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The performance by new members of the European Union (EU) in achieving greater development impact and faster convergence is a key concern at the EU level. EU funds can contribute to the modernization of public infrastructure and public administration, and they are also estimated to have a net positive impact on the economy. A World Bank report, prepared for the Ministry of Regional Development and Public Administration, highlights that for every €1 invested in public infrastructure projects in Romania, an additional €2.04 are generated by the economy – a relatively high impact.
Romania’s absorption performance leaves much to be desired; with the exception of Croatia, Romania has registered the worst level of absorption in the Union when compared to other new member states.
Some of the main reasons for this poor performance include a cumbersome and inefficient public procurement system, lack of access to finance and expertise, complicated and lengthy application procedures, and challenges with capacity to implement projects.
While Romania has one of the highest rates of taking procurement processes through the contracting phase among the new EU member states - meaning that it performed relatively well on project application, evaluation, and selection - performance after a contract is signed remains weak. With a 73% absorption rate (considerably lower than the current contracting rate of 116%), Romania is not fully reaping the benefits offered by EU funds in support of development and faster convergence.
The topic of strengthening the capacity of local administrations to absorb EU funds was one of the main issues discussed during the recent “My City in Our Europe” Urban Development Conference, hosted by the EU’s DG Regio and Romanian Ministry of Regional Development and Public Administration. The event brought together representatives from the European Commission, the Romanian Government, and other EU Member countries to discuss possible approaches to better absorption of EU Funds during the current 2014-2020 Programming Period.
What can be done to reverse this trend?
First, cities are key to Romania’s growth. There are opportunities for cities to become better performers in absorbing EU funds and more efficient in the implementation of integrated urban development strategies. A World Bank report, prepared for the Ministry of Regional Development and Public Administration, notes that Bucharest and the country’s seven growth poles of Brașov, Cluj-Napoca, Craiova, Constanța, Iași, Ploiești, and Timișoara (including the surrounding communities of less than one-hour by car) account for around 75% of the firm revenues in Romania. If these urban areas do not function well, neither does the economy as a whole. And, of course, for these functional urban areas to become more efficient, key public infrastructure investments are central.
Second, to become better at absorbing EU funds and implement key infrastructure development projects, it is critical for local administrations - particularly those that are most developed and dynamic - to strengthen their project implementation capacity. This requires the existence of strong Project Implementation Units (PIUs) to support local administrations in project design, implementation, and monitoring. Strong local leadership and proper expertise, and a sufficient number of qualified project managers are needed, and research carried out by the World Bank for the Romanian Ministry of Regional Development and Public Administration recommends that at least one project manager be in place for every €10 million managed.
A number of PIU models can be potentially employed, including:
- strategic partnerships, as in the case of the city of Sibiu and GtZ;
- sub-contracting to private companies, used in Cluj-Napoca, Ploiești, and Slatina;
- use of PIU staff, as is the case with most communities; or
- public service units with contractual personnel, as in the case of Alba Iulia.
Third, cities can make use of available World Bank research to help them estimate human resource needs for implementing public investment projects based on operational budget execution. Each locality in Romania now has a tool that allows it to prioritize projects during the 2014-23 Programming Period, and to determine how many people are needed to ensure the implementation of their priority package of projects.
For example, the City of Ploiești has an operational budget of €271 million for 2014-2023. This means that it would need roughly 27 project managers in the coming years. However, their Project Implementation Unit only has 10 positions listed, and only a few of those are actually filled.
For smaller local administrations with limited resources, operational budgets can help identify an optimum with respect to public investments. The lure of free EU funds drives many administrations to over-spend, and develop infrastructure that they may subsequently not be able to operate and maintain. Operational budgets thus become a key prioritization tool. For large and dynamic cities, the operational budgets can encourage a bolder vision and a broader investment program. The analysis of budget executions for the largest cities in Romania indicates that most of them have underspent in infrastructure in recent years.
Better absorption of EU funds is not an end in itself. However, a focus on improved absorption can help accelerate the modernization of public infrastructure in Romania, increase the quality of people’s lives, and improve the country’s attractiveness for investors. These are all key ingredients of a modern economy and society, and should be pursued strategically by all local public administrations in Romania.