European Funds and their effects on regional economies

Evidence on the effects of European funds on regional economies is scarce

It is a necessary condition for the economic and social development of regions that they favor not only mature infrastructure systems suited to the needs of their citizens and companies, but also that they benefit from investment through financial mechanisms that promote territorial cohesion, the creation of employment, increased competitiveness and, of course, that enables the business community to generate economic and social returns in the economy where they operate.

European funds had a huge influence on Portugal's economic development. According to the Bank of Portugal's Revista de Estudos Económicos, it is estimated that Portugal will have benefited from European funds an amount equivalent, on average, to 1,7% of GDP per year by the end of 2021.

However, even though there is a great benefit from European funds for the Portuguese economy, the evidence on their effects on regional economies is scarce, and there are also inefficiencies in terms of project execution in some cases.

It is worrying to note that there are still difficulties in analyzing and highlighting the effects and added value of European funds on economies.

And here, who is responsible? Who handles the Operational Programs (OP) or the final beneficiaries?

Regarding the issue of execution, let's look at the case of the Recovery and Resilience Plan (PRR) which has an execution period until 2026, however, as of November 1, 2023, and according to data from the Recuperar Portugal Portal, the PRR had an execution of 21%, around €909 million euros executed, that is, paid to direct and final beneficiaries.

It is worth asking: if we are halfway through the program and not even half of the execution is visible, what will its execution be like by the end of 2026?

In fact, it is important to put in place actions aimed at faster execution of these funds, because, if the planned execution was 16.6 billion euros by December 31, 2026, that is, around 3.3 billion euros per year, After the recent reprogramming of the PRR, how will around 5 billion additional euros per year be implemented?

The mission of executing so much money was already difficult and herculean, with this increase in the allocation, public entities and companies will have a demanding job until 2026.

I believe that, when planning the financial execution of projects of this magnitude, some notion and realism are necessary, as haste is the enemy of perfection. It is unanimous that we all want these funds to be fully implemented and to benefit from their positive externalities.

Regarding the positive effects of European funds on economies, regions and companies, there is already evidence of their impact on companies.

According to a study by the Bank of Portugal's Revista de Estudos Económicos, after approval and decision, companies that benefited from financing present: “higher levels of employment, turnover, gross value added, productivity, capital ratio in assets and export intensity.

Although statistically significant, the effects on productivity are lower than those found for the other variables” and on this last point, it was in fact important that there was a greater impact on productivity, as it would certainly improve indicators of economic development and the economic and social impact of these companies in the regions where they operate and are located.

In general terms, at the regional and local level, the positive effect of European funds may be somewhat intangible, but “visible” in terms of the provision of services to populations by public sector organizations.

For example, under the PRR, the construction of a new health center in a locality could improve indicators of accessibility to primary health care and also increase the number of population covered by this type of health services.

However, this analysis will make more sense in the long term, when the investment is more mature, but it makes sense to carry out subsequent follow-up and monitoring of these projects in order to identify and characterize the gains and positive externalities generated.

Finally, it would be important for the funds to be managed in a more decentralized way, that is, closer to the reality of the regions' economic and social fabric.

Coordination and Development Committees, Municipalities and other local entities could, through the transfer of more skills in the area of ​​fund management, benefit from more effective and subsidiary management. In fact, in the case of the Algarve, there is already an example that will be notable for the quick and agile management of funds, which consists of the management of 180 million euros of community funds directed to Algarve municipalities by AMAL – Comunidade Intermunicipal do Algarve.

In short, learn from past and current mistakes, in favor of the good use of public and community capital, so that they can continue to be an instrument for the economic development of regions and their populations.


Author Ricardo Proença Gonçalves has a degree in Business Management and a Post-Graduate Degree in Management of Health Units, from the Faculty of Economics of the University of Algarve. also holds a Executive Program in Management Control and Performance Assessment at Nova SBE. He is also an effective member of the Algarve Regional Delegation of the Order of Economists and a member of the think tanks «Thinking Algarve».

Note: article published under the protocol between the Sul Informação and the Algarve Delegation of the Economist Order




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