Czech Republic Prague Slovakia Bratislava Poland Warsaw

1995 14,700 4,800 6,900 4,700 7,000 11,200 18,900 7,000 14,900 6,300 13,900

2000 19,100 5,000 10,700 5,400 9,000 13,500 26,400 9,500 20,700 9,200 26,100

2005 22,500 7,900 17,300 8,200 16,200 17,800 37,400 13,500 32,900 11,500 34,500

2010 24,500 11,400 28,500 10,700 24,500 19,500 42,200 17,900 43,100 14,300 42,600

Greece Athens Portugal Lisbon Spain Madrid

12,300 13,300 11,300 15,700 13,400 17,500

16,000 18,200 15,500 21,800 18,500 25,200

20,400 26,100 17,900 25,300 22,900 29,900

21,400 28,200 19,700 27,400 24,300 31,600

Source: EuroStat

49.

For countries like Romania, Bulgaria, Slovakia, Czech Republic, etc., joining the EU has been one of the most important and significant events in their history, enabling rapid economic integration and development. As figures above show, GDP per capita increased dramatically in these countries after the accession along with improvements in human capital, quality of life, rule of law and governance. For instance, in the case of Bulgaria the GDP per capita nationwide increased from USD 4,700 (in PPP) in 1995 to USD 10,700 in 2010. The increase in GDP per capita of the capital Sofia was significant from USD 7,000 (in PPP) in 1995 to USD 24,500 in 2010. The same magnitude of increase is encountered for Romania- with a low nationwide GDP per capita of USD 4,800 in 1995 to USD 11,400 in 2010. As expected, the nation capital, Bucuresti increase its GDP per capita approximately five times from USD 6,900 in 1995 to USD 28,500 in 2010. Such impressive results prove that reducing the thickness of countries’ borders to promote integration with the EU has facilitated rapid development, which is in fact one of the key premises of the common market in Europe.

50.

Albania as a candidate country, is aspiring to obtain the status of member state. The candidate status raises the relationship between Albania and the EU to a higher level. Albania will now receive invitations to Council meetings open to candidate countries. Its access and cooperation with EU agencies will be easier. Joint Committees between Albania and the Committee of Regions as well as the Economic and Social Committee might also be set up. As a candidate country, Albania will continue to profit from EU funds under the Instrument for Pre-Accession Assistance (IPA) which aims at supporting the beneficiary countries in their efforts to strengthen democratic institutions and the rule of law, reform public administration, carry out economic reforms, respect human as well as minority rights, promote gender equality, support the development of a civil society and advance regional cooperation as well as reconciliation and reconstruction, and contribute to sustainable development and poverty reduction.

Additionally, for potential candidate countries, EU assistance may also include some alignment with the

20

EU acquis, as well as support for investment projects, aiming in particular at building management capacity in the areas of regional, human resources and rural development12.

3.2 The EC’s Policies and Perspectives on Urban and Regional Development 51.

It is important to note upfront that the EU has no legal basis for elaborating and implementing urban and regional development policies. Such measures are usually left at the discretion of individual member states, following the principle of subsidiarity. As a result, at the level of individual member states, each government has a unique approach to regional development, in line with contextual factors, e.g., cities’ economic contribution as a share of GDP, the specific governance and administration framework of each country). As shown above in Table 1 on city contribution to GDP, in countries like Bulgaria, Latvia, Greece, and to a lesser extent Poland, the capital city dominates the economy with a significant share of the total GDP. A growing conversation has emerged around the benefits of concentrating resources only on the capital cities versus encouraging the broader development of “second-tier cities” and their surrounding areas. In response, a few countries (e.g., the Czech Republic, Slovakia, and Romania) have adopted in recent years specific policies targeting major cities beyond the capital.

52.

Although, the EU has no legal basis for elaborating and implementing urban development policies, it has a long tradition in promoting urban development. Subsequently, the EU has played a major role in supporting cities to promote economic competitiveness and economic, social and territorial cohesion. Many of these efforts have been part of the cohesion policies.

53.

It is important to make a distinction between the urban development promoted by EC under the Cohesion Policy, and the urban development promoted as part of intergovernmental cooperation, e.g.

Territorial Agenda, the European Spatial Development Perspective, etc). At a basic level, two different models have shaped regional development policies over the least several decades. The first one revolves around the benefit of concentrating around leading areas and growth poles, which in the long-run spill over towards lagging areas, thereby increasing convergence. By contrast, the second model emphasizes the role of state in promoting more even development across regions and addressing the negative externalities of agglomeration.

54.

The EU has not adopted a single pure model for regional development. Generally, the EU prioritizes investments that aim to increase the convergence between member states, both politically and economically. In that regard, the EU’s success to date has been unprecedented. At the same time, since 2000 Lisbon Strategy, the EU has refocused some of its key efforts on promoting economic growth and competitiveness. As a 2009 report put it, “Regional Policy is no longer seen as a means to help regions catch up with the Union’s average, important as this is. Competition is increasingly taking place along regional lines in the world market and successful regional economies are those that have become real players in global production network13.

55.

Similarly, the first priority of the Territorial Agenda of the EU 2020 (TA 2020)- adopted in 2011 as the key document guiding EU’s regional development effort- is to improve polycentric and balanced territorial development14. On the one hand, the TA 2020 notes the importance of major urban centers as drivers of economic growth in their regions and for the entire EU. At the same time, the TA 2020 also 12

Financing Agreement between the Government of Albanian and the European Union represented by the European Commission concerning the national program for 2013 under the instrument for pre-accession.

13 http://ec.europa.eu/regional_policy/sources/docgener/presenta/international/external_ en.pdf 14 7http://www.eu-territorial-agenda.eu/Reference%20Documents/Final%20TA2020.pdf

21

emphasizes the importance of developing smaller cities to reduce territorial polarization of economic performance. Consequently, such messages suggest that the EU’s regional development framework has evolved with time toward a more complex mix of interventions targeting sustainable and balanced growth.

56.

This is also reflected in the EU’s current cohesion policy, which has three objectives, including: convergence, regional competitiveness and employment, and European territorial cooperation. In order to reach these goals and address the diverse development needs in all EU regions, around € 351.8 billion, which is almost a third of the total EU budget has been set aside for Cohesion Policy for the programing period 2014-2020. Convergence still captures most of the EU’s funding and promotes balanced development by channeling structural funds towards regions where GDP per capita is less than 75 percent of the EU’s average. Under the convergence framework, the Cohesion Fund target member states with a Gross National Income (GNI) lower than 90 percent of the Community average. As for the second objective, competitiveness and employment, the EU dedicates a significantly smaller share of the total budget (16 percent versus 81.5 percent for cohesion) and focuses on helping leading regions or growth poles perform even better “with a view to creating a knock-on effect for the whole of the EU”.

57.

The 2014-2020 Cohesion policies are currently based on the priorities of “Europe 2020”, which is a strategy to help Europe emerge stronger from the crisis and prepare the EU economy for the next decade. The European Commission—the executive arm of the European Union—has identified three key drivers for growth, which will be supported through actions at both EU and national levels: (i) smart growth (fostering knowledge, innovation, education and digital society), (ii) sustainable growth (making EU production greener and more resource efficient while boosting competitiveness), and (iii) inclusive growth (enhancing labor market participation, skills acquisition, and the fight against poverty). To achieve these three priorities, the EC has proposed five interrelated headline targets for the EU to achieve by 2020, including: employment, Research and Development (R&D), climate change and energy efficiency, education and poverty. This endeavor will also be supported by seven flagship initiatives to catalyze progress under each priority theme15.

58.

Based on these goals, the EC presented the Common Strategic Framework (CSF), designed to enable more impactful and integrated spending of structural funds. As noted by the Commission, “national and regional authorities will use this framework as the basis for drafting their 'Partnership Contracts' (PA) with the Commission, committing themselves to meeting Europe's growth and jobs targets for 2020” 16 . This is the document that is meant to replace the National Strategic Reference Framework 2007-2013 for the next programming period. The PA aims to set out an integrated approach for territorial development supported by all the CSF Funds and includes objectives based on agreed indicators, strategic investments, and a number of conditionalities.

59.

Regional Policy is delivered through three main funds: the European Regional Development Fund (ERDF) and the Cohesion Fund (CF) and the European Social Fund (ESF). Together with the European Agriculture Fund for Rural Development (EAFRD) and European Maritime and Fisheries Fund (EMFF), they make up the European Structural and Investment (ESI) Funds. This period’s ERDF investment program concentrates on four key themes, including: (i) innovation and research; (ii) information and communication technology (ICT); (iii) support for small and medium-sized enterprises (SMEs); and (iv) promoting a low carbon economy. The types of investment therefore can be: in SMEs to create and safeguard sustainable jobs, in all types of enterprise in the fields of innovation and research, the lowcarbon economy, as well as ICT where SMEs are involved, in infrastructure providing basic services in 15 16

Europe 2020: A European Strategy for Smart, Sustainable, and Inclusive Growth, August 2010.

See official press release related to the CSF proposal (http://europa.eu/rapid/press-release_IP-12-236_en.htm)

22

energy, environment, transport, and ICT, but also in social, health and educational infrastructure, and in development of endogenous potential17.

60.

ERDF is considered one of the key elements of the financial package for the implementation of the European Strategy and promoting regional development. In member states, access to ERDF is important as it help member states to make strategic investments. In candidate or potential candidate countries, pre-accession funds are an important investment that helps beneficiaries to make political and economic reforms, preparing them for the rights and obligations that come with EU membership18.

61.

Europe 2020 significantly shapes EU-level thinking, which ultimately influences how structural funds are managed and what kind of investments they can support, and subsequently, how project selection process looks like. As a result, there is a need to ensure better consultation at the country level to bring the voices of potential beneficiaries and citizens in articulating their needs and priorities, and ensure that they are fully reflected in country’s strategic documents. There is also a need to ensure that country’s strategic documents are aligned with EU- level strategic thinking and documents.

3.3 Delineation of territories from the regional development perspective 62.

Europe 2020 puts a stronger focus on urban and regional development and promoting integrated territorial development. The two new territorial development instruments proposed by the EU for the next funding period could provide a good basis for realizing integrated territorial development approaches and pool funding from different CSF funds and operational programmes.

63.

The method of community-led local development (CLLD) – mainly reflecting the Leader method for rural areas and extending it to all CSF funds and to other territories – is dedicated to bottom-up local development initiatives for specific sub-regional territories that are implemented by the local community through public-private partnership. According to Article 28-31 of the new draft general regulation they should be implemented by a local action group (LAG) composed of representatives of public and private local socio-economic interests and taking over some tasks of the managing authorities like project assessment and selection. The CLLD is carried out through sub-regional and multi-sectorial development strategies and can provide financing for preparatory support, for management costs and cooperation activities of the LAG, for running costs and animation of the local development strategy as well as for implementing related operations (including physical investments). The CLLD can be financed from several operational programmes and pool funds from all CSF funds.

64.

The “Integrated Territorial Investment (ITI)” can be to pool ESF and ERDF funding from more than one priority axis of one or more operational programmes into an integrated territorial funding scheme. Those parts of the priority axes are implemented in a joint manner and it is possible to subdelegate the management and implementation to intermediate bodies, including local authorities, regional development agencies or NGOs. An ITI can be used for an urban development strategy or any other territorial strategy (thus also for functional areas). An ITI can be implemented top-down by a managing authority, a single local government or another entity, not requiring community involvement. Generally, ITIs were designed for implementation in urban areas. Examples of territories where it is could be implemented include: (i) metropolitan areas; (ii) urban systems formed by several close by cities; (iii) neighborhoods with specific issues within large urban areas; (iv) a system of small cities; and (v) crossboundary territories.

