Applicant's withdrawal, low absorption rate bode ill for Sapard

By Aleksander Nowacki

The announcement that meat manufacturer Zakład Mięsny Dobrowolscy (ZMD) has withdrawn its application for a European Union grant is being interpreted by some as a symbol of the failure that the Sapard fund for agriculture and rural development has proven to be so far.

The company has opted to finance the modernization of its meat processing line through preferential loans from the government, but only after completing the five-stage Sapard application approval procedure. Adam Dobrowolski, ZMD's president, explained that the terms on which Sapard funds are available would mean significant delays in the investment.

"We would have to wait for months and then the project would have to be completed in a very short time," he said. Another disincentive was the necessity to set aside the funds for the company's own share of financing.

The ZMD plant was widely known as the Sapard "pioneer," the first company to embark on the long and complicated path to securing EU financial support.

This is not the only piece of bad news about Sapard released in just the last week, as the Agriculture Ministry has announced that only 40 percent of the funds in Sapard's first two installments have been absorbed so far. This does not bode well for the country's ability to absorb the much larger sums that will be made available following accession.

"Absorption has become almost an obsession with officials," said Marcin Nowicki, head of the regional policy and structural funds research project at the Gdańsk Institute for Market Economics. "It's very bad news, as the quantity (of funds absorbed) is less relevant to the country's economic development than the quality of the projects."

He went on to say that the examples of Greece, which invested heavily in infrastructure, and Ireland, where the funds were used mostly to foster small business, demonstrates clearly which course is the most beneficial. And it is clearly in the rural areas that business needs the most fostering.

"Building a new road, useful as it may be, will not solve the problems of underdevelopment," Nowicki said. "Supporting a new business, or improving the qualifications of those on the labor market, will."

And this is not the end of the bad news. While Sapard absorption was poor in general, in the fund's "Activity 1" - improvement of processing and marketing of agricultural and fish products - the level of absorption was particularly low. So far Activity 1 has attracted just a quarter of the amount of Sapard funds spent on infrastructure development.

Authorities are understandably keen to portray a lack of resources for co-financing as the prime cause for the low level of Sapard absorption, but the data of a survey of businesses and municipalities supplied by Eugeniusz Tadel of Małopolska Agricultural Advisory Center (MODR) does not seem to confirm this view.

Among the principal causes for unwillingness to apply for the funds, Tadel named companies' uncertainty as to their ability to surmount the bureaucratic barriers on both the EU and the domestic fronts. While financial difficulties were also frequently named by businesses as the reason for not applying, they were just as often frustrated by an inability to acquire the necessary documents, such as building permits, from domestic authorities.

ZMD's Adam Dobrowolski said that the company would apply for Sapard funds from the third Sapard installment, as soon as that is made available later in the year.

"The terms (of the third installment) will be much more favorable (than the first two)," he stated.

But that is not to say that funds will be easier to access in the future, according to an independent monitoring and evaluation expert for the European Commission, who declined to be named.

"With pre-accession funds, the rules have been very lax," he said. "We would overlook the fact that sometimes a company would claim to have put more into the investment than it really did (to meet the 15-percent own-contribution requirement)." Following accession, he said, the rules would be applied much more rigorously. "We have already been instructed on that by the Commission."