Analytics, Business, EU – Baltic States, Modern EU

International Internet Magazine. Baltic States news & analytics Tuesday, 25.06.2019, 23:20

Activating business and research: additional EU’s investment initiatives

Eugene Eteris, European Studies Faculty, RSU, BC International Editor, Copenhagen, 25.01.2019.Print version
The investment conditions in Europe have improved since the Commission adopted an investment plan in mid-2015 due, in part, to structural reforms in the member states and more favourable European economic situation. Besides, the EU institutions have implemented some strategic “interventions”, e.g. in the form of a European Fund for Strategic Investments. There are numerous Latvian agencies to support innovation.

However, there is still a sizeable investment gap in the EU states’ development sectors, in particular in the following important for growth spheres:


  • Investment in higher-risk activities, e.g. in research and innovation is still inadequate; it is actually damaging the member states’ industrial and economic competitiveness in Europe and globally, as well as really decreasing citizens’ quality of life. Further increase in investment is hampered by the low return on investments and generally low incentives.

  • Infrastructure investment activities in the EU states stood at 1.8% of the European aggregate GDP in 2016, down from 2.2% in 2009, the lowest in 20 years. The contraction in government investment continued to be significant in the periphery countries*) – down to 2.1% - while the cohesion countries**) saw a sharp decline from high levels linked to the funding cycle of the European Structural and Investment Funds (ESIF since 2015).

Note: *) The “periphery countries” (6) are Cyprus, Greece, Ireland, Italy, Portugal and Spain.

**) The “cohesion countries” (12) are Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia.


However, the member states have to address increasing structural investment needs in the face of technological/digital changes and globalisation, which include such sectors as new skills in the labor market, SMEs growth, sustainability issues and population ageing, to name a few.


See more in the EIB’s investment report 2017-18 in:

http://www.eib.org/attachments/efs/economic_investment_report_2017_key_findings_en.pdf

 

Investment growth in the EU reached an average annual rate of 3.2% in the period 2013-2016, which exceeds the pre-crisis (1995-2005) average of 2.8%.


The EFSI, as the main EU’s investment-administration body, provided € 26 bn guarantee from the EU budget, complemented by € 7.5 billion allocation of the European Investment Bank’s capital. The total amount of € 33.5 billion aimed at unlocking additional investment of at least € 500bn by 2020. The EFSI projects are implemented by the EIB Group and are subject to the usual EIB procedures. With EFSI support, the EIB Group is providing funding for economically viable projects, especially for projects with a higher risk profile though very feasible in implementation.

 


Commission’s initiative

The European Parliament as one of the EU’s co-legislators, agreed in mid-January 2019 on a specific “InvestEU” program aimed at boosting private and public investment in the member states. Thus, the Commission called on all states to both support the initiative and inaugurate productive discussions among the EU’s legislative institutions and bodies.


The InvestEU Fund is policy-driven and will support four main areas: sustainable infrastructure; research, innovation and digitisation; small and medium businesses; and social investment and skills.


With the apparent success of the EFSI, the Commission suggested an extend its capacity to boost investment further. The so-called "EFSI 2.0" extends the lifetime of the fund from mid-2018 to end 2020 and increases its investment target from €315 billion to at least half a trillion euros. In December 2017, the European Parliament and the states agreed on the "EFSI 2.0" Regulation and it became law on 30 December 2017. 


See more in: https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/investment-plan-europe-juncker-plan/european-fund-strategic-investments-efsi_en


On the EU investment plan: https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/investment-plan-europe-juncker-plan_en

 

The new investment programme marks an important step towards a creation under one roof the EU's financial instruments for investment in the EU states, which should trigger at least €650 billion of investment in the coming years, as the European states need more investments to boost jobs, innovation and skills.


The program consists of the InvestEU Fund, the InvestEU Advisory Hub and the InvestEU Portal.


