EU investment programmes are crucial drivers of economic development, drawing considerable attention from both public authorities and private companies within the Union. Well-informed discussions on the topic are necessary to ensure transparency, accountability, and effective allocation of resources for all stakeholders’ benefit. However, despite being extensively debated, the functioning of such programmes is not always clear to people due to their high technicality. This is where expert consultancies like Lykke Advice can step in.
In this second opinion article from our SMEs series, our endeavour is to provide clarity on the nature of the InvestEU Programme and its potential advantages for European enterprises.
The InvestEU Programme: An Overview
InvestEU is an EU flagship investment programme launched in 2021 and runs until 2027, aimed at strengthening the European economy by supporting investment, innovation, and job creation in Europe. Drawing on the successful example of the Investment Plan for Europe (or so-called “Juncker Plan”), which mobilised more than €500 billion between 2015 and 2020, InvestEU intends to facilitate the EU’s recovery from the COVID-19 pandemic and provide the crucial long-term funding needed for the transition to a more sustainable and resilient Union.
Like other EU initiatives, InvestEU does not operate in isolation; rather, it forms an integral part of the NextGenerationEU recovery instrument and of the Multiannual Financial Framework. As such, its priorities align with those of the Recovery and Resilience Facility (RRF), the key financial instrument of NextGenerationEU that makes available €723 billion in loans and grants to support reforms and investments undertaken by Member States. The two tools are meant to be complementary: while InvestEU is intended to encourage long-term private investment in EU priority areas, the RRF provides funding for public investment projects and encourages reforms to create a more favourable environment for private investment.
The InvestEU Fund: Priority Areas and Allocation
Though commonly mistaken for a fund, InvestEU is, in fact, a programme comprising three interconnected components.
While not the only element, the fund is undeniably the cornerstone of the programme, especially considering its unique scale and efficiency. Indeed, the InvestEU Fund brings under the umbrella of a single fund thirteen centrally managed EU financial instruments, along with the European Fund for Strategic Investments (EFSI).
The InvestEU Fund is expected to mobilise more than €372 billion of public and private investments through a €26.2 billion EU budget guarantee, which is allocated across four key policy areas as follows:
- Sustainable Infrastructure (€9.9 billion): This area focuses on promoting sustainable and smart infrastructure solutions, including in the fields of transport, energy, digital, space, tourism, and environmental infrastructure;
- Research, Innovation, and Digitisation (€6.6 billion): This area aims to increase Europe’s competitiveness and technological leadership. It supports research and innovation activities, including digitisation and artificial intelligence;
- Small and Medium-Sized Enterprises (€6.9 billion): This area is dedicated to improving access to finance for SMEs, helping them innovate, expand, and create jobs;
- Social Investment and Skills (€2.8 billion): This area supports investments in human capital, such as education and training, as well as social inclusion and the development of healthcare and long-term care sectors.
In addition to this part of the Fund dedicated to investments that benefit the Union at large (known as “EU compartment”), Member States can also contribute additional funds to the EU guarantee by setting up their own compartment and by voluntarily channelling to this latter a portion of their Cohesion Policy Funds or Recovery and Resilience Facility funds. By doing so, Member States can use the InvestEU Fund to back up investments in projects that are part of their recovery and resilience plans. This dual approach ensures that funds benefit both the EU as a whole and individual countries.
Operational Dynamics: Roles and Responsibilities of Financial Institutions
The guarantee available under the InvestEU Fund is implemented via selected implementing partners. These include the European Investment Bank (EIB), international financial institutions, and national promotional banks. Such openness to a broad spectrum of institutions represents a remarkable innovation for an EU fund, which not only fosters diversification, but also leverages varied expertise, boosts investment potential, and harnesses local insights, thereby maximizing the overall impact of the fund.
Notably, implementing partners are expected to contribute at least 25% in risk-bearing capacity, meaning that they all share a portion of the risks associated with the investments and are expected to cover at least 25% of the potential risk or loss. Furthermore, 40% of the EU budget guarantee (i.e. €10.5 billion) is set aside to cover losses if the investments do not perform as expected. Both mechanisms contribute to limiting potential losses for financial partners, thereby encouraging investment activity.