17 18

http://ec.europa.eu/regional_policy/thefunds/regional/index_en.cfm/ http://ec.europa.eu/enlargement/instruments/overview/index_en.htm#ipa2

23

65.

The delineation of territories in which ITIs could be implemented has to take into consideration a number of factors. On the one hand, the territory should have relatively homogeneous territorial characteristics. The delineation of such a territory should not necessarily follow administrative boundaries, but it should have an integrated development strategy. This means that there should be an administrative structure in place to manage it, and this administrative structure should have a funding source. Financing for the management of ITI could be drawn from technical assistance funds, which is one of the Priority Axes under the Operational Program funded by ERDF, but should ideally have multiple sources of funding.

66.

Ideally, ITIs should not only be seen as an instrument for attracting EU funds, but as an instrument for leveraging territorial synergies and fostering regional development. If it is only seen as a tool for attracting EU funds, the sustainability and efficiency of realized investments may be jeopardized.

For example, a metropolitan transport system may be created to attract EU funds, and then be disbanded as soon as funds are not available anymore or because operational and maintenance costs cannot be covered by constituent localities. Consequently, ITIs should come to serve more general needs of a defined territory, not just serve as a vehicle for leveraging EU funds.

67.

As seen in the broader EU context, the increased interest and awareness of territorially functional areas spanning administrative borders and jurisdictions have necessitated the development of new territorial governance structures. Referring to the specific case of metropolitan areas, the challenge is even more important and complex, as it involves the task of bridging the interests of urban and peri-urban authorities, as well as dealing with power imbalances. Empirical analysis shows that the choice of governance arrangements has important consequences for economic performance, for the well-being of citizens and for environmental outcomes in metropolitan areas19. The better governance arrangements work in coordinating policies across jurisdiction and policy fields, the better the development outcomes.

Coordination of the policies is especially important in light of outdated municipal borders in metropolitan areas that do not correspond to today’s functional realities. This mismatch contributes to coordination problems and increases the need for governance structures that compensate for it.

68.

The renewed interest in metropolitan governance in recent years has let to the creation of a wide range of organizations or metropolitan governance structure. More than two thirds of Organization for Economic Cooperation and Development (OECD) metropolitan areas have established such governance body in charge of organizing responsibilities among public authorities for metropolitan-wide development. There is a considerable diversity in terms of legal status, composition, power, budget and staff of these organizations. For instance, less than one quarter of the OECD metropolitan areas has a governance body that can impose binding regulations, while half of them have not regulatory powers.

69.

One of the institutional answers to the need of developing new forms of collective action and horizontal partnerships among local authorities located in functional urban areas is establishing intermunicipal cooperation or supra-municipal authorities. In any case, it must be noted that inter-municipal cooperation represents just one section of territorial governance processes that should also include complex forms of cooperation and public participation engaging equally public and private stakeholders.

70.

Consequently, defining functional urban areas and respective governance structure is critical. As a result, the key challenge for the EU member states and candidate countries is to develop and implement truly integrated programs. Ideally, integrated development plans (IDPs) would include a comprehensive action plan, with a list of projects to be financed from the ROP, from other EU sources, as well as from the local and national budget. These programs should also explore ways to benefit larger metropolitan 19

Governing Cities: Policy Highlights, Organization for Economic Cooperation and Development, 2014.

24

areas and multiple sectors to enable optimal synergies. In this sense, new instruments planned under the next EU programing exercise, such as Integrated Territorial Investments, should be utilized to ensure proper funding and implementation mechanisms for integrated programs.

25

4 Promoting regional development through Regional Operational Program: Review of selected EU countries 71.

The ERDF is one of the key elements of the EC financial package for the implementation of the European Strategy. The ERDF aims at promoting regional development through Regional Operational Programs. They are comprehensive programs consisting of priority axes and key areas of intervention targeting investments to support sectors. In general, the regional development from a sector perspective includes -transport, energy, environment, private sector development, competitiveness and innovation, social policies and employment, agriculture and rural development; as well as regional and the territorial cooperation (EMA 2014). Identification of the sectors is left to the discretion of the beneficiary countries, to enable them to adjust the funding instruments with their national policies.

72.

Aligned with this approach and as outlined in the new financial perspective of the EU 2014 – 2020, the Instrument for Pre-accession Assistance has been redesigned to be planned and implemented according to a sectorial approach. The estimates of the IPA’s impact in the period 2007 - 2010 highlighted the fact that the funding based on strategic projects often lose focus and made it more difficult to achieve the desired impact. This was because projects often addressed very specific problems within the government and were drafted by a small group of specialists; or even that the projects were on an annual basis and rarely the same policy objectives were supported by IPA projects for the coming years. One of the major changes that IPA II projects are expected to bring, is to support more the programs in sectorial national strategies and the gradual transition of finances from separate projects in programs to support the sectors.

73.

As elaborated in section above, the EU thinking is moving towards integrated programs. As a result, the key challenge for the EU member states and candidate countries is to develop and implement truly integrated programs. Ideally, integrated development plans (IDPs) would include a comprehensive action plan, with a list of projects to be financed from the Regional Operational Program, from other EU sources, as well as from the local and national budget. These programs should also explore ways to benefit larger metropolitan areas and multiple sectors to enable optimal synergies. In this sense, new instruments planned under the next EU programing exercise, such as Integrated Territorial Investments, should be utilized to ensure proper funding and implementation mechanisms for integrated programs.

74.

Integrated approaches also entail that EU and state-budget-funded projects are not treated differently or separately, but that they are part of a single, coherent development vision and help achieve the same overall goals. This means that similar evaluation and selection criteria and procedures should apply to such investments, regardless of the funding source (i.e., EU funds or state-budget financing).

4.1 Priority Areas funded by the Regional Operational Programs and selection process in selected EU member states 75.

This section of the paper analyzes the experience of nine EU member states, including Romania, United Kingdom, Germany, Italy, Estonia, Lithuania, Slovakia, Ireland, and Poland, with Operational

26

Program 2007-2013 funded by the ERDF. It provides information on priority axes, key areas of interventions and programs to support sectors funded by the OP as well as selection process. It also provides information on the allocation of funds by priority areas and the source of funds being either EU investment or national public investment and in some cases national private investments.

76.

These countries were selected because of various reasons, including: (i) they have a good absorption rate and are among the star performers among new Member States (e.g., Estonia, Lithuania, Poland, and Slovenia); (ii) on the other end of the spectrum, Romania has the poorest performance and the lowest absorption rate amongst member states; (iii) like the ROP, they have well-developed programs targeted at cities (e.g., Italy, Poland); or (iv) they use innovative approaches to project selection (e.g., Germany). The UK was chosen because its project identification, appraisal, and selection tools within the overall Public Investment Management (PIM) system are often considered to represent international good practice. Ireland has been a long-term beneficiary of EU funding, is regarded as a star performer, and it has used the opportunity to consistently improve its PIM system, enabling it to take greater advantage of opportunities available. It is also consistently referenced as a success story for its recent, enduring growth and speedy recovery after the crisis.

77.

Analysis of the international experience reveals, that EU has not adopted a single pure model for regional development. Generally, the EU prioritizes investments that aim to increase the convergence between member states, both politically and economically. While the EU sets the overarching goals and objectives of the programing period, identification of programs targeting investments to support sectors is left at the discretion of the beneficiary countries to enable them to align the funding instruments with their national, regional and local policies. Experience of selected EU countries demonstrates that there is no unique approach. To the contrary countries have brought the regional development perspective into their country’s context, have embraced different approaches in managing the funds varying from a decentralized approach to a centralized one, and have used unique techniques for project selection.

4.1.1

Romania- Regional Operational Program20

78.

The Regional Operational Programme (ROP) is one of seven operational programs (OPs) financed through ERDF funds during the 2007-2013 programming period. The EU dedicated EUR 3.7 billion to the ROP to support Romania’s regional development in the post-accession period.

79.

The ROP programmatic document defines strategic and specific objectives that are generally aligned with sound principles of economic growth. The program seeks to support the economic, social, territorially balanced, and sustainable development of Romanian regions, according to their specific needs and resources, by focusing on urban growth poles, the business environment, and basic infrastructure. The vision is to transform Romanian regions, particularly the ones lagging behind, into more attractive places to live, work, visit, and invest in.

80.

Based on this, the following specific objectives were set: (i) to increase the economic and social role of urban centers, adopting a polycentric approach, in order to stimulate a more balanced development of regions; (ii) to increase accessibility within regions and in particular the accessibility of urban centers and their connection to surrounding areas; (iii) to increase the quality of social infrastructure of regions;

20

This is drawn extensively from “Identification of Project Selection Models for the Romanian Regional Operational Program, 2014-2020”, page 14-15.

27

(iv) to increase the competitiveness of regions as business locations; and (v) to increase the contribution of tourism to the development of regions.

81.

More specifically, the ROP has 6 Priority Axes (PAs) that consist of 15 Key Areas of Intervention (KAIs), as described below.

Priority Axis 1 (PA1): Support for sustainable development of urban growth poles. ÿ Objective: This aims to increase the quality of life and to create new jobs in cities by rehabilitating the urban infrastructure, improving services, including social services, as well as by developing business support structures and entrepreneurship. ÿ Eligible beneficiaries: Investments are concentrated in those cities that act as regional and / or local growth poles and spread the development into the surrounding areas, giving priority to growth poles located in regions and counties with lower level of development in terms of GDP and unemployment.

Key Areas of Intervention for PA1: ÿ PA 1.1. Integrated urban development plans; ÿ PA 1.2 Support for the investments in the energy efficiency of the buildings.

Priority Axis 2 (PA2): Improvement of regional and local transport infrastructure. ÿ Objectives: This aims to increase the accessibility of regions and the mobility of population, goods and services, in order to foster sustainable economic development.

KAI for PA2: ÿ PA 2.1: Rehabilitation and modernization of the county roads and urban streets networking including construction/rehabilitation of ring roads.

Priority Axis 3 (PA3): Improvement of social infrastructure. ÿ Objective: This axis aims to create the premises for better access of the population to essential services, contributing to the achievement of the European objective of economic and social cohesion by improving infrastructure for health, education, social services, and public safety in emergency situations.

KAIs for PA3: ÿ PA3.1: Rehabilitation, modernization, and equipping of the health services’ infrastructure; ÿ PA 3.2: Rehabilitation, modernization, development & endowment of social services infrastructure; ÿ PA 3.3: Improving the equipment of the operational units for public safety interventions in emergency situations; ÿ PA 3.4: Rehabilitation, modernization, development, and endowment of pre–university, university, and lifelong learning infrastructure.

Priority Axis 4 (PA4): Strengthening the regional and local business environment. ÿ Objective: This priority axis aims to set up and develop business support structures of regional and local importance, rehabilitate industrial sites, and support regional and local entrepreneurial initiatives, in order to facilitate job creation and sustainable economic growth.

KAIs for PA4 are: ÿ PA 4.1: Development of sustainable business support structures of regional & local importance; ÿ PA 4.2: Rehabilitation of unused polluted industrial sites and preparation for new activities; ÿ PA 4.3: Support the development of micro-enterprises.

