Proposal for a Decision of the European Parliament and of the Council amending Decision 2000/819/EC on a multiannual programme for enterprise and entrepreneurship, and in particular for small and medium-sized enterprises (SMEs) (2001-2005)
Date: 2003-12-08
Institutions: European Commission
Subjects: EU financial instrument, EU growth strategy, EU programme, business start-up, early-stage capital, economic growth, entrepreneurship, financial aid, investment aid, small and medium-sized enterprises

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 8.12.2003
COM(2003) 758 final

2003/292 (COD)

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND
THE COUNCIL

Growth and Employment Initiative
Measures on financial assistance for innovative and job creating
Small and Medium-Sized Enterprises (SMEs)

As at 29 May 2002

Proposal for a

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Decision 2000/819/EC on a multiannual programme for enterprise and
entrepreneurship, and in particular for small and medium-sized enterprises (SMEs)
(2001-2005)

EN

  EN

TABLE OF CONTENTS

EXPLANATORY MEMORANDUM ....................................................................................... 4

1.

1.1.

1.2.

1.3.

1.4.

1.5.

2.

2.1.

2.2.

Executive Summary ..................................................................................................... 6

Description ................................................................................................................... 6

Overall utilisation......................................................................................................... 6

Immediate effects on the creation of employment....................................................... 7

The prospects for the creation of employment in the long term .................................. 8

Main conclusions ......................................................................................................... 8

Introduction: Main results and Recommendations ...................................................... 9

Introduction .................................................................................................................. 9

Main Results and Recommendations ......................................................................... 12

2.2.1.

ETF Start-up............................................................................................................... 12

2.2.2.

SME Guarantee Facility............................................................................................. 13

2.2.3.

JEV

....................................................................................................................... 13

3.

3.1.

3.2.

3.3.

4.

4.1.

4.2.

4.3.

4.4.

4.5.

4.6.

4.7.

4.8.

4.9.

5.

5.1.

5.2.

Methodology of the evaluation .................................................................................. 13

Purpose and scope of evaluation ................................................................................ 13

Main evaluation questions.......................................................................................... 14

Methodologies for the data collection and analysis ................................................... 14

ETF Start-up Facility.................................................................................................. 14

Main conclusions and Recommendations.................................................................. 14

Overview of the Facility............................................................................................. 15

Context of the operation............................................................................................. 15

Development of the Facility....................................................................................... 16

Market developments ................................................................................................. 17

Methodology for questionnaires ................................................................................ 18

Methodologies for the data collection and analysis ................................................... 18

Results of the Survey ................................................................................................. 18

Conclusions and Recommendations .......................................................................... 19

JEV (Joint European Venture) Programme................................................................ 21

Main conclusions and Recommendations.................................................................. 21

Overview of the Programme ...................................................................................... 21

2

 
5.3.

5.4.

5.5.

5.6.

5.7.

5.8.

6.

6.1.

6.2.

6.3.

6.4.

6.5.

6.6.

6.7.

6.8.

Context of the operation............................................................................................. 22

Overview of the development of the programme ...................................................... 23

Methodology for questionnaires ................................................................................ 24

Methodologies for the data collection and analysis ................................................... 24

Results of the Survey ................................................................................................. 24

Conclusions and Recommendations .......................................................................... 26

SME Guarantee Facility............................................................................................. 27

Main conclusions and Recommendations.................................................................. 27

Overview of the Facility............................................................................................. 27

Context of the operation............................................................................................. 28

Overview of the development of the programme ...................................................... 28

Methodology for questionnaires ................................................................................ 29

Methodologies for the data collection and analysis ................................................... 29

Results of the Survey ................................................................................................. 30

Conclusions and Recommendations .......................................................................... 33

3

 
EXPLANATORY MEMORANDUM

1.

Introduction

The  evaluation  report  on  the  Growth  and  Employment  Initiative  (1998-2000)  has  been
prepared in accordance with Article 7(2)  of the Council Decision 98/347/EC  adopted on  19
May  1998.  This  Decision  requires  the  Commission  to  provide  an  evaluation  of  the
programme, notably as regards its overall utilisation, its immediate effects on the creation of
employment and the prospects for the creation of employment in the long term by SMEs.

On 20 December 2000, by Decision 2000/819/EC, the Council decided to extend the financial
instruments of the Growth and Employment Initiative (the SME Guarantee Facility, the ETF
Start-up  Facility  and  the  Joint  European  Venture  (JEV)  programme)  under  this  new  legal
basis.  A  new  instrument,  the  Seed  Capital  Action,  was  also  added.  However,  no  additional
budget was foreseen for JEV.

Annex II, point IV of this Decision notes that JEV needs to be simplified, in order better to
respond to the needs of SMEs, including those in applicant States, and that the Commission
was  examining  the  possibility  of  such  simplification.  However,  after  careful  analysis,  the
Commission  has  determined  that  it  is  not  possible  to  simplify  JEV  significantly  under
Decision 2000/819/EC because:

–  this  Decision  does  not  contain  any  rules  to  allow  the  Commission  to  adopt
measures  to  change  the  structure  of  the  programme  as  described  in  Annex  II  of
Council Decision 98/347/EC;

–  this  Decision  does  not  contain  any  rules  to  allow  the  Commission  to  adapt  the
eligibility criteria of the programme contained in Council Decision 98/347/EC;

–  the  budget  for  JEV  was  committed  on  the  basis  of  the  Framework  Agreement
signed  between  the  Commission  and  the  financial  intermediaries  in  the  JEV
network.  Any  change  to  the  substance  of  these  agreements,  which  is  considered
necessary both in order to simplify the programme and to adequately protect the
Community financial interest, would therefore not be consistent with Article 6(5)
of the old Financial Regulation (in force at the time of the commitment);

–  the budget for JEV was committed under the Growth and Employment Initiative
(1998-2000)  and  is  therefore  reserved  exclusively  for  those  states  that  were
members of the European Union and the European Economic Area at the time that
Council Decision 98/347/EC entered into force. It is not therefore possible to use
it for projects involving the accession and candidate countries;

–  Decision 2000/819/EC does not allow the Commission to expand the definition of
‘transnational  joint  venture’  (the  only  eligible  form  of  transnational  cooperation
foreseen  under  Decision  98/347/EC)  to  the  broader  ‘transnational  partnership’
(referred  to  in  Decision  2000/819/EC),  which  is  considered  necessary  as  part  of
any adaptation of the programme.

The  evaluation  of  the  Growth  and  Employment  Initiative  indicates  that  two  of  the  three
financial  instruments,  the  SME  Guarantee  Facility  and  the  ETF  Start-up  Facility,  can  be

4

 
considered  a  success.  However,  the  JEV  programme,  whose  aim  was  to  assist  SMEs  in
creating new transnational joint ventures within the European Union (and later the European
Economic Area), was not a success. This was due to low demand from the market (very little
of  the  available  budget  was  committed  to  projects),  low  employment  creation,  poor  cost-
effectiveness  for  both  the  Commission  and  SMEs,  and  generally  low  satisfaction  with  the
instrument among SMEs.

2.

Objectives of the Commission’s proposal

The main objective of the Commission’s proposal is to phase out the JEV programme as soon
as possible and return the unspent funds (+/- EUR 43m) to the general budget.

At the same time, the Commission proposes to make several minor amendments to Annex I of
Council  Decision  2000/819/EC  relating  to  the  entry  into  force  of  the  new  RTD  framework
programme, the eligibility of RTD activities under ETF Start-up and the length of the start-up
period for specific high tech sectors.

3.

Content of the Commission’s proposal

The following two documents are submitted to the Council and Parliament:

1.

2.

evaluation report on the Growth and Employment Initiative;

proposal to amend the Council Decision 2000/819/EC on a multiannual programme
for  enterprise  and  entrepreneurship,  and  in  particular  for  small  and  medium-sized
enterprises (SMEs) (2001-2005).

The Council together with Parliament in accordance with the procedure laid down in Article
251  of  the  Treaty  is  asked  to  adopt  the  proposed  amendment  of  Council  Decision
2000/819/EC, which comprises:

1.

2.

Authorisation of the phasing-out of the JEV programme;

Modification of Annex 1 of Council Decision 2000/819/EC to make a more explicit
reference  to  the  eligibility  of  RTD  activities  under  the  ETF  Start-up  Facility;  to
update  the  reference  to  the  fifth  framework  programme  for  RTD  (in  order  to  take
account  of  the  launch  of  the  sixth  framework  programme);  and  to  extend  the
definition of the start-up period for specific high technology sectors, in particular life
sciences,  to  10  years  (to  reflect  the  extended  pre-commercialisation  product
development  and  testing  phases  that  are  characteristic  of  these  particular  sectors).

5

 
1.

EXECUTIVE SUMMARY

1.1.

Description

The  Growth  and  Employment  Initiative1  aims  to  foster  the  establishment  and  growth  of
SMEs, thus enabling them to create jobs. For this purpose, three schemes - the ETF Start-up
Facility,  Joint  European  Venture  (JEV)  and  the  SME  Guarantee  Facility  have  been
implemented.  Together,  they  target  a  broad  range  of  SMEs.  The  ETF  Start-up  Facility  and
SME  Guarantee  Facility  are  operated  by  the  European  Investment  Fund  (EIF),  whereas  the
JEV scheme is operated by the Commission services.

The ETF Start-up Facility provides financing to venture capital (VC) funds investing in high-
growth  SMEs  particularly  in  their  early  stages  of  development  and  in  the  high  technology
sectors.  Most  of  the  VC  funds  supported  by  ETF  Start-up  have  a  national,  if  not  regional,
focus.

The  aim  of  the  JEV  programme  is  to  stimulate  the  creation  of  transnational  joint  ventures
between  SMEs  within  the  European  Economic  Area  (EEA)  in  order  to  help  them  to
internationalise their activities and take full advantage of the Single Market.

The  objective  of  the  SME  Guarantee  Facility  is  to  increase  the  supply  of  loans  to  smaller
companies  established  in  traditional  sectors  through  the  provision  of  loan  guarantees.  The
SME financing is provided through a network of financial intermediaries that operate in the
Member States within the public or private sector.

In  accordance  with  Article  7(2)  of  the  Council  Decision,  "The  Commission  shall  within  48
months  at  most  from  the  date  of  its  adoption,  provide  an  evaluation  of  the  programme,
notably as regards its overall utilisation, its immediate effects on the creation of employment
and the prospects for the creation of employment in the long term."

The  period  covering  the  commitment  of  budgetary  funds  for  the  financial  instruments
managed by the EIF came to an end on 28 May 2002, i.e. four years after the adoption of the
Council Decision. The evaluation report was therefore timed to be presented after that date in
order to take account of the full 48-month commitment period.

In the context of the evaluation, a survey of the beneficiaries of each scheme was carried out
using questionnaires adapted for each instrument.

1.2.

Overall utilisation

In  general,  the  activity  relating  to  ETF  Start-up  and  the  SME  Guarantee  Facility  developed
well, although it was affected in 2001 by the general downturn of risk capital markets world-
wide and by banks’ increasing reluctance to lend to SMEs in a generally deteriorating macro-
economic environment. In 2002, however, the demand for guarantees picked up substantially,
as banks requested additional security. As regards JEV, the take-up by the market was much
lower than expected.

1 Council decision  98/347/EC  published  in  OJ  L  155  of  29  May  1998  on  measures  of  financial  assistance  for
innovative and job-creating small and medium-sized enterprises - the growth and employment Initiative

6

 
                                                
The initial budgetary allocation of the  Initiative amounted to EUR 423.56 million, of which
EUR  168  million  for  the  ETF  Start-up  Facility,  EUR  572  million  for  JEV  and  EUR  198.56
million for the SME Guarantee Facility. Due to the high utilisation under the SME Guarantee
Facility an amount of EUR 30.56m was transferred from JEV to the SME Guarantee Facility.
As  at  28  May  2002,  i.e.  the  end  of  the  commitment  period,  the  initial  budgetary  allocation
available for the ETF Start-up Facility and the SME Guarantee Facility was fully committed
by  the  EIF.  For  JEV  a  total  of  EUR  14.5  million  has  been  committed  to  projects,  which
represents 25% of its budgetary allocation.

