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/European Economic and Social Committee
Brussels, 11 Mai 2016
14th China-EU Round Table18-19 Mai, 2016
Brussels, Belgium
Innovation and economic development in rural areas
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Rapporteur: Sir Graham Watson
Expert: Anne Pelisse Flour
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CES6484-2013_00_00_TRA_TCD …/…
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1. Summary and conclusions
1.1 Economic development in rural areas is a priority for the European Union (EU) to limit rural depopulation. Through strategic investment, the EU's Cohesion policy and the rural development policy focus support on the less developed European regions to boost economic development and improve quality of life.
1.2 The Member States commitment to identify the specific challenges of their regions, taking into account the major societal challenges faced by the EU (demographic change, environmental degradation, migration, economic and social consequences of the global financial crisis…) is crucial to address key territorial challenges, identify appropriate mechanisms and deliver Union priorities.
1.3 The number of jobs created and the growth in GDP underline the economic outcomes of the Cohesion policy in rural areas but there is a scope for further improvement towards more innovation policy and regulation, so as to tackle current societal challenges.
1.4 The Innovation Union initiative is the EU policy framework to ensure that good ideas reach the market. The EESC recognizes the economic benefit of innovation to stimulate growth and jobs throughout Europe, so as to respond to domestic demand as well as societal challenges.
1.5 The European Innovation Partnership tool and the Horizon 2020 work programme need to be fully implemented to maximize the impacts of the EU innovation policy.
1.6 The new priorities set to support innovation in the Cohesion policy, as well as the increase in the funding channeled shows the European willingness to further help territorial development. Continued assistance to innovative activities throughout Europe is essential, so as to enhance a more balanced and sustainable territorial development and continue to serve rural population economic, social and environmental needs.
1.7 Rural regeneration can only happen if underpinned by efficient policy support. Effort will be required between EU and Member States levels to ensure optimal coordination, synergies and complementarities of strategies to improve the long term effectiveness of the European policy agendas.
2. The importance of European Cohesion policy
2.1 Economic development is the central idea to economic advancement of a region. It is a broader concept than economic growth, as it includes social and economic progress.
2.2 In the 1986 Single European Act, the European Union set the objective to reduce disparities between the various regions and the backwardness of the least-favoured regions. This term describes an area in the European Union with natural handicaps (lack of water, climate, depopulation) or mountainous or hilly.
2.3 By introducing the concept of a more balanced and sustainable “territorial development” for regional policy, the 2007 Lisbon treaty promotes a cohesion policy based on economic, social and territorial dimensions.
2.4 The Cohesion Policy has been designed to strengthen the development of the European Union (EU) throughout the 27 member states and their 271 regions. Four Structural Funds and a Cohesion Fund are used to reduce disparities in development between the regions of the Union and the gaps in the standards of living for their inhabitants. All together the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agricultural Fund for Rural Development (EAFRD), the Financial Instrument for Fisheries Guidance (FIFG) and the Cohesion Fund constitute the European Structural and Investment Funds (ESIFs) 1.
2.5 The budget for the policy is discussed by the Council and the Parliament in the context of the multi-year financial framework, which defines the maximum annual amounts the EU may spend by priorities over a period of 7 years. The amounts available for cohesion policy at national level are set aside.
2.6 The European Structural and Investment Funds (ESIFs) are now the European Union's main investment policy tools to target regional development with a budget of EUR 454 billion for the 2014-20 programming period. Since 1994, this accounts for more than 41% of total planned EU spending.
2.7 For 2014-2020, EUR 351,8 billion were made available for cohesion policies measures within the 28 EU Member States, which is the policy that allocates funds through the ERDF, ESF and cohesion fund. It represents one third of the EU budget. The cohesion fund applied specifically to EU Member States which have a GDP lower than 90% of the EU-28 average, such as Greece, Portugal and eastern European countries. More than half of the budget – EUR 182,2 billion – has been set aside for countries and regions whose development is lagging behind.