Priority Axis 5 (PA5): Sustainable development and promotion of tourism.

28

ÿ Objective: This aims mainly to promote the country’s cultural heritage and natural resources with tourism potential, as well as to improve the quality of accommodation and leisure tourist infrastructure, in order to increase the regions’ attractiveness, develop the local economies, and create new jobs.

KAIs for PA5 are: ÿ PA 5.1: Renovation and sustainable use of cultural heritage sites and set-up/modernization of related infrastructure; ÿ PA 5.2: Creation, development, and modernization of tourism infrastructure for sustainable use of natural resources and for increasing the quality of tourism services; ÿ PA 5.3: Promotion of tourism potential and set-up of needed infrastructure to increase Romania’s attractiveness as a travel destination.

Priority Axis 6 (PA6): Technical assistance. ÿ Objective: It is to provide support for the transparent and efficient implementation of the program.

KAIs for PA6 are: ÿ PA 6.1: Support for the implementation, overall management, and evaluation of the ROP; PA 6.2.: Support for the advertising and information activities related to the ROP. ROP Selection Model21 82.

Within each region, there are two primary selection models used in ROP. The first selection model applies to projects proposed by growth poles (GPs) and urban development poles (UDPs) under Priority Axis 1.1 and its key feature is the dedicated or pre-allocated funding. The second selection model covers all other priority axes and types of beneficiaries and involves selection through the First-In-FirstOut (FIFO) rule. There is also a third selection model that applies only to ROP Axis 6 – Technical Assistance, for which the beneficiaries are the ROP Managing Authority and the Regional Development Agencies (RDAs), and funds are meant to cover expenses related to the proper implementation and promotion of the program.

The first selection model (“dedicated”) ensures pre-allocated funding to each GP and the 83.

Urban Development Plan (UDP). The choice to rely on predetermined amounts is in line with EU requirements for integrated projects in large urban settings. The strategy formulation, planning, and identification of integrated projects occur through the Urban Integrated Development Plans, as prepared by each municipality interested in accessing ROP funding under the GP or Urban Development Plan (UDP) priority areas. The list of GPs and UDPs was determined at the national level and only cities formally included under each category have been able to apply for funding available under the corresponding axis/key area of intervention.

84.

On the one hand, dedicated funding has worked well for administrations that needed to rely on a predetermined budget to support planning and project preparation (e.g., financing of complex technical documentation), and the general idea of integrated projects is correct and powerful in terms of potential impact. In that sense, the ROP was an opportunity for local administrations to draft and implement development strategies based on clear priorities and projects, a process that has been valuable in guiding cities’ growth and in developing planning capacity at the local level. Indeed, many localities across Romania had lacked strategic planning documents before they became mandatory as a precondition for accessing EU funds through the ROP Axis 1.1. On the other hand, dedicated funding also means that 21

This is drawn extensively from “Identification of Project Selection Models for the Romanian Regional Operational Program, 2014-2020”, page 25.

29

there is an extended period of time available for project submission and completion. There is a risk of delays in realizing investments if the municipality is not well motivated to pursue the preparation and implementation of projects. In addition, the model only requires meeting minimum standards of quality, rather than selecting the highest-impact projects, a broader weakness of the current ROP system, whereby projects do not compete (and are not scored) against each other.

The second selection model, based on the First-In-First-Out (FIFO) rule, involves potential 85. beneficiaries submitting applications for funding on a continuous basis, under various axes, until the budget allocation was exhausted by contracted projects and the respective axes are closed.

4.1.2

Germany – Nordrhein-Westfalen (NRW) Regional Operation Program: Competitive Calls in Business Infrastructure22

86.

In Germany, as a federal country, management of the Structural Funds is decentralized and is the responsibility of the Länder. In Nordrhein-Westfalen, the regional ERDF Operational Program is managed by the Land Government and more specifically by the Ministry for Economy, Energy, Industry, SMEs, and the Craft Sector. The Nordrhein-Westfalen (NRW) ROP on Competitive Calls in Business Infrastructure has four priority axes, including: (i) strengthening entrepreneurial basis; (ii) innovation and knowledge based economy; (iii) sustainable urban and regional development; and (iv) technical assistance. As set forth in Table below, the total investment for the programing period 2007-2013 is around EUR 2, 569 million, out of which EU investment is EUR 1,283 mill, national public contribution is EUR 1,013 million, and national private contribution is around EUR 270 mill.

Table 5: Nordrhein-Westfalen ERDF RCE Programme 2007-13 – Program Allocations (€ in mill) Priority Axes (PA) I. Strengthening Entrepreneurial basis II. Innovation and Knowledgebased economy III. Sustainable urban and regional development IV. Technical Assistance TOTAL

EU Investment 121.3

National Public Contribution 101.3

National Private Contribution 20.0

Total

881.5

641.5

240.0

1,762.9

268.2

258.2

10.0

536.3

12.5 1,283.4

12.5 1,013.4

0.0 270.0

25 2,569.9

242.6

Source: Ministerium für Wirtschaft, Energie, Bauen, Wohnen und Verkehr des Landes Nordrhein-Westfalen (2012) Operationelles Programm (EFRE) für das Ziel "Regionale Wettbewerbsfähigkeit und Beschäftigung" für Nordrhein-Westfalen, Version of 05.07.2012, p.167

87.

Allocation of funds by priority axes shows that Priority Axes 2 (PA2) “Innovation and Knowledge based economy” received around EUR 1,762 million or around half of the total amount of the ROP. It is also this PA, which has managed to receive most of the national private contributions through public private partnerships. A short summary of the key areas of interventions for PA2 is provided below.

PA2: Innovation and Knowledge-based economy ÿ Objective: ÿ Key Areas of Intervention (KPI):

22

Information for this ROP is largely based on the findings of the following evaluation report: Deloitte & Touche GmbH (2012): Evaluierung von wettbewerblichen Auswahlverfahren des Ziel 2-Programms 2007-2013, Ministry for Business, Energy, Industry, SMEs & the Craft Sector of the Land Nordrhein-Westfalen, Final Report.

30

ÿ KPI 2.1 Support for business innovation, clusters, and network development. In this context, support is provided to R&D, infrastructure, and investment projects, over three years, for a variety of themes (energy storage, vehicle, infrastructure and networks, framework conditions, norms and standards). ÿ Regarding infrastructure projects, the focus is on: (a) pooling products, services, or process innovations of several businesses to offer new integrated solutions; and (b) projects required to enhance the automotive cluster (e.g., brownfield regeneration, competence and operator centers, investment planning and preparation, promotion measures, concepts and expertise). ÿ KPI 2.2 Business Technology and Research Infrastructure. Core strategic program goals are grouped and assessed against the following: (i) Competitiveness – improvement of business opportunities to position themselves on supra-regional and international markets through investment in new products and processes, which lead to increased productivity and thus sales potential; (ii) Innovation – understood as the application of new ideas on the market, referring to products, production processes, and organizational procedures (i.e., wide definition of innovation, including organizational, logistical, financial, HR, marketing and design-oriented innovations, and their application on the market); (iii) Employment – projects need to contribute directly to creating new jobs and to safeguarding existing jobs; if a project does not contribute to this goal in the short term, a medium to long-term contribution needs to be specified; employment effects need to be quantified and (as far as possible) differentiated based on gender.

The majority of funding is allocated through competitive calls. Funding under Priority 1 is 88. allocated through existing domestic funding instruments (e.g., aid or loan schemes for SMEs), where the approach to project generation, appraisal, and selection is generally defined in the legal documents relating to these instruments. Most remaining funding is allocated via competitive calls for tender. In exceptional cases, some funding under Priority 3 (notably for infrastructure in lagging areas) may be allocated on the basis of decisions by the State Secretaries Committee, generally in the context of wellestablished sub-regional strategies.

4.1.3

Poland - ERDF Regional Operational Programme Śląskie 2007-13: Pre-selection through Sub-Regional Development Programs – Urban Revitalization23

89.

Poland has taken a decentralized approach to Structural Fund management and implementation, with specific targets to regions. In the Polish region of Śląskie, part of the regional ERDF OP has been successfully delivered through projects pre-selected in the framework of Sub-regional Development Programs. In the Śląskie Voivodship, the Marshal’s Office is in charge of managing the 2007-13 Convergence ROP. 90.

The ROP for the programing period 2007-2013 has ten priority axes, including: R&D, innovation and entrepreneurship; (ii) Information Society; (iii) Tourism; (iv) Culture; (v) Environment; (vi) Sustainable Urban Development; (vii) Transport; (vii) Education Infrastructure; (ix) Health and Recreation; and (x) Technical Assistance. As set forth in table below, the total amount of investment is EUR 2,016 mill, of which EU investment is EUR 1,712 mill and national public contribution is EUR 300 mill, and with no national private contribution. Transport sector received EUR 510 mill or around one quarter of the total funds for the programing period, followed R&D, innovation and entrepreneurship with EUR 348 mill, and sustainable urban development with EUR 368 mill.

23

This is drawn extensively from Regionalny Program Operacyjny Województwa Śląskiego na lata 2007 – 2013 (version 6/8/2010).

31

91.

The following table gives an overview of the funding allocated to the ten priorities supported by the program.

Table 6: Śląskie ERDF Convergence Programme 2007-13 – Program Allocations (€) Priority Axis I.R&D innovation, entrepreneurship II. Information Society III. Tourism IV. Culture V. Environment VI. Sustainable Urban Development VII. Transport VIII. Education Infrastructure IX. Health and Recreation X. Technical Assistance TOTAL

EU Investment 296, 238,553

National Public Contribution 52,277,392

National Private Contribution -

Total 348,515,945

150,000,000 110,420,000 53,274,150 180,678,600 312,802,445

26,470,588 19,485,882 9,401,321 31,884,459 55,200,431

-

176,470,588 129,905,882 62,675,471 212,563,059 368,002,876

426,327,555 82,480,000

84,244,367 14,555,294

-

510,571,922 97,035,294

57,759,000 43,000,000 1,712,980,303

10,192,765 303,712,499

-

67,951,765 43,000,000 2,016,692,802

Source: Regionalny Program Operacyjny Województwa Śląskiego na lata 2007 – 2013 (version 6/8/2010).

92.

Sub-regional Development Programs was introduced to enhance stakeholder participation, in response to the demand from cities and municipalities for strong participation in the OP implementation process. The Śląskie region has a polycentric structure with four major agglomerations. In order to involve municipal and district authorities in the process of implementing EU funds, four sub-regional platforms were created around these bases: Central (Centralny Śląski), South (Bielsko-bialski), North (Częstochowski) and West (Rybnicko-jastrzębski). Each sub-region developed partnership arrangements involving municipalities, cities, knowledge institutions, and the private sector. The Sub-regional Development Programs are developed around a list of projects agreed among key stakeholders. They are created in consultation with the local authorities of the four sub-regions.

93.

The Sub-regional Development Programs “urban revitalization” cover a variety of themes regarding different types of infrastructure in environment, regional growth, and urban renewal. They account for €246.48 million (around 12% of the total EU allocation to the ROP) and include the following measures under seven out of the ten program priorities: Priority 2.1 Infrastructure for information society; Priority 2.2 Development of e-services; Priority 3.2.2 Tourist infrastructure; Priority 4.1 Cultural infrastructure; Priority 5.2 Waste management; Priority 5.3 Clean air and renewable energy; Priority 6.1 Strengthening regional centers of growth; Priority 6.2.1 Revitalization of large towns; Priority 6.2.2 Revitalization of small towns; Priority 7.1.1 Modernization and development of key road networks; Priority 7.1.2 Modernization and development of infrastructure completing key road networks 94.

