Economic Policy Review ISSN 1313 - 0544

EU SME Programs: A Quick Overview

Author: Krassen Stanchev / 26.01.2007
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European Union

Six years ago, in 2000 (at the meeting of the European Council in Fiera, near Milan) the EU leaders approved the European Charter for Small Enterprises. It calls the member states the Commission to support and encourage SME policies in ten key areas:

  1. Education and training for entrepreneurship,
  2. Cheaper and faster start-ups,
  3. Better legislation and regulation,
  4. Greater availability of skills,
  5. Improved on line access [to services and public registries/information],
  6. Improved benefit from the European single market,
  7. Taxation and financial support,
  8. Strengthening technological capacity,
  9. Access to successful e-business models and to top-class small business support,
  10. Stronger and more effective representation of SME interests at EU and national levels

EU accession countries (in 2002, at a conference in Slovenia) and the countries of the Western Balkans (in 2003, in Thessalonica) endorsed the Charter.

 

The Logic and Implementation

In principle, the areas 1, 4, 6, 8 and 9 might be provided for on a contractual and market basis. Most of the faster growing EU member states follow this approach. But the charter explicitly requires that countries follow set of policies related to SME's, and in this respect countries also differ from prevailing market to not-so-prevailing market based policies.

It is not quite clear what area 10 would mean on EU level, besides a SME Envoy, a set of directives and other not so binding regulations. On national level, as a rule, there is a government authority responsible to SME policy.

Areas 2, 3, 5 and 7 are very different from country to country.

Most of the countries have simplified business registries, some of them, like Germany in 2004, rather recently and some still have the registration with the courts. With exception of Hungary and Slovenia the business registration in all new member state and Romania is already an administrative procedure. Endorsement of the Charter did not lead simplified registration in none of the Balkan countries except Serbia and Montenegro but reforms are under way in Albania, Bosnia and Herzegovina, Bulgaria and Macedonia.

The regulation is a special case in point: according to some estimates, the cost to European forms of responding to EU and national administrative requirements amounts to 540 billion euros per year (3-4 % of GDP). [1] For many reasons but most due to the harmonization with the EU law, in new member states these costs are, perhaps, two times higher, as a share of GDP. (Specific research that corresponds to the OECD/SIMGA data is available for only few countries.) Some countries, like EU have adopted, like United Kingdom and to some extend Ireland, have endorse a practice of regular reviews of policies and regulations in pipeline and ex-post from the point of view of small enterprise. In some new member states, SME authorities or ministries of economy have such mandate. In not-yet member states, Bulgaria, Romania, Croatia and Turkey those authorities are rather mediators of EU programs than reviewers of policies on behalf of SME's

Taxation and financial support (area 7) are also very different. As a rule, taxes are low, close to Former Soviet Union nominal levels, in the new member state and much higher in the old Europe. In the new member states government expenditure are at the level of 35% of GDP, in older member state – at, roughly, 45% of GDP.

 

Financing SME's

EU financial support (meaning EU funds per se, not those of the individual member states) for SME's is difficult to identify. The problem is that it is dispersed in different programs and the issues require specific research. The program that is specifically designed to boost SME competitiveness is the so-called 6th Framework Program.

It will spend EURO 2.338 billion in 2006-2013, they will be distributed on a competitive basis; EURO 473 million for SME research and development. Other subsidies, agriculture and regional will also benefit SME [2] . Financial guaranties are channeled through different investment arms of the European Investment Bank (European Investment Fund - EIF, Venture Capital and Portfolio Guarantees). In 2002, as stated in the 2003 EIF report to the European Parliament, the total SME portfolio amounted to EURO 7 billion. The EIF 2004 -2006 EIF Operational Plan this level of financing will be roughly sustained. [3]

How effective is this financing? It is difficult to answer. Obviously, the funds available at far below the compliance costs to meet EU requirements.

On the other hand, the funds available for member state and non-member states are impossible to identify without a specialized research. And I doubt whether even a focused effort would be able the exact amount of tax-euros and the process of disbursement. In a contrast US taxpayers' support for SME's in the vicinity of EU is readily available on Internet, at: http://www.usaid.gov/policy/budget/cbj2006/ee/pdf/ The US President's Small Business Administration website has the current fiscal year report on its front-page of Internet. This is not the case in most of the EU countries.

 

Efficiency

The strength of EU SME programs is that they presuppose a set of macro conditions in terms of fiscal, trade and macro economic policies to be followed as well standards in the area of the rule of law, property rights and access to justice and it has the sets of instruments to impose those preconditions on accession countries. When countries join the Union these instruments are non applicable, the enforcement tools are more of a diplomatic nature but may also include limiting the access to EU funds.

Some of the weaknesses have been mentioned above. In terms of funding, it is rather difficult to obtain without cumbersome bureaucratic paperwork. The interviewed experts said that roughly 60% of the application time is filling forms, and only 40% is devoted to substance, to designing the project and services; under USAID and WB procurement rules the bulk of the time is spent on substance. This might be a subjective statement, but it is a dominant perception of everyone who has had experience with both types of donors.

The process of the European Union Commission programs (e.g. PHARE, TACIS, CARDS – a program for the so called Western Balkans) to establish the level of preparedness of governments to follow proper macro policy objectives is more complicated: it depends on the status of the country vis-a-vie the Union, on the accumulated knowledge by the research directorate of the Commission, and on the ability or the willingness of a government to fill a project fiche. In general, those programs and budget are scrutinized to a lesser extend than programs of individual donor countries, countries, belonging to programs/departments have never cooperated on concrete project basis, irrespectively the rationale and readiness of/for the cooperation. In terms of transparency, there is a room to desire more. Usually, there is a combined effect of two bureaucracies, on the member country and the EU. In December 2005, the EU Court of Auditors refused for an eleventh year in row to sign off the EU budget. [4]

 

 

 


[1] SIGMA (OECD), Improving policy instruments through impact assessment, Sigma paper No. 31, 17 May 2001, p. 40.

[2] In 2005, agriculture subsidies were EURO 49 billion and will remain roughly unchanged in the nest three years; 2005 regional funds were EURO 32 billion.

[3] For 2002 figures see: F.A.W Carpenter, European Parliament Hearing of the Budget Committee on the Financial Instruments for SMEs, European Parliament, 2003, p. 3; EIF Operational Plan is available at: www.eif.org .

[4] See comment in: Kevin P. Allen, Inaction in Action: the Court of Auditors, European Commissioners and the Problem of Financial Mismanagement, IME, Economic Policy Review, No 34, October-December 2005, available at: www.ime.bg.org/pr_en/index.html .