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EU FUNDING PROGRAMMES FORRESEARCH AND INNOVATION



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EU FUNDING PROGRAMMES FORRESEARCH AND INNOVATION

54.Lorenzo Costantino

Abstract


Europe 2020, the medium term strategy of the European Union, hinges on research and innovation as the pivots for growth and competitiveness. The European Commission defines policies and develops regulation that converge towards the EU2020 ambitious priorities of smart, sustainable and inclusive growth. In addition, the EU provides funding for projects that support the achievement of EU2020 objectives. Funding is available at national level through the European Structural and Investment Funds and at European level through the centralised EU funding programmes, the focus of this paper. Small and large organisations of the private, public and third sectors from all over Europe are eligible for funding. EU programmes provide grant funding that cover only partially - typically 75% - the costs of international collaborative projects. Horizon 2020 is the EU programme in support of research and innovation for growth and competitiveness; with an almost € 80 billion budget for the 2014-2020 period, Horizon 2020 is the largest EU funding programme.
Key words: European Union, grant financing, Research and Innovation
JEL Code: H81, O38

55.Introduction


The rationale and motivation behind public support for Research and Development (R&D) is globally and universally accepted: R&D plays a pivotal role in igniting and sustaining innovation and competitiveness of domestic firms. Public support for Research and Innovation (R&I) is justified by the economic and societal benefits represented by increased productivity and employment as well as enhanced living and working conditions. This leads many governments in the world to provide financial and operational support to R&I. Such support may take different forms in different countries and contexts from direct financial and/or technical support to tax incentives for R&D investments0.

The purpose of this paper is neither to challenge nor justify public support to R&I 0. Rather, this paper gives an overview of the many European Union’s (EU) funding opportunities available to the participants in the innovation system, such as firms, research centres and universities irrespective of their size (micro, small and large) and type (public or private).



Europe 2020 is the strategic compact of the EU and Member States that identifies three key priorities of smart, sustainable and inclusive growth. The European Commission formulates overarching strategic objectives and identifies programmatic priorities, while Member States implement reforms and programmes at national level to achieve EU2020 objectives. R&I is at the core of the EU 2020 Strategy and plays a pivotal role to achieve the five objectives on employment, innovation, education, social inclusion and climate/energy:

  1. Employment: 75% of the 20-64 year-olds to be employed

  2. R&D / innovation: 3% of the EU's GDP (public and private combined) to be invested in R&D/innovation

  3. Climate change / energy: greenhouse gas emissions 20% (or even 30%, if the conditions are right) lower than 1990; 20% of energy from renewables; 20% increase in energy efficiency

  4. Education: Reducing school drop-out rates below 10% and at least 40% of 30-34–year-olds completing third level education

  5. Poverty / social exclusion: at least 20 million fewer people in or at risk of poverty and social exclusion

EU 2020 Strategy devises seven Flagship Initiatives to ensure coordination between European strategies and national interventions and maximise impact of programmes. The Flagship Initiatives represent the policy and programmatic tools to operationalise the EU 2020 strategy and are directly linked to the five medium term objectives.

Fig. 1: The Seven Flagship Initiatives




  1. Innovation Union: improve framework conditions and access to finance for R&I to turn ideas into products and services that create growth and jobs

  2. Youth on the move: enhance the performance of education systems and facilitate youth employability

  3. A digital agenda for Europe: speed up the roll-out of high-speed internet and reap the benefits of a digital single market for households and firms

  4. Resource efficient Europe: support the shift to low carbon economy, increase use of renewable energy, modernise transport sector and promote energy efficiency.

  5. An industrial policy for the globalisation era: improve the business environment, notably for SMEs, and support the development of a strong and sustainable industrial base able to compete globally

  6. An agenda for new skills and jobs: modernise labour markets and empower people through skills development to increase labour participation and better match labour supply and demand

  7. European platform against poverty: ensure social and territorial cohesion such that the benefits of growth and jobs are widely shared and people experiencing poverty and social exclusion are enabled to live in dignity and take an active part in society.



As such, the Flagship Initiatives represent the linkage between the EU2020 Strategy and funding programmes that constitute the financial instrument for the implementation of EU policies in all domains ranging from social inclusion, health and education to frontier research, digital economy and infrastructure.