The ROP uses three procedures to select operations, with most funding allocated through competitive calls. According to the December 2006 Act on the Principles of Development Policy, the majority (60%) of EU financing is allocated through the competitive mode; around 28% of total EU financing is allocated through key projects, which are defined as individual projects; and 12% through o o o o o o o o o o o

32

Sub-regional Development Programs (PRS), which are understood as systemic projects as explained above.

4.1.4

Estonia OP for the Development of Living Environment: Open Calls24

95.

Estonia has taken a centralized approach to Structural Funds management and implementation based on a centralized administration through the National Operational Programmes (NOP) without explicit regional targeting. The OP for the Development of Living Environment guides the utilization of the ERDF and Cohesion Fund in the area of environmental protection, energy, local and regional development, education and health care and welfare services. It involves c. €1,548.9 million, equal to 45.5 percent of total Structural Funds and Cohesion Fund resources allocated to Estonia for the 2007-13 programming period. The Ministry of Finance is the Managing Authority of all three Estonian NOPs. Support for regional development is implemented by the Ministry of the Interior, as the first level Intermediary Body and Enterprise Estonia, as the second level Intermediary Body).

96.

Estonia OP has eight priority axes including: (i) development of water and waste management infrastructure; (ii) development of infrastructure and support for sustainable use of the environment; (iii) development of energy sector; (iv) integrated and balanced development of the regions; (v) development of education infrastructure; (vi) development of health and welfare infrastructure; (vii) horizontal technical assistance; and (viii) technical assistance. The total amount for the programing period 20072013 was EUR 1,839 mill, of which EU investment is EUR 1,548, national public contribution is EUR 229 mill, and national private contribution is EUR 66 mill. Only two sectors received national private contribution leveraged through public-private partnership, i.e,. development of energy sector and development of water and waste management infrastructure

97.

The following table gives an overview of the funding allocated to the eight priorities supported by the program.

Table 7: Estonia ERDF Convergence NOP Development of Living Environment – Program Allocations (€ million) Priority Axis

I. Development of water and waste management infrastructure II. Development of Infrastructure and Support System for the sustainable use of the environment III. Development of energy sector IV. Integrated and balanced development of regions V. Development of Education Infrastructure VI. Development of health and welfare infrastructure VII. Horizontal Technical Assistance VIII. Technical Assistance TOTAL

EU Investment 626.3

National Public Contribution 93.6

National Private Contribution 16.9

Total 736.86

92.0

9.7

0

101.8

28.8 388.6

0 68.6

44.1 0

72.9 457.2

212.8

1.2

0

214.0

169.1

51.5

0

220.6

28.6 2.8 1,548.9

5 229.6

61.0

33.6 2.8 1,839.5

24

This is drawn extensively from the Operational Programme for the Development of the Living Environment. Republic of Estonia. 2007EE161PO002, version May 2010.

33

Source: Operational Programme for the Development of the Living Environment. Republic of Estonia. 2007EE161PO002, version May 2010, p. 147.

98.

The Priority 4 “Integral and balanced development of regions” is pursued by developing local public services and improving living conditions. The scope for investments is broad ranging from the renovation of schools and constructing sports grounds to building business infrastructure. More than €388 million (ERDF) has been allocated to support for regional development, equal to 11.4 percent of the Structural Funds assistance allocated to Estonia.

99.

More specifically, Priority Axis 4 “Integral and balanced development of regions” is implemented through six measures including: ÿ ÿ ÿ ÿ ÿ ÿ

Development of local public services; Development of urban regions; Strengthening of the competitiveness of regions; Development of State-owned cultural and tourism objects; Development of regional competence; and Improving the quality of broadband access.

100.

Most Structural Funds projects in Estonia are selected via open calls. Projects are selected by an Evaluation panel using common and specific criteria organized in three assessment blocks, involving scoring and weighting techniques based on a detailed list of indicators. Open calls, which cover the whole of Estonia, allow choosing the most competitive projects with the highest national impact. However, they have not ensured balanced spatial distribution of the funded projects.

4.1.5

Italy – Lazio ERDF OP: Competitive Calls for Local and Urban Development Plans (P.L.U.S. Lazio)25

101.

In Italy, the management of regional ERDF OPs is decentralized. The ERDF OP of the Lazio region is managed by the Regional Directorate Economic Development and Productive Activities. It is one of the Italian Regional Competitiveness and Employment ERDF OPs, and entailed, in its original configuration (October 2007), c. €329.9 million (ERDF), equal to c. 1.3 percent of the total ERDF resources allocated to Italy for the 2007-13 period. Lazio ERDF OP initially had four priority axes, including: (i) research, innovation, and strengthening og the productive base; (ii) environment and risk prevention; (iii) accessibility; and (iv) technical assistance.

102.

In a reprogramming exercise of 2011, to take into account low spending performance (by the end of 2010 the program had only spent 8.5 percent of its total allocation)26 and new needs that emerged as a result of the economic crisis (including in the metropolitan area of Rome and in medium/small urban centers) 27 , a new emphasis was placed on urban development as an engine for growth. These developments lead to the introduction of the Local and Urban Development Plans (P.L.U.S., Plano Locale e Urbano di Sviluppo) as a new Priority in the existing operational program. Local and urban development plans identified through a competitive procedure would provide a framework for projects in 25

This is drawn extensively from http://porfesr.lazio.it/PORFESR/home.html See Regione Lazio, Dipartimento Programmazione Economica e Sociale, Direzione Regionale Programmazione Economica, Ricerca e Innovazione (2011) ‘Programma Operativo Regionale cofinanziato dal FESR 2007-2013: motivi ed effetti della revisione’, A cura del Nucleo di valutazione e verifica degli investimenti pubblici, 7 Febbraio 2011.

27 See Regione Lazio, Dipartimento Programmazione Economica e Sociale, Direzione Regionale Programmazione Economica, Ricerca e Innovazione (2011) ‘Programma Operativo Regionale cofinanziato dal FESR 2007-2013: motivi ed effetti della revisione’, A cura del Nucleo di valutazione e verifica degli investimenti pubblici, 7 Febbraio 2011.

26

34

the field of urban development, including economic, social, territorial and cultural activities. They are characterized by a number of procedural innovations and have allowed for close strategic alignment with the ROP strategy (as reprogrammed) and also with the new Europe 2020 strategy and the priorities of the forthcoming round of Cohesion policy, which see urban development as a pillar of Cohesion policy.

103.

The total amount allocated to the OP is around EUR 743 mill, of which EU investment is EUR 371 mill, and national public contribution is EUR 371 mill. There is no national private contribution.

Almost half of the total OP is allocated to PA1 “ research, innovation and strengthening of the productive base” followed by environment and risk prevention of around EUR 219 mill.

Table 8: Lazio ERDF RCE Programme 2007-13 – Program Allocations (€) Priority Axes I. Research, innovation, and strengthening of the productive base II. Environment & Risk Prevention III. Accessibility IV. Technical Assistance V. Urban and Local Development TOTAL

EU Investment 162.81

National Public Contribution 162.81

National Private Contribution -

Total 352.63

109.93 45.25 13.76 40.00 371.76

109.93 45.25 13.76 40.00 371.76

-

219.78 90.50 27.51 80.00 743.51

Source: Regione Lazio (2012), Programma Operativo Confinanziato dal F.E.S.R – Fondo Europeo di Sviluppo Regionale 20072013, Regione Lazio, CCI2007IT162PO004, version approved with the reprogramming approved by the Commission on 28 March 2012 (last known reprogramming), Dec C1659/2012 (original version was dated 2 October 2007, Dec 4584/2007). http://porfesr.lazio.it/PORFESR/galleria_allegati/porfesr/POR_FESR_Lazio_riprogrammato.pdf 743.51 1 Note: (1) This is the total in the document, but from the figures the total should be €770 million. We can only assume that the grand total has not been updated to reflect the new allocations.

104.

Projects supported by the P.L.U.S. are composite projects comprising a variable mix, defined by each municipality. They include public works, SME support, acquisition of goods or services, social inclusion and employability measures (e.g., traineeships), and communication activities. The selection procedure resulted in the allocation of resources to 16 Integrated Investment Programs in 16 municipalities. Allocations are used to fund 153 projects of which: 73 public works, 17 projects for SMEs, 16 projects for the communication of the results of each P.L.U.S., 13 projects for the acquisition of goods or services and 24 projects for social inclusion and employability.

105.

Each integrated program is composed of a different mix of projects, depending on the needs and preferences of each municipality, as defined in the P.L.U.S. plan. In illustration, the P.L.U.S. of Rome, called ‘Porta Portese, a resource for Rome’, consists of the following: ÿ Modernization of a public building (€3.14 million); ÿ Modernization of the market of Porta Portese (€3.58 million); ÿ Implementation of the PPTU (detailed plan on urban traffic) of the part of Rome covered by the P.L.U.S. (part of the area of the Municipio XVI) (€540,000); ÿ Fund for the development of micro-entrepreneurship and firm start-ups (€230,000); and Information and communication plan (c. €150,000); ÿ In addition, it included investments from Priority 1 of the OP: Information and telecommunication technologies for the improvement of the quality of urban mobility (€820,000); Implementation of the PPTU (coordination of traffic lights and LED technologies, €410,000).

The OP relies upon a number of different selection methods, applicable to the various 106. measures (activities). These include: (i) evaluative procedure through open calls (procedura valutativa a sportello), i.e., open calls for tenders where projects are selected if they meet eligibility criteria and score above certain minimum thresholds in relation to pre-set criteria of merit; (ii) evaluative procedure through

35

competitive calls (procedura valutativa a graduatoria), i.e., calls for tenders with specified deadlines, where projects that have passed a first eligibility scrutiny are ranked based on pre-set selection criteria; and (iii) identification of projects based on the regional authority’s own sectoral plans (only for Priorities 2 and 3). Technical Assistance measures are administered through either call for tenders or direct contracting-out (affidamento diretto). The most used procedure is the evaluative procedure through competitive calls. In some cases, notably under Priority 1, a single activity can be administered through both open and competitive calls.

4.1.6

Slovenia – Strengthening Regional Development Potentials OP (ERDF): Competitive Calls in Promotion of Entrepreneurship28

107.

Slovenia has taken a centralized approach to the management of the structural funds. The ERDF OP ‘Strengthening Regional Development Potentials” is managed by the Ministry of Economic Development and Technology, and more specifically the EU Cohesion Policy Directorate. Competitive calls have been widely used in Slovenia in 2007-13. Projects are selected based on a short criteria list by awarding scores in line with indicators. The approach has worked well in the Slovenian context, although unsuccessful applicants had criticized high level of selectivity.

108.

The Regional Operational Program for the programing period 2007-2013 has five priority areas, including: (i) competitiveness and research excellence; (ii) economic development and infrastructure; (iii) integration of national and cultural potentials; (iv) development of regions; and (v) technical assistance.

The total amount allocated to the ROP is EUR 2,011 million, of which EU investment is EUR 1,709 mill and national public contribution is EUR 301 mill. There is no private contribution. Priority axes on development of regions is the axes with the highest allocation of around EUR 728 mill, followed by both competitiveness and research excellence and economic development infrastructure with EUR 467 mill.

