Working Group 4: Financing regional development in an efficient and effective way

Implementing Regional Development Policies:What are the key factors for success?

Moderator: Dr Peter Heil Panellists: Dr Piotr Żuber, Daniel Braun

Introduction (1)

• How can suitable funding mechanisms for RD be designed? What are typical constraints for funding RD?

• What mechanisms can ensure / promote the sustainability of investments over the longer term?

• How can different funding sources/modalities be pooled in order to reduce transaction costs?

• How can the private sector be best attracted to regional development and what role, if any, is there for innovative financial instruments (e.g. financial engineering)?

Guiding Questions:

Agenda

• Introduction– Overview of funding sources

• Q1 – Funding mechanisms– Policies, programmes, projects– Financing implementation

• Q2 – Sustainability – impact and resource effectiveness• Q3 – Pooling of resources• Q4 – Attracting the private sector

Regional overview

Introduction (2)

• EU member states– Cohesion policy funding of 4% (2.35%) of GDP;– Up to 90-95% of public investments EU co-financed;– Policy and methodological framework of cohesion policy

dominant.• Non-EU countries

– Foreign grants vs. national investment funds;– Soft loans for budget refinancing, as well as project loans;– Overall: much lower budgets, different rules, funds not integrated.

Funding sources

Introduction (3)

• “3 Stages of fund co-ordination” (Sida, SR, 2013)– Donor-driven co-ordination;– Aid co-ordination by beneficiary government;– Development co-ordination.

• Paris Declaration on effectiveness– Ownership and effective leadership by partner countries;– Alignment of donor management systems with beneficiary’s;– Harmonisation of donor actions;– Managing for Results;– Mutual accountability.

Funding sources

AL BiH CR MK IL KS ME SR TR MB0

100

200

300

400

500

600

700

800

900

1000

94.5 107.8156.1

101.8

12

68.835

202

860.2

176.2

IPA funds 2007-2013 (M EUR)

2007 2008 2009 2010 2011 2012 2013

Armenia Azerbaijan Belarus Georgia Moldova Ukraine0

100

200

300

400

500

600

98.4 92

20

120.4

209.7

494

157.3

122.5

0

180.3

273.1

470.1

ENPI financial allocations 2007-2013, M EUR

2007-2010 2011-2013

AL BiH KS MK ME SR TR0

200

400

600

800

1000

1200

115.07174.8

277.96

73.9135.59

187.2

361.28

Country Programmable Aid (CPA) inflow to IPA countriesUSD Million

2005 2006 2007 2008 2009 2010 2011 2012

Belarus Armenia Azerbaijan Georgia Moldova Ukraine0

100

200

300

400

500

600

49.31

99.07

235.99

330.15

113.59

314.77

Programmable Aid (CPA) inflow to ENPI countriesmillion USD

2005 2006 2007 2008 2009 2010 2011 2012

Introduction (4)

• Albania – NSDI• Serbia – Aid Effectiveness Agenda

– To improve the planning and prioritisation process;– To align better international assistance with national programmes;– To adopt a sector approach in the management and coordination

of international assistance;– To monitor the performance of international assistance;– To improve the predictability of sector financing.

• IPA 2 – Sector Approach and Sector Budget Support Modality

Examples

Introduction (5)

• What national funding sources are available in your country to finance regional development?

• What is the quantity and significance of international (IFI) loans, and for what purposes are they being used?

• How do you see the integration of national and international resources for development? How has that relationship developed over time?

• How are development resources distributed between different levels of government?

Funding Sources - Debate

Guiding Question 1

How can suitable funding mechanisms for RD be designed? What are typical constraints for funding RD?

Suitable funding mechanisms (1)

• Coherent policies – coherent methodologies• Programmes – use of a specific set of resources

– Concentration of resources;– Definition of measures and projects;– Targets, milestones;– Institutions and management systems.

• Multi-annual programme cycle• Importance of partnership• Management and project preparation costs to be included

Policies – programmes - projects

Suitable funding mechanisms (2)

• Importance of legal framework of beneficiary country– Project preparation;– Public procurement;– Licensing and permitting.

• Same basic measures under all instruments…– Single projects; – Grant schemes;– Regional groups of projects;– Financial instruments (on the rise in cohesion policy).