Fig. 2: From Strategy to Funding Programmes



Source: own elaboration

The programmes and initiatives in support of the implementation of the EU 2020 Strategy that stem from the Flagship Initiatives are funded by the budget of the EU in the context of the Multiannual Financial Framework, which is the framework for financial programming and budgetary discipline for the period between 2014 to 2020. The financial framework for the seven years amounts to a total of € 960 billion distributed along five “headings” or categories of expenditures as follows:



  1. Smart and Inclusive Growth: encompasses the policy areas of “competitiveness for growth and jobs” and “economic, social and territorial cohesion”;

  2. Sustainable Growth and Natural Resources: ranges from environmental issues to agricultural policy and rural development;

  3. Security and Citizenship: embraces internal policy domains such as justice, immigration, public health and consumer protection, culture and youth;

  4. Global Europe: relates to all the aspects of the EU’s external action (“foreign policy”) including development and cooperation with third countries;

  5. Administration: represents the administrative expenditure of all EU institutions.

56.1 EU Funding for Research, Innovation and Competitiveness


In addition to formulating and coordinating EU and national policies, the EU Commission (EC) provides funding in support of research, innovation and competitiveness through a series of programmes managed at national level or centrally at EU level.

At national levels, the European Structural and Investment Funds (ESIF) – commonly referred to as the “Structural Funds” – represent a considerable financial resource for Member States to implement socio-economic development strategies. The ESIF is the financial instrument for the implementation of the cohesion and regional policy of the EU that aims to eliminating regional disparities while sustaining job creation, business competitiveness, economic growth and sustainable development. The ESIF represent the largest part of the EU budget: the Cohesion Policy envelope for the 2014-2020 period is set at € 351.8 billion.


1.1 The European Structural and Investment Funds


The ESIF encompasses the various funds and instruments for the implementation of the cohesion policy across European regions:

  • European Regional Development Fund (ERDF) addressing regional disparities and investing in growth

  • Cohesion Fund for environment, networks and transport infrastructure

  • European Social Fund (ESF) investing in people

In addition to the above three Funds, the ESIF includes two thematic Funds European Agricultural Fund for Rural Development (EAFRD) and European Maritime and Fisheries Fund (EMFF).

In the implementation of the regional policy, EU regions are grouped in three categories depending on their level of development measured in GDP per inhabitant benchmarked against EU average:



  1. “less developed regions” less than 75% of the EU average;

  2. “transition regions” with a GDP/inhabitant between 75% and 90% of EU average;

  3. “more developed” regions have GDP per inhabitant above 90% of EU average.

The structural funds for less developed regions are devised to decrease regional disparities across Europe, supporting disadvantaged territories to converge towards the socio-economic levels of more developed regions. Less developed regions use structural funds for basic infrastructure (including environmental), business support programmes and skilling and reskilling. More developed regions mobilise structural funds to sustain their competitiveness by enhancing their ability to attract investors, create jobs and investing in innovation.

Fig. 3: Regional Eligibility for Structural Funds



Source: European Commission, Directorate General for Regional and Urban Policy

The rate of co-financing for projects under structural funds vary from 50% to 85% depending on the group of region, with higher rates of financing in less developed regions.

Almost a third of EFIS’ total amount is devoted to overall innovation and competitiveness: approximately € 110 billion are earmarked for investments in EU regions on ICT, support to SME and low carbon economy. Regions across EU have to develop smart specialisation strategies prior to receiving ESIF funding for projects in the area of innovation. This process should allow regions to concentrate their investments on their comparative advantages.

Each region defines specific development objectives that are then negotiated and approved with the EU for the allocation of funds to projects that are approved on the basis of region specific priorities. Each region will then have their own managing authority that is tasked with the definition of implementing programmes, publication of Call for Proposals for applicants to request funding and monitor the implementation and impact of projects.

Structural funds are implemented through “shared management” by which the EU sets priorities and negotiates Partnership agreements and Operational Programmes (OPs) with Member States. The EU allocates resources while Member States – through the designated managing authorities distributed at regional levels – manage programmes and select projects.

Structural funds represent a unique and considerable resource in support of innovation at local level: through structural funds enterprises, universities and research centres can upgrade their infrastructure (equipment, machinery, etc.) as well as build and enhance their capacity. Beneficiaries need to comply with geographic eligibility criteria to access structural funds: only organisations from the region can apply to the funds allocated for that region.


1.2 The European Centralised Programmes


In addition to the structural funds, the EU supports innovation and competitiveness also with the so called centralised funding programmes (EU Programmes) that represent the financial instruments for the implementation of EU policies and the achievement of EU 2020 strategic objectives. EU programmes differ from the Structural Funds as they are managed centrally by the EU Commission, do not finance structural investments but only activities and apply to the whole EU without geographical limitations.