2.8 The European common rural development policy is conceived in the Common Agriculture Policy (CAP), which is born 50 years ago in response to an unsecure food market. It was reformed many times and, since 2000 the CAP framework is divided in two pillars. Whereas the first one provides funding for farmers and establishes Market-support measures, the second pillar sets rural development measures. In response to the economic, environmental and territorial challenges facing the sector, the 2014-2020 policy promotes a more land-based approach rather than producer support. The purpose is to preserve the natural resources that agricultural productivity depends on.
2.9 The EAFRD finances the EU’s rural development policy and contributes to EUR 100 billion regional development, which accounts for some 20% of the Common Agriculture Policy (CAP)’s budget. In order to address the EU priorities, rural development programmes (RDP) are drawn up by each Member State and regions based on the needs of their territories. For the programming period 2014-2020, there are 118 different RDPs. Within the Rural development measures, payments are part-financed by the member countries.
2.10 Rural development measures aim at facilitating farm modernisation while encouraging diversification of activities in rural areas. As depopulation, ageing communities and poverty are of concern to these areas complementary measures were added in the last CAP reform to combat social inclusion and reduce poverty.
2.11 To promote the harmonious, balanced and sustainable development of its regions, the EU sets priorities for development. The cohesion policy framework is reviewed once every 7 years at EU level. The European Commission delegates the implementation of the policy to the Member States.
2.12 For the five ESI funds, each country presents their contribution to European strategy to the Commission. The Partnership Agreement signed between the European Commission and each national authority aims at validating the national strategic plans with investment priorities.
2.13 Besides, Member States outline the concrete action for each fund in a national Operational Programme divided into priority axes aligned with the EU funding’s objective. The justification for the Union support takes into account an ex-ante evaluation. That is to say a precise description of the current situation in the region (disparities, lags, …). It should ensure that the right preconditions are in place for the policy spending to achieve the stated objectives of the programme.
2.14 The Operational Programmes are then implemented, monitored and controlled, according to the priorities and targets agreed with the Commission by a ‘managing authority’ appointed by the Member State. Following the subsidiarity principle, they are responsible for providing information on the programme, selecting projects that will receive EU funding and managing the implementation.
2.15 An 'additionally principle' ensures that support from EU funds shall not replace public or equivalent structural national expenditure, but rather complement national, regional and local intervention. The European Commission fixes co-financing rates and the maximum amount of support from the funds. The EU intervention varies from 50% for the more developed regions to 85% for the less developed ones. Although the main principles governing eligibility of expenditure are established at European level, the rules are decided mostly at national level.
2.16 EU intervention is not limited to direct financial contributions; for instance financial instruments have been created to provide investment support through loans, guarantees or equity. There are incentives for private investors to engage in projects and offer the advantages of recycling funds over the long term. Although financial instruments represent only 5% of ERDF, their importance is expected to increase in the future.
2.17 The primary role of cohesion policy to promote economic development has been underlined and its impact and results are recognised. In the poorest EU regions income has rapidly increased. GDP per capita of the EU average grew by more than 2% from 2007 to 2010 and an estimated 940 000 new jobs were created. To illustrate the achievement of the policy, the Commission estimates that the direct investment aid received by 254 800 small and medium-sized enterprises (SMEs) created 323 000 jobs.
2.18 The CAP context indicators 2014-2020, which describe the situation of the rural development programmes, depicts a slight improvement in the employment rate. Indeed, during the period 2008-2013, although rural employment was lower than average, it followed the general downward trend and dropped from 64% in 2008 to 62% in 2011. Since then, it has shown an increase, to above 62,2%.
2.19 One can draw the conclusion that cohesion policy has strengthened the development of the European Union (EU) throughout the 27 member states and their 271 regions and has led to a reduction of territorial disparities. Through the cohesion policy, national authorities are able to use funds to shift domestic funding towards new and transformational policy development, which might otherwise struggle for funding.