In accordance with the Council Decision, for ETF Start-up and the SME Guarantee Facility,
the  interest  earned  on  the  trust  accounts  and,  in  the  case  of  ETF  Start-up,  proceeds  from
realised investments were added to the resources of the facilities. As at 28 May 2002, these
additional  resources  amounted  to  EUR  29.52  million,  of  which  EUR  21.54  million  were
committed by the EIF.

Under the ETF Start-up Facility, some 206 SMEs in the high-technology sector had benefited
from the programme, as per June 2002. This appears to be a reasonable number, taking into
account that some VC funds are just starting their investment activities and that, in line with
the specific characteristics of the venture capital sector, these funds have investment periods
of up to 5 years. As at the same date, the SME Guarantee Facility had already supported over
112,000  smaller  enterprises  through  enhanced  access  to  loan  finance.  The  overwhelming
majority of these beneficiaries are micro-enterprises with fewer than 10 employees, due to the
fact that around 45% of the enterprises are start-ups. As regards JEV, only 137 joint venture
project proposals have been supported, which is far fewer than originally expected.

1.3.

Immediate effects on the creation of employment

With  regard  to  the  ETF  Start-up  Facility  that  invests  in  the  equity  of  SMEs  in  the  high-
technology  sectors,  the  survey  results  (replies  received  from  57  SMEs)  show  a  significant
contribution towards employment. At the time of investment, each company had, on average,
15 employees, and subsequently went on to create, on average, an additional 20 jobs, which
represents more than a doubling of employment. The most important contribution (excluding
“other  services”)  was  from  enterprises  operating  in  the  “Biotechnology/Life  Sciences”  and
“Information Technology” categories.

JEV targets SMEs that intend to invest abroad in a joint venture. The questionnaires returned
by SMEs that were supported by JEV indicate that 31 joint ventures have in fact been created,
leading to 252 new jobs (an average of 8 jobs), which is disappointing. The SMEs have also
increased  employment  in  their  own  enterprise  since  submitting  their  JEV  application,
although it is not possible to demonstrate that JEV was in any way the cause.

With  regard  to  the  SME  Guarantee  Facility  that  targets  smaller  enterprises  (fewer  than  100
employees) and start-ups mainly in the traditional sectors, the survey results (replies received
from 405 SMEs) show a significant contribution towards employment. At the time of the loan
application, each company had, on average, 8 employees, and subsequently went on to create,
on  average,  an  additional  2.5  jobs,  which  represents  more  than  a  30%  increase.  Micro-
enterprises with fewer than 10 employees form about 76% of the total beneficiary population
and  reported  a  job  increase  of  an  impressive  86%.  Marked  increases,  above  50%,  were

2 Including EUR 5 million allocated in 1997 for the JEV pilot action under the Third Multi-Annual Programme

for SMEs 1997-2000.

7

 
                                                
achieved  in  the  transport  sector  including  travel  agencies,  storage  and  telecommunications
and in education and health.

1.4.

The prospects for the creation of employment in the long term

With  regard  to  the  ETF  Start-up  Facility,  the  forecasts  for  employment  creation  are
significant: 18% by the end of 2002 and a further 26% by the end of 2003. The forecasts for
job creation are most significant in the “Information Technology” sector and once again for
“Biotechnology/Life  Sciences".  Since  these  are  the  two  sectors  most  addressed  by  the  ETF
Start-up Facility, it is clear that the Facility is targeting an appropriate population.

For  JEV,  the  SMEs  that  returned  questionnaires  anticipate  that  employment  in  their  joint
ventures  will  increase  from  252  to  787  in  5  years’  time.  However,  it  is  not  known  to  what
extent the increase will involve a transfer of employees from the participating enterprises.

Under  the  SME  Guarantee  Facility,  prospects  for  employment,  based  on  the  survey,  were
approximately one new job per company in each of 2002 and 2003. These figures need to be
seen in the light of the job creation that had already taken place by the end of 2001 and taking
into  account  the  size  of  the  SMEs,  i.e.  mainly  micro-enterprises  with  fewer  than  10
employees. The results seem appropriate taking into account that these are mainly companies
from  the  traditional  sector  with  less  growth  potential  than  the  companies  in  the  high-
technology sector targeted under the ETF Start-up Facility.

1.5.

Main conclusions

The  Growth  and  Employment  Initiative  addresses  market  gaps  in  the  field  of  SMEs,  in
particular as regards access to equity, loan financing and support for the internationalisation
of SMEs.

With all 3 Facilities it should be remembered that only  after  a  considerable timelag  can the
full impact of the instruments  be measured. This is,  in  particular, the  case  for  ETF  Start-up
because of the cautious investment policy and the sluggish economic situation.

On the one hand, because of low economic growth, banks have become very reluctant to grant
loans to SMEs without collateral, which has substantially increased market demand for loan
guarantees.  On  the  other  hand,  this  deterioration  in  the  macro-economic  situation  has
depressed demand for venture capital.

The ETF Start-up Facility has increased the supply of venture capital to SMEs particularly in
the early stages of development and in the high technology sectors where there is an identified
market  failure.  The  instrument  is  effective,  with  a  significant  impact  on  growth  already
achieved and the effect on employment has been very positive. The modifications undertaken
under  the  MAP  (the  Multi-Annual  Programme  for  Enterprise  and  Entrepreneurship,  and  in
particular  for  SMEs  (2001-2005))  have  made  it  even  more  effectively  targeted  at  a  clearly
identified market failure.

The SME Guarantee Facility has proven to be a very effective instrument reaching a sizeable
population  of  SMEs  active  in  a  wide  range  of  sectors  throughout  12  Member  States.  In
particular,  there has been  a significant  increase  in  employment  created  by  micro-enterprises
(fewer  than  10  employees).  As  with  ETF  Start-up,  the  extensions  undertaken  in  the  MAP
Council  decision  have  targeted  it  more  effectively  at  a  clearly  identified  market  failure,  in
particular in the field of micro-credit guarantees.

8

 
JEV  has  fallen  short  of  its  objectives.  It  is  expensive,  slow  and  complicated  to  administer,
demand  for  it  has  been  low  and  any  substantial  simplification  aimed  at  improving  both  its
attractiveness and its effectiveness would entail losing the entire unused committed budget of
+/-  EUR  42  million.  Moreover,  the  existing  committed  budget  cannot  be  used  for  projects
involving the candidate countries. It is therefore recommended to phase out the programme as
soon  as  possible  on  the  grounds  of  poor  cost-effectiveness  and  lack  of  demand.  It  is  not
considered appropriate to try to launch a successor.

Overall,  it  can  be  concluded  that  two  of  the  three  instruments  (ETF  Start-up  and  SME
Guarantee Facility)  have been successful and continue  to be  relevant.  Indeed,  both  received
substantial  additional  budgetary  means  under  the  MAP,  as  well  as  being  adapted  to  better
meet market demand.

2.

INTRODUCTION: MAIN RESULTS AND RECOMMENDATIONS

2.1.

Introduction

The Growth and Employment Initiative follows on from the June 1997  Amsterdam  Council
and  the  November  1997  Luxembourg  special  Summit  on  employment.  It  puts  emphasis  on
SMEs with growth potential, since such companies are often unable to raise finance because
of  the  risk  associated  with  their  particular  stage  of  development.  The  programme  therefore
aims to foster the establishment and growth of SMEs, thus enabling them to create jobs. For
this purpose, three schemes - the ETF Start-up Facility, Joint European Venture (JEV) and the
SME  Guarantee  Facility  -  exist  to  help  as  many  SMEs  as  possible  throughout  the  different
growth  phases.  The  Growth  and  Employment  Initiative  on  measures  of  financial  assistance
was adopted by the Council (Decision 98/347/CE) on 19 May 1998 and became effective on
the date of its publication, i.e. 29 May 1998. The ETF Start-up Facility and SME Guarantee
Facility  are  operated  by  the  European  Investment  Fund  (EIF),  whereas  the  JEV  scheme  is
operated by the Commission services.

On 20 December 2000, by decision 2000/819/EC, the Council decided to extend the schemes
of  the  Growth  and  Employment  Initiative  under  a  new  legal  basis,  the  Multi-Annual
Programme for Enterprise and Entrepreneurship, and in particular for small and medium-sized
enterprises (2001-2005). A new instrument, the Seed Capital Action, was also added.

In  accordance  with  Article  7(2)  of  the  Council  Decision,  the  Commission  is  required  to
submit an evaluation report to the European Parliament and Council on the progress achieved
on  the  implementation  of  the  three  financial  instruments  of  the  Growth  and  Employment
Initiative (the ETF Start-up Facility, JEV and the SME Guarantee Facility): "The Commission
shall  within  48  months  at  most  from  the  date  of  its  adoption,  provide  an  evaluation  of  the
programme, notably as regards its overall utilisation, its immediate effects on the creation of
employment and the prospects for the creation of employment in the long term."

The  operational  phase  of  the  financial  instruments  managed  by  the  EIF  terminated  on  the
fourth  anniversary  of  the  Initiative,  i.e.  29  May  2002.  The  evaluation  report  was  therefore
timed to be presented after that date in order to take account of the full 48-month commitment
period.

This  evaluation  report  should  be  read  in  conjunction  with  the  2001  annual  report  COM
(2002)345, which the Commission presented to the European Parliament and the Council on
the progress achieved on the implementation of the three financial instruments.

9

 
The  evaluation  report  comprises  several  sections,  with  one  for  each  of  the  financial
instruments.  The  SME  statistics  are  based  on  questionnaires  and  data,  submitted  to  the
Commission in the framework of these surveys.

The activity of the EIF  relating to ETF Start-up  and  the SME Guarantee  Facility  developed
according  to  plan,  the  latter  delivering  results  above  expectations.  Therefore  an  amount  of
EUR  30.56m  was  transferred  from  JEV  to  the  SME  Guarantee  Facility.  Both  programmes
were  affected  at  the  end  of  2001  by  economic  developments  that  led  to  a  downturn  in  risk
capital in Europe and banks’ increasing reluctance to lend to SMEs. In 2002 the demand for
guarantees went up substantially, as banks were requesting additional security. In this respect,
it seems that banks may also have anticipated the possible impact of the proposed New Basle
Capital Accord. It also proved very difficult for new businesses to access capital for seed and
early stage investments, as a large number of venture capital funds are currently focusing on
follow-on and later stage investments. As regards JEV, the take-up by the market was lower
than  expected,  compared  to  similar  joint  venture  instruments  previously  managed  by  the
Commission and since discontinued.

The initial budgetary allocation of the  Initiative amounted to EUR 423.56 million, of which
EUR  168  million  for  the  ETF  Start-up  Facility,  EUR  573  million  for  JEV  and  EUR  198.56
million for the SME Guarantee Facility. As at 28 May 2002, i.e. the end of the commitment
period,  the  initial  budgetary  allocation  available  for  the  ETF  Start-up  Facility  and  the  SME
Guarantee Facility was fully committed by the EIF. For JEV a total of EUR 14.5 million has
been committed to projects, which represents 25% of its budgetary allocation.

In accordance with the Council Decision, for ETF Start-up and the SME Guarantee Facility,
the  interest  earned  on  the  trust  accounts  and,  in  the  case  of  ETF  Start-up,  proceeds  from
realised investments were added to the resources of the facilities. As at 28 May 2002, these
additional  resources  amounted  to  EUR  29.52  million,  of  which  EUR  21.54  million  were
committed by the EIF.

3 Including EUR 5 million allocated in 1997 for the JEV pilot action under the Third Multi-Annual Programme

for SMEs 1997-2000.

10

 
                                                
The  overview  below  gives  the  numbers  of  beneficiary  projects  by  country  across  the  3
instruments of the Growth & Employment Initiative as at 31 December 2001.

