Kansenzones

Project Summary Kansenzones (‘Opportunity Areas’) is a local policy project of the city of Rotterdam, which aims at strengthening socioeconomically depressed city districts by improving the investment climate in a variety of ways. It forms part of a national policy to stimulate development in major cities in the Netherlands, the Grotestedebelied (‘Major Cities Policy’), The centerpiece of Kansenzone is Ondernemersregeling Kansenzones Rotterdam (OKR, Entrepreneurs' Scheme for Opportunity Areas). The areas targeted are in the southern part of Rotterdam, which has more than its share of unemployment and social problems, and does not normally attract much investment from the private sector.

Source: Examination and Evaluation of Good Practices in the Promotion of Ethnic Minority Entrepreneurs

The partnership

The Kansenzones project is implemented by the Rotterdam municipal agency Ontwikkelingsbedrijf Rotterdam (OBR). The OBR has a long record of promoting entrepreneurship both for native and for the migrant population of Rotterdam. In [DATE] a special project team was created to supervise the activities of the OKR and ensure that the stated objectives were achieved. The project team coordinates the activities with local neighbourhood councils in each of the eleven neighbourhoods targeted for the project. Indirect participants include the Chamber of Commerce and three private banks.

Funders and funding

The project started in April 2005 and is expected to run till the end of 2008. The budget for the OKR is € 24 million, all of which comes from the national budget reserved for stimulating development in the major cities, the Major Cities Policy. This amount is matched by the City of Rotterdam to fund other activities aimed at supporting entrepreneurs in the same areas, which include wage subsidies in order to stimulate employment and employee training schemes; business counselling for young entrepreneurs and improved access to finance.

Policy context

There is a marked difference between the northern and southern parts of Rotterdam. While the northern part is affluent, the southern part is relatively poor, has a high unemployment rate, and is home to large groups of migrants with limited job opportunities who are interested in entrepreneurship as a way to escape unemployment and poverty. Similar situations in all the major cities of the Netherlands: there is often high unemployment, a high number of migrants and a high presence of migrant entrepreneurs in certain marginal neighbourhoods. This has prompted the government to create a special policy (and fund) to stimulate the living conditions in the poorer quarters of the major cities, called Grotestedenbeleid.

Objectives

Kansenzones aims to strengthen entrepreneurship and economic development in marginal areas in South Rotterdam, by improving the investment climate. This is done by offering a subsidy to entrepreneurs in certain designated areas, as well as any real estate owners renting property to entrepreneurs in those areas, when they invest in the infrastructure of their business premises. Subsides are offered of up to 50 % for investments in the business premises of the entrepreneur. At first, a ceiling of €100,000 was fixed for the subsidy, but this was later made more flexible.

Target groups

The Kansenzones project targets entrepreneurs and real estate owners in designated areas of South Rotterdam regardless of their ethnic background. Since there is a high number of migrant entrepreneurs in these areas, however, they are strongly represented in the project. (Unfortunately, the OBR does not keep track of the ethnic origin of the applicants, which makes it impossible to give an exact figure for the percentage of migrants at the different stages of the OKR. But both the project coordinator and the mid-term evaluator agree that the migrant participation is considerable, probably in the range of 30-50%.)

The OKR aims at promoting business development and job creation among three different market segments:

1) Existing enterprises already established in the designated areas; 2) Existing enterprises from outside the designated areas that wish to relocate; 3) Start-up entrepreneurs establishing their business in the designated areas.

How Kansenzones works

The Kansenzones project consists of a comprehensive package of support services aimed at improving the investment climate in marginal areas of the southern part of Rotterdam. These include [MORE ON SUPPORT SERVICES.]

The OKR focuses on improving the physical business environment in the designated areas, by providing incentives for investment in real estate and certain other fixed assets, such as new machinery, equipment or furnishings. The subsidy is intended for serious entrepreneurs and real estate owners who already rent their property for business purposes or who plan to do so.

Kansenzones focuses on all four levels of the APIS-model (Awareness, Policy, Institutions, Services). Awareness is created through the website and through the OBR business advisors at the grassroots level. As explained above, the Policy framework is the national 'Major Cities Policy' (Grotestedenbeleid) and the municipal policy to develop the southern part of the city. The main Institution involved is the OBR. The Services provided are the OKR and other support services mentioned above [SEE ABOVE—MORE ON SUPPORT SERVICES].

Results

As of April 1 2007, 774 entrepreneurs have requested a subsidy. Of these, 634 were analysed in the mid-term review carried out by Regioplan in June-July 2007. Nearly € 46 million in investments were put forward in these 634 applications. About 60 % of the applications have been processed. So far, 304 applications have been approved and 66 rejected. About one-third of the approved cases are those of ethnic minority entrepreneurs, who are over-represented in the designated areas.

The total investment approved in the first two years amounts to € 12.8 million, of which about € 6 million will be subsidized. In other words, on average the awarded subsidy is about 45% of the investment amount proposed by the entrepreneur. So far about € 2.9 million has been disbursed. The highest subsidy awarded so far is € 100,000, for a planned investment of € 800,000. However, this is an extreme case. The average investment approved is about € 61,500 and the average subsidy about € 28,500.

By mid July 2007, according to the mid-term review, about 40% of the subsidy applications came from start-ups, and about one-third of the subsidies awarded [CHECK]. The average amount awarded to start-ups was slightly higher than that of existing firms (€ 77,436 vs. € 61,991). The main business sectors covered by the OKR are the retail and services sector. In terms of subsidies approved and disbursed, these two sectors represent about 60-70% of the total amount.