Beyond Financing: The InvestEU Advisory Hub and the InvestEU Portal
To complement the InvestEUFund, two matchmaking tools exist to facilitate connections between stakeholders and strengthen the overall business environment: the InvestEU Advisory Hub and the InvestEU Portal.
The InvestEU Advisory Hub is a platform that provides advisory support and technical assistance for the preparation, development and implementation of investment projects. Managed by the European Commission, it connects project promoters and intermediaries with advisory partners selected by the Commission. These may be national promotional banks and entities, international financial institutions, executive agencies, or external service providers. For instance, particularly relevant for small and medium-sized enterprises are the Enterprise Europe Network (EEN), which is the world’s largest support network for SMEs with international ambitions, and the European Union Intellectual Property Office (EUIPO), which is designed to improve SMEs’ understanding of and access to intellectual property.
Advisory projects cover all four policy windows of the Fund, but additional horizontal advisory services are offered to provide support to initiatives that span across multiple areas. Special attention is also placed by advisory partners on sectors and industries where there is a significant investment deficit.
While most advisory initiatives are linked to specific InvestEU financial products, the InvestEU Advisory Hub does not require its beneficiaries to apply for financing through the InvestEU Fund, nor does it guarantee them access to it. Applications for financing and advisory support must be submitted separately and are evaluated based on their respective eligibility criteria. When requesting advisory support, applicants are asked to provide details about their proposal and indicate their specific needs. Based on their responses, they are recommended one or more advisory partners that could fulfil those needs.
Also aimed at connecting project promoters and investors is the InvestEU Portal. By offering a single database of investment opportunities available across the Union, as well as in Norway and Iceland, the Portal enables potential investors to easily discover pre-checked quality projects that they may not have otherwise come across.
Both submitting projects for publication and reaching out to project promoters require creating a profile on the Portal. Additionally, projects must fulfil admission and eligibility requirements that ensure their compatibility with EU laws and policies and their alignment with the InvestEU Programmes’s objectives.
From Theory to Practice: Not all that Glitters is Gold
Despite its great potential, the InvestEU Programme has not escaped criticism. Quite the opposite, it has faced considerable scrutiny since its launch.
The foremost critique it has received relates to its burdensome bureaucracy. As we have just seen, the program’s structure is intricate, with different compartments having their specific rules. Additionally, the segmentation into four policy areas further complicates an already articulated mechanism. The government structure is no less intricate, requiring seamless collaboration between the European Commission and the European Investment Bank Group (EIBG). Any misalignment or miscommunication between these institutions can hinder the effective execution of the programme.
From the perspective of applicants, the process is equally demanding, involving various administrative steps. Meeting eligibility criteria for all three components of the Programme (the Fund, the Hub, and the Portal) might be challenging for SMEs, because it involves demonstrating that their projects have a clear European added value, and this might require a certain familiarity with EU funding mechanisms. Likewise, collecting useful documentation, including financial forecasts, market analysis, and technical specifications might not be an easy task for companies with limited size and resources.
Another critical aspect raised in evaluating the InvestEU Programme pertains to the alleged lack of transparency. Ensuring accountability and accurate reporting might indeed be difficult, even more so because the evaluation has to be balanced with timely execution. While excessive caution may deter potential investors, insufficient scrutiny could lead to suboptimal outcomes.
This brings us to a third and related criticism: the risk of fund misallocation. Despite the formal commitment to inclusivity and additionality (which consists in directing resources towards suboptimal investment situations), concerns have arisen regarding the distribution of the fund.
Harnessing InvestEU for Business Growth
In conclusion, the InvestEU Programme stands out as a unique mechanism that brings together diverse stakeholders and links them with projects in need of both technical and financial backing.
Despite the highlighted shortcomings of the system and the challenges that enterprises may face in accessing the Programme, InvestEU remains an opportunity that companies – and especially SMEs – cannot afford to miss.
Are you interested in unlocking the potential of InvestEU and other EU funding programmes? Lykke Advice can provide strategic guidance and help you align your objectives with the priorities of EU funding programmes. Furthermore, we can assist you throughout the whole application process, from proposal development to partner identification and grant application submission. By leveraging our knowledge of EU funding mechanisms and networks within EU institutions, we can facilitate your access to funding and enhance the impact of your projects!
by Farweb