Promoting competitiveness in low-income and low-growth regions

See also IP/17/893

Why issue a report on those regions that are lagging behind?

Studying why some regions have a persistent lack of growth or remain far below the EU average GDP per head can identify important bottlenecks to growth. The report argues that moving to the next level of development cannot be accomplished by a one-size-fits-all policy, but requires regionally differentiated investments and policy responses.

It also assesses the effectiveness of regional development strategies mixes and how Cohesion Policy investment supports these in line with the region's specific needs. This can enhance a region's competitiveness - and that of Europe as a whole.

What are ‘low-growth' and ‘low-income' regions?

‘Low-growth regions' cover less-developed or transition regions (regions with a GDP per head up to 90% of the EU average) that did not converge with the EU average between 2000 and 2013. These are regions in Greece, Spain, Italy and Portugal.

‘Low-income regions' cover all regions with a GDP per head below 50% of the EU average in 2013. This group includes several less-developed regions in Bulgaria, Romania, Hungary and Poland.

Overall, both groups of regions score well below the EU average in terms of employment rates, research and development as a share of GDP, institutional capacity and accessibility. While unemployment rates are higher in low-growth regions, low-income regions score lower on competitiveness and social progress indices.

Why haven't these regions reached the expected level of growth or income?

Both low-income and low-growth regions have lower productivity, educational attainment and employment rates compared to the other regions in their countries. Their competitiveness potential is undermined by underdeveloped regional innovation systems, with a lack of efficient interactions between academia and the business sphere, skills gap and poor institutional capacity.

Low-income and low-growth regions are more vulnerable to a poor economic framework and a lack of structural reform as their labour market performance and business dynamics tend to be weak. The effects of the crisis were particularly exacerbated in countries with low-growth regions, which saw the levels of public and private investment drop sharply and some of their economic advances wiped out.

As for low-income regions, they suffer from significant population losses and the out-migration of the younger and more educated population limits their growth prospects. These regions also still face significant gaps in their infrastructure.

What are the solution put forward by the report and what Cohesion Policy tools could be used to support them?

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  Improving the investment environment

The experience of both types of regions provides further evidence that investment policies can only deliver full results in an environment that is conducive to growth and investment. It underlines the need for structural changes in order to maximise the impact of EU, national and private investments.

The Cohesion Policy preconditions for successful investments can be powerful incentives to conduct needed structural and legislative changes. They support the implementation of Country Specific Recommendations and help tackle bottlenecks to investments. For example, they have required Member States to improve and simplify the regulatory and policy environment for SMEs, where needed, with measures to reduce the time and cost involved in setting up a business.

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  Developing innovation, human capital and skills

Obstacles to growth can be overcome by virtue of Smart specialisation strategies. These strategies would help focus R&D investments in a limited number of areas according to the competitive assets of each region. They would also help identify opportunities for public private partnerships and for better interaction between businesses, industry, research centres and higher education institutions. Smart Specialisation platforms can foster interregional cooperation based on similar competitive strengths.

Investments in skills and human capital, via lifelong learning and vocational training, should be prioritised, especially in low-income regions. Attention needs to be paid to the insertion of university graduates into the labour market, avoiding problems of mismatch between educational supply and labour demand. €34.5 billion of Cohesion Policy will be invested in educational and vocational training over the 2014-2020 financial period.

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  Ensuring better accessibility and linking cities with surrounding areas

As both types of regions continue to urbanise, better linking cities to the surrounding areas and improve accessibility is essential in order to generate positive spill overs from the urban economic engines to the entire region. Cohesion Policy investments in transport infrastructure, especially along key European networks will improve the competitiveness of low-income regions.

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  Strengthening institutional quality and administrative capacity

Strengthening institutional capacity and improving the efficiency of public administrations, by increasing the accessibility, transparency and accountability of public services, promoting e-government, reducing regulatory red tape and modernising public procurement will be key to the success of regional development strategies, especially in low-growth regions.

In addition to the Cohesion Policy preconditions aiming at reinforcing institutional set-ups and the specific Cohesion Policy envelope dedicated to this priority, the Commission launched a number of initiatives (see MEMO 15/4654 ‘Improving how EU Member States and regions invest and manage EU Cohesion Policy funds') to boost administrative capacity when dealing with EU funds, which can be beneficial for public administrations overall.

The report presents as well concrete ideas to address obstacles to growth worked out within the initiative. Examples from pilot regions in Poland and Romania, aimed at improving local business conditions, show how Cohesion Policy can trigger an economic change.

MEMO/17/895