1. 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

2. 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:

3. 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

4. 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

5. 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

6. 0
100
200
300
400
500
600
700
800
900
1000
AL BiH CR MK IL KS ME SR TR MB
94.5 107.8
156.1
101.8
12
68.8
35
202
860.2
176.2
IPA funds
2007-2013 (M EUR)
2007 2008 2009 2010 2011 2012 2013

7. 98.4 92
20
120.4
209.7
494
157.3
122.5
0
180.3
273.1
470.1
0
100
200
300
400
500
600
Armenia Azerbaijan Belarus Georgia Moldova Ukraine
ENPI financial allocations
2007-2013, M EUR
2007-2010 2011-2013

8. 115.07
174.8
277.96
73.91
35.59
187.2
361.28
0
200
400
600
800
1000
1200
AL BiH KS MK ME SR TR
Country Programmable Aid (CPA) inflow to IPA countries
USD Million
2005 2006 2007 2008 2009 2010 2011 2012

9. 49.31
99.07
235.99
330.15
113.59
314.77
0
100
200
300
400
500
600
Belarus Armenia Azerbaijan Georgia Moldova Ukraine
Programmable Aid (CPA) inflow to ENPI countries
million USD
2005 2006 2007 2008 2009 2010 2011 2012

10. 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

11. 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

12. Guiding Question 1
How can suitable funding
mechanisms for RD be designed?
What are typical constraints for
funding RD?

13. 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

14. 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

15. 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

16. Guiding Question 2
What are mechanisms that ensure /
promote (impact and) sustainability
of investments over the longer
term?

17. 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

18. 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

19. Guiding Question 3
How can different funding
sources/modalities be pooled in
order to reduce transaction costs?

20. 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-

21. 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

22. 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

23. 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)?

24. 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

25. 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

26. Private sector participation (3)

27. 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

28. 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

29. Thank you
for your kind attention!
Peter Heil, PhD
Development policy expert
ALTUS, HUNGARY (for GIZ)
heil@altus.hu

30. www.cord2014.md