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PART III - THE EU BUDGET AND THE CONTRIBUTION OF STRUCTURAL POLICIES TO ECONOMIC AND SOCIAL COHESION

2 The contribution of structural policies to economic and social cohesion: results and prospects

2.2 Assessing the effects of Community intervention (1994-99)

Objective 1: Catching-up and modernisation

Structural support for Objective 1 regions lies at the heart of cohesion policy in the Union. Accordingly, it is essential to assess its effects as rigorously as possible. There has been significant convergence of GDP per head in Objective 1 regions over the past 10 years, but this in itself does not necessarily signify that the policy has been effective. Nevertheless, it is possible to demonstrate that Community assistance has had positive and long-lasting effects in both increasing economic growth and strengthening underlying structural factors which determine competitiveness and, therefore, future potential growth.

Macroeconomic impact: significant effects on growth, less on employment

Structural assistance has had significant effects in boosting economic growth in the countries and regions for which analysis is possible. Over the period 1994 to 1999, the gap in GDP per head has been closed considerably in a number of countries. In Ireland, Portugal and Spain, annual GDP growth over the these five years was well above the EU average (almost 1 percentage point above in the latter two and 6½ points above in Ireland). Investment growth was also higher, laying the basis for growth in the longer term.

Transfers from the Structural Funds added directly to demand and economic activity, but more importantly, since they were concentrated on investment in both physical and human capital, they were aimed at increasing growth potential in the medium and long-term.

Recent evaluations of the Community Support Frameworks (CSFs) in the last two programming periods indicate that the estimated effect on growth was highest in Greece and Portugal, where the level of GDP rose by 9.9% and 8.5%, respectively, over and above what would have been expected in the absence of assistance (Table 17). The estimates for Ireland (3.7% higher) and Spain (3.1%) are lower, but still significant. Increased growth resulted in lower unemployment, particularly in Greece, though also in higher productivity growth in the manufacturing sector.

The estimates of the 'supply-side' effects on growth are of the same order as the direct effects on demand and become predominant in the longer-term as the strengthening of productive potential boosts output.

Improvements in competitiveness

Although structural policies are ultimately judged in terms of their effect in narrowing regional disparities in GDP per head and employment, it is their impact on the underlying factors which determine economic development which is a prime consideration. Substantial progress has been achieved in improving basic infrastructure in weaker regions, but imbalances persist in RTD, access to know-how, the Information Society and continuing training, and the quality of the environment. The Structural and Cohesion Funds make a significant contribution to correct these disparities.

Transport infrastructure -improving accessibility

An efficient transport system is essential to regional development. Investment in improving the system, however, needs to take account of the balance between different modes of transport (road versus rail) and the potential effect on the environment.

Transport accounts for over half of total investment in infrastructure. Investment in improving the transport network in the cohesion countries and southern Italy over the period 1994-99 amounted to over EUR 40 billion, a third of which went to Spain. This was largely concentrated on roads (around 56%), while just under a quarter of expenditure went on railways (around 23%). In Spain and Ireland, roads accounted for a larger proportion of investment than elsewhere (73% and 68%, respectively) (Graph 35 and Graph 36, where expenditure includes financing from the Structural and Cohesion Funds and EIB lending for regional development, and Table A.36, in annex).

This investment served to reduce disparities in transport between these countries and the rest of the EU significantly, especially in respect of roads and the standard of the rail network (high-speed trains, electrification and double-track). As a result, accessibility was improved through reductions in travel time, by around 20% on average in Spain (largely through improving the road network) and 70% in respect of rail freight in Portugal (Table 18), and better links were established between the least prosperous areas and other parts of the country and, indeed, of Europe (eg through motorways in Spain). In addition, access to ultra-peripheral areas (French DOMs) was improved through the construction or upgrading of airports.