ETF Start-up
Facility

JEV

N° of beneficiaries

N° of projects

3
1
13
95
34

3
1

10
11

8

2
10
8
1
13
13
3
3
12
2
8
1
12
20
5
7

1

SME
Guarantee
Facility
N° of beneficiaries
3,461
797
575
1,314
24,902
16,577

28,744

3,034

26
6,026
3,461
3,491

Total per MS

3,463
810
584
1,328
25,010
16,624
3
3
28,756
5
3,043
1
38
6,046
3,476
3,509

9

179

121

92,408

92,708

Austria
Belgium
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Luxembourg
Netherlands
Norway*
Portugal
Spain
Sweden
United
Kingdom

Non EU
/other

Total

* Norway is not eligible under ETF Start-up and the SME Guarantee Facility

The  following  table  gives  the  global  budgetary  amount  committed  to  beneficiaries  as  at  31
December 2001).

Total number of
beneficiaries/projects
Amount (EUR million)

ETF Start-up
Facility

JEV

SME Guarantee
Facility

179

36.6

121

10.2

92,408

119.1

Since  the  three  instruments  are  fundamentally  different  in  character,  it  is  not  possible  to
construct  any  meaningful  comparisons  as  to  the  cost  per  job  or  per  beneficiary  across  the
instruments.

The  ETF  Start-up  Facility  provides  investment  funding  to  venture  capital  funds  that  then
invest  in  SMEs.  The  full  results  of  such  investment,  both  financial  and  in  terms  of
employment, are usually not apparent for 5-10  years, especially when this period includes a
substantial  downturn  in  venture  capital  activity,  as  is  currently  the  case.  It  is  theoretically
possible that all the funds committed under ETF Start-up may ultimately be repaid, in which

11

 
case the  cost  to  the  Commission  budget  per SME beneficiary  and  per  job  created  would  be
zero (there could even be a profit). It is also likely that the most significant job creation will
take  place  in  later  years,  assuming  that  there  are  at  least  one  or  two  “shooting  star”
investments that grow strongly once they have survived their early stage.

The SME Guarantee Facility, on the other hand, provides funds to cover losses on portfolios
of  guaranteed  loans.  This  money  is  placed  in  a  trust  account  with  the  European  Investment
Fund  and  is  called  on  as  losses  on  loans  occur.  Ultimately  all  the  money  committed  to  the
Facility should be used up to cover these loan losses, so that the final cost of the  Facility is
known.  However,  job  creation  will  vary  with  time  and  the  specific  costs  incurred  and
attributable  to  the  job  creation  will  vary  as  the  loans  are  either  repaid  or  written  off.
Therefore, it is not possible to have any reasonable estimate of the cost per job created. The
number of SMEs benefiting from the Facility will be much higher than that for the ETF Start-
up Facility, the leverage of the guarantee instrument being considerably greater since the risks
are  considerably  lower.  Also,  job  creation  will  be  initially  greater  with  the  guarantee
instrument although the long-term effect of ETF Start-up may eventually outstrip it.

Finally, the  JEV programme provides  a  direct  grant to SMEs, paid against proof  of  eligible
costs/investment.  Nonetheless,  when  a  project  is  originally  approved,  the  maximum
commitment of EUR 100,000 has to be made in each case (since the SME may ultimately be
able to claim this). However, the true final cost of each application to the Commission budget
is not normally known for 18-36 months after approval of the project, before which time it is
not possible to be sure of the cost per beneficiary or per job created.

2.2.

Main Results and Recommendations

2.2.1.

ETF Start-up

– 

– 

– 

– 

– 

– 

The ETF Start-up Facility has increased the supply of venture capital to SMEs,
particularly  in  the  early  stages  of  development  and  in  the  high  technology
sectors where there is an identified market failure.

The  instrument  is  effective,  with  a  significant  impact  on  growth  already
achieved. The effect on employment has been very positive.

There is  general  expectation  that  there  will  be  a  further  positive  influence  on
job  creation  in  the  next  year  or  two,  particularly  in  the  “Information
Technology” sector and in “Biotechnology/Life Sciences”.

Through the co-investments of the EIF in venture capital funds, the structure is
an efficient way of making larger amounts available to final beneficiaries and
is an efficient use of Community resources.

The  ETF  Start-up  Facility  has  the  potential  to  be  attractive  to  the  candidate
countries.

Restricting future use of the instrument to seed and early stage investment (as
has  already  been  done  in  the  Multi-Annual  Programme  for  Enterprise  and
Entrepreneurship  (2001-2005)) should make  it  even  more  effectively  targeted
at a clearly identified market failure.

12

 
2.2.2.

SME Guarantee Facility

– 

The SME Guarantee Facility proved to be a very effective tool as part of a set
of measures available to smaller SMEs with growth potential.

– 

It has reached a sizeable population of SMEs active in a wide range of sectors.

–  More than 90% of enterprises benefiting from a guaranteed loan had fewer than
10 employees and there has been a significant increase in employment created
by  these  micro-enterprises.  This  is  in  line  with  expectation  as  some  of  the
programmes guaranteed target start-ups which represent around 45% of SMEs
guaranteed.

– 

– 

– 

2.2.3.

JEV

– 

– 

The majority of beneficiaries are in traditional sectors.

It should continue to be implemented via a network of financial intermediaries
and their banking connections, managed by the European Investment Fund.

Extension of the Facility to EU candidate countries, where access to finance is
especially difficult, should prove particularly beneficial.

Overall, JEV has fallen short of its objectives.

It is expensive, slow and complicated to administer, demand for it has been low
and  any  substantial  simplification  aimed  at  improving  both  its  attractiveness
and its effectiveness would entail losing the entire unused committed budget of
+/-  EUR  42m.  Moreover,  the  existing  committed  budget  cannot  be  used  for
projects involving the candidate countries.

– 

It is therefore recommended to phase out the programme as soon as possible on
the grounds of poor cost-effectiveness and lack of demand.

– 

It is not considered appropriate to try to launch a similar successor scheme.

3.

METHODOLOGY OF THE EVALUATION

3.1.

Purpose and scope of evaluation

Article  7  of  Council  Decision  98/347/EC  requires  that  an  evaluation  of  the  programme  be
performed notably to cover the following:

– 

– 

– 

the overall utilisation of the programme;

the immediate effects of the programme on the creation of employment;

the effect of the programme on the prospects for the creation of employment in
the long term.

The  evaluation  was  based  on  a  survey  of  the  beneficiaries  using  questionnaires  adapted  for
each instrument.

13

 
3.2.

Main evaluation questions

The main evaluation questions were designed to cover the following broad areas:

– 

– 

– 

– 

– 

– 

the relevance of the programme’s objectives;

the effectiveness of the programme;

its efficiency;

the added value/utility of the Community intervention;

the  appropriateness  of  the  programme’s  intervention  logic  to  promote  the
objectives and

to determine what lessons may be learned for possible future interventions of a
similar type.

Each instrument was considered separately, given their specific characteristics, and within the
guideline  areas  above.  This  resulted  in  a  series  of  questions  adapted  to  each  separate
instrument as summarised below.

3.3.

Methodologies for the data collection and analysis

Questionnaires  were  distributed  as  described  below.  For  all  the  Facilities,  an  electronic
mailbox was set up to receive the responses. This had the capability to receive either e-mail
messages (with or without spreadsheet attachments) or fax messages.

4.

ETF START-UP FACILITY

This  section  should  be  read  in  conjunction  with  the  2001  annual  report  of  the  Growth  and
Employment  Initiative  (1998-2000)  COM(2002)345  of  July  1,  2002  which  includes  a
description of the Facility.

4.1.

Main conclusions and Recommendations

The ETF Start-up Facility has increased the supply of venture capital to SMEs particularly in
the early stages of development and in the high technology sectors where there is an identified
market  failure  and  is  thus  contributing  to  the  objectives  of  the  Growth  and  Employment
Initiative.

The  survey  clearly  indicates  that  the  instrument  is  effective  with  a  significant  impact  on
growth already achieved. The effect on employment in individual beneficiary companies has
been  very  positive  indeed.  The  reaction  of  participants  has  been  very  favourable  and  they
generally expect that there will be further positive influence on job creation in the next year or
two,  particularly  in  the  “Information  Technology”  sector  and  in  “Biotechnology/Life
Sciences”.

The structure put in place, whereby the ETF Start-up investments in the venture capital funds
are necessarily complemented by money from other investors, is an efficient way of making
larger  amounts  available  to  final  beneficiaries.  This  set-up  and  the  use  of  the  EIF  as  the
mandated manager is also an efficient use of Community resources.

14

 
The  instrument  has  increased  the  availability  of  venture  capital,  providing  valuable  support
from the venture capital funds, both financial and non-financial.

The ETF Start-up Facility clearly has a role to play in the Commission’s support of SMEs and
should  be  expected  to  contribute  to  their  growth  and  employment  creation  for  a  number  of
years.  When  extended,  it  has  the  potential  to  be  especially  attractive  to  the  candidate
countries.

4.2.

Overview of the Facility

The  objective  of  the  ETF  Start-up  Facility  is  to  increase  the  availability  of  risk  capital  to
innovative SMEs with emphasis on their establishment and early stage development. Existing
innovative SMEs are also eligible. The ETF Start-up Facility has been set up to strengthen the
availability  of  seed  and  early-stage  financing  for  SMEs,  through  investment  in  specialised
venture capital funds.

These venture capital funds (hereunder referred to as VC funds) were established specifically
to  provide  equity  or  other  forms  of  risk  capital  to  SMEs.  The  funds  considered  under  this
Facility are smaller or newly established ones, in particular those operating at a regional level,
those focusing on specific industries or technologies and those which finance the exploitation
of R&D results.

4.3.

Context of the operation

Most of the VC funds that have contractual agreements with the EIF have  a national, if not
regional, focus, although some of them are allowed to invest on a pan-European basis. They
are  mainly  oriented  towards  early  stage  investments  in  high  technology  areas,  such  as
information and communication technologies, Internet, healthcare and life sciences.

As at 29 May 2002, following due diligence by the EIF, 29 proposals for investment into VC
funds were submitted, of which 28 were approved by the EIF and the Commission services.
16 contracts have been signed with the EIF and 6 are still being processed (22 in total). For
the  remaining  6,  final  negotiations  were  unsuccessful.  The  breakdown  for  the  22  VC  funds
(16 signed and 6 under process) by country is as follows:

France
Germany
UK
Spain
Finland
Denmark
Portugal
Luxembourg
Austria
Italy
Sweden
Belgium

20.9%
14.4%
11.0%
10.4%
6.8%
6.1%
6.0%
6.0%
6.0%
6.0%
3.4%
3.0%

The total amount earmarked for these 22 VC funds is EUR 166.1 million.

15

 
For the 16 VC funds with whom the EIF has signed contracts, the ETF Start-up contribution
amounts to EUR 105.4 million. Taking into account the commitments made by all investors,
the  global  maximum  funding 
to
EUR 602.3 million.  It  should  be  noted  that  the  EIF,  by  making  known  its  willingness  to
invest, sometimes acts as a catalyst for attracting private funding without ultimately having to
invest Community funds, which could therefore be reserved for even higher risk investments
that promise greater additionality from the Community contribution.

these  16  VC  funds  amounts 

to  be  raised  by 

It  is  worth  mentioning  that  as  at  29  May  2002  and  subject  to  successful  completion  of  the
negotiation of contracts for the six transactions that have not been signed as of that date, there
were  only  three  EU  countries  not  covered  by  ETF  Start-up,  i.e.  Greece,  Ireland  and  the
Netherlands. In recent months a growing number of proposals from these countries has been
assessed and the EIF has made a special effort to develop transactions in countries where the
ETF Start-up Facility so far has not been used4.

The 6 VC funds currently in negotiation reflect to some extent the efforts undertaken by the
EIF at the end of 2001 and the beginning of 2002 to maximise the efficiency of the Facility.
The delays in concluding negotiations are a symptom of the very difficult conditions in which
to raise funds from private investors. Satisfactory conclusion will enhance the catalytic value
of the Facility.

EIF has also drastically increased its efforts to ensure a timely closing of the transactions that
have been approved  but not  yet signed  and  dedicated specific resources  to assisting  the  VC
Managers in the preparation of the fund documentation according to best market practice, in
order  to  set  an  optimal  framework  for  attracting  further  private  sector  investors  for  these
transactions. Despite these efforts, the fundraising climate for the investment stage targeted by
the  ETF  Start-up  Facility  is  currently  very  difficult,  with  a  distinct  risk  that  individual
operations may not reach the required fundraising targets.

