6 Multi-Annual Programme for Enterprise
and Entrepreneurship
| (28633)
9544/07
COM(07) 235
| Commission Report on the Financial Instruments of the Multi-Annual Programme for Enterprise and Entrepreneurship and in particular for Small and Medium-Sized enterprises (SMEs) (2001-2006)
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| Legal base | — |
| Document originated | 4 May 2007
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| Deposited in Parliament | 16 May 2007
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| Department | Trade and Industry
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| Basis of consideration | EM of 11 June 2007
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| Previous Committee Report | None; but see (26177) 14940/04 (26223) 16026/04: HC 38-v (2004-05), para 10 (26 January 2005); also see (26495) 8081/05: HC 34-xx (2005-06), para 9 (1 March 2006) and HC 34-i (2005-06), para 20 (4 July 2005)
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| To be discussed in Council | Not yet determined
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| Committee's assessment | Politically important
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| Committee's decision | Cleared, but information on progress requested
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Background
6.1 The Lisbon European Council of March 2000 set the EU the strategic
goal of becoming the world's most competitive, dynamic, knowledge-based
economy by 2010, capable of sustainable economic growth with more
and better jobs and greater social cohesion. Multi-Annual Programmes
in this area had existed before 2000, but the 2001-2005 Multi-Annual
Programme for Enterprise and Entrepreneurship (MAP) was established
in December 2000 as one important means of fulfilling the Lisbon
goal, with a budget of €450 million. It aimed to achieve
the following objectives:
— to
enhance the growth and competitiveness of enterprises in a knowledge-based
and internationalised economy;
— to promote entrepreneurship;
— to simplify and improve the administrative
and regulatory framework for business so that research, innovation
and business creation can flourish;
— to improve the financial environment
for business, especially SMEs;
— to give business easier access to Community
support services, programmes and networks and to improve the coordination
of these facilities; and
— to support the implementation of the
European Charter for Small Enterprises[17]
at Community level.
6.2 The MAP had three component parts:
— the
exchange of experience and the identification of good practices
between the Member States;
— the operation of a network of Euro-Info-Centres
(EIC) offering services and advice about European matters to enterprises
throughout European regions; and
— the provision, via the European Investment
Fund[18] (EIF), of a
number of Community financial instruments for SMEs.
6.3 According to the DTI, SMEs make up well over
90% of businesses in both the UK and the EU as a whole.
6.4 We considered an external evaluation of the MAP
for the period 2000-2004 on 26 January 2005. It made recommendations
in all three areas to make the programme more effective. On policy
development, it recommends a strengthening of dissemination and
concentration on benchmarking and best practice projects (rather
than projects for creating databases or one-off publications),
and more follow-up activity and long-term projects. The EIC network
should be better promoted through awareness-raising, and enhanced
coordination and rationalisation with other business support networks.
Most important, though, were the financial instruments, which
comprised 72% of the budget. The then Minister (Mr Nigel Griffiths)
said that UK experts on the MAP did not agree with the positive
overall assessment, but believed that more innovative financial
products were needed and that the emphasis upon loan guarantees
should be reduced. He said that he and his officials would press
the Commission "to identify and support initiatives where
the risks and the rewards are shared with private investors and
which are targeted at those businesses with high growth potential",
both during the remainder of MAP's existence and, more importantly,
in the much more ambitious successor, the 2007-13 Competitiveness
and Innovation Programme (CIP).
6.5 Despite these valid reservations, we noted that,
although hard, statistical evidence of the effectiveness of an
uncompleted programme was hard to come by, a very thorough report
was preponderantly positive; that it was inevitable that, after
four years, experience would suggest areas for improvement; and
that, as the Minister sensibly suggested, the task now was to
do what could be done to effect the suggested improvements, and
to incorporate the lessons into the successor CIP.
6.6 We also agreed with the proposal to extend the
MAP until 31 December 2006, to give sufficient time for the CIP
to be developed and agreed and to enable it to begin at the same
time as the 7th Framework Programme for Research, on 1 January
2007. MAP funding was consequently increased by €81.5 million.[19]
The Competitiveness and Innovation Programme
6.7 The CIP has three sub-programmes — the
MAP and those existing Community programmes that currently contain
actions in the areas of innovation and eco-innovation in an Entrepreneurship
and Innovation Programme (EIP); an ICT Policy Support Programme
to promote greater Information and Communication Technologies
uptake; and better use and innovative development of energy resources
in an expanded Intelligent Energy-Europe Programme.