In many cases, use of the Structural Funds gave rise to private sector investment and the establishment of public-private partnerships (as, for example, in the construction and management of roads in Portugal, the port of Gioia Tauro in Italy and Spata airport and the Rion-Antirion bridge in Greece). In addition, the construction of infrastructure financed partly with EU assistance resulted in net job creation of around 900,000 persons a year (in full-time equivalent terms), mainly in Objective 1 regions.

The Cohesion Funds have made a significant contribution to transport improvements through financing projects included in national and regional economic development programmes, most of which involved a specific assessment of the environmental impact. As a result, they have reinforced beneficial effects of ERDF intervention and helped to reduce regional disparities further. According to a recent study (carried out by the London School of Economics in 1997),1 they have increased employment and private investment significantly in recipient regions, with large spillover effects in neighbouring ones. The estimated effect of 9 projects in Spain, with a total investment of EUR 2.5 billion, was to add around 0.6% to both GDP and employment in the medium-term (equivalent to some 75,000 jobs).

However, the need for investment in infrastructure remains. Analysis carried out for the European Spatial Development Perspective indicates that while investment in peripheral regions has improved accessibility, it has been accompanied by similar investment in neighbouring regions and more central ones (in rail networks, for example), which can counteract any relative gain. The overall effect of such investment, moreover, depends on what other measures are taken to stimulate economic activity in the regions concerned.

Supporting SMEs : critical to regional competitiveness

Supporting SMEs is a priority of EU policy since they are a vital source of competitiveness and job creation, especially in Objective 1 regions. The Structural Funds provide support in a variety of ways, including through services (information, training and guidance, in particular) and help in financial engineering as well as through financial assistance. Over the period 1994 to 1999, an estimated EUR 14 billion (14.5% of total funds for Objective 1) went to these kinds of measure (see Tables A.38 and A.39, in annex). Over 500,000 firms (16% of the total in eligible regions) were assisted through direct aids (over a third of total, finance) and other measures.2

Evidence, in the form of an EU-wide evaluation, based on surveys and case-studies, suggests that the Structural Funds had a significant effect on SMEs over the last programming period. In the absence of Community support, it is estimated that 70% of investment projects would have either not taken place at all, or been smaller in scale or postponed and that assistance contributed to creating more than 300,000 additional jobs, even after taking account of 'deadweight' and substitution effects. The evidence also emphasises the potential of financial engineering schemes as an intsrument of intervention, even though they might take a long time to be established in regions where financial services are weak.

EU support of SMEs has demonstrated a specific added-value in many respects. First, it has added to the funds available at national level. Secondly, co-financed measures have often addressed the structural problems SMEs face, in particular, by providing business services (eg in respect of innovation and technology) and introducing new practices (eg financial engineering). Thirdly, in a number of countries, it has enabled SMEs to become an 'instrument' for regional development and procedures for selecting and implementing projects to be improved.

On the other hand, the evidence indicates that assistance has been concentrated mainly on providing grants rather than loans and risk capital, which might improve the sustainability and cost-effectiveness of schemes. It also indicates a need to improve the targeting of assistance, in particular, through the creation of specialist intermediaries in the private sector, preferably organised on a decentralised 'one-stop shop' basis. Experience demonstrates that these tend to make schemes more accessible and provide quicker appraisal and better delivery of SME projects by integrating direct aid and services.

Research, Technological Development and Innovation (RTDI): a strengthening of regional capacity

As noted in Chapter 1, the gap in RTDI between the most developed and the least developed regions is much wider than in income per head. The concentration of these activities in the more dynamic regions is a key aspect of the 'virtuous circle' as regards growth, competitiveness and employment. By contrast, less dynamic regions have a scientific and technological system which is still afflicted by structural problems, by low RTDI expenditure; excessive concentration on Government research rather than on stimulating private sector demand for innovation; inadequate resources to maintain the existing infrastructure; strong dependence on external (Community) sources of finance and excessive concentration of research activities in and around capital cities (Lisbon, Athens and Dublin).