4.4.

Development of the Facility

The take-up in the early years was slow but has picked up in 2001/2002. Furthermore, the first
VC  funds  were  mainly  located  in  France  and  Germany  and  it  took  until  2001  before  the
geographical  range  was  extended  so  that  broad  coverage  was  achieved  by  2002.  Although
France and Germany are still dominant in terms of SMEs financed due to their earlier start,
the situation is evolving into a more balanced picture.

The worsening economic climate had a significant impact in terms of expected returns for the
venture  capital  funds.  The  deterioration  of  stock  market  conditions  since  the  end  of  2000,
aggravated by the events of 11 September 2001, has taken its toll on valuations. Indeed, some
exits have been delayed due to a significant decrease in buying offers, while a more selective
policy for investing in early stage companies has led to financing difficulties for some start-
ups already in portfolios. This has led to a cyclical peak as far as write-offs are concerned.

For the 16 VC funds with whom the EIF has signed contracts, and for whom the ETF Start-up
contribution  amounts  to  EUR  105.4  million,  the  EIF  disbursement  as  at  30/06/02  totalled
EUR 55.4 million.

4  In  Greece,  Ireland  and  the  Netherlands,  contacts  have  been  established  for  operations  to  be  placed  in  the

pipeline.

16

 
                                                
These  funds  have  already  reimbursed  EUR  15.8  million  to  the  EIF,  composed  of  either
dividends, interest or proceeds from the sale of their shareholdings. Furthermore the net asset
value of the EIF investment in the VC funds amounts to EUR 39.6 million, based on the most
recent  information  available  at  the  end  of  June  2002.  This  represents  a  total  of  EUR  55.4
million,  which  is  exactly  equal  to  the  total  disbursement  at  the  same  date.  However,  this
disguises the fact that all but one of the funds have, on the basis of the current valuations of
the  portfolio  companies,  potentially  lost  money  in  line  with  the  general  market  conditions.
Nevertheless, the performance of the only  fund with a positive return  as of today has offset
the losses of the  others,  since  this one  fund  (the  very  first to receive  ETF Start-up  funding)
was able to make a number of successful and highly profitable exits before market conditions
deteriorated drastically. However, as only half of the contracted amounts have been invested
by the VC funds, and thus disbursed by the EIF, this reflects their very cautious investment
policy in a difficult market.

4.5.

Market developments5

The development of the programme should be seen in the context of the overall situation of
the European venture capital industry.

According to the EVCA6 Annual Survey of Pan-European Private Equity and Venture Capital
Activity  for  2001,  private  equity  investment  across  Europe  showed  a  widely  expected
decrease in activity compared to 2000 and dropped back to 1999 levels.

The  Survey  states  that  EUR  38.2bn  of  funds  were  raised,  which  represents  a  drop  of  EUR
9.8bn  compared  to  2000  (EUR  48bn),  i.e.  a  drop  of  20%.  In  particular,  for  this  year  EUR
24.3bn was invested in 8,104 companies, a drop in investment amount of 31% compared to
2000.  Of  the  number  of  companies  financed  by  private  equity,  over  45%  were  initial
investments.

The survey shows that EUR 12.2bn was invested in venture capital, representing a decrease of
38% compared to 2000. Of particular interest is that EUR 4.2bn was invested in 3,306 early
stage companies. This was lower than 2000 where 6.7bn was invested in 4,676 companies. In
the expansion stage, EUR 8bn was invested in 3,708 companies in 2001. Again, this is lower
than in 2000, when EUR 13bn was invested in 4,506 companies. The percentage invested in
buyouts increased from 41% to 45% of the total amount in 2001, representing EUR 10.9bn.

Concerning  sectors,  the  survey  states  that  in  line  with  the  general  difficulties  in  the
technology sector, high-tech investment fell in 2001 compared to the year 2000. The amount
invested in companies operating in high-tech  sectors was  EUR  6.9bn,  down  by  38%  on  the
year 2000.

Regarding trends in Country Investment, in 2001 the private equity houses based in the UK
continued to lead by amount invested, with EUR 6.9bn or 29% of the total European amount
being invested. At 18% of total amount (EUR 4.4bn),  Germany is now second, followed by
France  (EUR  3.3bn).  In  terms  of  number  of  companies,  Germany  now  leads  in  Europe,
having invested in 1,969 companies, followed by France, with 1,546 companies. With an all-
time record of EUR 20.5bn, and now contributing just over half of European funds raised, the

5 For further details, refer to the recent report on the implementation of the  Risk  Capital  Action  Plan  (RCAP)

COM(2002) 563 final.

6 EVCA: European Venture Capital Association.

17

 
                                                
UK was again the highest in fundraising in 2001, raising 54% of the total, followed by France
with EUR 5.5bn and Germany with EUR 3.7bn.

On the other  hand, the  amount disinvested,  measured  at  cost,  increased  from  EUR  9.1bn  to
EUR  12.5bn  in  the  year  2001.  There  was  also  a  pronounced  decrease  in  the  number  of
companies  going  for  an  initial  public  offering,  decreasing  from  249  in  2000  to  47  in  2001.
Write-offs represented 23% of total disinvestment, up substantially from EUR 0.7bn in 2000
to EUR 2.8bn in 2001.

4.6.

Methodology for questionnaires

The  questionnaire  to  enterprises  that  had  participated  in  this  Facility  was  designed  to
determine:

– 

– 

– 

the type of investment and the perceived effect of the Facility;

the effect on the employment situation at the end of 2001;

the degree of satisfaction with the venture capital fund and the perspectives for
employment in the near future.

4.7.

Methodologies for the data collection and analysis

The  complete  population  of  158  enterprises,  at  the  date  of  the  survey,  on  the  database
maintained by the EIF was addressed. Reminders were sent out to those not replying after 3
weeks. The venture capital funds were advised that the survey was being undertaken and a list
of  their  enterprises  surveyed  was  provided  to  them.  Otherwise,  they  were  not  asked  to
participate directly.

4.8.

Results of the Survey

Of  the  potential  158  enterprises,  125  were  still  active  within  the  portfolio  of  the  venture
capital  funds.  Of  the  remainder,  14  have  been  sold  off,  12  written  off  and  7  have  failed.  A
total  of  59  enterprises  responded  to  the  questionnaire.  Two  enterprises  responded  without
completion  of  the  questionnaire.  The  following  analysis  is  based  on  the  57  questionnaires
returned.

From  the  time  of  the  initial  investments  until  the  end  of  2001,  there  was  a  significant
contribution  towards  employment.  From  about  880  declared  initially,  the  employee  count
reached almost 2,060 by the end of 2001, an increase of just over 130%. More than half of the
employees (55%) were in the 25-34 age range, with 95% being in full time employment and a
male:female ratio of approximately 2:1. Five enterprises reported a drop in employee numbers
for a total of 31 positions. It should be noted that one German  company stood out from the
crowd, having created 360 jobs from a base of 40 on application. Excluding this figure from
the totals would still give, however, an increase of 95%.

The analysis of the employment forecasts assumed that those companies that did not attempt
to estimate their employee head count for the end of 2002 and 2003 would at least maintain
the positions declared at the end of 2001. Although forecasts for future employment creation
were somewhat more conservative, they were still significant at 18% by the end of 2002 and a
further  26%  by  the  end  of  2003.  It  is  clear  that  the  effect  on  employment  amongst  our
respondents was very positive indeed and is likely to continue.

18

 
An analysis by activity  (using the European Venture  Capital  Association  classification) was
carried  out.  This  indicates  that  the  most  important  contribution  (excluding  “other  services”)
was  from  enterprises  operating  in  the  “Biotechnology/Life  Sciences”  and  “Information
Technology”  categories,  where  40  of  the  57  respondents  classified  themselves.  Both  had
declared  employment  creation  in  excess  of  200%.  Even  when  adjusting  for  the  German
company referred to above, the declared increase in the “Biotechnology/Life Sciences” sector
was 95%.

The  forecasts  for  future  job  creation  were  most  marked  in  the  “Information  Technology”
sector and once again for  “Biotechnology/Life Sciences”, with or without adjustment. Since
these are the 2 sectors most addressed by the ETF Start-up Facility, it is clear that the Facility
is targeting an appropriate population.

The initial capital injection was provided  i.a.  for start-up (40%),  seed  capital (26%) and  for
expansion  (25%).  It  was  foreseen  primarily  to  finance  research  and  technological
development  (70%),  marketing  and  distribution  (46%)  and  new  product  and  service
development (42%) with about 19% indicating a degree of geographical expansion7.

A  large  majority  (79%)  had  not  generated  a  profit  by  the  end  of  2001  and  a  significant
proportion  (19%)  did  not  expect  to  do  so  until  2005  or  later.  Most  respondents  expect  a
positive effect in a longer timeframe. The declared average sales revenues in the  year of the
initial  investment  were  EUR  1.3  million  and  at  the  end  of  2001  this  had  risen  to  EUR  3.5
million, an increase of roughly 170%.

Almost  all  (96%)  of  the  beneficiaries  maintained  that  in  the  absence  of  the  venture  capital
investment they could not have existed (49%) or would have grown more slowly (47%).

With  respect  to  the  support  offered  by  the  venture  capital  funds,  it  appears  that  their
involvement  in  the  projects  has  been  more  than  simply  financial.  Only  18%  of  respondents
said that the funds had not offered any additional management advice and 93% said that they
were satisfied or very satisfied with the fund involvement.

4.9.

Conclusions and Recommendations

Relevance and appropriateness

The ETF Start-up Facility, in making available financial support to SMEs, particularly in the
early  stages  of  development  and  in  the  high  technology  sectors,  where  by  definition  the
potential  for  growth  is  high,  is  certainly  contributing  to  the  objectives  of  the  Growth  and
Employment Initiative.

This  instrument  clearly  helps  to  alleviate  an  identified  market  failure.  The  October  2002
Communication  from  the  Commission  concerning  the  Risk  Capital  Action  Plan  highlighted
that  early  stage  and  technology  investments  in  Europe  fell  significantly  in  2001.  This
downturn has been less sharp in Europe than in the US. However, early stage investments in
Europe still represent around one third of the equivalent type of investments in the US.

7 Multiple responses possible.

19

 
                                                
Effectiveness

Growth was perceived by the companies as being the main impact from the VC investments,
with noticeable effect already achieved. It is clear, however, that the full effect on growth is
expected to take place within a timeframe extending over a number of years.

Although the instrument has been slow in taking off, in time it should be able to show its full
potential.  The  survey  clearly  indicates  that  the  instrument  is  effective.  The  impact  on
employment  has  been  very  positive  indeed,  albeit  in  a  rather  small  number  of  participants.
The reaction of participants has been very favourable and they generally expect that there will
be  further  positive  influence  on  job  creation  in  the  next  year  or  two,  particularly  in  the
“Information Technology” sector and in “Biotechnology/Life Sciences”.

Although a large majority had not yet become profitable and some did not expect to be until
2005 or later, there was  a  very  optimistic expectation of  growth in turnover. The impact on
sales revenues  has  already  been  (by  2001)  very  positive,  with  declared  sales  figures  having
already doubled. It should, however, be remembered that the realisation of these expectations
may depend on the availability of future rounds of equity financing.

Efficiency

The ETF Start-up Facility is implemented through a series of venture capital funds that have
access to a wide range of potential beneficiaries. The structure put in place, whereby the ETF
Start-up  investments  in  the  funds  are  necessarily  complemented  by  other  funds  from  other
investors,  is  an  efficient  way  of  making  larger  amounts  available  to  final  beneficiaries.  In
particular, the private sector involvement  in the funds  (pari  passu  with  ETF  Start-up)  gives
extra confidence in the financial viability  of these  funds. This  arrangement,  with the EIF  as
the  mandated  manager  of  the  instrument,  is  also  an  efficient  use  of  Community  resources,
requiring as it does a limited level of human resources for the Commission.

Added value

It seems  clear  that  this  instrument  has  added  value  by  increasing  the  availability  of  venture
capital. Almost all the beneficiaries maintained that, without the injection of venture capital,
they could not have existed or would have developed more slowly.

