Effectiveness of other instruments 1 COSME

It is difficult to assess the effectiveness of COSME FIs, as the programme is at an early stage. Currently, it appears more feasible to assess the efficiency of its predecessor – the CIP. According to the CEPS study on FIs (2012), the Growth and Innovative SME Facility (GIF) and the SME Guarantee Facility (SMEG) have proved to be relatively successful, with high demand for the instruments, and both have reportedly had substantial leverage effects. Surveys demonstrated that two-thirds of the GIF beneficiaries considered that, without GIF, the business would not have achieved the same level of investment. For the SMEG, about half the SMEs considered their business could not have been set up without SMEG loan support.

However, the evaluations also noted several problems. Proper coordination between the various DGs managing parts of the CIP was lacking, strategic steering and coordination with other EU initiatives for SMEs was needed. Moreover, complementarity was identified with some other SME assistance instruments under Cohesion Policy. With regard to the instruments’ European added value, the GIF assistance proved to be more valuable as it directly addressed one of the core weaknesses in Europe (lack of finance for innovative SMEs), introducing an important new financing scheme in Member States. At the same time, the results were more controversial for the SMEG: similar national schemes for assisting

SMEs existed in many Member States; and the programme was criticised for considerable deadweight loss. The value of the SMEG programme was therefore questionable in countries where similar instruments already existed, and the SMEG could thus replicate or compete with them. Weaknesses regarding the instruments’ monitoring and reporting were also noted. For example, the impact of the programmes was not monitored using a standard set of indicators to record and report progress, and the Commission reportedly had difficulties tracing the use of funding offered to financial intermediaries.222

COSME was intended to address some of the weaknesses associated with the CIP instruments, e.g. with regard to monitoring and reporting, coordination with other EU initiatives for SMEs, and avoidance of overlaps. Thus, linking GIF1 (see Section 2.6.1) for start-up SMEs with the RSI programme for Horizon 2020 has been seen as one of the ways to avoid overlaps. In general, COSME FIs work in conjunction with Horizon 2020, even though the programmes have different foci. COSME has replaced the Innovation and Entrepreneurship strand of the CIP, and the other activities have been merged into Horizon 2020. While COSME focuses on support to create a favourable business environment, increased competitiveness and riskier SMEs, Horizon 2020 focuses on innovation-driven SMEs. At the same time, complementarities with the ESIF operations supporting SMEs under shared management may still exist. Furthermore, the EIF’s strategic role as fund manager for COSME enables cross-fertilisation between Cohesion Policy and other sources of funding.

3.7.2 Risk-sharing instrument and InnovFin SME Guarantee Scheme

As with COSME it is difficult to evaluate the effectiveness of the InnovFin SME Guarantee Facility due to its recent establishment. The available RSFF evaluations provide some information regarding the efficiency of its predecessor. Overall, from 2007-13, the RSFF financed 114 R&I projects with EUR 11.3 billion and provided loan guarantees worth over EUR 1.4 billion. This reportedly catalysed a further EUR 37.2 billion in private investment in European innovation.223 _{Evaluations of the RSFF in 2010 (one by the EIB and} one by an EU-commissioned expert group) presented overall positive findings.224

The EIB conducted a number of evaluations of the scheme. Although positive about the RSFF achievements overall, an evaluation of the RSFF undertaken by the EIB in April 2010, along with an evaluation by a group of independent experts the same year, highlighted its failure to adequately deliver a framework which reflected the needs of SMEs. The EIB evaluation pointed out that, while the RSFF successfully assisted large companies and Mid-caps, it did not ‘seem to be the right instrument to address SMEs’.225 _{On the basis of this conclusion, it} was recommended that the RSFF should improve its specific focus on SMEs, which stimulated the launch of the RSI.226 The instrument was introduced in collaboration with the EIF, which assumed the implementation tasks, thus ensuring the continuity of the EIB’s role in this domain.

222 _{Núñez Ferrer et al. (2012) op. cit.} 223

For more information, see: http://www.eib.org/products/helpingyouinnovate/index.htm?launchtool

224

European Parliament (2011b) op. cit.

225

European Parliament (2011b) The implications of EIB and EBRD co-financing for the EU budget. Study, Directorate General for Internal Policies, Policy Department D: Budgetary Affairs, Brussels; European Investment Bank Operations Evaluation (2010) Evaluation of Activities Under the Risk Sharing Finance Facility (RSFF), Luxembourg: EIB.

226 _{Núñez Ferrer J, Volkery A, Withana S, Medarova-Bergstrom K (2012) The Use of Innovative Financial}

Instruments for Financing EU Policies and Objectives – Implications for EU and National Budgets. Centre for European Policy Studies, Brussels.

