"SMEs in the Strengthening of the European Defence Technological and Industrial Base"

European Commission

[Check Against Delivery]

European Commissioner for Industry and Entrepreneurship

"SMEs in the Strengthening of the European Defence Technological and Industrial Base"

SMEs and EDTIB Seminar

La Spezia, 10 October 2014

Dear Minister Pinotti,

Dear Ministers,

Honoured guests,

Ladies and gentlemen,

Introduction

I would like to thank Minister Pinotti for having invited me to this important event.

This seminar gives us the opportunity to speak about SMEs and their importance in strengthening the European Defence Technological and Industrial Base (EDTIB).

SMEs play a central role in our economy.

They represent 99% of Europe's businesses and create more than two thirds (2/3) of employment in the private sector. No less than 58 cents of every euro value added in the European economy comes from SMEs.

Just last week I held a keynote speech at the 2014 SMEs Assembly that took place in Naples. This annual event that was co-hosted by the European Commission and the Italian Presidency set the stage for a major debate on a number of vital questions facing EU competitiveness.

The Roadmap

After many years of almost exclusive focus on the challenges posed by the economic crises, the European Council last December finally returned to the issue of defence.

This was timely and critical as it set out a clear framework to establish a meaningful Common Security and Defence Policy (CSDP). While it is clear that the majority of the burden falls on Member States, the European institutions keep an important role. This includes, as the European Council recognises, the Commission and our key role is to support the development of a robust, competitive and innovative European Defence Technological and Industrial Base.

Our plans in this area were set out in our Communication of 2013 and in the implementation Roadmap that followed. This Roadmap takes into account the priorities which the European Council set last December. For the Commission these are:

• 1) 

  Full implementation of the two Defence Directives ;

• 2) 

  EU-wide security of supply ;

• 3) 

  Dual-use and CSDP-related research ;

• 4) 

  Support for SMEs ;

Importance of defence-related SMEs

I am proud that the Commission has put support for SMEs high on its agenda. SMEs have had to navigate through difficult times and this is particularly true for defence-related SMEs.

They are confronted with shrinking national demand, time consuming and costly rules and regulations, difficulties in getting the necessary financing and they operate in fragmented markets while functioning as essential building components in what are usually complex production chains.

For example, the supply chain of the German Leopard II tank involves no less than 1,500 companies, many of which are SMEs. At the same time they are the driving force of innovation, economic growth and job creation. They can be found in all Member States and provide an estimated 17% of all defence sales in Europe. An important reason for this is that the strength of the European defence sector lies in its ability to cross-fertilise with other industrial sectors.

Take for example the Eurofighter Typhoon, Europe’s largest military aircraft programme in which Italy is a key partner. This programme is estimated to have created 100,000 highly skilled jobs spread over 400 companies, many of which are SMEs. It also inspired technology spin-offs to civil aircraft and automobile industries, including Formula 1 cars in Italy, for a total value of at least €9 billion.

We are moving towards a world in which defence equipment incorporates civil components and technologies and where defence companies are more and more active on civil markets.

Most defence-related SMEs already generate between 39% and 62% of their total sales on the civilian market. This increased cross-fertilisation is opening up new business opportunities which should be supported by a well-functioning internal market.

Looking at the Internal Market

One crucial way to support SMEs is to foster access to all markets rather than just their domestic one. A first step in this direction is to ensure the full and correct implementation of the Procurement and Transfer Directives.

Focusing on the Transfers Directive, it is important to stress its support for a genuine internal market by introducing a new simplified system of licensing and certification of defence companies. The objective is to reduce the administrative burden on both Member States and industry for transfers within the EU.

A recent study shows however that smaller companies in particular consider the certification process to be burdensome and time-consuming and do not see many advantages in using the new licencing system introduced by the Directive.

We are urgently addressing this by discussing with Member States and the industry how to better raise awareness of the benefits of the new system and to have a more harmonised approach in its implementation.

As to the Procurement Directive, the Commission will monitor the defence markets. We will also clarify the use of certain exclusions from the Directive, namely government-to-government sales and purchases via international organisations and agreements. We do not intend to prohibit or limit the use of these exclusions, but to ensure legal certainty for contracting authorities who use them.

The Commission will also continue working towards the phasing out of offsets which are contradictory to the logic of the Single Market. We are aware, however, of concerns expressed by some Member States that without offsets, their SMEs would not get access to the market. To overcome this, we will work with stakeholders towards non-discriminatory alternatives for facilitating cross-border market access for SMEs and to improve the application of the sub-contracting provisions of the Procurement Directive.

This is why the Commission will establish an Ad-hoc Advisory Group by the end of this year. This Group can help us in preparing concrete proposals for action for the European Council of June 2015.