The  survey  confirmed  that  valuable  support  was  offered  by  the  venture  capital  funds  in
addition to their financial involvement.

Lessons to be learned

It is worth noting that, subject to successful completion of the negotiation of contracts for six
transactions that have not been signed as of 29 May 2002, there are only three EU countries
that  have  not  been  covered  by  ETF  Start-up,  i.e.  Greece,  Ireland  and  the  Netherlands.  In
recent  months  a  growing  number  of  proposals  from  these  countries  has  been  assessed  and
some attempt made to develop  activity  where  the  ETF  Start-up  Facility  so  far  has  not  been
used.  Better  penetration  of  other  Member  States  should  also  be  sought.  The  success  of  the
Facility and the increased presence of the EIF in venture capital markets should facilitate its
marketing.

The ETF Start-up Facility clearly has a role to play in the Commission’s support of SMEs and
should  be  expected  to  contribute  to  their  growth  and  employment  creation  for  a  number  of

20

 
years.  When  extended,  it  has  the  potential  to  be  especially  attractive  to  the  accession
countries.

Restricting  future  use  of  the  instrument  to  seed  and  early  stage  investment  should  make  it
even  more  effectively  targeted  to  a  clearly  identified  market  failure.  This  has  already  been
included  in  the  Multi-Annual  Programme  for  Enterprise  and  Entrepreneurship,  and  in
particular for SMEs (2001-2005).

Regular monitoring should be performed to confirm its continuing success.

5.

JEV (JOINT EUROPEAN VENTURE) PROGRAMME

This  section  should  be  read  in  conjunction  with  the  2001  annual  report  of  the  Growth  and
Employment  Initiative  (1998-2000)  COM(2002)345  of  July  1,  2002  which  includes  a
description of the programme.

5.1.

Main conclusions and Recommendations

Overall,  JEV  has  fallen  short  of  its  objectives.  It  is  expensive,  slow  and  complicated  to
administer, demand for it has been low and any substantial simplification aimed at improving
both its attractiveness and its effectiveness  would entail losing  the  entire  unused  committed
budget of +/- EUR 42m. Moreover, the existing committed budget cannot be used for projects
involving the candidate countries.

It is therefore recommended to phase out the programme as soon as possible on the grounds
of poor cost-effectiveness and lack of demand. It is not considered appropriate to try to launch
a similar successor.

5.2.

Overview of the Programme

The  objective  of  the  programme  is  to  stimulate  the  creation  of  transnational  joint  ventures
between  SMEs  within  the  European  Economic  Area  (EEA)  in  order  to  help  them  to
internationalise  their  activities  and  take  full  advantage  of  the  Single  Market.  It  is  open  to
SMEs from EEA states. The joint venture must be created between at least two SMEs from
two different states.

The EU contribution consists of:

1.

2.

A grant to cover 50% of the eligible expenses relating to the conception and setting-
up of a joint venture (with a maximum contribution of EUR 50,000);

A grant of 10% of the investment made in fixed assets.

The maximum overall contribution per project is EUR 100,000. There was also a Promotion
Facility (suspended in 2001), under which organisations such as chambers of commerce that
organised  events  where  JEV  is  promoted  could  claim  50%  of  the  eligible  costs  (to  a
maximum of EUR 20,000).

The programme is delivered via a network of 71 Financial Intermediaries (FIs, being mainly
commercial  banks),  selected  by  the  European  Commission,  which  screen  applications  from
SMEs before they are presented to the Commission. A Technical Assistance Unit reviews the
submitted files for technical compliance before they are submitted to the Steering Committee,

21

 
comprised of representatives from Enterprise DG and Economic & Financial Affairs DG, for
its  opinion.  The  Commission  signs  a  Specific  Agreement  with  FIs.  Payments  are  made  to
SMEs via the FIs.

JEV was launched as a pilot action by Commission decision in November 1997 with a budget
of  EUR  5m.  It  was  subsequently  incorporated  into  the  Growth  and  Employment  Initiative
(1998-2000)  in  May  1998  with  an  additional  budget  of  EUR  84m,  subsequently  reduced  to
EUR 52m due to lack of demand (the balance being reallocated to the two other instruments).
Originally  it  was  open  only  to  SMEs  from  EU  Member  States  but  was  extended  to  include
Norway, Iceland and Liechtenstein in 2000.

5.3.

Context of the operation

JEV  was  conceived  in  order  to  fill  a  perceived  gap  in  EU  support  for  the  creation  of
transnational  joint  ventures.  The  ECIP  (European  Community  Investment  Partners)
programme,  launched  in  1989,  provided  financial  support  to  EU  enterprises  seeking  to
establish  joint  ventures  in  Asia,  Latin  America,  the  Mediterranean  basin  and  South  Africa.
The  JOP  programme  (Joint  Venture  Programme  –  PHARE/TACIS),  launched  in  1991,
provided similar support for enterprises seeking to establish joint ventures in the countries of
central  and  eastern  Europe  and  the  former  Soviet  Union.  JEV  addressed  the  lack  of  such
support for the creation of transnational joint ventures within the European Union and, from
2000 onwards, the European Economic Area.

The  financial  support  provided  for  JEV  project  feasibility  studies  is  much  lower  than  that
foreseen for JOP and ECIP. For the feasibility phase of a project, a maximum intervention of
EUR 50,000 was foreseen, compared to EUR 75,000 with JOP and EUR 250,000 with ECIP.
When JEV was drafted it was thought that the lower ceilings were justified, as there was less
complexity  involved  (shorter  distances  within  the  EU  and  easier  communications  /
infrastructure).  It  may,  however,  be  that  the  Facility  was  subsequently  seen  as  being  less
attractive for SMEs and FIs.

The JEV network of financial intermediaries, which represented the contact point for SMEs,
was basically the same as that for JOP and, to a lesser extent, ECIP. JEV was seen as a useful
complement to the range of “products” that could be offered to SME customers and the three
programmes together provided the FIs with critical mass, allowing them to assign dedicated
staff to handle the applications. At the end of 1999, however, ECIP came to an end and was
not renewed, thus reducing the project flow for many FIs. Following this, in March 2000, JOP
was  phased  out,  leaving  only  JEV,  which  exacerbated  the  situation  for  the  FIs.  Given  that
very  few  JEV  projects  were  being  submitted,  some  FIs  left  the  network  (which  no  longer
offers full geographic coverage) while others reduced the scale of their activity. This made it
harder for SMEs to access the programme and further reduced demand.

Both  ECIP  and  JOP  were  (at  least  to  some  extent)  victims  of  the  increasing  administrative
burden imposed on both the services running them and the beneficiaries (SMEs) in order to
reduce the risk of irregularities to an absolute minimum. JEV suffered in the same way, to the
point where around 20% of SMEs withdrew their applications, either because they found the
application procedure too burdensome or because the amount of support they had applied for
was  cut.  Others,  even  after  creation  of  a  joint  venture,  have  not  bothered  to  apply  for  an
investment grant, since the procedures are considered too long and they stand to gain too little
relative to the effort involved.

22

 
5.4.

Overview of the development of the programme

JEV got off to a slow start (as had ECIP and JOP) but demand started to pick up in 1999 and
the first half of 2000, after  which  it  began  to fall away again.  In 1999 a  Promotion Facility
was  introduced  in  order  to  support  events  at  which  JEV  was  promoted.  However,  overall
demand from  SMEs was still much lower  than  expected  and  criticisms  were  made,  by  both
FIs  and  SMEs,  concerning  the  application  and  payment  procedures.  From  March  2000,
Enterprise DG no longer participated in promotion activities and scaled down its participation
in the Steering Committee.

In 2001 the Commission services reviewed the possibilities for simplifying JEV, as had been
requested  in  Council  decision  2000/819/EC  on  the  Multi-Annual  Programme  for  Enterprise
and  Entrepreneurship  (2001-2005).  The  Promotion  Facility  was  suspended  in  September
2001, pending the outcome of the review and because the events supported were not leading
to  the  submission  of  many  new  project  applications.  However,  it  became  clear  that  the
Council decision  did not allow the desired simplification to be  achieved without  loss of  the
entire  committed  budget.  Nor  could  the  existing  budget  be  used  to  support  projects  in,  or
involving SMEs from, the candidate countries.

This review also revealed that the administrative costs per file are very high (note that figures
are estimations): EUR 12,507 for Promotion Facility projects and EUR 17,714 for Preparatory
Works  and  Investment  (joint  venture)  projects  (rising  to  EUR  27,736  when  costs  of
Promotion  Facility  projects  are  apportioned).  The  administrative  cost  to  the  Commission  of
each Promotion  Facility  project  therefore  exceeds  100%  of  the  average  commitment,  while
the  administrative  cost  of  each  Preparatory  Works  and  Investment  project  is  28%  (variable
cost)  or  44%  (including  allocated  Promotion  Facility  costs)  of  the  average  commitment.
These unfavourable ratios were exacerbated by the fact that, on the one hand, the budgets of
the  submitted  projects  were  often  reduced  by  the  Steering  Committee  (sometimes
substantially), while, on the other hand, there were extra staff costs associated with the need
to  review  files  very  carefully  at  all  stages  in  order  to  reduce  the  risk  of  irregularities  to  a
minimum.

From the period after the launch of JEV, the Commission received some 30-50 requests for
information on the programme per month, which (in the case of SMEs) were referred to the
Financial Intermediaries. However, compared to the number of requests received, the number
of  proposals  submitted  was  very  small,  in  particular  after  summer  2000,  for  which  the
following explanations can be offered:

– 

– 

– 

the creation of a joint venture company is the most demanding and costly form
of  transnational  co-operation  between  SMEs.  The  majority  of  SMEs  seem  to
prefer looser forms of co-operation, which do not need the prior agreement of a
partner before making a decision.

when considering direct investments in other European countries, 2/3 of SMEs
seem  to  prefer  to  go  it  alone,  whereas  1/3  enter  into  co-operation  activities,
including the creation of a JV company with a local partner, in order to share
the  risk,  reduce  the  financial  exposure  and  take  advantage  of  the  partner’s
knowledge of local markets.

the  handling  fee  for  the  Financial  Intermediaries  was  rather  low  (EUR  1,000
per file) and did not provide a real incentive to encourage SMEs to participate
in JEV, especially in view of the Commission’s frequent requests for additional

23

 
information  on  proposals,  which  had  to  be  channelled  through  the  FIs.  In
addition, some FIs charged an additional (and sometimes substantial) handling
fee  to SMEs simply  for  accepting  and  processing  the  application,  which  may
have discouraged some SMEs from applying.

– 

JEV has gained the reputation of being slow, bureaucratic and very demanding.

5.5.

Methodology for questionnaires

The survey of SMEs covered the following:

– 

– 

– 

how  the  applicant  first  heard  of  the  programme  and  the  main  reasons  for
seeking support from it;

the  applicant’s  perception  of  the  effect  of  the  support  on  the  success  of  the
programme and the main results achieved

the effect on the employment situation (job creation) at the end of 2001 and the
expected effect in 5 years’ time;

– 

the overall appreciation of the programme.

This was complemented by a survey of the Financial Intermediaries to have their opinion:

– 

– 

– 

as to the objectives and eligibility criteria;

as to the mechanics of the programme operation and

as to their overall appreciation of the Facility.

5.6.

Methodologies for the data collection and analysis

For the JEV Programme, given that the population is relatively small, it was decided to send a
questionnaire to all the applicant SMEs participating  and to all the Financial Intermediaries.
Questionnaires to SMEs were prepared in English (complete with an explanatory cover note)
and  translated  into  Dutch,  French,  German,  Greek,  Italian,  Portuguese  and  Spanish,  the
appropriate language being  sent  out  and  the  balance  in  English.  Questionnaires  to  Financial
Intermediaries were prepared and sent out in English.

A total of 175 SMEs and 78 Financial Intermediaries were thus addressed by post.

A follow up of Financial Intermediaries by phone was made in order to encourage  a higher
level of response.

5.7.