According to an evaluation of 52 Objective 1 and 6 regions for the period 1994 to 1999, structural intervention seems to have had beneficial effects, especially on infrastructure. In Greece, for example, the effect was particularly significant in Crete, where universities and research centres were strengthened, and in Central Macedonia, through closer cooperation between local industry (chemicals and textiles) and Government research centres.

In broader terms, when assessing the effect of the Structural Funds, it is important to distinguish between different types of region, defined by their potential for innovation, as measured by the extent of cooperation between research institutions and businesses. In these terms, most Objective 1 regions are below the highest level and around a third can be described as 'technological deserts.' The performance of regions, however, is affected by the national features of the country in which they are located as well as by the growth rate and other factors. The position from which they start affects their development path, especially as regards the weakest regions. Regional differences in performance indicate that the policies implemented have been successful in some cases (Lisbon and Ireland) and failed in others (Attiki), while yet other regions seem to have developed independently of their innovative capacity (in particular, tourist regions like the Canary islands) (Table 19).

At the same time, the effect in Objective 1 regions cannot be limited to the expansion of the research base, even if it is natural to focus on this because of the scale of the technology gap. In a number of Member States and regions, increased effort has been devoted to strengthening human capital by increasing the number of qualified researchers and giving greater importance to the establishment of networks between industry and universities, technology transfer and support for the demands of business.

Accordingly, in Ireland, after the mid-term review, increased attention was focused on company research and development as well as on the training of researchers. Co-financed measures have served to increase the amount of RTD in industry significantly, more than 400 firms being assisted, many of which had not undertaken RTD before, and 300 firms participating in research training. Increased industrial awareness, therefore, has helped to strengthen the relationship between public research and the private sector.

A further example is the CDTI (Centre for Industrial Technological Development), which was set up in Spain to support technological development in firms in Objective 1 regions by providing funds which are reimbursable if projects are successful. The 243 projects approved have involved investment in RTD of EUR 240 million and 1,622 full-time researchers. From the 108 projects completed, around 74% of the funds provided will be reimbursed.

Furthermore, effort still needs to be made to increase the efficiency with which funds are used and managed. The most innovative measures have frequently been insufficiently exploited because of the relative complexity of the procedures for implementing them, as well as, on occasion, difficulties in finding projects of sufficient quality to justify financing. This may have contributed to reducing the efficiency and effect of the Structural Funds. In addition, there is still inadequate follow-up and evaluation of projects. These problems apart, the implementation of genuinely innovative measures can be useful for addressing the difficulties noted above; but they need to be based on active partnership between public and private sectors and entail an appropriate division of responsibility between the Union, Member States and regions. 3

RIS: a proactive innovation approach

The Commission has also helped to develop the innovative capacity of regions through a number of pilot actions. Since 1994, 32 regions have received funds under Article 10 of the ERDF for developing RIS projects (regional innovation strategies).4 These involve private-public partnership and are intended as a response to the needs of businesses, specifically SMEs, to innovate. Over the past 5 years, over 5000 SMEs have undergone technology audits and/or interviews. Hundreds of RDTI organisations have been consulted in the process of formulating strategies and implementing action plans.

RIS has produced significant results in the form of the creation of new regional partnerships and joint working methods, the strengthening of the innovative process and the launching of new innovation projects within firms. For example, in Castilla y Leon, almost 800 firms took part in a series of meetings to decide the type of RIS to be implemented. A total amount of EUR 447 million was committed for the first four years of implementation (1997 to 2000), increasing technological expenditure in the region from 0.8% of GDP in 1997 to 1% in 2000.

These initiatives were succeeded by a new generation of projects, RIS+. The Commission has also developed a database (RINNO - Regional Innovation Observatory) to list and describe all public incentives for innovation in EU regions so as to encourage the transfer of innovation.

The information society: focus on telecommunication infrastructure

The potential of the Information Society for improving regional competitiveness and social cohesion is recognised by the Structural Funds. The rapid diffusion of information and telecommunication technologies opens up new development opportunities for the less advantaged regions, in particular, by facilitating a more efficient location of investment, given the differences in costs and access to markets. Regions can also benefit from these technologies by exploiting their own areas of specialisation and attracting new, higher valued-added activities. Moreover, since these can be located outside urban areas, they are a means of helping to achieve more balanced development across the EU.

