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EU FUNDS - A KNOWLEDGE-BASED ECONOMY SHOULD BE THE PRIORITY FOR THE NEXT PERIOD

Funds give the feel of a real Europe

EU FUNDS have given Slovak regions and municipalities the experience of being part of a united Europe. The EU funds have helped to solve concrete day-to-day problems such as putting a new roof for a school or adding a sewage system for a village.

Fedora Spišková.
photo: Courtesy of Castor &Pollux Group

EU FUNDS have given Slovak regions and municipalities the experience of being part of a united Europe. The EU funds have helped to solve concrete day-to-day problems such as putting a new roof for a school or adding a sewage system for a village.

At the beginning of the system poorly designed projects and a lack of transparency in the way grants were awarded created major problems. There have been many improvements in the system but new measures are still needed.

The Slovak Spectator spoke to two experts in the field, Viliam Karas, partner of ULC Carnogursky whose company provides legal services and consultancy to entities seeking EU grants, and Fedora Spišková, senior at consultant of Castor & Pollux Group, a consulting firm, dealing with EU grants.


The Slovak Spectator (TSS): What developments during the past four years do you regard as the most important in the area of EU funds, whether in a positive or negative sense?

Viliam Karas (VK):The most positive fact is that information about the existence of European funds and possibilities for their utilization become widely known. Even mayors in the smallest towns now know that many problems can be solved with the help of EU funds, while the thought of a united Europe is transformed from an abstract, ephemeral form into a tangible reality. In addition, the realization that we can influence matters through our own effort and we needn't humbly wait for decisions from politicians reinforces our trust in the principles of democracy.

On the other hand, Slovaks retain their "growling tendencies" and they are constantly surprised that if some donor wants to utilize finances for certain purposes, it expects fulfilment of the defined rules of game, including fulfilment of qualitative criteria of project preparation, its monitoring, control, etc. Accordingly, instead of cursing at the complexity of the system, it would be better to start from the fact that it is not purposeless and take it as a call for improvement which can help us to achieve results in many other areas. Inter alia (among other things) this is also a call for collaboration with the private sector without which it will not be possible to create a real and functioning "partnership" for actual problem-solving in regions on all levels.


Fedora Spišková (FS): A significant amount of money was allocated to Slovakia from several European Union funds during 2002-2006. The financial resources came predominantly from the pre-accession funds of PHARE, SAPARD, ISPA as well as the Structural and Cohesion Funds.

About 93.2 percent of the financial resources from the pre-accession programme PHARE are already contracted. The money went mainly to the state sector (Central Financial and Contract Unit acted as an implementing agency), public sector (Agency for Regional Development) and private sector (National Agency for Small and Medium Enterprises). The programme has fulfilled its purpose in various levels - the agencies as well as applicants enhanced their knowledge and the main goals of the programme were fulfilled. Majority of these projects were of smaller size and administratively less demanding and as such it was good training for all the parties involved. However, delays in fulfilling the programme and announcing the calls for proposals were the drawbacks. As a result, it was not always a reliable tool in the planning process for the private business sphere.

An amount of Sk44,786 billion (calculated by an exchange rate of 38 SKK/EUR) represents the total financial EU commitment stemming from of all the programme documents of Structural Funds for the programming period of 2004 - 2006. This year the last calls will be announced in the area of human resources.

The experience with EU funds has brought Slovakia many positive aspects especially significant financial support with minimal contributions on the part of the applicant as well as greater expertise in the public and private spheres.

Thanks to EU funds, even underfed regions are getting a chance to prosper.
photo: TASR

However, we cannot forget about the role of the adopted reforms in the tax and pension areas, labour market and public administration. Politically positive impacts of Slovakia's entry into EU, NATO, OECD along with the economic policy aimed at the economic growth multiplied the effect of drawing EU funds.

In general, we think that individual ministries, sectors and mediating bodies are unevenly prepared in providing services to applicants, potential recipients of EU funds. Despite trainings and experience with the pre-accession funds, the employees of these organisations have sometimes been unable to provide relevant information for the applicant. It is our impression that some communications lines between managing and implementing bodies are dysfunctional, calls for proposals are not always summarised in a public timetable and decisions approved by managing bodies are not always followed. We consider this as one of the reasons of unbalanced drawing of financial resources.

It is also clear that a high turnover of executive employees in the implementing bodies slows down the logistics of the whole programme management.