Results

The project was evaluated by Regioplan/Ernst & Young after the first year and once again after the second year (mid-term review). The final report of the mid-term review is expected at the end of August 2007.

==Assessment In order to assess the success of the project Kansenzones, a closer look at the following aspects is required.

• Relevance

The south part of Rotterdam has been plagued by urban decline for many years. A high concentration of low-income and ethnic minority groups, combined with drugs and crime problems, have given this part of the city a negative image, reducing the economic potential of private business. The lack of serious business opportunities perpetuates the negative cycle of unemployment, social decline and marginalisation. Kansenzones aims at breaking through this negative cycle.

The project is relevant in terms of demand from the target group. According to both the project coordinator (OBR) and the evaluator (Regioplan), at least one third of the participants are migrant entrepreneurs. (This is a rough estimate based on participants’ family names, and is actually likely to be higher). This is the case at all levels of the OKR, from application to disbursement. The same applies to the other activities in the Kansenzones programme.

• Effectiveness and efficiency

The mid-term review (draft) concludes that it is still too early to issue a definite verdict on the impact of the Kansenzones project. However, it is already clear that the project has contributed to increased investment in the designated areas, both in terms of the number of investments and the size of investments.

The amount of applications was more or less the same in the first and second year, which suggests the project fills a demand. An additional benefit of the OKR is that it enables entrepreneurs to carry out investments that would not have been profitable without the OKR subsidy.

The mid-term review concludes that it is likely that the additional investments in business premises generated by the OKR will improve the economic performance and create employment in the firms involved in the project. This effect is not expected to take place immediately, however, as most firms will not hire more employees until they are sure that they need them. Moreover, at present it is not always easy to find qualified staff in the designated areas. The employment impact of the OKR will depend on other measures such as the age subsidy scheme and the BOP (skills training), which are part and parcel of the Kansenzones programme.

This principle is illustrated in the graph below, in which it is assumed that the first employment effects may only take place a year after the investment has been done, whereas a lasting employment impact may take several years to materialize. There may also be a secondary effect as more passive firms start to expand when they see their active neighbours increasing their business activity.

Expected Time Lag in Employment Impact of OKR Effect (approved) applications 1. investment

extra jobs reduced unemplovment

1st year 2nd year 3rd year Time

• Innovativeness

This project is one of the few initiatives that focuses on infrastructure as a means to stimulate economic activity. The basic assumption is that investment in business premises and generally improving the physical environment in which firms operate can lead to better business performance and thus generate employment and income in the area.

Another innovative aspect is the comprehensive approach, which recognises that it takes more than just improving one of the dimensions that determine the economic development in a certain area. The comprehensive approach in this case includes the physical, the human and the financial dimensions of business development through the OKR and the projects mentioned above.

• Replicabilitv

The project may be replicated in other depressed urban areas in the Netherlands, as part of the so-called Grotestedenbeleid, a national government policy to make funds available to the major cities for measures to stimulate economic development. Most large cities face similar problems to Rotterdam, so depending on the success of the OKR and Kansenzones, other Dutch cities may follow the example of Rotterdam. Replicability in other countries would depend on the specific problems faced and the availability of funds.

• Sustainabilitv

In principle, the OKR is a one-off intervention for a limited period of time (2005-08). However, the project is expected to have a lasting effect through increased investment in the physical infrastructure and the fixed assets of the firms involved, which should lead to a structural improvement of the business environment and hence a sustainable impact on business performance and employment. One important aspect is that the entrepreneurs and real estate owners have to cover at least 50 % of the total investment with their own funds, which encourages commitment and makes it more likely that the investment is based on sound criteria.

Key learning points

• Investment in the physical business environment can be an effective instrument to stimulate business activity in depressed urban areas.

• Matching grants to promote investment in business premises and other fixed assets can accelerate this process and demonstrate the commitment of local authorities to the business community in these areas.

• A comprehensive approach to business development can be more effective to promote business development in certain areas, as measures tend to reinforce each other mutually. This is certainly the case in the Kansenzones programme, in which the physical environment, the lack of specific skills and the access to finance, are tackled simultaneously.

• This kind of policy measure requires time to generate positive results in terms of business development or job creation. The time-frame of the intervention should thus not be too short.

Contact address

General Project Coordination: Projectbureau Kansenzones Ontwikkelingsbedrijf Rotterdam (OBR) WTC-Building, Beursplein 37 Rotterdam

Coordination of sub-projects

Wage subsidy scheme: DAAD (OBR, CWI (national employment agency), Havenbedrijf, ROTEB, SoZaWe

Skills training (BOP): OBR, JOS and SoZaWe (all municipal agencies)

Access to Finance: ABN-AMRO Bank, ING Bank and Rabobank

Young start-ups: OBR, Chamber of Commerce and others

Business premises: OBR

Contact: Eva van Beek, Communication Advisor, OBR E: e.beek@obr.rotterdam.nl W: http://www.kansenzones.nl

Notes and references

Websites: Kansenzones: http://www.kansenzones.nl

Documents OBR Succesvol ondernemen in Rotterdam-Zuid (brochure) 2005. Ernst & Young and Regioplan. (September 2006) E€Jn jaar Kansenzones Rotterdam: volhouden en verbreden. [One year Kansenzones Rotterdam]. Ernst & Young and Regioplan. (2006). Mid-term review Kansenzones Rotterdam.

4 Similar initiatives have taken place in the US, with mixed results. However, Kansenzones seems to be quite a new initiative in the European context. Most policy measures reviewed in this study do not tackle the physical business environment, but rather take this as a given. Examination and Evaluation of Good Practices in the Promotion of Ethnic Minority Entrepreneurs 5