The Impact of EU Structural Funds on Polish Small and Medium-sized Enterprises

TABLE OF CONTENTS

Introduction

1. EU definition of small and medium-sized companies (SMEs)

2. SMEs in Poland: definition, number, activities

3. EU Structural Funds for Poland
3.1. Sectoral Operational Program (SOP) for higher competitiveness of Polish SMEs acting on the Common Market
3.2. Restrictions in the SOP for higher competitiveness of Polish businesses
3.3. Polish institutions involved in the SOP for higher competitiveness of Polish SMEs

4. Conclusion: Possible impacts of EU Structural Funds for Polish SMEs

REFERENCES

INTERNET REFERENCES

Introduction

Poland´s accession to the EU in May 2004 is supposed to have positive long-term effects on the Polish economy. In the short-term it has considerably charged Polish companies with the burden of new costs and challenges linked to the EU accession, for instance adopting the EU´s environmental or quality standards. Particularly small and medium- sized, who are particularly sensitive to the changes in their business environment, struggle with the challenges of the EU accession and are seriously concerned by the increased competition on the internal market^[1]. To cushion up these effects the EU supports Polish SMEs by means of different Community funds, whose legal basis can be found in Art. 130, 130a and 130b of the Treaty of Maastricht, stipulating that:

“In order to promote its overall harmonious development, the Community shall develop and pursue its actions in leading to the strengthening of its economic and social cohesion. [...] encouraging an environment favourable to initiative and to the development of undertakings throughout the Community, particularly small and medium-sized undertakings [...]

The Community shall also support the achievement of these objectives by the action it takes through the Structural Funds (European Agricultural Guidance and Guarantee Fund, Guidance Section; European Social Fund; European Regional Development Fund), the European Investment Bank and other existing financial instruments.”^[2]

The special support for SMEs is mainly due to the fact that this economic sector makes up for 99 % of businesses in the EU and forms the cornerstone of the Common Market. Moreover according to economists small and medium-sized companies predominantly contribute to the economic growth, to the capacity of innovation and to the employment of a given country. On the other hand it must be acknowledged that the development of SMEs depends on the shape and vitality of the macroeconomic climate of a given country, as well as economic policies undertaken by the government.

This fact is acknowledged by the distribution of EU Structural Funds for SMEs.

However, creating beneficial conditions for the development of SMEs and supporting them with financial assistance, marks an exception in the EU competition law, that in Article 87 Treaty of the European Union, generally prohibits any state aid for private companies^[3].

After all, this forms the political and legal framework for the EU Structural Funds that will be granted to Polish SMEs.

This paper tries to explain how Polish SMEs can benefit from the EU Structural Funds in the years 2004-2006, how much money at stake there is and which activities and investments by SMEs are supported from these EU funds. This paper will further enlarge upon the process of obtaining EU funds for SMEs, pointing out the Polish institutions involved in this process. In the conclusion the question of the possible impact of these strucural funds for Polish SMEs will be tackled.

1. EU definition of small and medium-sized companies (SMEs)

Since there exists no universal, final or binding definition of SMEs in the countries across Europe, the EU has set out its own definition of SMEs, that concerns all Community policies within the European Economic Area. According to the Recommendation 2003/361/EC, that has been adopted on 6 May 2003 and will come in to force on 1 January 2005, the EU classifies enterprises with up to 49 employees, a turnover and balance sheet total of €10 million as small companies, enterprises with up to 250 employees, a turnover of €50 million and a balance sheet total of € 43 million as medium-sized companies. Enterprises that employ less than 10 people and have a smaller turnover are considered as micro-companies. Additionally, the EU defines that no more than 25 % of the companies´ actions may belong to another company, to guarantee that the enterprise is not a part of a larger holding^[4].

2. SMEs in Poland: definition, number, activities

A lot of the facts that have been mentioned so far regarding SMEs and their role in a country´s economy are also true in the case of SMEs in Poland. They were the leading force in the economic restructuring of the country and remain the guiding power for economic growth in the future, employing 67,1% of the workforce in the year 2000^[5].