For example, the InvestEU Fund is aimed at mobilizing public and private investment in the EU states to reduce still sizeable investment gap in the states. The new Fund will notably:


  • Providing a guarantee: the Commission suggests collecting €15.2 bn in the InvestEU Fund. This amount is composed of €38 billion guarantee from the EU budget to be used to support strategically important projects in the member states. Assembling private and public investments, the Commission expects the InvestEU Fund to trigger more than €650 bn in additional investment across the EU states in the next 7years;
  • Creating a diversified and flexible investment portfolio. The InvestEU Fund will support four policy areas: a) sustainable infrastructure; b) research, innovation and digitisation; c) small and medium-sized businesses; and d) social investment and skills. InvestEU’s flexibility will rest on its ability to react to market changes and policy priorities that change over time;
  • Streamline and simplify: The InvestEU program will have a single, coherent governance structure and reporting requirements, avoiding overlaps. A single fund will integrate the many different EU-level financial instruments and the subsequent applicable rules that accompany them. This means a strengthened focus on policy areas and objectives: thus InvestEU will be strongly linked to the Union’s policy priorities;
  • Capitalise on the local, national and EU-wide expertise of our financing partners: Given its role as the EU's “public bank”, its capacity to operate in all EU states, and its experience in managing the EFSI, the European Investment Bank (EIB) Group will remain the Commission's main financial partner under InvestEU program. In addition, the EU states' national and regional promotional banks and other institutions which can offer specific expertise and experience may become financial partners, subject to conditions;
  • Help the states leverage their EU funds more effectively: the EU states will have the option to channel some of their allocated Cohesion Policy Funds into the InvestEU budget guarantee. Any funds channeled into the Fund will benefit from the EU guarantee and its high credit rating, giving more efficiency to national and regional investments. If the states choose to do this, the funds will be earmarked for that particular country. To facilitate a seamless deployment of the InvestEU fund, the Commission is also working on further streamlining state aid control of the EU states' money channeled through InvestEU.

 

More information in the following web-links: 

Press release: InvestEU Programme to support jobs, growth and innovation in Europe

- Memo: InvestEU Programme - questions and answers

InvestEU policy package

- Factsheet: What is InvestEU?

- Factsheet: InvestEU - what will it finance?; = Proposal for a Regulation establishing the InvestEU Programme;

 - EU budget for the future.

Source: Commission press release at:

 http://europa.eu/rapid/press-release_IP-19-444_en.htm?locale=en


Supporting innovations agencies in Latvia

There are numerous institutions and agencies to assist private and public initiatives in innovative activities from both Latvian and European sides. The picture seems quite bureaucratic, but so is the situation in other EU states as well. For example, in Lithuania there are even 13 different agencies and centers. See more in: http://eiah.eib.org/find-support/resources/lithuania


There are 6 agencies in Denmark, 14 in Germany and 15 in France.

See: supporting services for investment: http://eiah.eib.org/find-support/resources/index.htm

 

The following supporting agencies shall be mentioned in Latvia: 

a) ALTUM is a Latvian state-owned development financial institution, which offers state aid for various target groups with the help of numerous financial tools, generally assisted by the EU and EIB resources (such as loans, credit guarantees, investing in venture capital funds, etc.). ALTUM develops and implements state aid programmes to compensate for the market's shortcomings that cannot be solved by private financial institutions.

ALTUM provides loans and credit guarantees, offers insurance for business export deals and investment to venture capital funds, and offers non-financial support in the form of consultations, education, mentoring, and more. ALTUM supports enterprises at different stages of their development, starting with developing business ideas to carrying out large projects if financing is not available in the private finance sector. State aid financial instruments administered by ALTUM, are meant for business start-ups, enterprises, rural enterprises and individuals.