The proportion of the Structural Funds devoted to investment in telecommunications is relatively small, at only around 2% of the total spending, 1.5% on infrastructure and 0.3% on stimulating the demand for services and applications.5 The focus has, therefore, been on improving the basic system and narrowing disparities between peripheral regions and the rest of the Union through the digitalisation of networks and improving the quality of service.

Technological change and the liberalisation of telecommunication markets are driving factors towards a more coherent and integrated approach, aimed at furthering the development of the Information Society, especially as most investment in the sector is highly profitable. The Structural Funds need, therefore, to be focused on stimulating demand, developing new skills, raising the awareness of all those involved and implementing new high value-added applications while giving strategic priority to regional balance. 6

RISI: a catalyst for regional development

Through its integrated approach, the RISI 7has had a major effect in boosting the creation of specialised know-how and jobs in the regions. In Nord-Pas-de-Calais it has been a catalyst for the development of new skills and know-how, new activities and an enterprise culture. This is recognised by virtually all those involved in regional development and is reflected in the integration of various information technology measures (distance-learning and training, business development, health care, cultural activities, cyber-centres, public services, websites and transport) into the regional programmes.

Human resources: helping people into work and strengthening education and training systems

In the main countries with Objective 1 regions, structural policies have helped to strengthen active labour market measures, education and training systems and the links between training and job placement. The focus has been on integrating training with other types of action, giving increased importance to disadvantaged groups and targeting assistance on these, adjusting training to the needs of the labour market, adopting a 'customer-oriented' approach and improving the quality of training. Examples of actions include support for qualification and accreditation systems, developing technical teaching in upper secondary and higher education, improving infrastructure, providing continuing training to teachers and trainers and trying to reduce the rate of school drop-out.

Overall, the ESF has been a catalyst in modernising education and labour market policies in different countries. ESF co-funded activities, and the need to comply with the administrative requirements for receipt of funds, have helped to encourage the development of mechanisms for the better planning of policies, better coordination and improved relations between the institutions involved. As a result, a single, standard reference framework emerged between the fund-giving agencies and the regions, which facilitated the dissemination of techniques for implementing social and economic policy. Best practices identified by evaluators include greater transparency in policy implementation, a strengthening of the capacity to manage at local and regional level and closer links between public policy and labour market needs.

In Spain, part of the added-value of the ESF was seen as providing support for the reform of technical secondary education (by, for example, developing work experience modules, introducing guidance and advice systems and taking responsibility for disadvantaged students). The rationale for ESF intervention and the scope of this remain relevant, given that a minority of students undertake technical secondary education and the amount of expenditure allocated to it is still relatively small.

In Portugal, the ESF helped improve the educational system by widening the range of paths which students could follow and by giving priority to quality. The training of teachers and trainers, both in primary and secondary education (49.3% of teachers) and at university level (grants for postgraduate courses) appears to be one of the major contributions of the programme. Widening the range of educational and training paths seems to have strengthened links between secondary education and labour market needs and improved career guidance arrangements in schools. Indeed, the support given to the training of 'medium level' technicians created an alternative to traditional general education and provided skills which were directly applicable on the labour market.

In Italy, the ESF has enabled the quality of technical streams to be improved, through the gradual introduction of training for teachers (50% of all vocational education teachers were covered), work experience modules (30% of the total length of courses) and new training methods and programmes.

Environment: a key role in developing water supply infrastructure

In the case of environmental measures, the effects of structural intervention in the cohesion countries and the Mezzogiorno need to be distinguished from those in other parts of the Union.


In the cohesion countries, the proportion of households connected to drinkable water supply and main drainage is still much lower than elsewhere in the EU. This not only reduces the quality of life of the people concerned, but also has a damaging effect on the potential for economic development, and on tourism, in particular.