Efficient allocation and administration

Suitable funding mechanisms (3)

• What are the main programming tools at national, sectoral and regional level in your country?

• Is there are coherent (multi-annual) programme approach in operation? Are there mechanisms for multi-annual budget planning and execution in use? Do these function properly?

• Who is responsible for the preparation of different types (levels) of plans?

• What are the main funding tools used by the different development instruments and programmes? What is their size (significance), and the practical experience with them?

Questions to debate

Guiding Question 2

What are mechanisms that ensure / promote (impact and) sustainability of investments over the longer term?

Impact and sustainability (1)

• Consistent hierarchies of objectives– SWOTs, Logframes;– Cohesion Policy: Compulsory thematic objectives & concentration.

• Performance frameworks– SMART indicators;– Arrangements for regular monitoring, feedback and evaluations;– Conditionalities

• Cohesion policy: ex-ante & ex-post but is “impact” measureable?• IPA SBS: financing based on results.

• Project preparation – Lack of funds vs. absorption problems;– Fiscal decentralisation and local authorities.

Programme design

Impact and sustainability (2)

• How efficient are the regional development instruments in your country? Is the cost of operating allocation mechanisms felt to be acceptable? What is the experience with red tape?

• Do regional development programmes and instruments deliver value for money?

• Are there major problems with sustainability? Is the contribution of users calculated realistically? Are user charges collected effectively and to the full?

• What are the typical problems faced during the implementation phase? (e.g. public procurement, land ownership, licences and permits, etc.) How are these managed?

Questions to debate

Guiding Question 3

How can different funding sources/modalities be pooled in order to reduce transaction costs?

Pooling resources (1)

• Place-based approached emphasised– Diversity as a source of strength;– Exploiting endogenous development potentials;– Partnership and multi-level governance.

• Still: EU 2020 an overwhelmingly sectoral concept?

• New tools for territorially conceived measures– Integrated territorial investments (e.g. URBAN);– Community-led local development (LEADER).

Cohesion policy reform debate, 2009-

Pooling resources (2)

• Lead objective– infrastructure projects with mainly public objectives – “flagship

initiatives” for connected projects of private enterprises;– Human resource development projects, trainings;– Regional marketing actions;– Competitive grant schemes, supporting small projects of

enterprises or NGOs, connected to the lead objective• Usually decentralised management

– Development agencies;– Local development partnerships and project companies;– Question of devolution of administration and fiscal resources.

Structure of territorial investments

Pooling resources (3)

• Does your country use integrated territorial instruments?• How is the participation of local players ensured?• Are any planning and implementation tasks decentralised to

regional or local players?• What is your experience with a place-based approach in both

urban and rural areas?• What are the typical problems faced during the

implementation of local projects? How are these managed?

Questions to debate

Guiding Question 4

How can the private sector be best attracted to regional development and what role, if any, is there for innovative financial instruments (e.g. financial engineering)?

Private sector participation (1)

• Strict state aid rules on the single market

• Grant-based support is going out of fashioin

• New “innovative financial instruments” in cohesion policy– JASPERS - Infrastructure project advice for new EU members– JESSICA - Urban development technical assistance– JEREMIE - Flexible SME funding– JASMINE - Microfinance technical assistance

Enterprise support

Private sector participation (2)

• Guarantees, co-guarantees and counter-guarantees;• Equity guarantees;• Micro-loans;• Export credit insurance;• Securitisation;• Venture capital;• Business angel matching funds; and• Investment in technology transfer funds.

JEREMIE

Private sector participation (3)

Private sector participation (4)

• Often expensive way to finance projects;• Real economic advantage needed

– Private sector to take some real risk;– More efficient management of new assets created.

• Substantial knowledge / expertise needed;• Good and bad examples…

Public-Private partnerships

Private sector participation (5)

• In your country: are state-funded regional development programmes able to leverage substantial private funding?

• In what programmes / sectors / regions is private co-financing most significant?

• What are the financing mechanisms in which the private sector is participating?

• What is the experience with (and attitude towards) Public-Private Partnerships?

• How are programme / project budgets typically shared between stakeholders?

Questions to debate

Thank you for your kind attention!

Peter Heil, PhDDevelopment policy expertALTUS, HUNGARY (for GIZ)heil@altus.hu

www.cord2014.md