The following table shows the funding allocations by priority axes for the 2007-13 programming period.

Table 9: Slovenia ERDF Convergence Programme ‘Strengthening Regional Development Potentials’ Program Allocations (€ million) Priority Axes I. Competitiveness and Research Excellence II. Economic Development Infrastructure III. Integration of National and Cultural Potentials IV. Development of Regions V. Technical Assistance TOTAL

EU Investment 402.1 396.9 263.2

National Public Contribution 71.0 70.0 46.5

Total

619.4 28.0 1,709.7

109.3 4.9 301.7

728.8 32.9 2,011.5

467.0 467.0 309.7

Source: Government Office for Local Self-Government and Regional Policy (2007) Operational Programme for Strengthening Regional Development Potentials for Period 2007-2013, 26.07.2007, p. 118.

4.1.7

United Kingdom – West Wales and the Valleys ERDF Convergence Programme 2007-13: Open Calls under the Sustainable Transport Strategic Framework

109.

In the United Kingdom, Structural Funds’ management is a devolved responsibility. In Wales, two ERDF and two European Social Funds (ESF) OPs are managed by the Welsh European Funding 28

Please note that this part of the paper is based largely on the findings of an evaluation report: Rambøll Management Consulting (2012) Comparative Study of the Project Selection Process Applied in Cohesion Policy Programmes 20017-2013 in a Number of Member States. Final Report

36

Office (WEFO), which are under the Welsh Government. In 2007-13, Wales was awarded around €2.24 billion of EU Structural Funds across the Convergence and Regional Competitiveness and Employment Programmes.

110.

The program has six priority axes, including: (i) research and development, innovation and ICT; (ii) enterprises and business finance; (iii) transport and strategic infrastructure; (iv) energy and environment; (v) building sustainable communities; and (vi) technical assistance. The total amount allocated to the OP is EUR 2,175, of which EU investment is EUR 1,250, national public contribution is EUR 727 mill, and private sector contribution through public-private partnership is around EUR 197 mill.

The priority axes receiving most of the funds are: transport and strategic infrastructure receiving EUR 697 mill followed by priority axe on research and development, innovation and ICT receiving EUR 558 mill, and then priority axe on energy and environment receiving EUR 386 mill. The following table gives an overview of the funding allocated to the six priorities supported by the West Wales and the Valleys ERDF Convergence OP. Table 10: West Wales and the Valleys ERDF Convergence Programme 2007-13 – Program Allocations (€ in mill) Priority Axes I. Research and Development, Innovation and ICT II. Enterprises and Business Finance III. Transport and Strategic Infrastructure IV. Energy and Environment V. Building Sustainable Communities VI. Technical Assistance TOTAL

EU Investment 313

National Public Contribution 164

National Private Contribution 80.0

Total

144

61

68

274

389

297

10

697

229 159

123 73

32 5

386 238

13 1,250

7 727

197

20 2,175

558

Source: WEFO (2010) West Wales and the Valleys Convergence Programme Operational Programme for the European Regional Development Fund 2007-2013, Version of 24.09.2010, p. 191.

111.

Project Selection Model and Procedures for open calls organized in the Context of Strategic Frameworks are overarching planning documents. They were introduced at the start of the 2007-13 programming period, defined as “plans to achieve a particular strategic purpose by means of interventions that are strategically linked.” They comprise: five Spatial Frameworks covering the delivery of spatiallyfocused ERDF themes in the six Wales Spatial Plan Areas, and 15 Thematic Frameworks covering the delivery of the Priorities and Themes in the ERDF and ESF programs.

112.

For ERDF programs, there are thematic and spatially driven Strategic Frameworks addressing the areas of business finance and enterprise, ICT, R&D and innovation, community regeneration, sustainable transport, and the environment. For ESF programs, there are thematic frameworks addressing the areas of employment and skills, supporting young people, promoting gender equality, and improving public services.

113.

The Sustainable Transport Strategic Framework provides an operational strategy intended to help focus support on the types of interventions that deliver best on program priorities. A total of 20 thematic and spatially-driven Strategic Frameworks have been developed in partnership, to: ∑ Improve impact on growth and jobs; ∑ Strengthen strategic alignment between EU and Welsh Government policies; ∑ Encourage more ”joined up” action;

37

∑ ∑

Assist in reducing the overall volume of projects; and Help shape and balance program delivery.

114.

The Strategic Framework document also provides some guidance on eligibility issues and on the types of project that will be given priority, for example: (i) Priority will be given to schemes that promote agglomeration effects; (ii) Priority will be given to innovative schemes that serve as exemplars or models of best practice in sustainable transport solutions. It also outlines activities that will not be supported (e.g., projects that are commercially viable without support). Project proposals then go on to be assessed against a standard set of selection criteria, which apply to all projects submitted in response to the open calls. The selection criteria are published on the managing authority’s website.

Projects are selected via two selection models. First, WEFO operates open calls for project 115. proposals under both the Convergence and the Regional Competitiveness and Employment (RCE) programs. Under these, organizations from the public, private, and third sectors can apply for funding, as a lead project sponsor, by submitting project bids directly to, and for assessment by, the managing authority, WEFO. Second, organizations can participate as partners, joint sponsors of projects, or (where the Welsh Government is the lead project sponsor) by bidding to deliver specific activities of approved projects, in response to procurement notices published on the Welsh Assembly Government’s Sell2Wales website.

4.1.8

Ireland- Border, Midland and Western Regional Operation Program

116.

ROP European Union Structural Funds have played an important role in the success of the Irish economy and the dramatic rise in the standard of living across all sectors of Irish society over the past decade. Since 1973, almost 19 billion EUR of EU Structural and Cohesion Funds have been invested in Ireland. The government has concentrated Structural Funds on programs designed to strengthen competitiveness through three broad areas: infrastructure, human capital, and the productive sector, including manufacturing, tourism and agriculture. As the Structural Funds allocations increased in the 1990’s, the government increased the share of funds allocated to infrastructure. Ireland has used EU Structural Funds to its benefit for many years and has taken the opportunity to use the availability of these funds as a driver for reforms to its Public Investment Management processes over the years.

117.

The National Development Plan (NDP) 2007-2013, launched in Dublin Castle on January 23, 2007, is a high level strategic document that sets out, within a sustainable economic and budgetary framework, indicative seven-year investment allocations. These cover various sectors, totaling almost 184 billion EUR, at a much larger level compared to EU contributions over the same period. The NDP 20072013 sets out the key high level objectives of investment for Ireland for 2007-2013, as follows: ∑ ∑ ∑ ∑ ∑ ∑

Promoting sustainable economic and budgetary stability; Promoting national competitiveness; Fostering better balance in regional development with a particular focus on assisting all regions to deliver to their maximum potential; Delivering economic and social infrastructure in an efficient Value for Money way that improves the quality of life of citizens; Ensuring environmental sustainability; and Promoting social inclusion.

118.

The economic and social progress made by Ireland through previous EU funding now means that structural financing is significantly less than in previous years. It also means that funding from the EU now plays only a tiny role in public investment funding in Ireland. The ERDF actions thus target niche

38

areas that generate high levels of added value: for instance, supporting the R&D work of institutes of technology in the BMW region, environmental flagship projects, small business development schemes and specific public transport projects. Within the agreed objectives of Cohesion policy, Structural Funds are focused on implementing community policies, namely the renewed Lisbon Agenda 5 and the Göteborg Declaration 6. The specific focus is on innovation and the knowledge economy, environment and risk minimization, accessibility to services of general interest (e.g., broadband, transport infrastructure), increasing adaptability of workers and enterprises, enhancing access to employment, and social inclusion measures.

Ireland has a comprehensive set of guidelines for the appraisal and management of capital 119. investment projects, dating from 200529. These are to a large extent reflective of the UK’s appraisal system and put ‘value for money’ at the heart of the process, focusing on a risk-adjusted balance of price and quality. The guiding principles for selection models are as follows: transparency in the process (all potential beneficiaries should be aware of the process and criteria to be used); incorporation of OP objectives into the selection criteria; incorporation of applicable horizontal principles (e.g., sustainability, equality) into the selection criteria; use of competitive selection processes, where feasible; cost effectiveness and value for money; and consistency in the appraisal of proposals.

4.1.9

Lithuania- Economic Growth Operational Program

120.

Lithuania is one of the smaller EU countries and takes on many of the characteristics of a region within other Member States. Due to this, there is no ROP. However we are sharing the case of the Economic Growth Operational Program, which represents almost 50% of the Structural Funds allocation and is supported by the ERDF and the Cohesion Fund. The main objectives of the OP on Economic Growth are as follows: increase the share of high value added businesses; boost business productivity especially by creating a favorable environment for innovations and SMEs; and increase efficiency of economic infrastructure. The OP has six priority axes, including: (i) research and development for competitiveness and growth of the economy; (ii) increasing business productivity and improving environment for business; (iii) information society for all; (iv) basic economic infrastructure; (v) development of trans-european networks; and (vi) technical assistance.

121.

The total amount allocated to the program is EUR 3,645 mill, of which EU investment is EUR 3,098 mill, and national public contribution is EUR 3,098 mill. There is no national private contribution.

One third of the total amount of OP funding is allocated to priority V on “development of trans-european networks”, followed by priority 2 on “increasing business productivity and improving environment for business” with EUR 712 mill, and then priority iv on “basic economic infrastructure” with EUR 690 mill.

The following table gives an overview of the funding allocated to the six priorities supported by the Economic Growth Operational Program.

Table 11: Breakdown of financing by priority axis (in million EUR) Priority Axes I. Research and Development for competitiveness and growth of the economy II. Increasing business productivity and improving environment for business III. Information society for all IV. Basic Economic Infrastructure 29

EU Investment 534

National Public Contribution 92

Total

605

106

712

240 586

42 103

282 690

628

Implementation Plans for the Border Midland and Western Regional Operating Plan 2007-2013 Updated November 2011

39

V. Development of trans-european networks VI. Technical Assistance TOTAL

1,087 44 3,098

199 0 546

1,287 44 3,645

Source: DG Regio

122.

The Lithuanian National Strategic Reference Framework (NSRF) focuses on core targets, including: (a) accelerating long-term economic growth; (b) creating more and better workplaces; and (c) developing social cohesion. To achieve these targets, the NSRF includes three key objectives, namely: promoting productive human resources for the knowledge society, building a competitive economy, and supporting quality of life and cohesion – and four horizontal areas to which the entire strategy must contribute: information society, sustainable development, equal opportunities, and regional development.

123.

Lithuania uses pre-selection. Lithuania is different from the other selected countries in that it has moved in the opposite direction from the more common decentralization approach with many smaller projects to a centralized approach/strategy based on larger investments of national or regional significance. Consequently, in the OP, five projects were identified or pre-selected, all in excess of 50 million EUR. The selection of projects was heavily influenced by national strategic requirements. It is interesting that this approach is in sharp contrast to the one employed in the previous programing round during which the country focused on smaller, localized interventions. Infrastructure has been given a higher priority for the current programming period.

4.2 Some guiding principles to ensure optimal project evaluation and selection 124.

Each of the nine member states analyzed above used unique approaches for project selection, with some focusing on the pre-selection of a number large strategic projects (e.g. Lithuania), some focusing on competitive calls (e.g. Ireland, Estonia), and yet others, particularly the larger countries (e.g.

