Since countries in the CEE region have joined the European Union, in 2004 and 2007, it has become apparent that effective utilisation of EU support can foster the success of their economic performance. Accordingly, it is the responsibility of the Member States to utilise the support appropriately and enhance the cohesion. Developing an appropriate, focused strategy for the allocation of EU funds is only the first element, though a basic step in implementing EU cohesion policy. The successful implementation and absorption of EU funds is contingent not only upon the effectiveness the Member States’ administrative systems, but also on the activity of the potential beneficiaries. The purpose of the KPMG report is twofold. Firstly, it provides an overview of the progress of the National Strategic Reference Frameworks as at the halftime of the programming period 2007-13. Secondly, the report introduces the implementation system of two financial engineering instruments, namely JEREMIE and JESSICA in each CEE country. The publication was prepared during March 2011, involving 10 KPMG practices in CEE.
Romania and the CEE countries have suffered a significant reduction in foreign investment since the start of the crisis, as investors have moved away from emerging markets to fast developing economies (BRIC) searching for better returns and security. At the end of 2010 the Baltic countries’ National Strategic Reference Framework programmes showed the highest contracted ratios, since they vary between 60 and 76%, which is outstanding on a time-proportional basis. The contracted ratio of other countries is in the middle of the ranking, between 48 and 57%, while, the share of contracted amount compared to the 7-year budget is lower in Romania and Bulgaria. Top performers in EU Funds absorption are Latvia and Lithuania, while Romania and Bulgaria are disputing the last places.
At CEE level, by halftime of the implementation of the 2007-13 programming period EUR, 110.2 billion worth of grants have been contracted by the 10 CEE countries. This amount is 53% of the total available budget allocated for the 2007-13 period. Until the end of 2010 EUR 36.3 billion (i.e. 17%) of the available budget and one third of the contracted grants was disbursed to beneficiaries. By the end of 2010 most intervention types performed around average contracted ratio between 33% and 82%. Most grants, EUR 81.96 billion, i.e. 74% of the total contracted grants, have been contracted related to transport, human resources development, economic development and environment related projects.
In these circumstances, it is even more important for Romania to take advantage of the large amounts still available in EU funding for the 2011-2013 period. Yet the latest issue of the annual survey by KPMG member firms in the region EU Funds in Central and Eastern Europe, indicates that Romania’s takeup of EU funds continues to lag behind other CEE countries in many sectors. While slightly less than half of the budget available to Romania was contracted in 4 years, less than 10% was disbursed to beneficiaries.
As Daniela Nemoianu, Executive Partner, KPMG in Romania points out; “The KPMG survey shows that Romania is still behind on transport, energy and technical assistance. By December 2010 EUR 10.4 billion in grants had been contracted in the framework of the Romanian National Development Plan. Thus, slightly less than half of the budget was contracted in four years. The contracted ratio is below the CEE level’s ratio, but on a time proportional basis it is not that far from the ideal factor. Out of this amount only EUR 1.5 billion in grants was disbursed to the beneficiaries, accounting for less than 10% of the available budget for the seven years. The good news is that take-up of R&D and HR development funds has been good and there have been robust large scale actions by the Ministry of Transportation and the Ministry of Regional Development to recover the accruing gap.”
As Florin Banateanu, EU Funds and Public Sector Director in KPMG in Romania’s Advisory Department adds: “By the end of 2010 the contracted ratio was the highest for human resource development and urban and rural development (infrastructure development in urban and rural areas). Both intervention types reached a contracted ratio of over 79%, which is also outstanding at the CEE level. Among the other intervention types, one well performing area is R&D and innovation. Regarding the disbursement the payment ratios are very low, ranging between 1% and 18%. However, for weaker performing energy operations almost one quarter of the contracted grants have been paid to the beneficiaries.”
As Nemoianu mentions: “EU funds present a unique opportunity for Romania to improve its infrastructure and encourage investment. They should form part of a strategic spiral of growth. Moreover, in the short term, infrastructure projects will create jobs and provide a welcome boost to the economy, especially to the construction industry, which has been particularly hard hit by the recession. It is essential that the government maintains this top priority to make more effective use of this important source of financing”
Nemoianu concludes: “This KPMG publication is a useful work of reference on the types of EU funding available to CEE countries. The document is useful both for government and the relevant authorities, as well as for companies interested in developing projects involving EU funds. For more information, readers should contact KPMG in Romania’s team of advisors who have expertise on EU funds and the public sector. As our publication shows, we know how to successfully navigate the EU projects implementation process and are ready to help beneficiaries along this way.”