Different from the EU, the Main Statistical Office in Poland (Glowny Urzad Statystyczny) distinguishes between small enterprises, that have up to 5 employees and medium-sized that employ up to 20 people, in the case of enterprises engaged in construction or industrial production medium-sized enterprises count up to 50 employees, neglecting the category of micro enterprises^[6]. Small enterprises make up by far the majority of Polish companies, namely 2,8 million out of 3,16 million registered companies in Poland in the year 2000. Even though only 1,7 million of these SMEs are active companies. That might be in fact a result of the untamed growth of SMEs of about 330% in the years between 1990 to 2001 that now naturally decreases by market forces.

After all, Polish small and medium-sized companies (SMEs) accounted for 99,8% of all companies in Poland in the year 2000, from which just 1,02% are medium-sized^[7].

However, when comparing with the EU definition of SMEs one finds, that Poland´s economy is dominated by micro-companies, that are not eligible for EU funds for SMEs.

Those companies, that according to the EU definition fall in the group of SMEs (10-250 employees) was mainly engaged in industrial production, employing 44,2% of people and producing 28,7% of the profits in this sector. The second biggest share of these companies dealt with trade and repair services, employing 23,6% of the workforce and achieving the largest share of profits in this sector (48,6%). SMEs involved in construction had the third largest share regarding employment (12,5%), but only fourth largest share in profits (8%), taken over by real estate services with a profit share of 8,3% of all SMEs and an employment share of 10,9%. SMEs with a minor share employment and profit in regard to the whole sector, are engaged in transport, energy, gas and water supply and hotel/restaurants^[8].

3. EU Structural Funds for Poland

One of the most important consequences for Polish SMEs is the access to EU Funds that for the years 2004-2006 will amount to around €7,64 billion, in which the Polish state budget contributes about €2,86 billion and Polish regional governments participate with €844,1 million^[9].

There exist four Structural Funds, namely the European Regional Development Fund (ERDF), the European Social Fund (ESF), the European Agriculture and Guarantee Fund as well as the Funds for the Fishing Industry, from which the first is the most significant for Polish SMEs.

It is the European Council, acting on a proposal from the European Commission in cooperation with the European Parliament, decides on the budget for Structural Funds. Furthermore it decides upon the distribution of Structural Funds by country and by objective. The Structural Funds for 2004-2006 have 3 objectives. Poland falls in the first objective, namely countries that have a Gross Domestic Product (GDP) per capita that is lower than 75% of the average GDP per capita of the EU-15^[10].

In order to negotiate about and receive Structural Funds, each EU Member state has moreover to prepare a National Development Plan, where the government formulates strategic goals for the country´s development, in form of operational programs, as well as the financial and institutional aspects how these goals are to be to achieved, in particular the role of the Structural Funds therein. Thus each EU member state, receiving EU Structural Funds can chose priorities how it uses the money.

“The Structural Funds do not directly allocate to projects chosen by the Commission. While the main priorities of a development programme are defined in cooperation with the Commission, the choice of projects and their management are solely the responsibility of the national and regional authorities. [...] Once projects have been selected, they are financed from both national and Community funds, since programme budgets are always comprised of Union funds as well as national sources (public or private). Union funding is always added to national funding so that the country may overcome the limits imposed by its own financial capacity. However, Community funding is not provided as a means for countries to make savings in their own national budgets.”^[11]

[...]

^[1] http://europa.eu.int/comm/enterprise/enlargement/doc/questions-answers.pdf

^[2] http://europa.eu.int/eur-lex/en/treaties/selected/livre238.html

^[3] Wach (2003), p.176.

^[4] http://europa.eu.int/comm/enterprise/enterprise_policy/sme_definition/index_en.htm

^[5] Stas (2003), p. 183.

^[6] Tokarz (2003), p. 263.

^[7] Poznanska (2003), pp. 197-200.

^[8] Chomatowska (2003), pp. 221-222.

^[9] Ryszkiewicz (2003), p. 262.

^[10] http://europa.eu.int/comm/regional_policy/intro/regions5_en.htm

^[11] http://europa.eu.int/comm/regional_policy/intro/regions7_en.htm