Germany, Italy, Poland) deploying a mix of methods. The evaluation and selection system used by these countries varied, however overall it seemed to be oriented towards simplicity. For instance, most countries did not use the Cost Benefit Analysis (CBA) for evaluating projects. Germany was one of the exceptions, and it only used CBA for large strategic projects. For the most part, countries analyzed reveled a keen focus on impact and also used weights for individual criteria to differentiate between more important and less important evaluation factors.

125. International experience advises that an optimal project evaluation and selection should aim at achieving four key objectives, including absorption, impact, legitimacy, and capacity and should center on six fundamental requirements, including efficiency, effectiveness, clarity, fairness, transparency and feasibility. The framework for an optimal project evaluation and selection developed around four key objectives and six fundamental requirements is proposed below in Figure 3. Although we all agree on the relevance and importance of these objectives and fundamental requirements, the most challenging part is to find the right balance and ensure that all four objectives are achieved. Equally important, it is to put the framework into the country’s context.

40

Figure 3: The proposed framework for an optimal project evaluation and selection.

126.

Experiences of new member states show that there has been under-utilization of EU funds and overall slower progress, deriving from lack of capacities and policy orientation in place, as well as not enough mature projects for funding. (European Commission 2014). As shown in Figure below, Estonia with an absorption rate of 70.9 percent is the best performer amongst member states, while Romania with an absoption rate of 26.2 percent has the poorest absorption rate of any member states, as an average across all its operational programs. In fact, Romania is some distance away (14 percentage points) from the second worst performer, Bulgaria.

Figure 4: Average absoprtion rates by member states in June 2013

Source: http://ec.europa.eu/regional_policy/thefunds/funding/index_en.cfm

41

127.

This is not an ideal situation, which raises many issues and concerns. Of critical importance is how to establish a model, which ensures the right balance between absorption and impact. Put it differently, a model may be great at promoting quick absorption of EU funds, but it may fail to deliver value for money and resources could be wasted on low-impact interventions. Additionally, achievement of the other objectives is critical too. For instance, if a model is not legitimate (i.e., with clear and transparent evaluation criteria and fair selection procedures), not enough ROP applicants will demonstrate interest in the program, so there will be an inherent limitation on what the ROP can accomplish. Last but not least, any proposed change needs to be more than just a theoretical framework that promises to deliver great results in the abstract; indeed, selection models have to work in practice, keeping in mind the system’s current and expected capacity constraints.

4.3 Monitoring and Evaluation System 128.

An optimal project selection model should also have a good Monitoring and Evaluation (M&E) system in place to facilitate continues improvement. A good M&E system serves several purposes.

Firstly, it helps track the performance of a specific project and the extent to which this project has reached its expected output indicators. Secondly, a good M&E system can also help evaluate if projects and the overall program that finances them, have achieved planned outcomes and if they have had an actual development impact. In particular, it can provide information on whether the project selection model is appropriate and has delivered on its intended goals. Thirdly, a comprehensive M&E framework can assess not only the degree to which impactful projects are selected and prioritized, but also whether it delivers optimal absorption rates, a functional system with appropriate capacity to process applications, and a high level of credibility among applicants and beneficiaries30.

129.

In addition to the benefits from having such a system in place, establishing an efficient and effective M&E System is a mandatory task that the EC requires to all Operational Programs to have in place. Albania as a candidate country is expected to have access to increasingly pre-accession EU fund, as such it is critical to start thinking in advance of establishing an efficient and effective M&E system in place.

130.

Some key basic principles and practice elements to be considered in establishing the M&E system. First, a functional M&E system requires proper alignment with the project selection model of choice. In other words, the same principles that underlie the methods for selecting the projects to be financed should apply to how the same interventions are subsequently monitored and evaluated. A mismatch between the selection model and the M&E mechanisms would lead to suboptimal situations where a project receives a high score in the evaluation stage but performs poorly thereafter because the tracked indicators do not measure the relevant performance components. As such, the link between the two frameworks – project selection and M&E – should be strong and explicit.

131.

Equally important, indicators should be easily accessible to all key stakeholders. This is ultimately the main aim of any M&E mechanism, namely to provide continuous updates on the performance of a particular program and the intervention it finances. A simple, but powerful metaphor compares the M&E system to a “dashboard.” In addition, the indicators used – both in evaluation and later on for M&E activities – should follow the “SMART” set of criteria: specific, measurable, attainable, relevant, and time-oriented.

30

This is drawn extensively from “Identification of Project Selection Models for the Romanian Regional Operational Program, 2014-2020”, page 25.

42

132.

Overall, it is beyond doubt that selection models play the most critical role in the success of any EU-funded program, including the ROP, because they fundamentally shape which interventions receive financing, through what process, and to what effect. A simple dashboard is proposed for monitoring and evaluating the ROP’s project selection models. The proposed model centers on the four key objectives: absorption – is the model delivering a satisfactory absorption rate?); impact – are the selected interventions generating positive impact?; legitimacy – is the model (still) credible among applicants and beneficiaries?; and capacity – are all key components of the system (key stakeholders, agencies, beneficiaries, and evaluators) able to perform well and deliver on the tasks required by the selection model? These key objectives are also considered in the project selection, ensuring proper alignment between the project selection and M&E mechanisms.

4.4 The Role of Regional Development Agencies 133.

As seen in the broader EU context, the increased interest and awareness of territorially functional areas spanning administrative borders and jurisdictions have necessitated the development of new territorial governance structures. Inter-municipal cooperation is one of the institutional answers to the need of developing new forms of collective actions and horizontal partnerships among local authorities located in functional urban areas. However, in some countries such structures are relatively new, and more needs to be done in terms of generating an enabling environment to enhance their functionality. In any case, it must be noted that inter-municipal cooperation represents just one section of territorial governance processes that should also include complex forms of cooperation and public participation engaging equally public and private stakeholders. Referring to the specific case of metropolitan areas, the challenge is even more important and complex, as it involves the task of bridging the interests of urban and peri-urban authorities, as well as dealing with power imbalances.

134.

When it comes to inter-communal cooperation, the most frequently mentioned country is France.

Inter-communal structures date in France since the late 19th century, when the possibility of creating a single purpose inter-communal structure was first established. The latest legal framework improvements are marked by the Chevènement law (1999), which is perceived as having greatly simplified and improved inter-communal structures31.

135.

The Chevènement law has established two types of inter-communal structures, defining their attributions as well as designing a series of funding mechanisms that could both support their financial sustainability as well as act as stimulating factor for local authorities to partner in such structures. Intercommunal structures in France as thus divided in: ÿ Structures lacking fiscal attributions, which are considered the simplest form of inter-communal structures having one or multiple purpose vocations. ÿ Structures with own fiscal attributions, composed of three subcategories: 1. Communities of Communes (composed of mainly rural localities); 2. Communities of Agglomerations (aimed at small and medium cities with their peri-urban localities); and 3. Urban Communities (targeting larger cities and their peri-urban localities).

136.

The Chevènement has been deemed very successful, as in less than 10 years- the vast majority of rural and urban communities in France had joined such a structure. On January 1st 2008 there were 2,583 registered inter-communal structures with own fiscal attributions, 92% of all city halls having joined such a structure. Urban communities are of interest as they set the frame of how metropolitan areas are being 31

L’intercommunalite en question, David Gueranger, La documentation francaise, No. 951951, August – Septembrie 2008: Paris.

43

governed in France. These regard the largest functional urban areas of France (recommended to have a population of a minimum 500,000 inhabitants) except for Paris. Currently there are 15 such structures in France, however only 6 of them complying with the minim population threshold (Lyon, Lille, Marseille, Bordeaux, Toulouse, and Nantes)32.

137.

Inter-communal structures can retain competences in several fields that were initially in the mandate of constituting localities (such as drafting local economic development strategies, implementing housing or environment protection projects). The type or attributions assigned to an inter-communal structure is clearly set by law and depends on its category. Urban Communities, for example, take over several attributions in different intervention fields, which leads to a diminishment of the autonomy of composing localities. For instance, localities within urban communities in France are required to share the following competences: spatial planning; social, economic and cultural development planning; housing; management of services of collective use (e.g., waste management); and, environment protection.

138.

The French Government offers subventions to inter-communal cooperation based on the number of inhabitants in order to stimulate the formations of such structures.33 The subventions vary depending on the type of inter-communal cooperation and are indirectly proportional with the level of autonomy retained by the constituent members. In this sense, the largest subventions are offered to the Urban Communities so as to encourage the formation of such structures even though they imply limitations in competences and autonomy. This is an acknowledgement of the challenge of partnership between local authorities, as politically led governing bodies, and bridging power ratios among communities of very different scale within a metropolitan area.

139.

Other countries have moved towards Regional Development Agencies (RDAs) as an important actor in shaping the country’s vision on regional development and implementing regional development strategies and policies. In the case of metropolitan areas or growth poles they have established Metropolitan Development Agencies (MDAs). Such an agency would function much like RDA do, and would focus on the planning and management of functional urban areas. These MDAs would also take on the lead role for the implementation of projects at the metropolitan level, and funding could be assured from EU sources, from the state budget, and from the local budgets of the constituent localities.

140.

MDAs are quite common throughout the world, and they may emulate some of the positive aspects of the RDAs, while at the same time creating additional institutional tools for effective metropolitan development. One of the key features of such a metropolitan development agency would be that it would exist outside the political space. Although the local councils of the different local authorities would have to initially agree on the establishment of such MDAs, the MDAs themselves would work independently to enable development at the metropolitan level. The MDAs will have more flexibility in their staffing plan, and could offer salaries that will be attractive for specialists in a variety of fields.

Unfortunately, most inter-communal cooperation today have a hard time attracting the skilled people they would need for project elaboration, implementations, and monitoring, so they outsource key functions most of the time. MDAs could help internalize much of the work that is now outsourced, and would be closer to the public administration officials than a consulting company.

141.

RDAs play a critical role in planning and managing functional urban areas as well as leading development and implementation of Urban Development Plans for the region they do represent. In addition, the regional development systems which is established in most of EU member states envisage an important role for RDAs within the Operational Program. In the EU member states and the candidate 32 33

L’intercommunalite en question, David Gueranger, La documentation francaise, No. 951951, August – Septembrie 2008: Paris.

Ibid.

44

countries for membership, there are two groups of institutions directly related to the management of community funds for regional development34: ∑

Management Authorities - National Regional Development Agency or the Paying Agency, and

∑

Intermediary Bodies - Regional Development Agencies (RDA).

142.

Management Authorities play an important role in the coordination of all actions of the Government and other stakeholders in the implementation framework of the operational program. The Dependence of Managing Authorities varies in different member countries of the EU, such as to the Ministry of Finance in Ireland and Spain, the Ministry of Economy in Germany and the Ministry of Environment, Territorial Regulation and Regional Development in Portugal.

143.

The Managing of Structural Funds can be performed by structures part of the Central Government and as well by the associated parallel structures (supervised) by them. Pursuant to Article 123, paragraph 1 of the Council Regulation no. 1303 dated 12.17.2013, which establishes general rules, standards and principles applicable to the European Regional Development Fund (ERDF), European Social Fund (ESF) and the Cohesion Fund, the EU Member States can set up the Managing authority in the form of a national, regional, or local public authority, or as a private institution. In Ireland, Spain and Germany, the management of Regional Development Community Funds is performed by central public institutions, while in Portugal have been created additional structures of public administration (regional extensions of the Central Government) to ensure the entire management of these funds, which has led to the formation of a dual system. Both models have their strong and weak points depending on the performance of the central administration.