Many regions in the Mediterranean suffer from a shortage of water, especially in the Mezzogiorno, where only 26% of the population is connected to drinkable water supply throughout the year. Main drainage is also inadequate, while in urban areas, environmental conditions are usually very poor, and not enough is done to make people more aware of the issues involved and of the need to manage the environment effectively.

These problems have adverse effects on the economy, as well as society, and conflict with the aim of pursuing a sustainable development path. Nevertheless, outside large cities, and except in a few areas of Spain and Ireland, the low level of industrial development means that toxic gas emissions tend to be less of a problem than generally in northern European countries.

In the north of the EU - in the new German Länder, in particular - the main problems stem from industrialisation, which has left a legacy of soil contamination, pollution and urban degradation. This had a damaging effect on the image of many regions with traditional industries and reduces their capacity to attract investment from outside. In rural areas - in the Netherlands and Ireland, in particular - however, agriculture is a major source of pollution.

During the period 1994 to 1999, environmental investment financed from the Structural Funds amounted to over EUR 9 billion, around 9% of the total funds for Objective 1. Over the same period, 20% of EIB loans went to environmental projects, totalling EUR 1 billion in the cohesion countries and almost EUR 3 billion elsewhere in the Union (mainly in the UK on water treatment projects).

In the cohesion countries, the Structural Funds played a major role in improving water supply and distribution systems as well as those for waste water treatment. In Greece, the number of urban areas connected to main drainage almost doubled between 1993 and 1999, increasing the population covered to over 70%. In Ireland, the proportion covered rose from 44% in 1991 to 80% in 1999. In Portugal, the population connected to drinkable water supply rose from 61% in 1989 to 95% in 1999 and that connected to main drainage from 55% in 1990 to 90% in 1999.
The Funds also helped to increase water supply in regions with a serious shortage. In Italy, for example, supply was expanded by over a third over the programming period.

In the case of the Cohesion Fund, ex-post evaluation of a representative sample of environmental projects generally indicated satisfactory results, though a number of problems were identified in respect of the management of water reserves. In particular, it appeared often to be difficult for small-scale projects to improve supply and become self-financing. The most significant environmental benefits were identified in respect of water supply projects, in particular those concerned with better management of reserves (projects in Sevilla and Lough Mask in Ireland, for example). In areas severely affected by drought, moreover, water loss was considerably reduced in a number of cases.

Beyond the immediate effects on the quality of life, especially of those living in the less developed parts of the Union, the investment has also given rise to wider benefits:

  • significant progress in the extent of compliance with Community directives: for example, in 1999, Ireland attained the standards imposed by the directive on drinking water;

  • a reduction in potential constraints on the development of agriculture, industry and tourism;

  • growing awareness of the need for integrated environmental policies (Greece).

The areas in which it was possible to verify that improvements had been made - and much remains to be done - consist mainly of municipal waste treatment, the designation and management of protected natural areas, the implementation of specific means for controlling air pollution (Greece) and the degradation of rivers, from intensification of agricultural activity (Ireland) and from a low level of water flow in industrial areas (Portugal).



BACK
  1. London School of Economics, The socio-economic impact of projects financed by the Cohesion Fund, 1999.
  2. Over a third of SMEs in the Union (around 18 million) are located in areas eligible for Structural Funds assistance, of which 3 million are in Objective 1 regions.
  3. COM (1998)275, 'Reinforcing cohesion and competitiveness through research, technological development and innovation', Communication of the Commission 12.06.1998.
  4. RITTS (Regional strategies for innovation and technology transfer) have been financed under the Innovation Programme of the 4th Framework Programme
  5. COM (97) 7, 'Economic and social cohesion and the information society', Commission Communication.
  6. European Commission, 'From telecommunications to the information society: evaluation criteria for the 2000-2006 programmes', Technical Document n°2, 1999.
  7. RISI (Regional information Society Initiatives) were financed under Article 10 of the ERDF and Article 6 of the ESF.


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