Domenico Mastrogivanni, Euromontana“Supporting economic activities in mountain areas, the new EU rules for state aids”Bologna University – 15.11.2011

Revision of regional aid guidelines:

State of the art and recommendations for

Mountain Areas

Foreword…

• This analysis and the positions presented are based for an important part on a common work realised in close partnership with: – AEM - Association of Elected representatives of

Mountain areas– CPMR, Islands Commission - Conference of

Peripheral and Maritime Regions– INSULEUR - European Network of Islands Chambers

of Commerce and Industry– ESIN - European Small Islands Association

What is Euromontana?

• European multisectoral association for cooperation and development of mountain areas (since 1996)

• Around 70 members from 15 countries

• Comprising :– regional development

agencies, – regional authorities, – chambers of commerce and

industry– agriculture organisations, – environmental organisations, – research organisations…

Map: NordRegio, 2004

Euromontana in ItalyMembers in 2011

• Provincia Autonoma di Trento• Confederazione Italiana Agricoli• Provincia di Torino• Südtiroler Bauernbund - Bolzano• ERSAF - Ente Regionale per i Servizi

all’Agricoltura e alle Foreste (Lombardia)

• Provincia dell' Aquila• Provincia di Bergamo• Provincia di Sondrio• Regione Molise

Our vision of European mountains

• Our mountains are territories with a future and opportunities for Europe

• Mountain areas are distinctive areas of Europe which need to be addressed specifically

• We call for private and public investment in these areas. The return on investments might be longer but will be more sustainable.

Our approach

• Montain areas have a potential to deliver the EU2020 strategy: – Smart growth specific innovation potential due to

their permanent confrontation with specific constraints,– Green growth high potential for green economy– Inclusive growth community strength, quality of

life

• They are facing specific constraints and need adequate policies to develop their potential articles 170/174/175 of EU treaty have to be taken into account in the UE policies

Treaty Functioning EU

• Article 174: "In order to promote its overall harmonious development, the Union shall develop and pursue its actions leading to the strengthening of its economic, social and territorial cohesion. In particular, the Union shall aim at reducing disparities between the levels of development of the various regions and the backwardness of the least favoured regions. Among the regions concerned, particular attention shall be paid to rural areas, areas affected by industrial transition, and regions which suffer from severe and permanent natural or demographic handicaps such as the northernmost regions with very low population density and island, cross-border and mountain regions.“

• Article 175 (ex Article 159 TEC) : Member States shall conduct their economic policies and shall coordinate them in such a way as, in addition, to attain the objectives set out in Article 174. The formulation and implementation of the Union’s policies and actions and the implementation of the internal market shall take into account the objectives set out in Article 174 and shall contribute to their achievement.

What type of support is needed to overcome constraints?

ConstraintsSupport envisaged to overcome constraints

RemotenessLimited or poor accessibility Isolation from markets

Improve accessibility (investment).Reduce dependency on imports by promoting local production (subsidies).

Higher cost of infrastructure and services lower profitability, impossibility of some activities

Proportional support covering overcost (investment and operating)

Limited human resources and capital Risk of falling below « critical mass »

Maintain settlements; support training, education;Social security support

Environmental vulnerability Constraints on economic activities

Investment in technologies allowing better use of existing resources

Heavy reliance upon monoindustry, limited industries or traditional sectors, seasonal economy

Diversification of activities (investment and operating)

Lack of economies of scaleSmall size of proximity market

Support to small scale supply chainsDevelopment of « niche » marketsSupport local processing activities enabling higher value exports (investment and operating)

What can policy support to this territories deliver?

PotentialAdequate policy support can deliver

Reservoir of natural resources, high potential for green economy

Green growth in energy, life sciences, clean industry, sustainable wood etc…Preventing resource degradation

Innovation potential inspired by response to constraints

Inclusive growth via social innovation, new forms of service delivery

Rich heritage (material and immaterial): buildings, know-how, food, culture, landscapes

Maintaining and increasing tourism potential of Europe, innovative sustainable tourism

Quality of lifeInclusive and sustainable growth by better distribution of population on territory, avoiding congestion

Quality products and servicesDiversity of European products, potential for exports, quality diet for European citizens

Modern governanceInnovative models of territorial organisation as source of inspiration for other territories

The specific situation of markets in mountain areas

• Small scale markets and limited impact on EU single market

• Higher costs structural lower profitability

• More sensitive to local monopols for supply (energy, raw material, telecom…) and sales distorted markets