Industrial policy actions and practical support

At the same time, we also want to look at practical ways with which we can directly support Europe's defence-related SMEs and we want to start doing so as soon as possible.

I am therefore proud to present to you our NEW guidance document for SMEs and Regional Authorities dealing with the availability and the eligibility rules for accessing EU funding for dual-use projects.

This guide is there to help SMEs access the funding instruments and to help regional authorities in developing dual use strategies and ensuring synergies between the different EU funding sources.

We have committed ourselves to offer practical guidance to SMEs on how to access the many powerful instruments that the EU has at its disposal. I refer here in particular to COSME, Horizon2020 and the Structural and Investment Funds.

For the first time, the EU has launched a programme for the competitiveness of SMEs, COSME, with a budget of €2.3 billion.

A first priority of COSME will be to tackle access to financing. One third of SMEs that request a loan in Europe are being refused. Through the COSME financial instruments, guarantee loans and equity investment can be made available.

Another priority is access to new markets. COSME will for example support the establishment of European Strategic Cluster Partnerships. These Partnerships can be used to bring defence-related clusters in contact with other industrial clusters, build joint strategies towards third countries and better support SMEs in global competition.

Following a bottom-up approach, it will be up to the defence industry to seize the opportunities and respond to the calls for proposals that are expected for November 2014.

COSME is also funding the Enterprise Europe Network which can help defence-related SMEs develop new business opportunities in other sectors through networking and partnership, internationalisation of their activities, and technology transfers. The Network is an excellent tool to promote civ-mil cross-fertilisation for dual use products, as it has so many relevant industrial sectors on board, such as ICT, Maritime, Nanotechnologies and Aerospace.

The biggest EU Research and Innovation programme Horizon 2020 with a budget of €80 billion over seven years provides, amongst others, funding for early stage, high risk research and innovation by SMEs.

Whereas Horizon 2020 has an exclusive civilian focus, it covers many areas with high dual use potential such as Security Research and Key Enabling Technologies (KETs). Currently, a Working Group of the High Level Group on KETs is examining how the dual use potential of KETs could be further accelerated.

The Commission is also exploring the best way for establishing the Preparatory Action on CSDP-related research. This Preparatory Action would be outside of Horizon 2020, run for maximum 3 years and probably have a budget of not more than €50 million. This initiative will also provide opportunities for SME to play an important role.

And lastly we should not overlook the potential of the ESIF. Over the period 2014-2020 more than €140 billion in regional funding will be available for investment in innovation and industrial competitiveness. Another €74 billion will be invested in skills, training and smart qualifications.

Clearly, this money cannot be invested in projects with a purely military nature. However, there is a large - and often untapped - potential for dual-use projects and technologies.

Let me give you an example:

In February 2014, a pilot project supported by the EDA began under the name of ‘TURTLE’. The project is led by “SME” (Silva Matos Metalomecanica), but involves also a technology laboratory, a school of engineering, and a navy research center. It became the first project to receive co-funding for dual-use development.

The co-funding is worth €770.000, that is 60% of the total project cost, and supports the development of a robotic vehicle for underwater operations that can be used for both civil and defence applications. I think this is also an excellent example that demonstrates the importance of clustering.

But we do not want to stop with publishing a guidebook. We also have taken a number of other actions aiming to help the defence community further exploit the potential of these sources of funding:

Firstly, the publication will be supported and supplemented with seminars and workshops across the EU to raise awareness with interested Regional Authorities and defence-related SMEs. The next event will be on “Dual use and smart clustering”, to takes place the 25th of November, hosted by the European Commission, the European Defence Agency and the Association of Regional Development Agencies (EURADA).

Secondly, the Commission will support the creation of a defence related regional network. Such a network will aim to disseminate best practice in accessing the European Structural and Investment Funds but also help regions and Member States to integrate defence into smart specialisation strategies.

Thirdly, the Commission will continue to work closely with the European Defence Agency.

Next to these concrete steps, there are of course other important actions in our implementation report which are of relevance to SMEs, such as in the areas of security of supply, standardisation and raw materials, to name only a few.

Conclusions

The competiveness of the European defence industry is a priority for the Commission and the future strength of European Defence Technological and Industrial Base will depend on SMEs, as much as on the biggest companies.

The conclusions of the European Council have paved the way for the years to come. The Commission will do its part.

We will work in a transparent way and in close collaboration with the Member States, the EDA, key partners and the industry.

I think today's Seminar offers an excellent opportunity to discuss how we could cooperate together to take full advantage of the new instruments and tools that will be available in the coming years. We will need to work together for a European defence industry that is more competitive, integrated and innovative. We need an industry that gives Europe a strong and independent voice on the global stage.

Thank you for your attention.