6.8 In the original Commission proposal, there was
to be a greatly expanded budget of €4.2 billion — €2.6
billion for the EIP and €802 million for ICT support and
€780 million for "Intelligent Energy", compared
with €530 million for MAP. Three funding instruments
would be managed by the European Investment Fund: a High Growth
and Innovation SME Facility, to make venture capital available
to SMEs at the start-up and expansion phases and for those that
demonstrate high growth potential in innovation; an SME
Guarantee Facility which will provide guarantees to financial
institutions making loan facilities available to SMEs; and a Capacity
Building Scheme, to improve the expertise of financial institutions
investing in SMEs. The Commission argued that such a CIP achieved
greater coherence and maximised the potential for exploiting synergies.
6.9 The Committee considered the CIP in depth. In
essence, in its 4 July 2005 Report on the Commission's CIP proposal,
the then Committee noted that no real attempt had been made to
explore alternatives to, or demonstrate how this approach was
likely to be any more successful than, the MAP, where progress
was described as "at best patchy". Instead, the thrust
of a variety of assertions was that the Commission alone was capable
of addressing various "market failures" and, by virtue
of expanding its involvement, would facilitate outcomes that had
not arisen hitherto, e.g. significantly enhanced ICT take-up.
This was validated by a consultation exercise whose outcome was
essentially predetermined, since it involved "stakeholders"
who, as the main beneficiaries, were unlikely to contest the programme's
impeccable objectives (closing the SME innovation and ICT take-up
gap) or the proposed solution. Although regarding the programme
as "a positive step in the right direction", the then
Minister had a number of reservations about the financial instruments,
the shape of the programme and its potential for overlap with
other instruments. As with other proposals dependent on the new
Financial Perspective, the then Committee kept the document under
scrutiny until the final shape of the Financial Perspective was
clearer.
6.10 From a lengthy letter of 13 February 2006,
it was plain that the then Minister and his team had worked hard
and, overall, successfully during the UK Presidency. Although
the CIP was poorly drafted and confusing, there was a strong Council
and European Parliament impetus behind it; he had therefore concentrated
on introducing greater clarity and ensuring: clear differentiation
between the CIP, the Structural Funds and the 7th RTD
Framework Programme; that the management arrangements would eschew
the original "silo" thinking and instead be comprehensive
and promote synergies; and that, by containing proper evaluation
mechanisms, it would inform any successor in ways in which MAP
could not. He also argued persuasively, along with the networking
arrangements to facilitate information- and best practice-sharing
and intra-SME collaboration, for the role of public funding in
promoting SME development, especially in the risky, innovative
areas that the Lisbon Agenda is seeking to encourage. The Committee
agreed not to object to the Minister participating in the Partial
General Approach, on the condition that the budgetary provisions
remained under scrutiny and were excluded from the General Approach,
and asked for further progress reports, especially on the uncertainties
that continue around the area of complementarity and avoiding
overlap between the CIP, the 7th RTD Framework Programme
and the Structural Funds.
6.11 His successor, the Minister of State for Industry
and the Regions (Margaret Hodge) provided a further detailed and
comprehensive analysis of the subsequent negotiations in her letter
of 22 May 2006. Not everything has been achieved for which the
Committee, and they, would have hoped, particularly with regard
to the overall size of the programme — €3.622 billion
instead of €4.212 billion — and especially the ICT
Policy Support component — €729 million instead of
€802 million. But we accepted that that is in the nature
of negotiation, especially in an area involving QMV and co-decision:
the UK was alone in arguing for a less well-funded ICT Policy
Support component. Moreover, the Minister noted that:
— the
budget was within the context of an overall European budget only
marginally increased from that proposed for the December 2005
European Council;
— risk capital support was to be the dominant
financial instrument with clear political backing supporting its
ongoing development;
— the evaluation processes and methodologies
were now considerably stronger than originally proposed as a direct
result of UK interventions;
— the Management Committee for the Entrepreneurship
and Innovation sub-programme (which would have lead responsibility
in CIP for promoting entrepreneurship, SMEs, and innovation and
the financial instruments) was to have an overarching strategic
management role, enabling appropriate coordination, focus and
complimentary actions across all parts of CIP; and
— the legal te xt now made it clear that
the CIP would complement the new 7th Framework Programme for Research
and Technological Development (FP7) and Structural Funds.
6.12 In clearing the document from scrutiny, we expressed
the hope that, when the first evaluation is produced, we or our
successors will see clear evidence both as to the achievement
of the Lisbon goals in this area and of the CIP's contribution
thereto.[20]
The Commission Report
6.13 The report provides an overview of progress
on implementation of the three main financial instruments up to
31 December 2005.
SME GUARANTEE FACILITY (SMEG)
6.14 This provides loan guarantees to encourage banks
to make more debt finance available to SMEs. It has the largest
budget, accounting for 64.3% of MAP's overall expenditure. The
report praises the effectiveness of SMEG, highlighting its quantitative
impact in improving access to debt finance for European SMEs —
for example, by the end of 2005, there were 570,000 persons employed
in organisations that received loans, compared with 310,000 in
2004.
