The basis for planning the use of funds of the Cohesion Policy, i.e., the Structural Funds, is the country-specific recommendations issued by the European Commission and the development needs and goals defined in the long-term strategy “Estonia 2035”. Structural funds are divided between the European Regional Development Fund, the Cohesion Fund, the European Social Fund and the Just Transition Fund. In order to implement the European Union’s Cohesion Policy in Estonia, an Operational Programme for Cohesion Policy Funds is prepared. In order to achieve its policy objectives, in addition to non-refundable support, it is also possible to provide support at the national or regional level through various financial instruments.

A precondition for offering a financial instrument is the existence of a market failure or a suboptimal investment situation. Otherwise, the public sector should not intervene. Under the Cohesion Policy Funds, financial instruments may support investments in both tangible and intangible fixed assets or working capital, provided that this is in line with European Union (EU) rules and is expected to be a financially viable project that does not receive sufficient funding from market sources.

Financial instruments are the implementation framework for EU grants, through which funds are directed to the achievement of policy objectives in one or more priority areas. Financial instruments differ from grants and are offered in the form of loans, guarantees, quasi-equity investments or other risk-sharing instruments that can be combined with grants.

The ex-ante evaluation identifies the target groups involved in achieving the specific objectives set in the policy areas of the Ministry of Economic Affairs and Communications (Housing and Entrepreneurship), the Ministry of the Environment and the Ministry of Social Affairs (labor market, socila policy, health and social care) who may have investment difficulties and suboptimal investment situations (factors influencing investment, obstacles to investment financing, awareness and attitude, information asymmetry) and explains why the state could cover the need for investment in a particular market segment through a financial instrument, making sure that it does not crowd out existing funds and/or private capital in the market.

The evaluation will look at whether and how to combine grants and financial instruments, what the private sector added value would be from the use of the instrument, and how financial instruments can address market failures or contribute to mitigation, taking into account regional differences. The evaluation shall provide an independent and reasoned assessment, in accordance with the requirements of the Cohesion Policy Funds, for the selected policy fields, activities and regions, with recommendations for the implementation or non-implementation of financial instruments to achieve the specific objectives of the operational program.

Thus, the ex-ante evaluation aims to identify market failure(s) or suboptimal investment situation(s) in the selected policy areas; explain and justify the investment needs in the areas to alleviate market failures and suboptimal investment situations, describing the potential private sector involvement and the added value of using financial instruments in the period 2021-2027.

The ex-ante evaluation is conducted by the Centre for Policy Studies Praxis in cooperation with Ernst & Young Baltic AS.