TSS: If you could advise the next government on policy in the EU funds and the regional development sector, or on legislation that needs to be passed or amended, what would you say?

VK: It is necessary to coordinate the regulations, directions, manuals, and relevant explanation of provisions in accordance with the adopted legislation aimed at implementing the structural funds and simplification of complicated administrative barriers which we are more strongly established here than in older member states.


FS: There were discussions about the next programming period. Based on the National Strategic and Reference Frame for 2007 - 2013 the period should be mainly directed toward the knowledge-based economy and infrastructure. However, the final statement will be given by the EC and the new Slovak government.

In the next period there will also be changes in the EU structural policy: taking out European Agricultural Guarantee and Guidance Fund and Financial Instrument for Fisheries Guidance from structural tools, adding managing bodies and different non-refundable financial contributions for individual regions.

Another difference from the previous programming period is that the private business sector will be eliminated as applicants in the next programming period. This was deemed necessary because the support of the private sphere is considered an interference with the competitive business environment. However, we oppose this opinion because the applicants of the business sector enter the EU calls under the conditions exactly defined in advance with the aim to obtain a nonrepayable contribution. On the other hand, it is true that a financial situation of a successful applicant from a private sector will make him more acceptable for, for example, a bank providing loans.

The new government and its managing bodies should stress that transparency and punctuality in the programme and implementation process, decreasing the employee turnover in implementing bodies so that the financial resources invested in the training are used mainly in these bodies.


TSS: In the initial stages Slovak organizations and communities had difficulty preparing high quality projects and applications for EU funds. What is the situation today?

VK: Many issues that we want to solve via structural funds are very ambitious. Hence, it is only logical that their fastidiousness must also be reflected in the preparation for a qualitative, comprehensible and controllable project. How else should we demonstrate our ability to carry out a project if we are unable to describe it logically? Consequently, a qualitative project is and must be an inevitable principle.

In this area the situation has improved, even though it is still far from ideal. Long years of utilization of pre-accession assistance gave solid foundation for many applicants.


FS: As we have indicated above, knowledge of project preparation according to exactly defined rules is a side-benefit of using EU funds. The intensity of EU fund drawing in individual sectors clearly shows the experience of applicants: while the private business sectors of industry and tourism were able to submit their proposals correctly in the first announced calls and draw the financial allocation in the beginning of the programming period, the project quality of the public sector and non-governmental organisations (NGOs) was not sufficient.

Toward the end of the programming period the project quality and the preparedness of applicants has improved. They have a better knowledge of structural tools and are able to better plan their activities.

However, we still have the feeling that red tape often overwhelms the actual purposes of the projects. We have the impression that administrative processes are often considered more important than the actual goals of EU help, ie. the use of structural funds for the right purposes.


TSS: What are the most important tools that the government should use to narrow the gap separating the underfed East from the wealthy West?

VK: We believe that the government is composed of qualified experts with a strong team of advisors who are, definitely able to answer this.


FS: Correct and exact definition of entitled applicants and activities would be an effective tool in fulfilling the EU structural goals in Slovakia.

Suitable infrastructure that would connect eastern parts of Slovakia with the European infrastructure is a basic prerequisite. The quality of domestic and regional transportation corridors and networks directly impact the development of economic activities in a country. Although Slovakia has a relatively dense road network, the network of 1st class roads and highways is not sufficient. The railway transportation has not been modernised often enough. We should also improve public passenger transportation including municipal passenger transportation.

The education system and opportunities for graduates to find employment in their regions is another area that would ease disparities between eastern and western Slovakia. Accomplishing education reform should be a priority for the new cabinet programme.


TSS: One of the governmental tools to direct investments into less developed areas is a new set of rules that will grant stimuli to investors for putting money in these sectors. Is this tool effective? Have you noticed any progress in this area?

VK: We believe so. If there are comparable conditions for new investment in the region with excellent transport connections and qualified work force, why would an investor consider a different location? If we want to attract him to the region where his investment might lead to further development, then we should motivate him in that direction. Conscious government policy definitely plays an important role. Statistical reports of gradual placements of direct investments in Slovakia speak for themselves.


FS: Accessibility to transportation, the size of a territory that is served and the quality of the local labour force are crucial when placing foreign direct investments into production and services. This leads to a situation where placement of foreign direct investments is even more unbalanced. Additionally, an important part of the investments are placed without state assistance.