Results of the Survey

Utilisation of the programme

Demand for JEV was much lower than anticipated. From the start in 1998 until 31 December
2001,  only  243  projects  were  received  by  the  Commission  services,  of  which  175  were
approved.  A  further  10  projects  were  presented  up  to  29  May  2002,  of  which  5  were
approved. Of the 180 approved, 54 were promotion projects and 126 were preparatory work
and investment projects. This equates to an average of slightly more than one project received
per week.

24

 
The total committed up to  29 May 2002  amounts  to  EUR  13.2  million,  excluding  technical
assistance but including promotion activities. Of this amount, EUR 1.5 million has been paid
out to projects.

Contrary to expectations, only about 10% of responses to the questionnaire indicated that the
project involved the commercial exploitation of R&D results. More than half indicated that it
was  to  access  a  new  market  and  the  main  intention  was  to  test  the  feasibility  of  (41%)  or
develop a new product or service (30%).

Job creation aspects

The  job  creation  effect  of  the  programme  has  also  been  disappointing.  At  the  end  of  2001
only four applications for investment grants had actually been received and in each case only
20% of the job creation foreseen in the initial application forms had been realised. In total, 12
new jobs were confirmed.

The questionnaires returned by SMEs indicate that 31 joint ventures have in fact been created,
leading to 252 new  jobs.  The  SMEs  anticipate  that  employment  in  these  joint  ventures  will
increase to 787 in 5 years’ time.

The SMEs have, overall, increased employment in their own enterprise since submitting their
JEV application, although it is not possible to demonstrate that JEV was in any way the cause.
It  was  reported  that  the  applicant  enterprise  saw  an  average  increase  of  about  9%  in
employment  since  the  date  of  the  application  and  that  the  number  of  employees  in  the  JVs
themselves was expected to increase by a factor of 3 in 5 years’ time. The JV increases and
the enterprise expectations for the next 5 years were most marked in France, Italy, Denmark
and Belgium.

The  employment  level  of  the  JVs  was  reported  as  representing  just  over  10%  of  the
enterprises as a whole.  It is not known to what extent the JV increase involved a transfer of
employees from the participating enterprises. Respondents predicted  that  the  increase  in  the
next  5  years  would  be,  on  average,  of  the  order  of  30%  in  the  lead  partner  enterprise  and
about 17% in the partners. The great majority of the joint ventures created and reported so far
have opted not to apply for the investment grant. General opinion is that the procedures  are
too lengthy and complicated. Another reason for not applying for the investment grant is that
the joint ventures have invested only limited amounts in fixed assets, so the 10% support has
not been considered as incentive enough to justify the administrative effort.

Results from the survey

Two different questionnaires were sent, one to all JEV financial intermediaries and another to
all SMEs who submitted a JEV application. 88 SMEs and 40 FIs replied to the questionnaire.
The main results were as follows:

– 

– 

37 SMEs said they had either created a joint venture or were in the process of
doing so, although the exact form of these joint ventures is not known.

Only  17  SMEs  said  they  would  not  have  started  their  project  without  JEV
support, whereas 63 said they possibly, probably or definitely would have done
so,  suggesting  that  the  additionality  of  the  programme  is  low.  On  the  other
hand,  around  80%  of  the  SMEs  said  that  the  programme  had  been  crucial,
significant  or  helpful  for  the  creation  of  the  joint  venture,  so  the  results  are
somewhat contradictory.

25

 
–  Most  SMEs  indicated  that  they  were  satisfied  with  the  service  they  received

from the financial intermediary.

– 

Overall,  32  SMEs  indicated  that  they  were  satisfied,  very  satisfied  or  totally
satisfied with JEV, while 42 were not very satisfied or not satisfied at all.

Despite  this  level  of  stated  satisfaction,  many  of  the  respondents  (about  80%)  took  the
opportunity to record their comments, largely indicating dissatisfaction with the operation of
the Facility. Despite there being some positive comments, the vast majority were damning in
their  appreciation,  emphasising  the  need  for  simplification  and  speeding  up  of  procedures
they considered too bureaucratic and seeking greater flexibility. They obviously felt strongly.

5.8.

Conclusions and Recommendations

Relevance and Effectiveness

Although the logic behind JEV was considered sound when it was launched, experience has
shown that, in reality, the programme is not very attractive to SMEs, as illustrated by the low
level of demand and the negative reaction (expressed in the responses to the questionnaires)
of many that did participate.

Efficiency

Furthermore, the administrative costs per file are extremely high and very difficult to justify,
while  the  need  to  apply  procedures  that  minimise  the  risk  of  irregularities  (learning  lessons
from the JOP programme) has resulted in a decision process that SME beneficiaries consider
to be too slow.

Therefore,  although  JEV  has  certainly  helped  a  number  of  SMEs  in  the  creation  of  their
transnational joint venture, its overall impact has been very limited.

Added value

As with all the Growth and Employment Initiatives, it is not possible to measure precisely any
added  value.  However,  it  is  reasonable  to  assume  that,  with  the  difficulties  encountered  by
those  that  made  use  of  the  JEV  Facility,  the  effect  was  often  negative  rather  than  positive.
Many enterprises reported that they had  expended  time and  effort  to achieve  only  rejection.
Yes, there was a potential additional facility but in the end it was either difficult to access or
largely irrelevant due to the low level of investment in the joint venture.

Appropriateness

Given that:

– 

– 

– 

it  is  not  possible  to  simplify  the  programme  without  losing  the  entire  budget
that has already been committed (approximately EUR 42m);

it  is  not  possible  to  use  this  budget  to  support  projects  in  the  candidate
countries;

an  increasing  number  of  financial  intermediaries  in  the  JEV  network  are
reducing  or  ceasing  their  involvement  with  the  programme  and  some  are
discouraging SMEs from applying for it, which is accelerating its decline;

26

 
– 

– 

it seems unlikely that closing down JEV would have any real negative impact
on SME activity, since the programme appears to be of only marginal interest
to the target population;

JEV  is  the type of programme that the  Commission  believes  it  should  not  be
running (i.e. a programme that involves the micro-management of small files),

the conclusion of this evaluation is that JEV should be phased out as soon as possible on the
grounds  that  is  neither  appropriate  nor  cost-effective.  The  unspent  budget  should  be
decommitted.

Lessons to be learned

If  some  similar  instrument  were  to  be  considered  in  the  future,  there  would  have  to  be  a
complete  rethink  as  to  its  design  and  implementation.  The  Commission  should  avoid
launching programmes that involve the management of resource-intensive micro-projects.

6.

SME GUARANTEE FACILITY

This  section  should  be  read  in  conjunction  with  the  2001  annual  report  of  the  Growth  and
Employment  Initiative  (1998-2000)  COM(2002)345  of  July  1,  2002  which  includes  a
description of the Facility.

6.1.

Main conclusions and Recommendations

By making available additional loan finance, the SME Guarantee Facility proved to be a very
effective  tool  as  part  of  a  set  of  measures  available,  in  particular,  to  smaller  SMEs  with
growth potential but insufficient collateral. The substantial take-up of the finance underlines
its relevance and appropriateness.

The  SME  Guarantee  Facility  has  reached  a  sizeable  population  of  SMEs  active  in  a  wide
range of sectors and has achieved broad geographical coverage in the EU.

More than 90% of enterprises benefiting from a guaranteed loan had fewer than 10 employees
and there has been a significant increase in employment created by these micro-enterprises, as
many of them are start-ups. Most of these beneficiaries are active in traditional sectors.

It  should  continue  to  be  implemented  via  a  network  of  financial  intermediaries  and  their
banking connections, managed by the EIF.

Generally, there has been a good take-up of the Facility throughout the EU. The extension of
the Facility to EU accession countries, where access to finance is especially difficult, should
prove  particularly  beneficial,  assuming  that  a  sufficient  number  of  suitable  financial
intermediaries can be identified.

6.2.

Overview of the Facility

The  SME  Guarantee  Facility  has  been  set  up  to  stimulate  job  creation  by  supporting  the
investment  activities  of  SMEs  within  the  European  Union,  through  increased  availability  of
loan  finance  (access  to  finance  for  SMEs  with  insufficient  collateral).  This  is  normally
achieved by increasing the capacity of guarantee schemes operating in the Member States and
relates to both new and existing programmes.

27

 
This Facility provides higher volumes of guarantees for the existing guarantee products of the
financial  intermediaries  (FIs),  access  to  loans  for  a  larger  number  of  small  companies  for  a
wide variety of investments and  guarantees for  riskier loans.  The  Facility  covers  part  of  the
losses incurred under the guarantees up to a predetermined amount. The Facility is operated
by  the  European  Investment  Fund  (EIF)  on  a  trust  basis.  It  manages  the  contacts  with
financial  institutions  interested  in  joining  the  Facility,  evaluates  and  submits  the  selected
proposals  to  the  Commission  services  for  approval.  Appropriate  co-operation  with  Member
States is ensured by contacts between the EIF and the relevant national authorities.

6.3.

Context of the operation

The EIF has signed contracts with 23 financial intermediaries in 12 countries. There are some
countries  where  guarantee  schemes  do  not  exist  and/or  where  public  interest  in  the  Facility
was low. In these countries, the EIF has tried to find other suitable financial organisations in
order to offer guarantee support to SMEs in all Member States.

As  at  28  May  2002,  the  available  budgetary  resources  of  EUR  187  million  had  been  fully
committed  by  the  EIF.  The  geographic  distribution  of  these  commitments  is  the  following:
Germany received  the highest  proportion:  25%,  followed  by  France  which  received  20%  of
the funds, Italy received 16%, Spain 12%, Netherlands 7%,  Belgium and UK each  received
4%, Denmark, Austria and Sweden 3% each, Finland 2%, and finally Portugal 1%.

It is worth mentioning that there are three EU countries that have not been covered by SME
Guarantee Facility, i.e. Greece, Ireland and Luxembourg.

As at 30 June 2002, the aggregate amount of loans granted to SMEs under the Facility totalled
EUR 7.3 billion. At the same date, the utilisation of the budgetary resources by the financial
intermediaries  amounted  to  EUR 139  million,  achieving  a  very  high  leverage  effect  of  55.
According to the forecasts by the financial intermediaries, it is estimated that more than EUR
9.8 billion of loans will be granted on the basis of the commitments of EUR 187 million (i.e.
the total available budget for guarantees, net of fees).

6.4.

Overview of the development of the programme

The  objective  of  the  SME  Guarantee  Facility  is  to  increase  the  supply  of  loans  to  smaller
companies (fewer than 100 employees) established in traditional sectors through the provision
of loan guarantees. The main aim of these schemes is to have a beneficial effect on the growth
of the SMEs and on job creation. The Community budget covers the full cost of the Facility,
including  the  EIF’s  guarantee  losses  and  any  other  eligible  costs  or  expenses  under  the
Facility.

It is worth noting that banks scaled back their lending activities due to the high-risk exposure
of loans to SMEs and the slowdown in economic activity towards the end of 2001. Therefore,
the  overall  activity  of  the  intermediaries  working  under  the  Facility  also  decreased.  In
addition  to  the  decreasing  number  of  guarantees  that  were  included  in  the  SME  Guarantee
Facility  portfolios,  the  number  of  cancelled  guarantees  has  increased,  especially  during  the
last quarter of 2001. However, 2002 has seen a much higher demand for guarantees.

Moreover, taking into account  the deterioration of market conditions since the  end  of 2000,
lower  short-term  growth  prospects  and  an  increase  in  problem  loans,  the  overall
implementation and  successful  operation of  the  Facility  has  been  made  even  more  difficult,
and may also result in higher than expected potential losses for individual guarantee schemes.

28

 
6.5.

Methodology for questionnaires

The questionnaire sent out to SMEs was designed to determine:

– 

– 

– 

– 

the type of investment that was being supported;

the importance and the effect of the Facility to the project concerned;

the effect on the employment situation up to the end of 2001 and

the expected employment situation in 5 years’ time.

6.6.

Methodologies for the data collection and analysis

Given  that  the  population  of  SME  participants  in  this  Facility  is  relatively  large,  it  was
decided  to select a  sample for the survey.  The  database  system  maintained  by  the  EIF  with
data provided by the Financial Intermediaries was used as the basic source of data. It contains
identification  data  for  each  SME  with  address  details.  With  the  help  of  the  EIF  and  the
assistance and advice of Eurostat, a sample was determined and extracted as described below.