144.

As a general rule, it is recommended the establishment of the Managing Authority as part of the Central Government in case of unitary countries like Ireland, and a dispersed system (a few managing authorities) in the case of federal countries like Germany. Despite the fact that the Council Regulation no.

1303 dated 12.17.2013, stipulates that the Managing Authorities can also be private institutions in all member countries, the latter are part of the Public Administration. This phenomenon is due to ensuring effective use of EU funds and the responsibility for them to return (refunded EU) in case of bad management or other causes as contemplated in the regulation.

145.

The Regional Development Agencies are formed and function as intermediate structures relying on the definition of Article 2, section 18, of Regulation 1303 dated 12.17.2013, which provides that intermediate structure means a public or private institution, which operates under the responsibility of the Managing Authority on the implementation of activities to the beneficiary, as well as Article 123, paragraph 7 of Council Regulation no. 1303 dated 12.17.2013, which provides that Member States or Managing Authority may delegate the management or implementation of parts of a program implementation in one or more intermediate structures, in accordance with the agreements signed between the Managing Authority and these structures. By analyzing various RDA-s in the EU, can be noticed the classification of them in two groups: By their origin: Agencies established by the central government ∑ ∑

Existing Agencies part of local of regional government; Agencies established by local or regional authorities;

34

This part is drawn extensively from Study on ADF’s reorganization and orientation as a key player on regional development, Movement Albania, September 2014.

45

∑

Independent agencies established as a result of the cooperation of public and private sector;

By their Activity: Strategic Agencies ∑ ∑ ∑

Agencies with comprehensive activity; Agencies with sectoral activity; Agencies with private investments

146.

The establishment and the legitimacy of Regional Development Agencies in the EU countries is provided by: ∑ ∑ ∑

Specific Law (France, Spain, Romania, England, Flemish Region in Belgium) Administrative procedures for the establishment of a state agency (Netherlands) Bylaws (Germany, Greece, Denmark)

147.

The EU regional development systems envisages also for consultative structures for regional development at both national and regional level, i.e. National Council for Regional Development, as a national consultative structure for regional development and Regional Development Councils, as a regional consultative structure for regional development. Usually, the Regional Development Councils consist of representatives from the local government units, professional associations, business association, trade unions, and other NGOs, etc. The main principle guiding the composition of the regional development council is that it should strike a balanced representation amongst the LGs it represents as well as the main stakeholders of the sectors or programs it has the mandate to manage.

46

5 Regional Development in Albania: The current status, main challenges and the way to move forward 5.1 The current status of regional development in Albania 148.

From a quick review of the regional development systems established in the EU member states, or being established in the candidates for accession one can note that almost every country have created new legislation, institutions and mechanisms for regional development policy formulation, planning and implementation. The structures and mechanisms for regional development planning established in the EU member states are perhaps the best articulated and the most coherent in the world.

149.

The key features of the regional development planning systems of the EU member states generally include: (i) a regional development act; (ii) planning regions and areas with specific development needs; (iii) a ministry / or other central government institution responsible for regional development; (iv) a national consultative structure for regional development (National Council for Regional Development); (v) regional consultative structures for regional development (Regional Development Councils); (vi) participatory regional development planning processes at national and regional levels; (vi) a national strategic document for regional development (National Regional Development Strategy); (vii) regional development planning documents (Regional Development Plans); (vii) national implementation bodies (National Regional Development Agencies or specialized units within the ministry responsible for regional development); (viii) sub-national implementation bodies (Regional Development Agencies); (ix) special resources for the promotion of balanced regional development (Regional Development Fund); (x) criteria for the allocation of the resources for regional development to the most disadvantaged regions and areas; (xi) monitoring and evaluation systems35.

150.

While it is not a requirement that the framework and implementing regulations for regional policy and coordination of structural instruments be transposed into national legislation, all pre-accession countries prepared and passed a few years before joining the EU a regional development act reflecting the requirements of the acquis, and de facto establishing a regional development planning system.

151.

During the last 14 years, the Government of Albania has accepted the importance of RD and worked continuously in this regard. However, there has been some degree of wavering in time, with regard to GoA`s position. Significant efforts were made in 2007-2008 with the Regional Development Cross-Cutting Strategy (RDCS) and the Law on RD, but the first was never implemented and the second remained a draft. Then, in 2009-2010 enormous work was carried out namely: the study of regional

35

Report # 2 on Legal Framework Analysis prepared by the Austrian Development Agency, through the EC IPA Program for 2008. This is an initiative undertaken by the Department of Program Development, Financing and Foreign Aid (DPDFFA) in Albania.

47

disparities, the preparation of a concept that brings convergence to domestic and European RD policies and especially the institutional and programmatic preparations for IPA III and NUTS II delineations36.

In Albania, there is so far no clear and coherent platform for RD, neither there are clear 152. and well-defined institutions with respective roles in RD37. Albania doesn’t seem to have in place neither the legal, regulatory and institutional frameworks, nor the institutional capacity and financing mechanisms resembling to sophisticated regional development planning systems of the EU member states. There are some laws or bylaws that altogether may form a package of legislation38 that can serve as a basis for regional development. However, this basis is incomplete and not tailored to regional development specifically. Despite the lack of clear and coherent platform for RD, with the help of a couple of organizations, institutions and countries, a lot of projects targeting the whole country and local governments, including qarks, communes and municipalities, have been implemented in Albania.

Overall, the foreign aid is characterized by low absorption capacities- actually, 381 projects are financed by foreign aid, representing a total budget of EUR 4.5 billion, and 54 percent of funding is in stock39. The foreign aid is also fragmentized with many projects realized in many local places, sub-regions or municipalities scattered all over the country. This fragmented and low absorption landscape raises serious concerns if the funded projects will be lasting and stable enough to fulfill the expectations of donators and partners as well as the needs and expectations of the constituencies.

153.

Additionally, regional development policy in Albania lacks the spacial/territorial dimensions that focus on the region and a development dimension cutting across sectors. Albania has focused to date massively on investments in major roads projects and some other basic facilities such as water supply, sanitation, etc, due to largely obsolete and outdated public infrastructure left by the autarkic communist regime. Investments haven’t been oriented by a wider development process rationale that embraces many other sectors, specifically in the provision of public goods and in addressing cases of market inefficiency, with the aim to a diversified development and enhanced competitiveness. Moreover, these types of investments haven’t been supported by necessary maintenance and operation costs, creating high level of arrears to the budget.

154.

The Albanian government is aware of the fact that there are severe capacity and resource gaps to support regional development and to create necessary preconditions for adequate absorption capacities in general and improved governance and access of various development actors to socio-economic growth.

There is a need to have in place the adequate capacities and systems as well as a good pipeline of projects ready for being financed. Insufficient efforts in the coming years may result in the lack of viable projects developed to EU standards just when increasing funding is becoming available. Experiences of new member states and accession countries show that there has been under-utilization of EU funds and overall slower progress, deriving from lack of capacities in place and not enough mature projects for funding.

155.

Over the last year, the regional development policy in Albania has undergone significant changes with respect to defining objectives, geographic focus, strategies, actors and means used towards achievement of objectives. More specifically, policies were initially focused sectorial interventions according to regional needs, while during the last year they have been focused on strengthening and promoting regional potential as a key element for economic development. Likewise, the strategy which

36

Working Draft “Regional Management in Albania” prepared by Mr. Martin Ivancsics. December 2014.

Ibid page 6.

38 Some of the main laws and bylaws include: The Constitution of Albania, the Law on Local Government, the Law on Local Taxes, the Law on Territorial Planning, the Budgetary Law and the bylaws on RDF, the bylaw on Social Services/protection, the Law on Hospital Services, the Road Code and the Law on Environmental Protection.

39 Ibid, page 13.

37

48

initially was sectorial based, over the last year is focused on promoting integrated development project.

Table below set forth, evolution of regional development policy in Albania.

2009-2013

2014-2015

OBJECTIVES

SECTORIAL INTERVENTIONS ACCORDING TO THE REGIONS NEEDS

STRENGTHENING REGIONAL POTENTIAL AS AN ECONOMIC DEVELOPMENT TOOL

GEOGRAPHICAL FOCUS

ADMINISTRATIVE UNIT

ECONOMIC DEVELOPMENT AREA

SECTORIAL

INTEGRATED DEVELOPMENT PROJECTS

STAKEHOLDERS

CENTRAL GOVERNMENT

DIFFERENT LEVELS OF GOVERNMENT, ETC.

TOOLS

COMPETITIVE GRANTS / STATE BUDGET

STRATEGY

"SOFT" AND "HARD" CAPITAL (ACCESS, LABOUR MARKET, BUSINESS ENVIRONMENT, SOCIAL CAPITAL AND NETWORKS)

49

156.

The Government of Albania (GoA) as part of it Governance Program introduced on September 2013, outlined as a separate chapter of its entire program the platform “On Regionalization and Regional Reform”. The main pillars of the government vision on the regional development in Albania include: i. ii. iii. iv. v. vi. vii.

Creation of regions and reconfiguration of qarks according to according to the European models of Self-governed Regions; New direction for national and regional development policies; Enhancement of functions and competencies of GoA entities at regional level; Increase of financial resources and assets for the regions; New and more efficient model of central and local authorities at regional level; Crucial reform for involvement of Albania as an EU candidate country; Possibilities for regions to benefit technical support and funding from EU instruments.

157.

The GoA’s program clearly provides possibilities for the creation of regions with an autonomy stipulated in accordance with the principles of European Charter. It allows –it even guides–regions to focus on issues of regional development and, to this end, benefit not only from domestic resources but also directly from EU sources. It leaves room for an extensive review of the de-concentrated institutions at regional level, including their competencies. This part of the GoA’s program, intended for “Regionalization and Regional Reform”, can be correctly perceived if its reading is combined with other sectoral programs.

158.

The GoA is committed to complete the strategic frame for the country, finalizing the National Strategy for Development and Implementation (NSDI) 2014-2020. The NSDI draft is currently being revised in order to include the new Government Program 2013-2017 and the priorities of the line ministries. Important stage towards the finalization of the draft 2014-2020 NSDI will be the extensive public consultation process, which will involve the general public opinion, as well as the interest groups, civil society, academia, business, parliament, as well as the donors. Finalization of the NSDI 2014-2020 is scheduled to be conducted in December 2014, after concluding the consultation process.

159.

The regional development has been already included in the draft NSDI as an important part of the national policy. However, the preparation of a regional development strategy is not foreseen for 2014. In addition, the preparation of the sectorial and crosscutting strategies for 2014-2020 (transport, environment, business development, energy) that relates to the regional development is continuing, by revising the actual policy and aligning it with the Government Program priorities.

5.2. Regional Development Fund, the main instrument used in Albania to promote regional development 160.

Amongst many financing instruments used in Albania, the Regional Development Fund (RDF) is the key financial instrument for regional development. RDF is an instrument established by the GoA since 2010 that contributes around 40-50 million EUR annually to sub-national public investment projects. RDF consists of competitive grants for upgrading local infrastructure, improving education (basic, graduate and undergraduate) and health access, increasing cultural facilities, reconstructing water supply and sanitation, constructing agro-food markets, irrigation and developing afforestation).

161.