Through centralised programmes, the EU finances organisations from the public, private and third sectors to carry out activities that contribute to achieving the EU 2020 Strategy’s objectives. Funding is available in all policy domains and themes, ranging from social inclusion, to health, culture and infrastructure. Regulations emanated by the EU Parliament and Council (on the basis of a proposal from the EU Commission) establish the funding programmes, defining their:



  • Sectors of application

  • General and specific objectives of the programme

  • Activities that can be founded

  • Type of beneficiaries

  • Geographical scope of the funding programme

  • Budget for the 2014-2020 period and allocations through sub-programmes

All funding programmes are divided into “sub-programmes” that narrow down their sectoral scope with specific sectoral priorities. As an example, the programme that pertains to the environmental policy of the EU, the Life Programme is structured into two sub-programmes, one for “Environment” and the other for “Climate Action”, each with relevant objectives, activities, etc. Each sub-programme is then articulated into strands, each financing different actions.

Fig. : Structure of a Programme

This leads to more than 300 funding streams every year and requires a thorough understanding of the structure of the programme – and in most cases of more than one programme – for organisations to navigate through the plethora of funding opportunities. An organisation can access different EU funding programmes and also benefit from Structural Funds concurrently. The simultaneous use of different EU streams of financing is not only possible, but also encouraged and considered as a value adding element for a request for funding.

Besides, double financing of the same cost is never allowed. While the EU sees very positively, and encourages, complementarities among EU funding instruments and programmes, the same activity cannot be funded twice by the EU, either directly (through the EU centralised funding programmes) or indirectly (through the Structural Funds).

57.2 Key Principles of EU Funding Programmes


This section describes the management of the programmes, their geographical scope, and the key characteristics that a project proposal needs for approval. This section refers to the general rules that apply to EU centralised programmes, and do not take into account features of specific sub-programmes and strands that may derogate to those general principles.

The EU funding programmes are managed by the European Commission, either by the relevant Directorate General or by an Executive Agency. For example, the Directorate General Justice manages two programmes (“Justice” and “Rights, Equality and Citizenship”) that relate to the policy domain of European citizenship, while the European Agency for SME (EASME) is tasked with the operational management of the EU funding programmes that pertain to R&I, competitiveness of enterprises and environment, respectively Horizon 2020, COSME and LIFE. Such centralised management is representative of the non-territorial connotation of EU programmes that apply to the EU as a whole and not to a specific region, as they aim to the implementation of EU policies.

EU programmes run for the 2014-2020 period and each year the managing authority publishes a Call for Proposals and a relevant Work Programme0 that sets the specific priorities and activities that are eligible for funding for that year. The Call for Proposals is the official communication from the EU Commission that the Programme is making available funding for that year through the competitive selection of proposals. The Work Programmes allow the EU Commission to fine-tune the operational scope and further detail the activities, types of projects and beneficiaries of the programmes depending on specific socio-economic challenges and opportunities that may have arisen since the adoption (back in 2013) of the Regulation establishing the Programme.

All organisations established in any of the 28 EU Member States are eligible to participate in the funding programmes. The participation of organisations from non-member states in EU funded projects is also possible: the establishing Regulations sets the geographical scope of the programmes and provide for the eligibility of third countries0.

A prerequisite for funding through the EU programmes is that the project should involve a transnational consortium representing partners from different eligible countries. The minimum number of partners for proposals to be eligible for funding is provided in the Guide for Applicants (or Guide for Proposers) that is published every year and accompanies the Work Programme in what can be called the “Application Package”

Fig. 5: The Application Package for EU Funding Programmes

Before preparing a request for funding through EU programmes, applicants should identify and analyse reference documentation to make sure that their project idea is properly drafted and that linkages between their organisation’s ambition and the overall policy and strategic objectives that the EU programme pursues. These reference documents are freely and easily accessible on the websites of the respective managing authorities of EU programmes.



The funding provided by EU programmes is a grant that covers only partially the total costs of the project: the Regulation and Guide for Proposers provide all the parameters detailing the rate of financing and the maximum amount of the grant foreseen in the programme, sub-programme and relevant strands, with co-financing ranging between 50 and 90% of the total project costs.

