Szechenyi entrepreneurial programme

Project Summary

The Szechenyi Entrepreneurial Programme aims to encourage the social and economic integration of Roma in Hungary. In particular it seeks to improve the market position and competitiveness of small and medium sized Roma enterprises. It seeks to achieve this by partly financing the investment needs of both Roma-owned enterprises and entrepreneurs that employ Roma. This financial support is distributed by means of a tender procedure that is open to specific groups of entrepreneurs. The priorities in granting the support vary from year to year.

Source: Examination and evaluation of good practices in the promotion of ethnic minority entrepreneurs

The Partnership[]

The Szechenyi Entrepreneurial Programme is implemented by the Hungarian Ministry of Economy and Transport and covers the entire country. In its activities the Ministry is supported by the Hungarian Centre for Economic Development HCED(Magyar Gazdasagfejlesztesi Kozpont) and the Hungarian Foundation for Enterprise Promotion (HFEP Magyar Vallalkozasfejlesztesi Alapftvany). The Hungarian Centre for Economic Development (HCED) is a semi-public organisation that was established by the state-owned Hungarian Development Bank in order to channel development funds towards the entrepreneurial sector. In the programme the HCED assists the Ministry in defining the tender procedure and also evaluates the applications of the potential beneficiaries. In addition, the HCED is responsible for the periodic monitoring of the activities of those entrepreneurs that have been awarded a grant. The Hungarian Foundation for Enterprise Promotion (HFEP) was founded as a public benefit organisation in 1990. In general it is responsible for the implementation of the government's national work programme for the development of SMEs. HFEP's current role in the programme is rather limited. In the near future HFEP will assist with the establishment of a business incubator in the eastern town of Mateszalka.

Funders and funding[]

The programme has been in operation since 2003 and is fully funded by its implementing organisation, the Ministry of Economy and Transport. The programme does not rely on supranational funds. Table 1 gives an overview of the annual amounts of funds distributed to Roma entrepreneurs over the 2003-2007 period. In total the Ministry distributed around 1.2 billion Forint (€4.6 million). The programme's running costs are included in the Ministry's overhead. Specific figures on the programme's costs not covered by the amount of distributed grants are not available.

Policy context[]

The programme was designed to facilitate the integration of Roma, a minority group with a long history of severe social and economic exclusion. Historically, Roma have faced higher than average unemployment levels because of the reluctance of non-Roma to hire them. Unfortunately, self-employment is not an easy option either as Roma generally lack sufficient financial capital to compete with non-Roma firms. The Ministry of Economy and Transport intends to tackle these issues through this policy measure. First, by means of financial support the Ministry hopes to improve the market position of Roma entrepreneurs. Secondly, by giving non-Roma financial incentives to employ Roma, the Ministry intends to break with current labour market patterns. The latter is an example of positive discrimination. Given the long history of social exclusion of Roma, one could interpret this policy as a strategy for "redressing present and past injustices" towards Roma.

The Ministry considers it essential that this programme not be interpreted by non-Roma as merely another Roma aid scheme, in order to avoid any resentment that might arise. According to the Ministry, during the programme's implementation process there was neither explicit nor hidden resistance towards this policy. On the contrary, it encountered substantial interest and support in the regions where Roma live in significant numbers.

Objectives[]

The programme's main objective is to support developments and investments that improve the market position and the competitiveness of small- and medium-sized Roma enterprises in Hungary. More precisely, the goal is to promote these enterprises' real estate development as well as their purchase of machinery and equipment. According to the Ministry of Economy and Transport, the very existence of the programme creates new role models for Roma in Hungarian society. It also publicly encourages and legitimizes entrepreneurship among Roma by creating and promoting a more enabling environment for members of this ethnic group. As such the programme is expected to increase the entrepreneurial spirit among Roma. In the long run the programme should contribute to the integration of this socially and economically marginalized group in Hungary.

Target groups[]

The programme specifically targets the Roma ethnic group, and in particular all micro, small- and medium-sized Roma and non-Roma enterprises that employ Roma. However, only enterprises that are already operating can participate. It is beyond the scope of this programme to provide support for starting entrepreneurs, even if the new entrepreneur is a Roma.

How Szenchenyi entrepreneurial programme works[]

Financial support

The programme's main component consists of direct financial support. Through a tender procedure the Ministry offers financial incentives for the investment needs of the targeted enterprises: Roma-owned enterprises, and enterprises employing Roma. To each of the entrepreneurs who win the tender, the Ministry provides a non-reimbursable grant. This grant currently amounts to 65% of the value of the total investment. The programme also has a matching-fund requirement: i.e., the entrepreneur has to finance the remaining 35% of the proposed investment himself. The 65%:35 % requirement has been in place since 2005. In 2003 and 2004 the Ministry only financed 50% of the proposed investment. The maximum grant that the Ministry awards per entrepreneur is 5 million Forint (€19,000). In its initial conception the Ministry did not have an outspoken preference in terms of the type of investments or the type of industry that it would support. The Ministry determined annually which sectors the programmes would focus on in the next call for proposals. In 2007, for instance, priority was given to enterprises proposing investments in real estate, machinery, appliances, commercial vehicles, and information technologies. Interested entrepreneurs can apply for the grant through the Hungarian Centre for Economic Development (HCED). The HCED analyses all application packages and makes recommendations to the Ministry. The Ministry itself makes the final decision in awarding the grants. The HCED in turn is responsible for monitoring the entrepreneurs' use of the funds over a five-year period.

