Memorandum from One NorthEast
I welcome the opportunity to submit evidence
to Sub-Committee B of the European Union Committee on the European
Commission Green Paper: Entrepreneurship in Europe. This submission
sets out a number of issues that are most pertinent to the North
East of England in the context of entrepreneurship and Europe.
I am sure that evidence from others, including the Department
of Trade and Industry, will have explained the national issues
One NorthEast is the Regional Development Agency
for the North East of England and is constituted as a non-departmental
public body. The Agency, which is charged under statute with raising
the economic performance of the region, covers the administrative
counties of County Durham and Northumberland, together with the
unitary authorities within Tyne and Wear and Tees Valley.
In keeping with the specific scope of the Sub-Committee's
inquiry, the comments below address issues around access to finance
and management and workforce skills. Also outlined are some of
the key additional factors constraining enterprise development
in the North East.
The region is developing a comprehensive range
of financial instruments available to SMEs within the Region.
Capital NorthEast, a joint public-private sector venture capital
fund, has proved a successful mechanism for providing important
growth capital to many North East businesses. It addresses the
"equity gap" faced by businesses in the region, ie the
reluctance of the private sector to invest in smaller scale ventures
because of the costs associated with an equity investment.
EU state aid regulations limit the maximum investment
that a joint public-private sector funded venture capital fund
such as Capital NorthEast can make in a small or medium-sized
enterprise. Within Objective 2 areas, which cover most of the
North East, this is currently
750,000 level is based upon old research which shows
that an equity gap exists in private sector provision at or below
this amount. The Agency's experience is that, in reality, the
equity gap is much higher than this, and may even be as high as
Similarly, the regulations surrounding state
aid to assist commercial research and development (R&D) impose
certain constraints that may hamper the Agency and other partners
to stimulate enterprise and innovation.
The introduction of a Research and Development
Block Exemption procedure will allow RDAs and other public bodies
to administer approved state aid to companies without the need
for a full notification process. This will enable more flexible
and responsive funding of innovation in SMEs. Currently, R&D
innovation funding is administered through the R&D Framework.
Projects submitted through this route can take up to 12 months
to receive approval.
In addition, the de minimis level for
state aid is somewhat restrictive standing as it does at
100,000 funding over three years for all public sector
funding. This could be raised substantially. The need to aggregate
all public sector funding within the de minimis is a significant
impediment to providing effective business support. It is impractical
for all SME owners to be fully aware of the source or full value
of assistance provided to them and this presents the risk of the
de minimis allocation being exceeded unintentionally.
Since 1999 the North East Investment Funds (NEIF)
1 and 2 have provided gap mezzanine finance to Regional SMEs.
An £18 million NEIF 3 is currently being developed with both
public (ERDF and Agency) and private sector funding.
In addition to Capital NorthEast and NEIF, a
number of additional schemes exist within the Region to encourage
entrepreneurship to address areas of particular need or market
failure. These include:
the North East Seed Capital FundUniversity
Community Loan Fund for the North
East (CLFNE)Community based entrepreneurs; and
Spirit of EnterpriseEntrepreneurs
One NorthEast has worked with universities and
businesses to put together a strategy comprising a Regional Science
and Industry Council covering key areas of scientific and engineering
excellence. These areas include Life Sciences, New and Renewable
Energy, Process Industries, Digital Media and Nanotechnology,
Photonics and Microsystems. The role of the Centres is to act
as intermediaries between the research base and markets to encourage
entrepreneurship in universities and SMEs. The Agency is working
with the European Commission to align Objective 2 funding with
the investment the Region is making in these areas of science
One NorthEast is working with partners to develop
a new exploitation company (NorthSTAR) which is charged with transferring
knowledge and technology from the research base. NorthSTAR will
provide commercial expertise, access to sources of finance (including
proof of concept funding), and access to potential customers,
and will therefore maximise the commercial value generated from
the regions technological assets.
The need for entrepreneurial skills development
is widely accepted, with a number of successful schemes and projects
in the NorthEast actively pursuing this objective. However, we
acknowledge the need to address low demand for management skills
development amongst the region's SME community.
One of our main challenges is ensuring that
the region's universities are able to address these issues. It
is often not possible to embed this provision within the mainstream
curriculum, and this can result in "stop-start provision",
which has a negative effect on the perceptions of enterprise/entrepreneurship
in students. There are many programmes which encourage university
graduates to consider working within SMEs (such as TCS) but this
is highly subsidised and currently excludes those graduates with
non-vocational degrees. Finding innovative ways of embedding enterprising
behaviour in the SME base through the utilisation of graduates
The region is giving more consideration to enabling
business support agencies to help entrepreneurs identify specific
needs and use ICT to find the most appropriate programmes of learning,
as these can often be daunting for any SME owner or manager.
Another key target group for enterprise skills
development are our teachers, who need the skills to deliver the
curriculum in a more innovative way. Very few teachers and lecturers
have received this type of training, which has resulted in a lack
of understanding of the benefits enterprise education can bring.
The North East of England is challenged by some
of the lowest levels of business creation in the country. European
Regional Development Funds ERDF has been a crucial element in
beginning to address these disparities and opportunities remain
to increase ERDF effectiveness.
The ability to utilise EU monies on a wider
range of pre-start business activity would be particularly useful.
Many potential entrepreneurs in the region lack the resources
to test their business opportunity and would benefit from early
stage counselling and support. The Green Paper identifies the
need to invest in developing an entrepreneurial culture. This
investment is crucial if we are to begin to make long-term changes
in the North East's levels of business creation and entrepreneurship.
It must be accepted that these investments are for the long-term
and that their full impact will not be felt for many years.
Continued support for activity to share best
practice in enterprise support activities between EU member states
is most welcome. Each region faces its own challenges but the
mechanisms to address these are often similar. Transnational programmes
are a fundamental element of sharing best practice and expertise.
15 April 2003