The Allocation of EU Funds in Aid of Private Enterprise 2014-2020 The EU’s Cohesion Policy aims to reduce regional disparities in terms of Gross Domestic Product (GDP) per head by promoting growth, job creation and competitiveness, through investment supported by the allocation of EU funds. Cohesion Policy is implemented through programmes which run for the duration of the EU seven-year budget cycle. The current programming period ends in 2013 while the new one starts in 2014 and stretches to 2020. The most significant idea put forward by the European Commission for the new programming period is that of linking the allocation of funds to the Europe 2020 objectives. Malta received a total financial package of =C 776million from the EU Budget for Cohesion Policy. Within this context, the MBB conducted a report to identify whether the private sector is a better alternative to the public sector to make use of EU Structural Funds to meet the country’s thematic objectives. During the 2007-2013 programming period the largest financial instruments benefiting the private sector were the ERDF funds managed by Malta Enterprise. Private enterprises could also benefit from the JEREMIE initiative in the form of a loan guarantee scheme. At the same time, ESF aid schemes offered private enterprise the opportunity to tap funds for the training of staff. Together, the schemes allocated for direct use by private enterprise amounted to around =C 70 million, accounting for around 8% of the total EU Cohesion Policy funds allocated for Malta for the current programming period.
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The transition from Convergence to Regional Competitiveness and Employment Status adds to pressure on the Maltese Government to revise its strategy to concentrate future EU spending on priority areas to maximise the positive impact of such spending on the country’s economic development. It is widely accepted that public investment can create favourable conditions for private investment. In fact, some studies show that the impact of business incentives would be weak in the absence of pre-conditions for exploiting the entire potential of such support. Therefore, investment in infrastructure, the upgrading of industrial parks and the expansion of educational institutions are all welcomed by the private sector as these may improve the productivity of private investment and ultimately result in economic growth. However, at the same time, there are a number of reasons that lead us to believe that there are aspects related to the allocation of funds that could and should be improved such that funds are most beneficial to the private sector. For instance the small market constraint of the Maltese economy necessitates that economic growth is mostly export-led. Such export-led growth can only be the result of further investment in/by the private sector. Another reason is that investment in the private sector yields high rates of economic growth.
The way forward therefore is to enable the private sector to drive Malta’s growth, job creation and competitiveness. In this respect, the MBB report presents a number of recommendations. One recommendation stresses that Government needs to ensure a sufficient allocation of Structural Funds that target areas private sector’s investment needs. Estimates suggested in the report indicate that in the 2014-2020 programming period around = C 180-200 million should be allocated for direct use by the private sector. This figure is estimated on the assumption that the level of Maltese private sector investment as a percentage of GDP should converge with that of the EU-27. Such an allocation would also avoid having to turn down eligible project proposals by private enterprise because they are out-competed by other applicants. We also urge for the use of EU funds to ensure adequate access to finance. Preliminary estimates suggest that as much as =C 20-25 million of ERDF funds would be necessary to meet the demand over the next programming period over and above the =C 10 million allocated to JEREMIE. Other recommendations call for Government to entrust private sector non-profit intermediaries with the implementation and management of part of the Structural Funds allocated to Malta, also referred to as ‘global grants’. The MBB report was presented to Government as part of the public consultation that was launched with stakeholders in view of the 2014-2020 programming period.
This report was conducted in collaboration with Bank of Valletta. The full version of the MBB report can be downloaded from www.mbb.org.mt
MBB ANNUAL REPORT 2013
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