The ultimate goal of the RDF is to increase competitiveness of regions, ensuring that the regions have a sustainable socio-economic development of communities, by using their own unique resources, in order for the country to become more competitive in the global level. Also, RDF aim to increase regional cohesion, by reducing high disparities in resource utilization, productivity and social and environmental standards.

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162.

The current RDF practices, despite their vital financial support to some of the needs and priorities set by local governments, have their limitations in promoting a concept of local and regional development and economies of scale, in requirements for programming standards and technical quality of projects, in the restriction within a few infrastructure investment areas as well as in the applicable socio-economic evaluation criteria. The system that has been established for RDF is quite complex and is yet not compatible to EU-requirements in the context of IPA and the Structural Funds.” (ISD, 2010).

163.

According to the assessment of the RDF by Integrated Support for Decentralization (ISD) Project40 in 2010, RDF is a largely fiscal instrument and has not been governed by a relevant policy or clear strategic orientation. Even though the system has been improved (through revised criteria in 2012) this aspect of RDF is yet to be achieved. Additionally, “in relation to EU/IPA interventions in regional development, RDF shows limited program characteristics, such as: limited intervention justification, lack of achievement indicators and poor monitoring, lack of proper evaluation, etc.” (ISD, 2010).

164.

Since 2010, Department of Program Development, Financing and Foreign Aid (DPDFFA) has worked (supported also by ISD) in improving the competitive system of RDF (i.e. its criteria). In this regard, the criteria for project assessment approved in 2012 reflect some of the recommendations made by ISD. During 2011-2012, DSDC has also focused on making the application system more transparent by developing an on-line electronic system of application available via Internet. The system has become function as of late December 201241.

165.

During 2010-2013 the approach followed for the RDF was oriented towards fulfilling of basic infrastructure needs of LGs, promotion of most disadvantaged areas, while fragmenting the funds into small scale and insignificant impact projects. See figure below, which provides an overview of the RDF through years.

Figure 5. Regional Development Fund throughout years 14 000 000 000

12 000 000 000

10 000 000 000

8 000 000 000

6 000 000 000

4 000 000 000

2 000 000 000

0 2009

2010

2011

2012

2013

2014

2015

*2009 – 2014 implemented RD fund and 2015 planned RD fund 166.

During 2012-2013, the total budget of Regional Development Fund amounted around 40-50 million EUR per year, which has mainly financed different projects focused on rural areas. The total 40

Integrated Support for Decentralization Project is an EU-UNDP-funded project. The direct beneficiary of the project is the Ministry of European Integration (MEI), Albania. The project is being implemented by United Nations Development Programme (UNDP) Country Office in Albania with Technical Assistance (2009 – 2012) from ECORYS, OPM and Co-PLAN consortium.

41 Report # 3 on Regional Development: Institutional Capacity Mapping and Financing Mechanisms prepared by the Austrian Development Agency, through the EC IPA Program for 2008. This is an initiative undertaken by the Department of Program Development, Financing and Foreign Aid (DPDFFA), in the Prime Minister Office of Albania.

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amount allocated to the projects ranged between 70-100 thousand EUR for each project and have been sectorial projects to address the basic needs of the areas targeted by the project.

167.

The last two years mark important changes in the RDF approach. More specifically, during year 2014, RDF was oriented mainly towords improving investment management mechanisms and ensuring an effective management of regional development. Furthermore, there was focus on reforming RDF and adjusting it to the EU regional development policy in order to increase attraction and absorption of structural funds. The total budhet for year 2014 was around 72 million Euro, to finance 374 different projects. The total amount allocated per project has increased up to 2 million Euro, out of which 119 projects have targeted regional and local infrastructure, such as urban renovation, improving intraregional transportation system, etc.

168.

In year 2015, RDF has embraced a new approach. More specifically, a new institutional model has been proposed and a functional mechanism established. Additionally, it is aimed better strategic management of funds based on investment priority areas, programs and interventions to avoid as much as possible fragmentation of available funds. Another important element of the new approach it is also inclusion of “local partnerships” and “regional partnerships” in implementing projects, as an important way of ensuring effective management of funds and increase of their impact.

169.

The total budget of RDF for year 2015 is estimated to be 100 million Euro. The main program remains “local and regional infrastructure” to which around 86 million Euro will be allocated. During the first quarter of 2015, around 28 million EUR have been financed, focused on 4 priority axes/areas, for 20 actions and 5 programs. All projects have been evaluated in accordance to the legal and technical criteria set forth in the Deion of the Regional Development Committee and sub-criteria of the Central Secretariat of the RDF. 170.

RDF has undergone through significant changes over year, and it is encountered a move from sectorial approach to a more integrated and strategic one in the last year. In a schematic way, evaluation of RDF’ programming, and objectives is given below.

2014-2015

2009-2013 (i)local and secondary roads (ii)water supply (iii)Primary, secondary, and tertiary education (iv)drainage and irrigation (v)health centers (vi)cultural centers Objectives Infrastructure, and water supply Education Agricultural Health Art-Culture

(i)improve access (ii)Rivatilize urban poles (iii)integrated development plan (iv)connecting infrastructure (v) education and professional development (vi)school as a community center (vii)innovative governance, services and land managment Thematic Objectives Development of access infrastructure Cohesion and regional cooperation Sustainable Development and Quality of Life Digital Convergence

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171.

RDF has the potential of being developed and equipped with a programmed-based approach and performance indicators to complement the EU support for regional development. The further consolidation of RDF as an instrument for RD requires not only a well-developed strategic orientation/basis and a good link to EU requirements for RD, but also improvements of the competitive approach (more work is required on the criteria), simplification of the institutional set-up (too many stakeholders participate in the implementation of several functions), and a clear stand with regard to the involvement of Qarks. Additionally, the RDF needs expansion, improved focus on priority areas and greater impact/regional projects, better management functions and greater transparency. RDF needs to be reviewed and should be modeled as the basic instrument to build absorption capacity of sub-national actors for development funds, together with any external sources (EU, bi-lateral and other international donors)42.

172.

In this view, the RDF should be aligned with the EU regional development strategic thinking and as the international experience indicated should be mplemented based on a phase out reform. Public investments should be focused initially on the growth pole regions as the engine of country’s economy, and in later stages grater political priority may be given to the objective of spatial equity, so that public investments is directed to lagging regions. Consequently, using the Growth Poles as the starting point for defining regional priorities, RDAs will be able to identify a number of projects physically located in the Growth Pole, but with impact on the region as a whole. However, regional authorities and key stakeholders shold define regional priorities, not only within the framework presented by EU framework, but based on a clear analysis of regional needs, strengthes, and opportunities.

173.

Regional Development Agencies should develop a framework for identifying and prioritizing strategic regional projects in order to ensure that regional and impactful projects are selected and funded.

Some critical sectors/areas to be considered for funding by the RDF under the growth poles could be following:

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∑

Health and education infrastructure. Growth poles tend to have a higher density of medical facilities and provide a larger variety of treatments. As such, the growth pole is where people in the region go for treatment they cannot find in their own locality. Regional hospitals could be placed in these hubs, attracting patients not only from across the region. Likewise, growth poles tend to have a higher density of education facilities, elementary, secondary and high education.

∑

Public services infrastructure. In Albania a large share of the population continues to have poor access to running water, sewage, gas, heating, or even electricity. The large majority of people with poor access to public services live in small urban areas and in rural areas. Most of the time these localities lack the funding to finance/co-finance much needed public utility investments. It may pay off therefore to think about whether it would not be more appropriate to prioritize these investments at the regional level, based on: available funds, well-defined needs, and actual viability and sustainability of such investments.

∑

Regional connective infrastructure. Economic mass and urbanization are critical for the development of a region, and regions should have the power to define and implement connective infrastructure projects of regional importance. Investments in national and regional roads should be done in an integrated and strategic fashion to enable more people in the region easier access to opportunities (e.g., jobs, healthcare, education, culture) and to enable dynamic economic centers access to a larger labor pool.

ibid page 12.

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∑

Economic infrastructure (e.g., business/industrial parks). As the most important regional economic centers, Growth Poles tend to be the main employers in the region. Developing economic infrastructure in the growth pole, in accordance with clear dynamics, would ultimately bring benefits not just for the growth poles themselves, but for the region as a whole.

∑

Cultural infrastructure. Growth poles often amass the largest number of cultural sites in the region and include several heritage sites that are exemplary for the culture of the region.

Consequently, the conservation and rehabilitation of these sites may be of critical importance for the region.

∑

Environmental infrastructure. Water and wastewater companies, which now often extend their service at the regional level, are usually housed within the growth poles. Similarly, large industrial rehabilitation and brownfields redevelopment projects are most needed in the growth poles themselves, but may have an impact way beyond the urban center itself.

∑

Tourism infrastructure. Tourism is another area with a regional dimension and its development should be integrated and based on a regional approach.

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6 Conclusions and Recommendations 174.

The report argues of list of critical priorities for the Government of Albania in the short and medium term. These are: ∑

Defining and articulating a shared vision for regional development in Albania, through a participatory and consensus building process in order to enhance buying-in from all stakeholders.

Key strategic policy documents such as National Strategy for Development and Implementation and sectorial and crosscutting strategies for the programming period 2014-2020 should be finalized and built on the shared vision for regional development in Albania, and should be aligned with EU-level strategic thinking.

∑

Agreeing on and approving the proposed institutional framework for regional development in Albania.

∑

Drafting and approving the respective legal and regulatory framework to stipulate the status, mandate, scope of work, composition, timeframe, etc of the proposed institutional framework.

∑

Preparing a comprehensive program for regional development based on a truly integrated approach, which should not only look at geographic coverage, but also at functional coverage and sectoral synergies. To generate good integrated approaches, it is also critical to look at the spatial component. It is strongly recommended to strengthen the relationship between the regional policy objectives and those for the spatial development. For this reason the tools for spatial planning and regional development should be adapted and fine-tuned in such a way that the available potentials can be better utilized for the region as a whole.

∑

Developing and implementing strong evaluation system and selection criteria to be applied for all investments regardless of the funding source, i.e., EU funds or state-budget finance. Integrated approach also entails that EU and state-budget funded projects are not treated differently or separately, to the contrary they are part of a single, coherent development vision and help achieve the same goal.

∑

Regional development policy in Albania should reconginize the importance of differentiated policies for leading and lagging areas. Solutions for growth poles should differ from lagging areas or for cities that have reached the optimal level of agglomeration. Additionally, it is critical to implement a phase out reform, with public investments being focused first on the growth pole regions, and in later stages, greater political priority may be given to the objective of spatial equity, with public investments being directed to lagging regions.

∑

Developing a framework for identifying and prioritizing strategic regional projects in order to ensure that regional and impactful projects are selected and funded.

∑

Deliniating territories from a regional development perspective along with creation of regions and reconfiguration of qarks according to the European models of Self-governed Regions;

∑

The Albanian Regional Development Fund, as an incremental financial instrument should be aligned with the European Regional Development Funding. It should center on a programed based approach and performance indicators to complement the EU support for regional development. Additionally, the RDF needs expansion, improved focus on priority areas and

55

greater impact/regional projects, better management functions and greater transparency. RDF should be modeled as the basic instrument to build absorption capacity of sub-national actors for development funds, together with any external sources (EU, bi-lateral and other international donors). ∑

Strengthening the Monitoring and Evaluation system to ensure the highest value for money from taxpayers money.

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∑

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