3. Measuring the effect: two successful examples funded by ERDF and EAFRD
3.1 To provide examples of the achievement of the territorial development policy, two successful projects funded by ERDF and EAFRD have been chosen. One is from ERDF funding and one from EAFRD. Whereas ERDF focuses its investments on the poorest and most backward regions, EAFRD aims at strengthening the EU’s rural development policy in regions ineligible to receive regional development fund.
3.2 During 2000-2006, the European Commission participated in tackling spatial disparities in England by co-financing the Objective 1 fund. Objective 1 supports regions whose average per capita GDP is less than 75% of the European Union average. The EU Structural Funds provided EUR 498 million out of EUR 1181 million.
3.3 The Eden Project funded in 2000 illustrates the success of ERDF. The nature of the initiative is the birth of an indoor rainforest (for over 1000 different rainforest plant species) in a disused clay-mining pit in the county of Cornwall in England in the United Kingdom of Great Britain & Northern Ireland. Since the decline of mining, the area has been one of the poorest parts of Western Europe, so it is eligible for EU funding support under Objective 1[1].
3.4 In order to buy the site and design the place to welcome visitors, EUR 176 million has been invested. 35% has been funded by the ERFD (EUR 32 million of contribution) and the Southwest Regional Development Agency. As the structural funds are contingent on drawing other investments, the project called for private participation, such as Public Lottery funding and loans.
3.5 Since its first year, the project has welcomed over 1 million visitors per year, among them 50 000 school pupils. Today 650 employees and 300 volunteers are working on the site. The Eden Project's contribution to economic development now contributes EUR 1,3 billion to the local economy.
3.6 EAFRD measures are intended to support the diversification of farming and non-farming activities and enhance the vitality of rural communities. Depending on the needs and choice of the national authority, support is allocated to either the diversification of farmers into non-agricultural activities, the development of non-agricultural SMEs or the restoration of cultural and natural heritage of villages and landscapes. It is used to support a huge number of different types and scales of projects that create a wide variety of outcomes for EU citizens.
3.7 The development of an indoor golf activity was eligible under France's 2007-2014 rural development programme. Thus, the idea to offer new sport facilities (squash, badminton and indoor golf) to meet a demand from the people of the small town of Briançon in France was successfully selected in 2011. Besides national and private contributions, EUR 21 200 was received from EAFRD, which accounted for 35% of the total investment.
3.8 Market research showed that demand for indoor sporting activities was growing among the local population and tourists. As the indoor golf area is an innovative and unique activity in the region, part of the equipment could be supported by the EAFRD, e.g. a golf practice simulator.
3.9 Finally 25 jobs were created locally. In this case, the impact of the project proved its economic benefit. Indeed, this activity tackled health challenges by raising awareness of the need for a healthy lifestyle for the local community.
3.10 Through these two initiatives employment opportunities with special qualifications for the local market were created. Sustaining jobs creation and enhancing the adaptability of workers is an other approach to territorial development[2]. The European Commission and the Member States are committed to help Europeans through the European Social Fund (ESF) to enhance their lives by developing skills and improving access to employment.
3.11 It is critical to note that EU funds for these two initiatives, one in the UK and one in France, were deployed together with national resources to target market failures that constrained growth. Without EU support these investments would either not have taken place or not taken place within the same timeframes.
3.12 In both cases, new activities driven by creativity, flair and talent brought success. Taking an innovative approach allowed the entrepreneur to adapt the project in response to the local context. These two successful examples illustrate how a new idea or a method can be used to respond to people's evolving needs and expectations and thus support territorial development.
4. Innovation a driver of economic development in Europe
4.1 In 2010, the OECD[3] defined innovation as a key driver of economic challenge and welfare. All types of innovation can be expected to have a range of downstream socio-economic impacts and have a critical role to play in boosting economic development. According to the OECD, SMEs and entrepreneurship play key roles in developing new process and method. It is therefore a necessity for governments to set new policy approaches that promote innovation strategies. At stake is not simply the budget allocated to research and development but how new ideas overcome the barriers which might prevent them from reaching the market.