Non-financial support

As a part of the programme the Ministry also organises various information sessions and forums as a way to strengthen participants' understanding of the programme and to encourage networking among participating entrepreneurs. These sessions serve to explain the steps of the tender procedure and to assist entrepreneurs in filing the necessary paperwork. They also serve as a networking opportunity since both Roma and non-Roma entrepreneurs are participating; a first step in fostering cultural understanding.

In the near future the programme will take on an extra dimension through the launch of a business incubator in the eastern town of Mateszalka. This town was chosen for its high proportion of disadvantaged Roma. At the incubator, commercial space will be available for both Roma and non-Roma enterprises. The premises at the incubator will also serve as a training-centre for entrepreneurs of both groups. In this way, the programme will promote networking and information-sharing between Roma and non-Roma. Rather than isolating Roma through more "Roma-only" support, this new part of the programme intends to assist the social and economic incorporation of Roma into Hungarian society. The Hungarian Foundation for Enterprise Promotion (HFEP) is a strategic partner in this part of the project.

Accessibility to target groups[]

The financial support that an entrepreneur can receive is based on "matching" funds: the Ministry supports an important part of the costs of the investment but the entrepreneur has to finance the remaining 35% himself. In order to qualify for the programme, potential candidates therefore have to demonstrate sufficient liquidity to cover the residual 35% of the proposed investment. Further, each participant is required to pay a registration fee of 20 euros. The tender procedure and all training sessions are carried out in Hungarian, but the programme does not suffer from language limitations as most Roma speak Hungarian. The programme is promoted in various ways. The call for tender, for instance, is publicly announced on the webpage of the Ministry of Economy and Transport. The tender is also advertised in the national and local media and through a large number of local activities, so-called citizenship forums, and meetings with entrepreneurs organised by local authorities and minority self-governments all over Hungary. Additionally, in one of the regions of Hungary, the Ministry has a permanent representative who is responsible for informing entrepreneurs, distributing material about the project and collecting feedback from interested and involved entrepreneurs.

Results[]

The programme has been in operation since 2003. The results presented in Table 2 indicate that annually out of roughly 600 to 700 applicants 80 to 10 enterprises receive support to finance their investments. Unfortunately, Hungarian law does not permit storing data on ethnic background. For this reason the exact portion of Roma-owned recipient enterprises, as opposed to non-Roma, cannot be given. The Ministry however, believes that the majority of grants are awarded to Roma entrepreneurs. This belief is based on the requirement that potential beneficiaries have to submit a letter of recommendation from either local authorities or the Roma local minority self-governments. As local authorities are better informed about the entrepreneurs' ethnic background, this strategy minimizes the scope for abuse.

(UPLOAD Table)

The number of grants disbursed – and therefore the number of SMEs supported has varied between a low of 74 in 2006 to a high of 102 in 2004. Altogether 332 grants were made in four years. This amounted to a total of 4.6m euros of government support and a total investment value of 7.9m The average grant size increased from 10,000 euro in 2003 to approximately 12000 in 2006. In the first two years of the programme entrepreneurs were expected to contribute 50% of the funding, this was reduced to 35% from 2005. A total of 400 new jobs are said to have been created. No information is provided as to whether these are net new jobs allowing for displacement and deadweight or gross new jobs, nor whether they have been adjusted for full time equivalence.

The programme is widely publicised through information sessions at hundreds of meetings, the aforementioned citizenship forums, per year. Given the large variation in the number of participants per activity, ranging from a mere 20 to an overwhelming 1500, the exact outreach of these citizenship forums is unknown.

Monitoring of supported businesses[]

The project is externally monitored by the Hungarian Centre for Economic Development (HCED). The HCED observes how the beneficiaries use the financial support and how their businesses are performing over a five-year period starting from the date of receipt of the funds. To facilitate this monitoring process, participating entrepreneurs are required to send annual reports to the Ministry, which forwards them to the HCED. At the end of the five-year period, the HCED will carry out a final audit at each of the participating enterprises.

In its evaluations the HCED monitors whether beneficiaries are complying with their commitments. These commitments, which are stipulated in individual contracts between the Ministry and the beneficiary, cover a wide range of issues from turnover targets to the number of new jobs created. Beneficiaries who violate these commitments will have to reimburse the entire grant, including interest, to the Ministry. On the basis of the annual reports, the Ministry expects few, if any, violations of these commitments. The first round of final audits, however, will only take place in 2008.

