KEYS TO NEXT GENERATION FUNDS: A UNIQUE OPPORTUNITY NOT TO BE MISSED

Pelayo Novoa, Partner Advisory Services at BDO in Spain, outlines how the European Union’s Next Generation Funds will help transform the Spanish economy.

THE NEXT GENERATION EUROPEAN FUNDS are a recovery instrument of EUR750 billion to be allocated by the European Union in order to coordinate a program of reforms to increase growth and modernization in the economy of all member countries of the European Union. This represents a unique opportunity in Spain, which could receive a total of EUR140 billion for the transformation of our economy.

This program is born as a lever to build a more sustainable, more digital, and resilient Europe. In order to achieve these objectives, the plan is based on three main pillars: i) The ecological transition through the European Green Pact, by which the EU aspires to be climate neutral by 2050; ii) digitalization, which aims to achieve a Europe adapted to the digital era and to ensure that this transformation reaches society and the business fabric; and iii) reindustrialization to improve the competitiveness of industry and increase its autonomy and resilience.

In this context, Spain has presented an ambitious recovery plan, called España Puede (Spain Can), in which it has incorporated an agenda of interrelated investments and reforms to achieve four cross-cutting objectives. The first of all is the ecological transition, to which 40.29% of the investment is expected to be allocated, which aims to strengthen public and private investment in order to reorient the production model and promote the green transition, decarbonization, energy efficiency, the deployment of renewable energies, the electrification of the economy, the development of energy storage, and the circular economy, among other aspects.

The second objective is digital transformation, to which 29.58% of the investment will be allocated, which sets the roadmap for accelerating a digital transition in our country, in line with the European digital strategy and the Spain Digital Agenda 2025. To achieve this, the government is planning investments and reforms to boost the infrastructures, skills and technologies needed for a digital economy and society that includes everything from the urban agenda to education, from agriculture to tourism, from industry to mobility, from the modernization of public administration to the new care economy.

The third objective focuses on the social and territorial cohesion of Spain, through the reinforcement of the welfare state, the education system, the promotion of quality employment, a fair tax system, through measures specifically aimed at tackling the demographic challenge, and providing opportunities for the next generations.

Finally, it is essential to achieve gender equality through cross-cutting measures aimed at raising the female employment rate, improving, strengthening and reorganizing the long-term care system, raising educational potential, equal opportunities, and reducing the digital divide.

SPAIN CAN: INVESTMENTS AND REFORMS

The plan approved by the government includes a series of measures for the period 2021/2023 that include a boost of almost EUR70 billion for investments and key reforms, such as the modernization of the economic and social structure.

The reforms included in the plan (a total of 102) include the development of a robust and flexible energy system, together with the deployment and integration of renewable energies; the implementation of a roadmap for renewable hydrogen and the development and connectivity of green infrastructures; a water law and a national plan for purification, sanitation, efficiency, savings, and reuse; modernization of agricultural and fisheries policy; waste policy and promotion of the circular economy; modernization of the national science system and support for innovation; a sustainable and connected mobility strategy; and a new housing policy.

With regard to the proposed investments, which already total 110, they are expected to have an impact on growth and employment in the medium term and, among them, the sustainable, safe, and connected mobility strategy; the housing rehabilitation and urban regeneration program; the modernization of public administrations; a digitalization plan for SMEs, together with a 5G roadmap; a new Spain 2030 industrial policy and circular economy strategy; the modernization and competitiveness of the tourism sector; the development of the national science and innovation system; the deployment and integration of renewable energies; and a new care economy.

DISTRIBUTION OF INVESTMENT

To achieve its objectives, the Spain Can plan is based on 10 levers of transformation with reforms and investments to be deployed between 2021 and 2023, for a total of EUR69.53 billion.

The 10 policies among which the resources will be distributed include:

These policies/leverages in turn integrate 30 projects that articulate in a coherent and complementary manner the different priority-driving initiatives of structural reform, both of a regulatory nature and to boost investment, in order to achieve the general objectives of the plan.

Although initial funds have arrived in Spain, throughout this period, the government has opened the opportunity to present expressions of interest in different areas.

To date, 18 invitations to expressions of interest have been published that are focused on the productive sector, including the Digital Toolkit Program, aimed at the digitalization of SMEs and the self-employed, the Spain Audiovisual HUB plan to boost the audiovisual sector, projects associated with the renewable hydrogen value chain, and projects for the development of R&D&I ecosystems in the field of advanced 5G and 6G.

HOW CAN THE NEXT GENERATION FUNDS BE ACCESSED?

The funds will be implemented through calls for tenders, grants, and subsidies. It is also expected that the use of existing public-private collaboration tools will be significantly increased. Among them, the strategic projects for economic recovery and transformation, also known as PERTEs, have been developed to channel European funds. These projects are of a strategic nature and have a great capacity to increase economic growth, employment, and the competitiveness of the Spanish economy, thus favoring public-private collaboration.

The PERTEs are approved by the Council of Ministers, and, for this, a series of objectives must be met, including the contribution to economic growth, job creation, and competitiveness of industry and the Spanish economy, with positive knock-on effects on the domestic market and society, the combination of knowledge, experience, financial resources, and economic actors or that the projects have a significant innovative character and added value in terms of R&D&I.

In this context, to date, six potential PERTEs have been identified that can drive structural reforms of the entire value chain in the fields of the green and connected automotive industry; energy generation through green hydrogen; the aerospace industry; sustainable and efficient agriculture; the use of Spanish in the field of artificial intelligence, and, finally, the development of a cutting-edge national health system.

BDO welcomes the creation of this recovery instrument, which represents a unique opportunity, and, as one of the largest global professional services firms, we want to be part of the transformation and reconstruction of the Spanish industrial fabric in order to achieve a more inclusive and sustainable economy.

For this reason, we have a technical department focused on these funds with the aim of supporting companies and public administrations to take advantage of the development opportunities offered by the funds.

We have a promising future ahead of us and a unique opportunity that we must seize, but in order to successfully implement this plan there are some challenges that we must overcome together. On the one hand, the Spanish Administration as a whole, from the Central government to the municipal governments, must be able to efficiently manage the volume of funds that we are going to receive and ensure that they reach the entire industrial fabric.

WHAT CAN BE DONE NOW TO ACCESS THESE FUNDS?

The business sector and society need to understand that these funds are not intended to alleviate the effects of the pandemic, but to transform the current economic model. As a company, it will be key to develop a project aligned with the milestones and objectives set by the EU and the government. To achieve this, it is necessary to include an economic-financial plan that establishes the means of access to the necessary financing to start up the project by means of a combination of own and external resources and European funds. This plan has to be constantly adapted to the different requirements that are made known.

That is why it is advisable to do so accompanied by a team capable of positioning the company within the framework of its transformation challenges and Next Generation objectives, analyzing projects and financing options. In addition to the design of the strategy, the phase of presentation and economic justification of the projects before the public administrations is key.

Likewise, it will be essential to have professionals with solid ties and knowledge of the different public-private collaborations, consortia, agencies, PERTEs, and business associations.

For the coordination, support, justification and advice in this type of projects, BDO has a division made up of a team of specialists in business restructuring and experts in obtaining financing, aid, and advice for business viability, aligning the interests of the companies with the fundamental pillars of the recovery, transformation, and resilience plan.