See more on Altum in: 

https://www.altum.lv/en/ and https://www.altum.lv/en/services/business-start-ups/seed-and-start-up  

 

b) Baltic Association of Science/Technology Parks and Innovation Centers (BASTIC) is a development, supporting and practice exchanging network that connects, informs and educates the innovation community in Baltic Sea region. The aim of BASTIC is to develop and intensify the cooperation between innovation communities in Baltic Sea region; to implement common regional activities and to make common statements for local and international agencies or organizations for the benefit of technology based entrepreneurial community.

See more on BASTIC in: http://www.bastic.eu/

 

c) Latvian European Bank for Reconstruction and Development office focuses on supporting investments in energy security and energy efficiency, strengthening the financial sector and improving the competitiveness of the export sector.

See more in: http://www.ebrd.com/latvia.html 

 

d) The Investment and Development Agency of Latvia, LIAA is to promote business development by facilitating more foreign investment, in parallel increasing the competitiveness of Latvian entrepreneurs in both domestic and foreign markets.

See more in: http://www.liaa.gov.lv/en

 

e) Latvian Association of Technology Parks, Centers and Business Incubators (LTICA) aims: to create permanent links among all the business support structures in Latvia; raise the qualification of its members; represent and protect members interests at various (non-) governmental institutions; create an information network to support technology-oriented SMEs; promote the establishment of new business support structures; support technology transfer and innovation; create contacts and participate at various different international and regional associations.

See more in: https://www.spica-directory.net/associations/?id=40

 

f) Latvian Business Angels Network. The goal of the association is to extend and develop the network of investors in Latvia and support new and perspective projects. This is why we organise Investment Sessions, during which investors and new entrepreneurs meet with each other. See more in: http://latban.lv/en

 

g) State Employment Agency, SEA. It is the supportive body for contracting authorities and economic operators in Latvian public procurement. It aims at: capacity building, prepares guidelines and instructions, drafts standardised tender and contract documents, prepares annual reports to the Latvian government on the monitoring and functioning of public procurement. In addition, it offers trainings and capacity building in collaboration with the Latvian School of Public Administration such as green public procurement trainings. It also manages an e-procurement platform and provides trainings to contracting authorities through jointly held seminars on the procurement legal framework and e-procurement benefits.

SEA offers to the employers a possibility to participate in active employment measures with financial support of SEA. See: http://www.nva.gov.lv/index.php?new_lang=en

 

h) State Regional Development Agency (SRDA) is an authority operating under the supervision of the Latvian Ministry of Environmental Protection and Regional Development. The SRDA

initial activities were to administer programs for entrepreneurs in specifically supported territories and implementing various state and EU structural funds to finance local/municipal support programs. Presently, the SRDA’s main task is to provide various digital and e-services for governmental and municipal institutions.


See more in: http://www.vraa.gov.lv/en and in: http://eiah.eib.org/find-support/resources/latvia

 

Note: according to Bloomberg’s research, among 60 most innovative countries Lithuania is on the 37th position, Estonia on the 36th place and Latvia on the 42nd position. On top of the list are South Korea, Germany, Finland, Switzerland, Israel, Singapore, Sweden, USA, Japan and France. The rating’s composition takes into account expenditures for scientific research and development and the number of high-tech companies. For example, in Lithuania investments in R&D increased by 13,5% in 2017, compared to a year before to about € 372 mln and reached 0,9% of GDP; in Latvia it is about 0,6%, while in Estonia –about 3%.  


Out of 2500 world top industrial R&D companies, 577 firms based in the EU account for more than a quarter (27%) of global investment. US companies (778) constitute 37% of business R&D investment, Japanese (339) 14%, Chinese (438) 10% and companies from the rest of the world (368) 12%. Worldwide R&D growth was driven by the ICT services and producers sectors (13% and 11% respectively), followed by the health sector (7.7%) while the lowest R&D performance was shown by the industrials sector (3.3%) and by aerospace & defence (-4.3%). companies based in the US and China showed a much higher R&D growth rates (9.0% and 20.0% respectively).


Source: http://iri.jrc.ec.europa.eu/scoreboard18.html

 






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