2.3 Financial Diversification Ch II 1.5

2.3. Financial Diversification (Ch II 1.5)

Table 5: Financial Diversification

Not covered Local level not by Map Rea sufficiently covered

Local Concerns

Legal/ Regulatory Attempts/ Measures Basic Institutional Governance, Service Performance

Financial Facilities

Innovative Levers

Endogenous Potentials

Financial Diversification (Capital market development, financial access) – Ch II 1.5

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Fairness in raising revenues/ fees for users of local utilities supply Implementation by LGs Inter-municipal burden balance/funds compensation Implementation by LGs Promotion of local venture capital systems National government rules, participation of LGs Participation in PPP Joint Research Centres Implementation by LGs Co-funding of incubators Implementation by LGs Special credit lines (access) for local SMEs National government rules, participation in implementation by LGs Crowd funding for smart facilities National government rules, participation by LGs Local level sufficiently covered

This section is identical to Chapter II 1.5 of the MAP REA, since there are no pertinent elements in the RIRA.

The MAP REA chapter deals with subjects of capital market regulation and development, and enhanced coordination between supervisory regimes etc.

A further focus is on financial diversification beyond the banking sector in a narrower sense and the big stock market structures, namely on creating better access to financial resources for starting enterprises, regardless of their size, through all forms of capital raising, such as equity funds, risk capital platforms, crowd funding etc.

Governance, Service Performance

Fairness in raising revenues/fees for users of local utilities supply (Implementation by LGs)

At this point, the argument for fair and just taxation and fees systems for local governmental utilities can be derived from the principles of good governance, to a certain extent.

For instance, in PPP-models, being revenue resources for governments in the long run and mitigating budget constraints in the short run, it is essential that users and citizens feel that fees for utilities are correctly leveraged in that they are socially balanced but also include “pay as use” principles.

Inter-municipal burden balance/funds compensation (Implementation by LGs)

As a matter of financial diversification, a valid system of intergovernmental burden balancing should also be mentioned for good municipal governance. This applies particularly, if neighbouring cities are bundled into functional areas so that different burden-bearing tasks can be distributed between them.

Financial Facilities and Innovative Levers

Since, in this context, the leverage of innovative potentials is closely connected with the availability of financial resources, the two aspects are handled together at this point.

Local authorities’ main task in this area consists of helping rather small local enterprises to gain access to capital for starting green field projects, as well as for restructuring existing activities. Attitudes to such endeavours are often emphasised in EU strategic statements,30 as well as specifically in assessment reports from international financial institutions such as the World Bank.31 There is an explicit demand for better access to financial investment and means of growth for micro, small and medium enterprises, because of the insignificance of nonbank financial facilities and a too short term lending in the conventional WB banking system.

30 see EU-commission 1/2018, p.5

31 World Bank 2018, p. 22

Promotion of local venture capital systems (National government rules, participation of LGs)

Local governments can advocate for venture and risk capital systems to deal specifically with the local or regional enterprise landscape and focus on local businesses’ former or emerging strengths. They can act as mediators between applicants and funders because of their knowledge of circumstances.

Participation in PPP Joint Research Centres (Implementation by LGs)

Joint Research Centres can contribute to promoting local or regional equity funding if the municipality has the critical size and financial means.

Co-funding of incubators (Implementation by LGs)

Local governments can participate in co-funding incubator sites and similar establishments, as well as participating in Joint Research Centres, as partners in pertinent PPP models.

Special credit lines (access) for local SMEs (National government rules, participation in implementation by LGs)

Furthermore, they can advocate for special credit lines to benefit local SMEs and provide guarantees for liabilities in selected cases.

A close cooperation with targeted EU-support systems is recommended for all above mentioned approaches. Here the activities of the European Investment Bank (EIB), with its specialisation on risk financing and on-lending to SMEs under the West Balkan Enterprise Development and Innovation Facility (WB EDIF), should be mentioned.

The WB EDIF offers risk financing in the form of first-loss protection for financial intermediaries: Since 2016, WB countries have also been eligible for the pertinent EU-28 instruments, such as COSME (Competitiveness of Enterprises and Small and Medium-Sized Enterprises), InnovFin and EaSI (Employment and Social Innovation), all of which provide financial resources or guarantees for risky and innovative micro-projects.32

32 see EIB 2018, p. 18

Endogenous Potentials

Crowd-funding for smart facilities (National government rules, participation by LGs)

In some cases, such as smart grids or investment in local photovoltaic sites, crowd-funding can be an interesting financing tool: private users can benefit from cheaper or even free energy in return for co-financing the appropriate technical infrastructure.

3. Assessing Digital Integration

The MAP REA Digital Agenda is divided into the following chapters:

Boosting digital infrastructure development and regional connectivity (fixed fibre broadband technologies),

Spectrum policy and standardisation for mobile techniques (including G5 standards)

Roaming policies,

Cybersecurity, trust services and data protection,

Strengthen the supply of digital skills,

Accelerating digitalisation, smart technologies/e-authentication etc

Most of the regulatory tasks, agreement issues etc. connected with above objectives of expanding digital networks, interconnectivity and integration, are designed to be done by central governments. They must set agreed standards and adopt appropriate rules on an international/EU level.

This is essentially the case for spectrum policies and standardisation, as well as for roaming equalisation and cybersecurity standards and data privacy protection.

However, in some areas local governments have a role in co-arranging preconditions for supporting the distribution of digital infrastructure and they can also spearhead digital use and applications.