Only  SMEs  that  had  received  a  guaranteed  loan  as  at  31/12/2000  were  considered  for  the
sample,  so  as  to  have  a  reasonable  period  in  which  some  effects  of  the  Facility  could  be
measured.  For  the  sample, all  guaranteed loans  granted  before  31/12/1998  were  included  (a
total of 158, mainly from Austria and the Netherlands). As there were only 10 loans in total
for Portugal, they were all included.

On an analysis of the number of employees of the enterprises concerned (in all of the data up
to  31/12/2000),  those  that  fell  in  the  range  0  to  1  amounted  to  approximately  40%,  in  the
range  2  to  4  about  33%  and  in  the  range  5  to  9  about  14%.  Since  there  is  a  significant
proportion of data in the lower size ranges, it was decided to reflect this by defining the size
groups for the sampling as the ranges 0-1, 2-4, 5-9 and 10 or more. Since about 87% is in the
range 0-9, it was decided to introduce a weighting to the top range (>/= 10) so  as to extract
more  data  for  that  size  group.  In  addition,  about  4%  of  the  employment  data  on  file  was
missing.  The  sample  therefore  included  about  4%  of  this  group  so  that  the  final  sample
comprised a spread of data by size range as follows:

N° of employees in
range

All data on file

Sampled data

Data missing
0-1
2-4
5-9
>/=10

4%
40%
33%
14%
9%
100%

4%
35%
27%
18%
16%
100%

The resulting sample comprised data from all participating countries except the UK. The UK
operation began only in 2001 and it was therefore not included. The breakdown by Member
State is shown below. From a total population of about 54,500 SMEs, a sample of 2,000 was
extracted.

29

 
Austria
Belgium
Germany
Denmark
Spain
France
Finland
Italy
Netherlands
Portugal
Sweden

Total
population
2,518
277
11,556
128
2,698
16,660
436
16,130
2,156
10
2,069
54,638

4.6%
0.5%
21.2%
0.2%
4.9%
30.5%
0.8%
29.5%
3.9%
0.0%
3.8%
100%

Sampled

238
31
293
28
165
425
66
399
205
10
140
2,000

11.9%
1.6%
14.7%
1.4%
8.3%
21.3%
3.3%
20.0%
10.3%
0.5%
7.0%
100%

Questionnaires to SMEs were prepared in English (complete with an explanatory cover note)
and translated into Danish, Dutch, French, Finnish, German, Italian, Portuguese, Spanish and
Swedish for distribution by post. The questionnaires were sent out by post with an option for
enterprises to request an electronic version by return if so desired.

In practice, it turned out that the quality of the address information was very poor. Although it
was to be expected that a number of enterprises would no longer be at their original address,
the number of letters returned was higher than expected.

6.7.

Results of the Survey

The following table summarises the replies received by Member State:

Country

Austria
Belgium
Germany
Denmark
Spain
France
Finland
Italy
Netherlands
Portugal
Sweden

Sent Received %

238
31
293
28
165
425
66
399
205
10
140

57
3
57
5
17
34
29
121
47
5
30

405

24%
10%
20%
18%
10%
8%
44%
30%
23%
50%
21%

20%

Total

2,000

Out  of  a  total  of  2,000  questionnaires  for  the  SME  Guarantee  Facility,  405  responses  were
received. The low response rate from France, Belgium and Spain is probably due in large part
to the poor quality of the address information held on file.

30

 
The following analysis is based on these  responses, with some of the figures being adjusted
where not plausible. Otherwise it was assumed that the figures were accurate, there being no
reason  for  respondents  to  falsify  as  there  was  no  question  of  eligibility,  e.g.  for  funding,
arising.

Employment aspects

It  is  difficult  to  confirm  that  the  effect  on  job  creation  was  a  direct  result  of  the  SME
Guarantee  Facility  or,  indeed,  a  result  of  the  investment  projects  themselves.  However,  it
seems  from  the  results  reported  that  the  guarantee  has  played  an  important  role  in  the
investment projects. About 74% reported that it had been the intention to create or maintain
jobs through the investment. Of these, about 87% confirmed that their intention to create jobs
was  achieved  and  about  81%  succeeded  in  their  objective  of  maintaining  existing  jobs.
Overall, the  number  of  employees  reported  as  existing  at  the  point  of  applying  for  the  loan
had risen from about 3,300 to 4,300, an increase of about 30%. This may be considered a very
good achievement.

The projects were spread across several sectors. Marked increases, above 50%, were achieved
in  the  transport  sector  (full  description:  “Transport  including  land  transport,  railways,  taxi,
water  transport,  travel  agencies,  storage  and  telecommunications”)  and  in  education  and
health.

The bulk of the employment at the end of 2001 was in the age groups 25-34 years old (38%)
and 35-54  years old (40%),  with the vast majority (86%) being  full time employment. (One
specialist company declared more than 1,000 part time employees working for only 5 days a
year and this figure was adjusted so as not to distort the overview.) The overall male:female
split was approximately 2:1.

More  than  72%  indicated  that  the  loan  was  decisive  in  carrying  out  the  project  as  intended
whereas less than 10% thought that the investment project would have gone ahead as planned
if the loan had not been available.

A  breakdown  of  the  job  creation  achieved  (end  2001)  was  made  by  country  and  size  class.
The average size of an SME was fewer than 10 employees. The population was split by size
class  by  number  of  employees  on  application  as  follows:  0-1,  2-4,  5-9  and  10  or  more.  It
should be noted that some of the schemes that are guaranteed by the SME Guarantee Facility
restrict their loan portfolios to a maximum of 10 employees per SME.

An average of about 2.5 jobs per company was created (rising from an average company size
of about 8.2 to an average of just under 11) with a contribution from the top size class (i.e. 10
or more employees) of 3.9 (with the average rising from 26.5 to about 30.4). When only those
enterprises  that  declared  an  intention  to  create  jobs  are  analysed,  the  average  rises  to  3.9
(average size from 7 to 11). Averages rise significantly in all size classes but particularly in
the top size class to 6.8 (average size from 28 to 35). The contribution to this job creation was
most marked in France and Spain (in Denmark the sample is small), with a solid achievement
in Germany.

Examination  of  the  percentage  job  creation  shows  a  significant  increase  in  employment
created  by  micro-enterprises  (fewer  than  10  employees).  They  form  over  90%  of  the  total
beneficiary population and reported that the increase in jobs was of the order of 86%.

31

 
Prospects for employment were not, however, as high when projected forward to the end of
2002  and  2003.  A  significant  number  of  enterprises  did  not  attempt  to  predict  employee
numbers  in  the  questionnaire  for  2002  and  2003.  It  was  taken  that  the  latter  would  at  least
maintain the numbers they predicted for the end of 2001 in 2002 and from 2002 to 2003. With
this assumption, the responses were modified and the rises then predicted were approximately
8.5% and 10% in successive periods.

The  result  was  approximately  1  new  job  per  company  in  each  of  2002  and  2003,  which
seemed  to  indicate  that  the  bulk  of  the  job  creation  had  already  taken  place  by  the  end  of
2001. The top size class reported a higher level on average for 2003, at around 2.6.

Training

Training  declared  was  only  2.5  man-days  per  employee  overall.  It  may  be  that  the  smaller
enterprises operating in traditional sectors do not always see the importance of investment in
the training sector. In Germany, it was highest, reported as being 6.9, with the higher results
ranging from 2.8 in Austria, 3 in Denmark and 3.5 in Italy, Spain and Finland.

Appreciation of the Facility

The European nature of the Facility is not particularly well appreciated. Only in Italy and the
Netherlands  did  a  majority  of  the  participant  SMEs  know  that  the  loan  they  received  was
supported by a guarantee from the EU. Overall, about 53% were not aware of this fact and in
Sweden, none of the SMEs was aware.

A large majority of the SMEs (about 72%) were of the view that without the SME Guarantee
Facility support, their project would have been significantly delayed or scaled down (38%) or
would not have proceeded at all (35%). Less than 10% thought they would have proceeded as
originally planned. Such a reaction would tend to underline the usefulness of the Facility, as
indeed  would  the  number  who  responded  positively  when  asked  if  they  would  consider
applying  for  another  loan  to  support  further  investment.  Of  those  who  planned  further
investment  (about  58%  of  the  respondents),  about  82%  indicated  that  they  would  envisage
applying for another loan under the Facility. This indicates a high degree of satisfaction.

The vast majority (95%) thought that their project was important for the development of their
enterprise, with about 26% believing it to be crucial  to  its survival.  The main benefits were
perceived to be in increasing sales or turnover (56%) and developing new products or services
(33%).  The  efficiency  increases  seem  to  be  most  marked  in  the  area  of  production  systems
and processes (45%), but the results were significant in the areas of sales and marketing too
(39%)  and  finance  and  administration  (33%),  whereas  only  about  10%  perceived
improvement in research and development.

SME comments

Some  respondents  took  the  opportunity  to  give  free-form  comments.  Although  there  were
some negative aspects raised, this opportunity was largely used to give more precision to the
individual responses. Overall the pattern was, if anything, on the positive side.

32

 
6.8.

Conclusions and Recommendations

Relevance and Appropriateness

The  objective  of  the  Growth  and  Employment  Initiative  was  to  increase  the  availability  of
loan  finance  to  SMEs  with  growth  potential,  thus  enabling  them  to  create  jobs.  By  making
available  additional  finance,  the  SME  Guarantee  Facility  appears  to  be  an  effective  tool  as
part  of  a  set  of  measures  available,  in  particular,  to  smaller  SMEs  with  this  potential.  In
addition,  the  substantial  take-up  of  the  finance  would  seem  to  underline  its  relevance  and
appropriateness. Small businesses need access to finance with the associated financial advice
that  can  be  offered  by  skilled  financial  intermediaries  and  banks  that  are  close  to  the
customer.

Effectiveness

The SME Guarantee Facility has proven to be a very effective instrument reaching a sizeable
population  of  SMEs  active  in  a  wide  range  of  different  sectors  and  has  achieved  a  broad
geographical coverage in the EU.

The clear impression is that the Facility has been effective in enhancing access to finance for
smaller SMEs and in employment creation and would continue to be effective.  It should  be
confirmed  as  one  of  the  instruments  marketed  by  the  Commission  for  future  SME  support.
More than 90% of companies benefiting from a guaranteed loan had fewer than 10 employees
and there has been a significant increase in employment created by these micro-enterprises.

The majority of beneficiaries are in traditional sectors.

Efficiency

In making use of a network of financial intermediaries and their banking connections, it has
been  implemented  in  a  most  efficient  way,  as  it  takes  advantage  of  the  privileged  relations
that exist between banks and their clients. The management of the implementation by the EIF
has also allowed for a relatively small amount of human resources to be assigned from within
the  Institutions.  The  involvement  of  the  EIF,  which  is  implementing  other  programmes  in
parallel, takes advantage of its expertise and surely has a synergetic effect.

Added value

In  the  experience  of  the  operational  teams,  the  SME  Guarantee  Facility  has  resulted  in
additional  finance  being  made  available  to  SMEs  through  the  financial  intermediaries
operating the Facility.

In general, banks consider SME lending as less profitable because of the proportionally higher
unit handling costs, the relatively higher risk and the difficulty to carry out proper credit risk
assessment  due  to  the  lack  of  complete  information.  Therefore,  and  in  view  of  the  pending
modification  to  the  Basle  Capital  Accord,  access  to  loan  finance  is  likely  to  become  more
difficult for SMEs in the future.

Although it is difficult to prove that the results observed in the beneficiary population can be
attributed directly to  the effect of this  type  of  scheme, it  is nevertheless clear that  there  has

33

 
been  a  significant  positive  impact  within  the  population  of  the  SME  Guarantee  Facility.
Overall, there has been significant growth both in employment and in the operations of a large
number of SMEs that benefited from the Facility.

Lessons to be learned

Generally, there has been a good take-up of the Facility throughout the EU. The extension of
the Facility to EU accession countries, where access to finance is especially difficult, should
prove  particularly  beneficial,  assuming  that  a  sufficient  number  of  suitable  financial
intermediaries could be identified.