Assessment of Szechenyi Entrepreneurial Programme[]

Relevance

In order to remain tuned to the needs of the target groups, the Ministry organises regular meetings with entrepreneurs all over the country. As a result of these meetings, adjustments in the annual calls for tender are made. Examples of such adjustments include the introduction of financial support for information technologies, for marketing, and for quality assessment and assurance. Another way in which the programme proves its effectiveness in adapting to the needs of entrepreneurs is through the size of the awarded grants. In accordance with the quality and nature of the applications, the Ministry may vary the amounts allocated to individual enterprises. In this way the programme suits enterprises of a range of different sizes. The relevance of this programme for the target group is also illustrated by the demonstrated interest from entrepreneurs all over Hungary. However, some concerns do exist with regard to the programme's setup, at least on the theoretical level. In particular, it is feared that the programme may fail to include the most deprived Roma in the least developed regions of Hungary. This is due to the fact that the economic elite in such areas have easier access to scarce resources and economic networks, and accordingly the grants. These elite groups may block the access of the less well-off to the programme. The matching fund requirement, which stipulates beneficiaries to finance a part of the investment from internal sources, may also inhibit the most underprivileged Roma from applying. Further, more affluent firms can apply for higher grants than others can. As a result, it is feared that the programme may actually widen the gap between the haves and the have-nots rather than narrow it. However, the programme has not yet been officially evaluated, and it is too early to draw conclusions on these theoretical drawbacks.

Effectiveness and efficiency

According to the Ministry of Economy and Transport, the programme has resulted in both an increase in the entrepreneurial spirit among Roma and an increased tendency among non-Roma enterprises to contract Roma employees. The programme's short-term results are promising as hundreds of Roma and Roma-employing entrepreneurs have benefited. However, there is no evidence yet that the willingness of non-Roma enterprises to employ Roma will hold after the contract with the Ministry expires.

Innovativeness

In Hungary itself, the programme is innovative as it is the first project to support businesses based on their ethnic background. On an international level, the programme ties in quite well with other existing positive discrimination schemes.

Replicability

As long as sufficient public funds are available, the Szechenyi entrepreneurial programme seems replicable in other regions where specific groups of society are being excluded. In neighbouring Romania for instance, a country in which the Roma people also constitute an isolated ethnic minority, similar initiatives are already being deployed(1).

Sustainability

The future of the programme itself seems safeguarded. The Ministry of Economy and Transport currently cites the programme's cost-benefit ratio as a reason to keep and possibly extend the programme. With regard to the sustainability of the results however, it is not yet possible to draw definite conclusions. The programme supports non-Roma entrepreneurs willing to employ Roma for the five-year period that they are monitored. To evaluate whether the programme leads to a long-term improvement in the situation of Roma, a longer time horizon is needed.

Key learning points[]

A positive discrimination scheme towards socially excluded groups does yield promising short-term results. However, to judge the long-term sustainability of its results, a longer timeframe is needed.

 *Adapting a programme's definitions in response to new demands from entrepreneurs can be beneficial. Part of the Szechenyi entrepreneurial programme's success, in terms of the number of awarded grants, is attributable to its flexibility toward the changing needs of the market.
 *A policy measure that involves the distribution of government grants to finance enterprises' investments needs to be well-defined and closely monitored in order to prevent abuse.

A grant scheme with a matching-funds requirement may increase social inequality. There may be a bias towards more affluent entrepreneurs since the most underprivileged may not possess sufficient financial resources to qualify for receiving a grant.

Contact address[]

Hungarian Ministry of Economy and Transport Honved utca 13-15, 1055 Budapest F: +36-1-302-2381 T: +36-1-374-2700/2138 W: http://en.gkm.gov.hu/ Contact: IIdiko Szilagyi, Chief Councillor E: szilagy.i1diko@gkm.gov.hu Hungarian Centre for Economic Development Magyar Gazdasagfejlesztesi K6zpont Zrt VaGi ut 83, 1139 Budapest E: info@magzrt.hu F: +36-1- 465-8502 T: +36-1- 465-8469 W: http://www.magzrt.hu/ Contact: Sibak Andras

Hungarian Foundation for Enterprise Promotion Magyar Vallalkozasfejlesztesi Alapftvany 1115 Budapest Bartok Bela ut 105-113 E: info@mva.hu F: +36-1-481 4601 T: +36-1-481 4600 W: http://www.mva.hu Contact: dr. Nagy Estilla Virag

Notes and references[]

Interviews with: Mr. Sandor Lakatos, Ministry of Economy and Transport Ms. Iidiko Szilagyi, Ministry of Economy and Transport

Websites: Ministry of Economy and Transport http://www.gkm.gov.hu/archivu m/ _ elemzesekl_ elemzeseklroma _programme . htm I?q uery=KKC-2007R

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Examination and evaluation of good practices in the promotion of ethnic minority entrepreneurs 7 Examination and evaluation of good practices in the promotion of ethnic minority entrepreneurs 3 Examination and evaluation of good practices in the promotion of ethnic minority entrepreneurs

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1 The Szechenyi Entrepreneurial Programme also shows some similarities with the Kansenzones project in The Netherlands. Examination and evaluation of good practices in the promotion of ethnic minority entrepreneurs 6

Catogory: Hungary