This requires project partners to make appropriate financial projections when requesting an EU grant as the application form will require detailed information about the budget and financial provisions to cover the remainder project costs not funded by the grant. Those costs can be covered by any of the following, also in combination:



  • Own funds: project partners will cover the costs with their own organisations’ budget. Partners need to carefully consider cash-flow implications for the project;

  • Other public funding: partners can mobilise other streams of public funding at national and/or local levels, provided that they are not of EU origin. Partners need to carefully understand the origin of the other public funds to avoid any possible conflict and risk of double EU financing (that is never allowed);

  • External sponsors: projects can also benefit from sponsors (public or private) who share an interest in project activities and results;

  • Income from the project: any income generated by the project can be accounted for as a share of the budget to cover project costs. In this case, partners need to realistically foresee credible estimates of any income that the project can generate;

  • In-kind contribution: in some instances in-kind contributions can be accounted as share of co-financing; the Guide for Proposers details whether in-kind contributions can be accounted in the budget and for which amount (as a % of the total project costs).

In addition to the operational and technical requirements set by the regulation, Work Programme and Guide for Proposers, a general pre-requisite for any project funded by EU centralised programmes is the transnational consortium: EU programmes finance only international collaborative projects. The Guide for Proposers provides details on the minimum number of partners and countries that projects need to involve.

Irrespective of the programmes’ specific requirements, any project idea to be funded by the EU programmes needs to have three inherent characteristics. EU funded projects need to be innovative, relevant to European issues and sustainable:



  1. Innovative character: EU funded projects need to bring about innovative solutions, processes or products that improve the state-of-the art in the domain of interest. Innovation is not only confined to the technological sector: EU programmes finance also social innovation projects and any advancement in social sciences and non-technological sectors as well;

  2. EU relevance: to be funded under EU programmes, projects need to demonstrate relevance against the pertinent EU policy and programme. As such, the project not only serves the private interest of the participating organisations, but also accommodate EU strategic priorities;

  3. Sustainability: applicants need to demonstrate that the project is not an end in itself. Besides, in the request for funding partners need to clearly describe how they will valorise the project, disseminate information about activities and - most importantly - how they will exploit project results both within and after the EU funding.

58.3 EU Funding Programmes for R&I


R&I are the underpinnings for the EU 2020 strategy and such policy priority is reflected by the financial allocations for Horizon 2020, COSME and Erasmus Plus, the EU funding programmes supporting research, innovation and competitiveness for companies, research institutes and universities. These three programmes are funded under the first heading of the EU Multiannual Financial Framework “Smart and Inclusive Growth” that accounts for approximately € 451 billion out of the total € 960 billion of the EU budget for the 2014-2020 period.

With approximately € 80 billion, Horizon 2020 (H2020) is the largest EU R&I programme ever. H2020 has the ambition of realising Europe’s potential in R&I along three main priorities:



  1. Excellent Science: the focus is to support research infrastructure, Future Emerging Technologies and frontier research that can bring Europe at the forefront of global R&I;

  2. Industrial Leadership: support for applied research projects in Key Enabling Technologies (that broadly encompass nanotechnology, micro- and nano-electronics, photonics, advanced materials and biotech); and

  3. Societal Challenges: invest in R&I projects that tackle challenges of European society at large grouped under seven categories of Health, agriculture and bio-economy, energy, transport, climate and environment, globalisation and security.

H2020 finances projects along the whole spectrum of R&I with a strong focus on “innovation”: the purpose is to bring ideas into the market and bridge the gap between laboratories and real-life applications, products and services. The emphasis is on entrepreneurship and how research and innovation can really unlock the potential of growth and competitiveness of European small and medium enterprises.

59.Conclusion


A plethora of funding opportunities exist for companies and universities in support of their competitiveness to promote research, innovation and entrepreneurship. EU programmes are a valuable means for SMEs and academia to build collaborative cross-border networks, develop new products and services, innovate and grow. The EU makes available billions of euros through more than 300 funding opportunities each year. EU programmes award grants on a competitive basis: projects are selected through an evaluation process (formal, technical and financial) based on criteria such as excellence, impact, EU relevance and innovative character. EU programmes are very competitive: success rates average 25% with negative peaks of 10% in some specific strands and sub-programmes.


60.References


European Commission, DG RTD, HORIZON 2020 in brief: The EU Framework Programme for Research & Innovation, European Union, 2014

European Commission, DG REGIO, Enabling Synergies between European Structural and Investment Funds, Horizon 2020 and Other Research, Innovation and Competitiveness-Related Programmes, European Union, 2014


Contact

Lorenzo Costantino

IDP European Consultants

Sq. Charles M. Wiser 19, Brussels, 1040 Belgium

www.idpeuropa.com

l.costantino@idpeuropa.com





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