Eureka association: Programme dedicated to innovative SMEs Eurostars-3 is a key instrument for Horizon Europe

Why Eurostars is an essential component of Horizon Europe:

Insights

1. Horizon Europe emphasises the need to reinforce support to SMEs for the research and development of emerging and breakthrough innovations. There is a need for policies directly targeting SMEs and that aim to close the innovation gap in the European Union.
2. The Innovative SMEs Partnership delivers a unique 1:3 leverage cash effect on EU funds. The total leverage effect, including private and public funds, is 1:7.
3. The new strategy for the European Research Area (ERA) recommends member countries allocate a target of 5% R&D expenditure to international funding programmes[1].
4. The final allocation of funds from Horizon Europe to the Innovative SMEs Partnership should be proportionate to the budgetary situation of the Framework Programme.
5. Eureka considers an allocation of 300 M€ to the Innovative SMEs Partnership to be an optimal balance between diversity of European interests and sharing the burden of budget cuts, while ensuring the viability of a funding programme with a proven track record for creating jobs and growth.

Background

Why is the Innovative SMEs Partnership needed?

SMEs in Europe employ around 100 million people and account for more than half of Europe’s GDP[2]. In 2018, SMEs accounted for 99.8% of all enterprises in the EU 27, generating 56.4% of value added and 66.6% of employment opportunities[3]. SMEs have proven to be the backbone of the European economy and will continue to play a key role in the economic, societal and environmental challenges to come on climate change, healthcare, sustainability, digital sovereignty and social cohesion across regions.

Yet, SMEs in Europe face big obstacles to growth and development, barriers to enter new markets, access to finance, low R&D&I intensity, skills shortages and administrative burdens. Many of these problems stem from a lack of solid international partners.

There is a need for innovation policies directly targeting SMEs. The Annual Report on European SMEs 2018/2019 states that improvements in the overall innovation environment would have important spill-over effects and stimulate innovation by SMEs across the European Union.

Cross-country differences within the EU-27 are an important factor to consider when looking at the innovation landscape. There are profound differences between and within member states in the capacity to innovate, according to the Regional Innovation Scoreboard.

The problems that SMEs are facing in Europe stresses the importance of a programme like the Innovative SME Partnership as a unique opportunity for SMEs and startups to develop their products and business models at international level.

The barriers faced by SMEs in their innovation and internationalisation, the priorities of the new ERA and other policy documents, such as the Industrial and SME strategies, are reflected in the overall objectives of the Innovative SMEs Partnership under Horizon Europe, as published on the European Commission website.

• Innovation: Enable innovative SMEs to succeed in all forms of innovation, including breakthrough innovations, and strengthen market deployment of innovative solutions;
• Internationalisation: Foster the potential of innovative SMEs to enter and exploit global markets;
• ERA connectivity: Connect national R&D&I programmes to unlock the potential of all partners.

The uniqueness of the Innovative SME Partnership within Horizon Europe

The Innovative SME Partnership has, at the request of the Commission, been aligned with EU policy priorities and will contribute to the desired impacts stated in the New Industrial and SMEs strategies[4]. The ex-ante impact assessment proved the directionality and additionality of the partnership to the principles of Horizon Europe. Subsequently the draft partnership proposal, including its budget, has been published by the European Commission on its European Partnership webpage.

• Eurostars as the steppingstone to international cooperation[5].
• International partners as tools to overcome commercialisation barriers.
• Active involvement of National Funding Bodies to reinforce ERA connectivity.

The uniqueness of this partnership stems from the strength and global reach of the Eureka network, which can offer SMEs expanded opportunities to find partners and access markets around the globe. This includes the participation of countries whose association to Horizon Europe is still uncertain.

A key part of the European Innovation Ecosystem sub-pillar

Horizon Europe has always placed supporting SMEs as a central pillar of its justification.