Regarding the amendment of current rules for providing state assistance to foreign but also domestic investors would be needed. In order to gradually eliminate the problem of high unemployment, the current model defines a direct connection between the categories of regions and the level of the possible state assistance. This model applies only to foreign investments.

Based on the current incentive rules Slovakia is divided into three zones. The level of the state assistance depends on the future location of an investment and on the type of the investor's activities. The rules define thresholds of state assistance in relation to the overall costs. Investments with the highest added value should obtain the highest level of the state assistance - for example, research and technological centres; while the manufacturing industry should get the lowest assistance.

Currently, state incentives per one created job represent approximately Sk1.5 million (€40,000). The concentration of foreign investments is geographically differentiated - that is why the system of the state assistance emphasizes the geographical factor. While in 2001 about 24 percent of FDI into industry went to eastern Slovakia, at the end of 2004 it was only 11 percent.

Slovak Investment and Trade Development Agency (SARIO) plays a major role in attracting investors. The existing management model of this agency is to a large extent subjected to the momentary mood of its founder, the Economy Ministry.

The agency needs continuity in its activities and should separate the activities from politics to as large extent as possible - a participation of the private and public sectors in SARIO's management could help here.

Dependency on the ministry along with the agency's high employee turnover represents a barrier which leads to negative impressions of clients - potential investors.


Viliam Karas.
photo: Courtesy of ULC Carnogursky

TSS: Which areas of Slovakia economy should absorb more EU funds? What are the areas in which Slovakia has not used EU funds effectively?

VK: One should not forget that Structural Funds represent the money of EU tax-payers. From the moment of the EU accession, Slovakia has also been contributing to their increase. Even though our contribution cannot be compared to the amount paid by the biggest economies of former 15 members, it would be a mistake to miss the opportunity of using these funds in any possible area.


FS: Drawing of financial resources in individual programmes was not balanced. The reasons were, for example, incorrectly defined target groups, unsatisfactory work by managing and implementing bodies and in some cases the cooperation with the target groups started too late.

The estimate of the current state of the drawing of resources stands at 87 percent in average (as of June 30, 2006). It is expected that involved parties will try hard at the last moment to reach the level of the drawing at 100 percent.

In the next programming period large emphasis will be given to the knowledge-based economy which means the Education Ministry and Ministry of Labour, Social Affairs and Family will be implementing bodies. We thus believe that the relevant departments must be strengthened in short period of time.


TSS: There have been some doubts about the transparency in the distribution of EU funds. Is there any improvement in this area? Do you consider this system transparent enough?

VK: We believe that clear definitions of project funding together with the precise formulations of required implementation procedures will significantly eliminate "the corruption space" presently created by the possibility of dual interpretations.

Focus should be put on compliance with specific and measurable indicators and objectives of the programme. Subjective influences should be minimized. This will lead to higher transparency of structural funds distribution.


FS: The draft of the National Strategic Reference Frame for 2007 - 2013 considers transferring managing powers to regional bodies to some limited extent. The regional bodies will thus have to create specialised departments that will evaluate projects and allocate the financial resources to recipients.

The new government plans to incorporate significant changes in the National Strategic Reference Frame (NSRF) and wants to extend the powers of the regional administration bodies to a larger extent and change the priorities suggested by the current NSRF. This basically concerns the whole Slovakia apart from Bratislava region because the structural assistance is aimed only at regions with GDP lower than 75 percent of average GDP in the EU.

Slovakia is a small country still stigmatized by cronyism. A developed culture of behaviour and acceptable level of professionalism are sometimes still absent. There is a risk of an information leakage from managing bodies in the process of preparating the calls for proposals.

A human factor is inevitable in the process of evaluating applications, however, it is a highly subjective matter especially when evaluating the immeasureable impacts of projects. It is thus another weak point in the transparency of the evaluation process that neither the names of the members of the evaluation committee nor the report itself are made public even after the evaluation is completed. Making public the documents and procedures used for the selection of committee members could be a possible solution. Final evaluation reports should also be subjected to public control. Currently, it is only the final list of applicants that receive the grants and the amounts of grants are revealed

We think that the proposed method of the allocation of funds will not be transparent enough. Extended powers of regional administration bodies can have a negative impact at the transparency of the evaluation process. A selection of committee members from different regions could be a solution.


Monika Hanzelová,
Dana Šimová,
and Valéria Kubalová
contributed to answers
of ULC Carnogursky

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