EUROPEAN TECHNOLOGY FUNDING START-UP FACILITY (ETF)
6.15 The ETF is to increase the availability of risk
capital to innovative SMEs, especially those in high technology
sectors, during their start-up and early development. By the end
of 2005 the ETF had committed €143.2 million, which represents
34.25% of the MAP budget committed by then. The report states
that the fund encountered difficulties in attracting the necessary
private capital investment, the downturn in stock exchanges in
2003-04 adding to this being the most risky market segment and
the need to secure at least 50% of capital from the private sector
to qualify.
SEED CAPITAL ACTION (SCA)
6.16 The SCA aims to stimulate the supply of capital
in order to create innovative new businesses with growth and job
potential. It is managed on behalf of the Community by the EIF,
and provides grants for the long-term recruitment of investment
managers by venture capital (VC) companies so as to reinforce
the VC industry in the "seed capital" area and to support
funds or incubators which include seed capital and early stage
VC funds. By the end of 2005, the SCA had committed €5.6
million, representing 1.3% of the MAP budget committed by then.
The report notes that the SCA has not been as successful as had
been hoped, with only three grant agreements signed; this, too,
is attributed to the difficult market conditions for raising VC.
6.17 The report concludes with an overall positive
appraisal of the impact of the financial instruments, especially
SMEG and ETF-Start Up. The report does not make clear what measures
of success have been used to reach this conclusion, but does draw
on evaluation from the Strategic Evaluation of the EC Financial
Assistance Schemes for SMEs (Deloitte & Touche, December
2003) which describes MAP's financial instruments as "effective
and efficient [in] increasing the supply of finance to SMEs throughout
the EU, including in those countries where national financial
instruments are less developed".
6.18 The report cites the management of the EIF as
an example of good practice and identifies it as a delivery model
for future EU SME financing. It also highlights the strength of
the "no one-size-fits-all" approach to administering
the financial instruments, and recognises that more flexibility
is required in the design of financial instruments in successor
programmes including a more innovative suite of financial products.
In addition, the report reiterates conclusions from the 2004 evaluation
report that the programme would have benefited from increasing
its visibility.
The Government's view
6.19 In her 11 June 2007 Explanatory Memorandum,
the Minister of State for Industry and the Regions (Margaret Hodge)
notes that the largest share of the budget for the CIP's three
financial instruments is dedicated to risk capital funding via
the High Growth and Innovative SME Facility. She says that this
is in line with the position the UK Government took during the
negotiations, namely that improving the supply of risk capital
across Europe should be a priority for the programme.
6.20 She also says that "one of the weaknesses
of the MAP was the lack of robust evaluation. During the negotiation
of the CIP, therefore, the UK secured text to ensure effective
monitoring and evaluation mechanisms were put in place for the
programme".
6.21 She concludes by noting that the Report is expected
to be discussed at a Competitiveness Council meeting during the
second half of 2007.
Conclusions
6.22 Even making allowance for the difficult
stock market conditions to which the report refers, it is striking
how little take-up and impact the MAP has apparently made, which
makes it difficult to have much confidence that the much larger
funds available under the CIP will prove to be justified. Our
hope is, of course, that the first CIP evaluation will be able
to tell a more hopeful story. In any event, we shall expect whatever
story is told to be based on what the Minister notes was lacking
from MAP — robust evaluation — and to demonstrate
that the "effective monitoring and evaluation mechanisms"
to which she refers have indeed been used.
6.23 We now clear the document.
17 The European Charter for Small Enterprises, adopted
at the Feira Council in June 2000, identified ten key policy areas
for SMEs (education and training for entrepreneurship; cheaper
and faster start-up; better legislation and regulation; availability
of skills; improving online access; more out of the single market;
taxation and financial matters; strengthen technological capacity;
successful e-business models and top-class small business support;
more effective representation of small enterprises' interests
at Union and national level). Member States report annually to
the Commission on progress in each of these areas. Back
18
The European Investment Fund (EIF) is the European Investment
Bank (EIB)'s specialist risk capital arm, with a specific remit
to support the creation, growth and development of Small and Medium-sized
Enterprises. Its tripartite shareholding includes the EIB, the
European Union represented by the European Commission, and a number
of European banks and financial institutions. It intervenes mainly
by means of risk capital and guarantee instruments, either drawn
from its own funds or within the framework of mandates entrusted
to it by the EIB or the European Union. Back
19
See headnote: (26177) 14940/04 (26223) 16026/04: HC 38-v (2004-05),
para 10 (26 January 2005). Back
20
See headnote. Back
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