Perhaps  some  further  effort  should  be  invested  in  marketing  in  order  to  emphasise  the
European  nature  of  the  Facility  and  efforts  should  continue  to  extend  the  range  of  its
application in those Member States where the take-up has been less pronounced. The number
of participants continues to grow and future monitoring should be encouraged to confirm that
the positive trend continues.

The results achieved so far confirm clearly that the Facility responds to SMEs requirements,
in  particular  smaller  SMEs  with  fewer  than  10  employees.  It  should  be  considered  whether
further budgetary means could be applied in order to target more applications from start-ups.

34

 
2003/292 (COD)

Proposal for a

DECISION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL

amending Decision 2000/819/EC on a multiannual programme for enterprise and
entrepreneurship, and in particular for small and medium-sized enterprises (SMEs)
(2001-2005)

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article
157(3) thereof,

Having regard to the proposal from the Commission8,

Having regard to the opinion of the European Economic and Social Committee9,

Having regard to the opinion of the Committee of the Regions10,

Acting in accordance with the procedure laid down in Article 251 of the Treaty,

Whereas:

(1)

(2)

(3)

8

9

10

11

12

13

On  5  November  1997,  the  Commission  adopted  Decision  97/761/EC  approving  a
support  mechanism  for  the  creation  of  transnational  joint  ventures  for  SMEs  in  the
Community11.

The ETF Start-up Facility, the Joint European Venture (JEV) programme and the SME
Guarantee Facility were measures provided for in Council Decision 98/347/EC of 19
May  1998  on  measures  of  financial  assistance  for  innovative  and  job-creating  small
and medium-sized enterprises (SMEs) – the growth and employment initiative12.

The  multiannual  programme  set  up  by  Council  Decision  2000/819/EC13,  which  was
adopted  on  20  December  2000,  aims  at  improving  the  financial  environment  for
business,  in  particular  by  improving  the  functioning  of  the  ETF  Start-up  Facility,
amending  the  SME  Guarantee  Facility  and,  with  regard  to  JEV,  by  using  for  the
benefit  of  undertakings  planning  to  enter  into  a  transnational  partnership  the
commitments effected up until 31 December 2000 under Decision 98/347/EC.

OJ C , , p. .
OJ C , , p. .
OJ C , , p. .
OJ L 310, 13.11.1997, p. 28.
OJ L 155, 29.5.1998, p. 43.
OJ L 333, 29.12.2000, p. 84.

35

 
                                                
(4)

(5)

(6)

(7)

(8)

(9)

According  to  point  IV  of  Annex  II  to  Decision  2000/819/EC,  experience  has  shown
that the JEV programme needs to be simplified in order to enable SMEs’ requests for
financial  contributions  to  be  dealt  with  quickly  by  the  financial  intermediaries  and
Commission departments and to ensure that Community resources are used correctly.
It was also stated that the Commission was examining the possibility of adapting the
eligibility  criteria  in  order  to  respond  more  effectively  to  the  needs  of  SMEs  with
regard to cross-border investments, including those in applicant States.

On  10  September  2002  the  European  Parliament  adopted  a  resolution14  on  the
Commission  report15  on  the  Growth  and  Employment  Initiative,  where  it  notes  that
the JEV programme in its current form is no longer appropriate.

The  evaluation  of  the  Growth  and  Employment  Initiative  as  at  29  May  200216
concludes  that  the  take-up  of  the  JEV  programme  by  the  market  is  low,  the  job
creation  effect  limited  and  the  administrative  cost  very  high  and  that  JEV  should  be
phased out as soon as possible.

For  reasons  of  cost-efficiency,  the  Community  should  withdraw  progressively  from
programmes  that  involve  micro-management  of  small  amounts  of  money,  as  is  the
case with the projects financed under the JEV programme.

After  careful  analysis,  it  has  to  be  concluded  that  a  substantial  simplification  of  the
JEV  programme  is  not  possible,  since  any  substantial  change  to  the  structure  or
eligibility criteria of the programme would change its nature and therefore be outside
the scope of the legal basis (Council Decision 98/347/EC). Therefore it would not be
possible  to  use  the  remaining  committed  budget  nor  would  it  be  possible  to  use  the
budget for projects involving the accession and candidate countries.

The  budget  for  the  JEV  programme  was  committed  on  the  basis  of  framework
agreements signed with the financial intermediaries in the JEV network, thus creating
a  direct  legal  relationship  between  the  Commission  and  these  intermediaries.
Therefore  a  replacement  of  these  existing  framework  agreements  with  direct  legal
agreements between the Commission and SMEs, which, in this particular programme,
would  have  resulted  in  simplification  and  improved  protection  of  the  financial
interests of the Community, is not possible.

(10) Only  relatively  minor  procedural  changes  would  be  possible  without  losing  the
remaining budget, which are deemed to be insufficient to ensure that the programme
performs significantly better.

(11)

It  is  not  possible  to  use  the  remaining  committed  budget  for  projects  involving  the
accession and candidate countries, since this budget was committed under the Growth
and Employment Initiative (1998-2000) and is therefore reserved exclusively for those

14

15

16

Resolution  on  the  Report  from  the  Parliament  on  Growth  and  Employment  Initiative  -  measures  on
financial  assistance  for  innovative  and  job-creating  small  and  medium-sized  enterprises  (SMEs),
PE 316.350 of 24.7.2002.
Report from the Commission to the European Parliament and the Council on Growth and Employment
Initiative  -  measures  on  financial  assistance  for  innovative  and  job-creating  small  and  medium-sized
enterprises (SMEs), COM(2002)345 of 1.7.2002.
[COM(2003) 8.12.2003]

36

 
                                                
(12)

(13)

(14)

(15)

(16)

(17)

(18)

states that were members of the European Union and European Economic Area at the
time that Council Decision 98/347/EC entered into force.

Since  the  phasing-out  of  the  other  two  European  transnational  joint  venture
programmes  –  European  Community  Investment  Partners  (ECIP)  for  the  developing
countries  in  Asia,  Latin  America,  the  Mediterranean  region  and  South  Africa
(ALAMEDSA countries) in 1999 and the Programme to promote SME joint ventures
and  other  joint  agreements  (JOP)  in  the  Central  and  Eastern  European  Countries
(CEECs) and New Independent States (NIS) in 2000 – many financial intermediaries
in  the  JEV  network  have  scaled  down  or  ceased  this  activity  because  of  the  low
volume of JEV applications from SMEs with the result that in the majority of Member
States, in reality, it is no longer possible to apply for the programme.

In  view  of  the  clear  conclusion  of  the  evaluation,  it  is  not  considered  appropriate  to
propose to replace the JEV programme with a similar one.

The phasing-out of the JEV programme should not affect the rights and obligations of
the Community, the financial intermediaries and the beneficiaries (SMEs) that relate to
approved projects.

In order to respect their legitimate expectations, the financial intermediaries should be
able  to  present  applications for financial contributions for SMEs  for  a  certain  period
after this Decision has been adopted.

the  purpose  of  promoting 

For 
innovation,  research  and  development  and
entrepreneurship  by  SMEs,  as  requested  by  the  Barcelona  Council,  an  environment
favourable  to  private  sector  investment  in  research  and  development,  in  particular
through venture capital, should be encouraged.

The  Competitiveness  Council  of  26  November  2002  stated  that  Member  States,  the
Commission  and  financial  institutions  should  consider  how  to  improve  the  financial
framework for biotechnologies.

The European Parliament requested, in the report on life sciences and biotechnologies
of 21 November 2002, that the Commission should identify how to overcome the issue
of insufficient funding regarding biotech start-ups and asked the European Investment
Bank to give favourable consideration to follow-up actions.

(19) Decision 2000/819/EC should be amended accordingly,

HAVE ADOPTED THIS DECISION:

Article 1

Decision 2000/819/EC is amended as follows:

(1)

Annex I is amended as follows:

(a)

In  the  first  indent  of  point  4(a)(i),  the  first  sentence  is  replaced  by  the
following:

37

 
“by investing in relevant specialised venture capital funds, particularly in seed funds,
smaller  funds,  funds  operating  regionally  or  funds  focused  on  specific  sectors  or
technologies, or venture capital funds financing R&D, e.g. funds linked to research
centres and science parks which in turn provide risk capital for SMEs.”

(b)

In point 4(a)(i) the following indent is added:

“–

the  start-up  phase  is  normally  defined  as  up  to  5  years.  However,  for
companies  in  specific  high  technology  sectors,  in  particular  life  sciences,  the
start-up phase can be up to 10 years, due to the extended pre-commercialisation
product  development  and  testing  phases  that  are  characteristic  of  these
particular sectors.”

(c)

In point 4(a)(iv), the following subparagraphs are added:

“The Joint European Venture programme shall be phased out.

The  financial  intermediaries  may  present  applications  for  financial  contributions
from  SMEs  to  the  Commission  until  [date  of  entry  into  force  +  115  days  -  to  be
entered at the moment of publication].

Applications and projects shall be dealt with according to Article 4 and Annex II of
Council Decision 98/347/EC.”

(d)

In the first indent of point 5, the word “fifth” is deleted.

(2)

In Annex II, point IV is deleted.

This Decision  shall  enter  into  force  on  the  20th  day  following  its  publication  in  the  Official
Journal of the European Union.

Article 2

Done at Brussels,

For the European Parliament
The PresidentThe President

For the Council

38

 
1.

2.

3.

4.

5.

FINANCIAL STATEMENT

BUDGET HEADING:
B5-511

DATE:
APPROPRIATIONS:

TITLE:
Multiannual  programme  for  enterprise  and  entrepreneurship,  and  in  particular  for  SMEs
(2001-2005): improvement of the financial environment for SMEs

LEGAL BASIS:
Council Decision 2000/819/EC

AIMS:
The Community financial instruments are developed with a view to improving the
financial environment of SMEs.
FINANCIAL IMPLICATIONS:
B5-511  "Programme  for  enterprises:  improvement  of  the  financial  environment  for
SMEs":
This  amendment  has  no  financial  implication  on  the  current  commitment  and  payment
appropriations  of  the  ETF  Start-up  Facility,  Seed  Capital  Action  and  SME  Guarantee
Facility for the year 2003 and onwards.
B5-512 
2000)":
However, the closing of the JEV programme, which is funded under the B5-512 based on
the Council Decision 98/347/EC of 19 May 1998, will generate a decommitment which is
currently estimated to amount to +/- EUR 43 million. The exact amount of decommitment
can only be established when all projects have been closed, which will not be before 2007

the  Employment 

"Completion 

initiative 

(1998 

of 

to 

OBSERVATIONS:
The original estimates for commitment of the budget for JEV under the Growth & Employment
Initiative  (1998-2000)  were  EUR  20m  in  1998,  EUR  30-40m  in  1999,  EUR  30-40m  in  2000.
The actual gross commitments for these years were EUR 0.4m in 1998, EUR 3.9m in 1999 and
EUR  3.4m  in  2000.  In  addition,  EUR  1.25m  was  committed  between  December  1997  and
December 2000 for the Technical Assistance Office contract.
Forecasts for subsequent JEV budgetary commitments were EUR 22.8m in 2001, EUR 37m in
2002 and EUR 50.3m  in 2003.  The  actual  gross commitments  were EUR  3.2m in  2001,  EUR
3.7m in 2002 and EUR 1.2m up to 14.10.03. As at 30.9.03, only EUR 2 400 462 had been paid
out (excluding costs for the Technical Assistance Office).
Overall  it  was  expected  that  almost  1  300  joint  venture  projects  would  be  supported  but  by
30.9.03  agreements  for  only  155  such  projects  had  been  signed  (approximately  12%  of  the
original estimate). It should be noted that even this very low level of commitments substantially
overstates  the  amount  that  will  ultimately  be  paid  out  to  beneficiaries,  since  for  each  project
approved a commitment of EUR 100 000 (the maximum that a beneficiary might theoretically
be entitled to) is made. The final cost per project is almost invariably much lower, resulting in a
decommitment when the file is closed. For this reason, actual use of the budget might ultimately
be less than 5% of original estimates.

39