“It is also proposed to scale up resources for research and innovation in climate-related domains. This will strengthen support for the competitiveness of EU industry in related economic sectors and promote a recovery consistent with the goals of the European Green Deal. The reinforcement will provide additional means for emerging and breakthrough innovations by small and medium-sized enterprises, start-ups, and midcaps.”

COM(2020) 442 final – MFF Communication.

Eurostars-3, as a programme dedicated to innovative SMEs, has been recognised as vital to the European Innovation Ecosystems. The European Commission’s regulatory scrutiny board has provided a positive opinion on the proposal for a partnership between the EC and Eureka on the ‘Innovative SME Partnership’ (Eurostars-3) under Horizon Europe. The partnership, therefore, will be financed by the European Commission out of the available budgetary envelope in the European Innovation Ecosystems.

Since Eureka, which includes the EC as an active member, first conceived Eurostars-3, there has always been a concrete expectation of around one billion euro of public funds, with the EU contributing at least the same amount as for Eurostars 2. The Eurostars-3 blueprint, first circulated within the entire network in 2018, benchmarked 300 M€ from the EU. The outline for the Innovative SMEs Partnership published on the EC websites quantifies 366 M€. The financial magnitude of the programme has been thoroughly considered, with all sides confirming the value proposition.

Accompanying measures to the Eurostars-3 funding programme have been part of the discussions. An improved iteration of INNOWWIDE has been identified as a high value add-on to the partnership. Nevertheless, it requires a certain amount of EU funds to be put in place while maintaining the sustainability of the main funding programme.

Leverage effect

Eurostars-3 is the only public-to-public partnership in Horizon Europe that has a large cash leverage that has proven to be successfully implemented in the past. The leverage ratio of EU vs. national funds will be 1:3.

In terms of public and private resources mobilised by the partnership, the number is much higher (1:7 ratio leverage effect of EU funds vs. total public and private resources).

The European Union allocated 287 M€ to the Eurostars-2 programme, with up to 275 M€ for project costs. Current projections foresee 260 M€. The underspend can be attributed to global events, or decisions often outside the control of Eureka.

Budgetary requirements for Horizon Europe

The budget for Horizon Europe has undergone several modifications in the last months. The decision of the Council on 29 September 2020 to specifically reduce the European Innovation Ecosystem sub-pillar, of which Eurostars-3 is a part, by 10% was further modified in the agreement reached between the European Parliament and EU governments. This agreement sees an extra four billion euro dedicated to Horizon Europe.

These changes seem not to have affected the indicative financial contributions of the members disproportionately. Eureka countries have great confidence in Eurostars and hope the EC mirrors that.

• Several countries have made political commitments but cannot yet provide financial estimations due to uncertainty regarding several attributes of Horizon Europe.
• Many countries are waiting for official confirmation that programmes co-financed by the ERDF, the ESF+, the EMFF and the EAFRD may be considered as a contribution of the participating member states for the purpose of Horizon Europe.
• Even those countries that know their participation in Horizon Europe is assured still encounter an unnecessary limitation that cuts to the heart of bottom-up, industry-led initiatives; that bilateral partnerships with non-EU or non-Horizon Europe associated countries might be deemed ineligible.

Despite these obstacles, indicated budgets so far provide an expectation that between 72% and 90% of the original estimate of 855 M€ will be allocated by the members. This provides a corresponding estimate of the needed EU contribution of up to 329 M€.

Eureka considers an allocation of 300 M€ to Eurostars-3 to be an optimal balance between diversity of European interests and sharing the burden of budget cuts, while ensuring the viability of a funding programme with a proven track record for creating jobs and growth.

[1] A new ERA for Research and Innovation. SWD 2020. 214 final.

[2] An SME Strategy for a sustainable and digital Europe.

[3] COM(2020) 103 final.

[4] Annual report on European SMEs 2018/2019. EASME/COSME/2017/03

[5] COM(2020) 102 & 103.

[6] This is an aspect that is not tackled in any mono-beneficiary project e.g. as in many cases of the EIC Pathfinder or Accelerator.

This article was first published on 15 December by Eureka.