The role of financial instruments in the regional ecosystem and territorial cohesion
Financial instruments will continue to play a prominent role in EU policy post-2020 under both EU Cohesion policy and the proposed InvestEU programme. However, the increased use of FIs across a number of policy areas has resulted in a complex intervention landscape. An important issue is how the various funding streams using FIs should be articulated to best deliver on EU policy objectives, and in the present context, to address Cohesion policy objectives.
ESPON has finalised a major study on financial instruments and territorial cohesion, which was presented by Fiona Wishlade (EPRC). The research provides the first ever pan-European territorial analysis of the ESIF financial instruments and its focus was on the 2007-2013 programming period investments in final recipients at NUTS2 level. Some of the key findings from the project are:
- In territorial terms, most financial instruments appear spatially neutral, but some explicitly seek to offset regional or local disadvantage. Financial instruments also differ widely in domestic importance.
- In the context of territorial cohesion there is a need to be clear about what the policy objectives actually are, and potentially accept that there may be a trade-off between a focus on disadvantaged regions and some of the benefits of financial instruments, e.g. FIs may be more costly to implement in more remote regions.
Inga Beiliuniene (INVEGA) and Alexandre Almeida (National Innovation Agency of Portugal) both stressed that financial instruments can be used for many sectors, including those implementing R&D projects, and during different stages of enterprise development. However, policy makers, when introducing various requirements or creating financial instruments, should not forget that the structure of these instruments must remain as simple as possible and as close to the market as possible in order to keep them attractive for different actors involved in implementing them, and above all for their main clients – SMEs.
Inga presented INVEGA, which is a Lithuanian national promotional institution offering a wide variety of financial instruments, including those which are specifically designed for financing of R&D projects. Alexandre presented the Innova-FI project (8 partners) which facilitates consistent comparison between regions in terms of financing innovation, peer learning through study visits and thematic workshops, and joint development of action plans. He also reflected on the case study of Portugal, where Portuguese ventures have formed a network of more than 70 partners, allowing them to be connected to the main players of the Portuguese entrepreneurial ecosystem.
Lastly, Jonathan Denness (DG REGIO) looked ahead to 2021 and beyond. He emphasised the fact that in terms of FI Member States have two ways to deliver the policy objectives: either under CPR rules or via contribution to InvestEU. He also showcased examples from Bulgaria, Malta and France on how FI can contribute to achieving territorial cohesion.
Take away message
According to the ESPON study except for Norway, systematic evidence on the impact of financial instruments is absent. In addition, there is no consistent territorial pattern of the use of ESIF financial instruments, thus it is hard to build a narrative; domestic context is a key to understanding the uptake of FI. Problem regions could benefit from simplification in the use of financial instruments, however, they also need to be more risky in executing public policies.
Alexandre Almeida (National Innovation Agency of Portugal): "In convergence regions, the equity market is usually shallow and access to financing is more expensive. Innova-FI is a cooperative project that takes stock of the experience of 8 partners to share and learn together and improve deployment of structural funds through financial instruments."
Inga Beiliuniene (INVEGA Lithuania): "We believe that sharing experience of FI during such cooperation projects as Innova-FI might help expand the implementation of this way of business financing, which we consider efficient due to such advantages as attraction of additional private resources, coverage of market gaps and generation of returns."
Fiona Wishlade (EPRC): "Financial instruments have a very high policy profile but investment through FIs is not economically significant anywhere with implications for assessing value added and impact. Nevertheless, FIs play a role in territorial cohesion and tailoring financial products to local context is essential, starting with 'simple' and 'general'."
Jonathan Denness (DG REGIO): "The heterogeneity of FIs shows that we have accomplished our job. FIs are designed to address all types of market failures giving rise to funding gaps. Funding gaps would lose their meaning if they didn’t respond to a particular place-based context."