EU funds in Croatia do not achieve full developmental potential

Discussions about the future budget of the European Union and the new Multiannual Financial Framework (MFF) for the period from 2028 to 2034 have reopened the question of the effectiveness of EU fund utilization. This concerns almost half of the total budget of the European Union, valued at around two trillion euros, which is why the management of these funds has a significant impact on the economic development of member states, writes HUP.

The European Court of Auditors in its latest analyses warns of a number of weaknesses in the existing system. Among the main problems are complex administration, insufficiently uniform monitoring of results among member states, and the fact that the success of the funds is often assessed based on the level of fund utilization rather than actual economic effects. Additionally, the dynamics of fund withdrawal in the current financial period is slower than in the previous cycle. In the first five years of the financial envelope 2021–2027, 22.9 percent of funds were disbursed to the CEE-10 group of countries, while in the period 2014–2020, this share was 40.4 percent. Croatia also records a slower dynamic, with 21.1 percent of funds disbursed compared to 30 percent in the previous cycle.

In this context, the European Union is considering the establishment of a new European Competitiveness Fund (ECF), which should encourage public-private investments in strategic industries and connect existing financing instruments. Among them are the Horizon Europe program for research and development, projects of common European interest (IPCEI), and the InvestEU financial instrument, which, along with guarantees from the European Union, mobilizes around 372 billion euros in investments. However, the European Court of Auditors warns that consolidating different policies within one fund could further increase administrative complexity and hinder the monitoring of actual investment results.

Too few funds go to the economy

For countries like Croatia, where cohesion funds are an important instrument for economic convergence with more developed member states, the question of effective fund management carries special weight. Currently, around 2.7 billion euros in non-repayable funds is directed to the economy within the current MFF and the National Recovery and Resilience Plan, which constitutes only 11 percent of the total financial envelope. According to estimates from the European Commission, only about five percent of the funds from Croatia’s NPOO directly target small and medium-sized enterprises.

Such an investment structure is problematic due to the structural weaknesses of the Croatian economy. Gross added value per employee in Croatia reaches only about 53 percent of the EU average, and the country has one of the largest trade deficits in goods in the EU. For this reason, experts warn that without stronger targeting of EU funds towards technology, innovation, digitalization, and internationalization of enterprises, it will not be possible to significantly accelerate productivity growth or reduce the trade gap.

Investments in innovation have a particularly strong economic effect. Estimates show that one euro invested through the Horizon Europe program generates about 11 euros in added value, while approximately three-quarters of projects involve the private sector. Therefore, there is an increasing emphasis on the need for greater participation of enterprises in EU funding programs.

High interest from entrepreneurs in innovation projects

One of the key instruments of European cohesion policy for promoting innovation is the Smart Specialization Strategy. Under this program, around 2.1 billion euros in investments is planned by 2029, of which approximately 1.8 billion euros is earmarked for non-repayable funds intended for research, innovation, and technological transformation of the economy.

From 2021 to 2024, 35 public calls with a total value of 619 million euros have been announced, and around 560 million euros have already been contracted through 1920 projects. These data confirm the strong interest of entrepreneurs in investing in innovation and development.

To increase the developmental impact of European funds, experts from the business sector propose a series of changes in fund management. Among the most important proposals is greater targeting of funds towards the private sector, with the aim that at least 30 percent of funds be available through entrepreneurs’ projects. There is also an emphasis on the need for administrative simplification of the system, faster project evaluation, and the introduction of clear indicators to measure the actual developmental effects of investments.

Additionally, it is proposed to mandatorily announce competition plans at least two years in advance so that companies can timely plan investments. A special emphasis is placed on stronger involvement of Croatian companies in centralized EU funds, which are not tied to national envelopes but are becoming an increasingly important source of financing for innovation and industrial transformation. Currently, around 80 percent of funds from these sources are concentrated in just seven technologically and administratively stronger member states.

Ahead of the new EU budgetary period, which begins in 2028, the discussion on the effectiveness of EU funds is increasingly focusing on the question of actual economic results of investments. For Croatia, which is still in the process of economic convergence with more developed member states of the Union, the way European funds are utilized could be one of the key factors for long-term productivity growth and competitiveness of the economy.