• R&D can be limited due to sparsity of businesses and difficulty of clustering, or kick-start businesses

Current status of specific territories in Regional Aid Guidelines• Regional Aid are granted according to TFEU – article 107:

– 3.a: “aid to promote the economic development of areas where the standard of living is abnormally low or where there is serious underemployment”

– 3.b: “aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent contrary to the common interest”

• For all the regions: – Eligible under 3.a. if GDP<75% EU average (NUTS2/3)– Eligible under 3.c. If GDP<EU average or unemployment>115% national

average

• For mountain areas mountain areas:– Mentionned under article 3.c as isolated areas (footnote) but no systematic

approach– Mountains with GDP<EU average or unemployment>115% national average

• But not only Regional Aid Guidelines need to be addressed…

Does it work? Is it sufficient? Lessons learned from case studies

• Most support granted under General Block Exemption Regulation or de minimis…

• Positive: Some support has been possible when areas have been characterised as 3.c.:– Haut-Jura: support to building investment + access to capital– Highlands and islands: some support to companies

• Requiring improvements– Mapping/statistical indicators available at NUTSII or III areas: inhibits

identification of SPA or areas with economic difficulties within regions (eg. Val d’Aoste)

– Difficulties in supporting deprived rural areas (eg. Rural Revitalisation Areas, social aid)

– Difficulties in supporting strategic portions of food supply chains above de minimis (eg. Bolzano)

– Obstacles to local valorisation of own resources (eg. Access to local energy at preferential rates)

– Difficulties in support to SMEs and innovation in Scottish Highlands and islands:• cumbersome management of state aid due to too many different types• Insufficient incentive related to the 20% maximum for large companies

(food or other natural resource processing

Conclusions

• Current rules do provide for some flexibility:– Positive examples to secure in the future evolution is in

the right direction

• Flexibility is not always used to its full extent: – Low understanding of the process (very technical, more

pedagogy needed)– Unavailability of statistical data at proper disaggregation

level to make the case for intervention (especially for 3.c)– Distorted interpretation of rules from national authorities– Competition for aid ceiling with other territories different

situations call for differentiated responses– Unfavourable mapping of eligible areas– Lack of financial resources

• De minimis ceiling can be too low to allocate the right type of aid to enable territories to exploit fully their opportunities (example: supply chains…)

Suggestions• Provide a broad enough framework to operate flexibility:

– E.g. : article 3.c. applies automatically to sparsely populated areas

– Should be extended or improved for other categories– Limited financial resources limited risk!

• Higher de minimis ceilings for our territories, differentiated from « non-174 » territories

• Specific provisions for some types of sectoral activities (small-scale supply chains, energy, services, transport…) that are essential to development, ouside of 3.c. ceiling

• Compensation calculation and « sound management » evaluated using companies in similar areas as a yardstick

Implementation of these specific provisions for all territories or based on categorisation for a progressive approach

Fostering innovation• Innovation in our territories is not necessarily specific…

assembling the conditions to enable innovation is often the bottleneck (services, communication, transport enabling clustering and connection to distant markets)

• To exploit the innovation potential of our territories, need to support specific R&D&I firms in our territories: – Take into account the specific size of R&D&I firms in specific

territories: small, fitted to local strengths (eg. Energy, life sciences…)

– Assistance required = mixture of R&D&I costs and employment costs (Regional aid) eligibility challenge

• Proposal: extend aid for « young innovative enterprises » from R&D&I guidelines as a legitimate regional aid for a wider range of size and age of firms

Detailed suggestions

• Authorize for mountains, in state aid rules, a functional approach of development at massif level:– Consider state aid as one component of massif policy to deliver EU2020, in

coherence with operational programmes (ERDF, EAFRD, ESF…)– Explicit delineation of 3.c areas based on entities that could differ from

administrative NUTS2/3 areas, and would target eligible territories within mountain massifs in coherence with massif strategy (take into account infra-regional disparities)

• Include specific provisions for some sectors of strategic importance for valorisation of mountain potential: – Energy: retention of existing facilities & development– Better recognition of Services of general interest (transport, ICT, health…),

enable support to innovative forms of delivery– Territorial/relocalised food and wood supply chains: operating aid– Support to innovation & clustering for VSEs and SMEs

Integrated approach to delivering public goods and innovation

EUROMONTANAEuropean association of mountain areas

info@euromontana.orgwww.euromontana.orgT: +32 2 280 42 83F: +32 2 280 42 85

Thank you for your attention!