The EIB Second Evaluation of the RSFF227 _{(2013) similarly reached the conclusion that the} RSFF ‘fulfilled its role in an adequate manner, contributing to the reduction of market failures in allocating additional resources to RDI’. Partnership between the Commission and the EIB was noted to be efficient, improving an initial incomplete design and providing for mutual learning.228 The relevance of the RSFF was considered to be clear due to the alignment with the Lisbon Strategy, FP7 and EIB Knowledge Economy objectives. In addition, it was noted that the likelihood of the RSFF maximising its potential impact had been hindered by the absence of clearer ex-ante objectives and targets. In terms of effectiveness, the facility was noted to have achieved (or to be on track to achieve) most of its performance indicators one year before the end of the RSFF’s availability period, as well as achieving a wide geographical distribution. However, its contribution to filling the long- term debt-financing gap was estimated as very limited with regard to total R&D investment in Europe. The sustainability of the facility was also assessed as satisfactory, especially taking into account the potential of Horizon 2020 instruments to capitalise on its experience. Lastly, in terms of governance and cooperation, the success of partnership working between the Commission and EIB was noted, although some imbalances were identified, e.g. with regard to reporting procedures, the methodology used to measure and report administrative costs, and the definition of some key concepts.229

Concerning the RSI in particular, the second interim evaluation of the RSFF, carried out by an Independent Expert Group the same year,230 noted that the strong interest and contracts signed by diverse financial intermediaries demonstrated the demand for the instrument. The RSI compartment reportedly had proven resilient even within the short timeframe, as it was able to ‘cater for bigger demand, provide access to promotional lending institutions’, ‘offer guarantees with diverse counterparties (regional banks, promotional institutions, commercial banks, etc.)’ and ‘achieve a diversified portfolio’. In general terms, the report assessed the overall take-up of the RSI as ‘successful’.231 _{Nevertheless, weaknesses were noted, such as} limited financial sustainability, a restricted budget and a tight timeframe due to its pilot status. The recommendations for an RSI successor related, for example, to maintaining the core structure of RSI so as to leverage systems and procedures, improving RSI eligibility criteria, expanding the RSI amount and scope, and better combining the guarantee scheme with EIB funding. Among other things, the recommendation on avoiding overlaps between new and existing initiatives (including the RSFF) has been to some extent addressed by merging SME support for start-ups in the CIP (currently COSME) with the RSI in Horizon 2020.232

3.7.3 Connecting Europe Facility

The CEF FIs have aimed to build significantly on the assessments of the effectiveness of their instruments-predecessors and the associated recommendations. For instance, the LGTT Evaluation233 (2014) generally demonstrated that the LGTT ‘provided significant value in all deals which used it’. However, as a result of Europe's financial crisis, ‘the potential pipeline of projects with traffic based demand risk for the LGTT instrument’ decreased significantly. In this context, it was seen as crucial to design the new CEF FIs in a flexible way so that they could be adapted to changing market needs. Also, the evaluation showed that, as an

227

European Investment Bank Operations Evaluation (2013) op. cit.

228 _Ibid. 229

Ibid.

230

Independent Expert Group (2013) Second interim evaluation of the RSFF. Final Report, June 2013

231 _Ibid. 232

Núñez Ferrer et al. (2012) op. cit.

233 _{European Investment Bank Operations Evaluation (2014) The Loan Guarantee Instrument for TEN-T Projects}

(LGTT). An Evaluation Focusing on the Role of the EIB in the Implementation of the Instrument, Synthesis Report, April 2014, available at: http://www.eib.org/attachments/ev/ev_lgtt_en.pdf

instrument, the LGTT did not meet the objectives of increasing private sector participation and accelerating projects. In addition, it demonstrated that the Commission and the EIB can efficiently work in a joint way on complex FIs. It also noted that the EIB was ‘the right choice of partner’ for the Commission, providing the expertise and resources to develop, market and manage LGTT growth. A number of lessons from the LGTT experience were taken on board when launching the PBI Pilot.

The ad-hoc audit of the pilot phase of the PBI,234 concluded in June 2014, provides some insights into the performance of the PBI initial stage. The final report, apart from assessing the efficiency of the PBI Pilot, also formulated recommendations on the future full deployment of the PBI under the CEF in 2014-20. The report considers the progress of the PBI Pilot implementation as satisfactory overall while proposing some adjustments. The PBI was assessed as having served as a catalyst to generate liquidity in debt capital markets for targeted infrastructure projects, demonstrated by the interest from a large pool of investors. The PBCE was considered a unique FI in Europe, in terms of its supranational scope, open structure and long tenure; it was also seen as well-structured and well-executed in transactions. The PBI has been viewed positively overall by most stakeholders, having been able to match the supply of infrastructure projects with the expectations of the large group of institutional investors.

The weaknesses of the initiative are partly reflected in the audit recommendations for the future. These relate to issues such as flexibility with regard to implementation, extension into other infrastructure sectors, scope to use CEF funds in a more optimised manner across the three targeted sectors, and a focus on supporting greenfield projects.

According to the CEPS study on FIs (2012),235 the PBI might be considered of significant European added value as it is focused on the important trans-European infrastructure as a core element of the Single Market, also linked to the need to develop low-carbon infrastructure to reach the EU climate objectives. The PBI is designed to target areas where financing is lacking, which ensures additionality, and the initiative has to date managed to raise considerable funding.

Overall, although this new instrument cannot yet be fully evaluated, it seems to solve some of the problems of the LGTT, particularly in terms of flexibility with the bond issuance and coverage of more areas of infrastructure.236 _{However, it is not known yet if there will be} further demand for project bonds.