Experience in combining grants with financial instruments in Andalusia Francisco Jiménez Innovation and Development Agency of Andalusia, Spain Brussels, 20 th May 2011

2 Index Comparison of grants and financial instruments Different nature of instruments Different types of projects Quantitative comparison Situation and evolution of grants and financial instruments in Andalusia Compatibility issues of combining grants and financial instruments Experience and approach in combining grants and financial instruments in Andalusia

3 Different nature of instruments Financial instrumentsGrants Eligible costsLimited, focused on fixed assetsBroad, Flexible Time of payment Cost After investmentBefore investment No costMarket price Legal environmentPublicPrivate Analytic approachStatic, investment orientedDynamic, Cash flow oriented Benefit for company ProfitabilityFinancing, cash

4 Different types of projects Financial instrumentsGrants New creation of enterprises ( 44%, # 6%) -Innovative projects -Technology based enterprises -Entrepreneurs -Productive spaces Modernization of enterprises ( 36%, # 47%) -Productive Installations -Incorporation of IT systems -Quality systems -Relocate of companies within Andalusia -Other: Security, design, advisory services Research and Development (20%, #47%) -Knowledge generation -Knowledge application Seed & Start-up financing -High growth potential companies -Innovative companies (technology or business innovation) -Spin-offs (universities, enterprises) -Attraction Growth & Expansion -Working capital part related to growth expansion plan of SMEs -OPEX + CAPEX -Internationalisation -Non-organic growth, acquisitions

5 Quantitative comparison of grants and financial instruments Financial instrumentsGrants # Projects approved # Projects approved / analyst Approval ratio Intensity of financing Average amount of investment80,000 2,000,000 24% 68% Year % 24% > 1, Total investment approved p.a.~ 120 MM

6 Evolution of grants and financial instruments in Andalusia t Grants Financial instruments 100 MM 200 MM

7 Compatibility issues on combining grants and financial instruments Finding the right balance between providing Grants and Financial Instruments for the same project (40% of all JEREMIE projects in Andalusia have also received some kind of grants) Grants Financial Instruments

8 Operational obstacles to identify compatibility issues Timing & Organization Information Access Origin of funds: Public or Private Difficulty in obtaining information on grants as it does not exist a centralised database/ register of grants. Procedures and timings of grants and financial instruments are different and not synchronised (before, during, after). How can an excess of financing of the project be avoided? Difficulty in defining criteria whether funds should be considered as public or private: Who is the financial intermediate? Who gives the liquidity? Who takes the risk? Which are the market conditions? Project vs. Company Compatibility issues only exist at project level. However, the scope of a project is not always exactly defined. (Overlapping between projects, projects being part of another project, the company being the project etc.)

9 Approach in combining grants and financial instruments in Andalusia Public money (combination of grants + financial instruments) must not exceed 70% of the funding requirement of a project. Max 70% public The company must provide evidence of private money cash entry (at least 30%) before financial instruments are settled. Private funds have to be of a permanent nature. Precondition: Private money Computing of public instruments Computing of different instruments with regard s to public nature of funds. Criteria = cash equivalence Examples: Direct grant of 100 => public funds: 100 Indirect grant (bonus interest rate): (5 years, 5 %, 100 ) => public funds: 25 Loan or Equity of 100 => public funds: 100 Guarantee of 100 => public funds: 100 Transparency of information The company has to declare all received and pending grants /public financial instruments on the JEREMIE application form. Andalusia has established the following policies aiming at resolving compatibility issues between grants and financial instruments: