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4 OBJECTIVES AND PRIORITIES

4.1 Programme Vision

The vision is aspirational and not limited by the period, scope or limited scale of the new Programme. It looks to the long-term future of the Highlands & Islands, 20 or more years ahead. It depends as much on the commitment of and progress by partner organisations and creative use of structural funds. It is born out of the recognition that the region's future is dependent upon social, economic and environmental factors operating both within and outwith the region. There is a recognition of the benefits which Partnership can bring to the area. In essence, Partnership is the key to the vision and the key to delivering this Plan.

Although the funds can contribute to the future development of the Highlands & Islands, the Programme, with its relatively short duration and necessarily limited scope, cannot alone solve the problems of the region. The Programme will operate within a much broader context and contribute to a wider, longer-term aim of sustainable socio-economic and environmental development of the region.

The concept for the future is embodied in the following statement:

The vision for the Highlands & Islands is of prosperous, inclusive and self-sustaining communities, where the unique cultures, traditions and environments are enhanced and the region makes a distinctive contribution to Scotland, the UK and the EU competitiveness through supporting people, places and prosperity.

The shared vision paints a future where:

• people: the people of the Highlands & Islands have access to employment and a full range of learning opportunities and social provisions thereby enabling them all to achieve their personal potential and contribute fully to the economic and social well-being of the area, both to enhance the quality of employment in the Highlands & Islands and to ensure that individuals and communities can make a full contribution to the development of the area;
• prosperity: the people of the Highlands & Islands generate sustainable economic prosperity and employment opportunities through innovative and outward looking action to increase incomes and prosperity of the Highlands & Islands and reduce the social and economic disparities within the region; and
• place: the people and communities of the Highlands & Islands have a strong and confident sense of identity, purpose and empowerment to reduce the problems caused by peripherality and insularity

The Highlands & Islands region has been awarded â'¬158 million for both ERDF and ESF over the 2007-13 period. This overall sum is divided between ERDF and ESF. The programme value is variable, of course, relative to the exchange rate of the £/â'¬, but can be estimated to be around £105 million. For the ERDF programme, â'¬113 million has been allocated, or approximately £75 million. A working annual average for the purposes of comparison might be rounded to £10.7 million.

A starting point for comparison is the Additionality Table provided to the European Commission, which showed historically annual average expenditure in the Highlands & Islands over the periods 1994-99 and 2000-06. The expenditure is brought together under three headings: basic infrastructure; human resources; and productive investment. From the total of the resources to identified the contribution from this Programme is â'¬22.5 million per annum and â'¬956.8 million per year (excluding the EU contribution) for national public expenditure. The EU contribution to relevant expenditure in the Highlands & Islands is thus about 2%: ie a small but significant proportion. However, perhaps a more meaningful benchmark is Highlands & Islands Enterprise's annual budget for enterprise support and wider economic development of some £120 million.

In order to achieve objectives it will be necessary to work with other funders to influence their programmes, align investments and add value through structural funds which are small in comparison with other regional spending programmes - for example, Highlands & Islands Enterprise, the Local Authorities, expenditure on transport infrastructure through the emerging transport authorities, Scottish Water on improving water supply and waste water treatment infrastructure and funders such as the Big Lottery on community development.

The objectives that follow therefore reflect the region's current economic and social circumstances as set out in the socio-economic analysis, the accepted need to concentrate the limited resources available and to work closely with partner organisations. It is also critical to recognise that this could be the last Cohesion Programme for the region. The Programme therefore aims to support activity of potential benefit to the region beyond 2013.

The Programme is founded on a number of key principles that will influence the types of actions that will be developed through the implementation of the Programme. These comprise:

• partnership - the Programme will be implemented by a close partnership of the region's public sector agencies with enterprise, community, educational and environmental interests;
• additionality - the Programme will ensure effective use of European Structural Funds by providing assistance where activities would not otherwise proceed, or would do so at a lesser scale and/or later date;
• programming - the Programme will be delivered in a transparent way through the explicit integration of activities each having clearly defined and expressed inputs (financial resources) and outputs (targets) - a further component of programming will seek to ensure the most effective sequencing of action to deliver maximum impact of investments; and
• concentration - the Programme will target resources on areas of greatest need and on activities which produce the maximum impact for the resources deployed.

Together these four principles will establish the framework for the promotion of internal and external cohesion of the Highlands & Islands in conjunction with the strategic vision. This vision operates through three sets of interlocking objectives, reflecting the key challenges highlighted in the socio-economic analysis in the following areas:

1. Sustainable Enterprises

2. Sustainable Communities

3. Sustainable Infrastructure

Objective 1: Sustainable Enterprises

To increase the sustainable growth of the Highlands & Islands economy through improving the competitiveness of its enterprises, particularly through an enhanced RTD and enterprise support environment

The socio-economic analysis identified a range of issues relating to enterprise growth and the RTD/innovation capacity of the region. The two sets of issues need to be addressed holistically through a single objective focusing on enterprise development in the region for several reasons.

RTD/innovation should not be separated out from wider enterprise growth processes. At the heart of the Lisbon Agenda is the recognition that RTD/innovation underpin all sources of regional economic competitiveness and not just technological. This is particularly true of enterprise development, whether it is the emergence of new enterprises on the back of technological, product or service innovations or the ability of existing enterprises to grow and renew their competitive vigour by improving the speed and adaptability of their sources of innovation. In regional terms, it is critical that there is a strong enterprise base that will be able to make full commercial use of the region's research assets - indeed, support for both should recognise the process of continuous 'dialogue' that takes place between RTD/innovation sources and users. In practical project terms as well, there should be scope for the issues to be integrated in individual projects. Projects could make a more effective use of Structural Funds support where they can link support for RTD/innovation to other aspects of enterprise development, such as support for new entrepreneurs with new technology/product ideas or developing new, innovative approaches to recycling and resource efficiency that can improve enterprise contributions to environmental sustainability.

Overall, the objective recognises that while there are a number of elements underpinning the region's economic competitiveness, sustainable growth will only be possible if the region has a strong innovation system linked to a enterprise base with the skills, resources and capacity to make full use of RTD and innovation. Structural Funds policy can contribute to developing competitiveness by deepening the self-renewing value of the main sources of RTD and innovation in the economy, deepening and broadening the links between this research capacity and the enterprise base, improving the ability of the Scottish enterprise community to make maximum use of this research, and replenishing that enterprise base by improving the new firm formation rates, the culture of entrepreneurialism within the region and access to finance.

These different elements are self-reinforcing within a wider enterprise support framework and would be most effective integrated within a single priority. Given the limited resources, and the priorities identified in domestic policy in Chapter 3, the Structural Funds would have most value added if targeted on new enterprise formation, key high-growth sectors and bottlenecks in these areas that require support. At the same time, in keeping with our commitment to contributing to the Lisbon Agenda within a sustainable development framework, entrepreneurship and enterprise growth should be supported with specific activities designed to improve resource efficiency and the commercial use of key environmental technologies.

Objective 2: Sustainable Communities

To support viable communities across the region by promoting community sustainability and thereby supporting their ability to contribute to Lisbon goals

Community sustainability is as critical to the long term wellbeing and competitiveness of the Highlands & Islands as the strength of its economy. Community regeneration can make essential contributions to the region's economic performance by distributing growth across the area and acting as local growth poles for a diverse region. Parts of the region have experienced severe problems of sustainability, undermining the scope for all parts of the region to contribute to a sustained economic growth. Structural Funds can support community efforts to strengthen their sources of local competitiveness, retaining population (especially young people) and attracting in-migrants from outside of the region. As the economic problems faced by these areas can consist of a mix of different problems, a coordinated, targeted approach to community regeneration is essential.

Objective 3: Sustainable Infrastructure

To support sustainable key investments in the strategic economic infrastructure that will improve the region's competitiveness

Structural Funds have provided substantial support to the infrastructure of the Highlands & Islands over the years, resulting in significant improvements in transport accessibility, broadband connectivity and the development of a regionally-based university and college network. These are all long-term projects that will continue to require support through the new programming period. Minimising the peripherality of the region through targeted transport and information infrastructure investments and reinforcing the region's higher and further education infrastructure will underpin our enterprise and community aspirations in the first two objectives. At the same time, the region's environmental assets have been increasingly important to the growth of the region, not least through its contributions to tourism. Maximising the sustainable economic opportunities these assets offer is a complementary goal within this objective.

4.2 Priority 1: Sustainable Enterprises

Supporting the region's enterprises is the first key priority for the Highlands & Islands ERDF programme. The priority aims:

To increase the sustainable growth of the Highlands & Islands economy through improving the competitiveness of its enterprises, particularly through an enhanced RTD and enterprise support environment

Within this aim, there is a series of interlocking objectives:

• to address key bottlenecks in the development of new and high-growth enterprises;
• to tackle critical weaknesses in the Highlands & Islands innovation system which limit the potential for high-growth potential enterprises and entrepreneurship in the region;
• to establish a viable RTD base and support environment for the region as a whole by enhancing the Highlands & Islands research capacity.

Enterprise and entrepreneurship

Increasing enterprise competitiveness has been identified as a key tool in delivering the Programme's aim and strategic objectives. It has been aimed at creating higher quality employment opportunities and increasing incomes through improved added value. The focus of the effort will be on SMEs and micro-enterprises, which represent over 96% of total enterprises, in fragile areas and growth sectors. (Throughout this Priority, where the term businesses is used, it refers to SMEs, non- SMEs of up to 250 employees per establishment and not-for-distributable-profit organisations.) Competitiveness of SMEs in the Highlands & Islands is undermined by:

• distance from markets;
• low value added leading to:
• lack of financial resources due to low levels of profitability
• low rates of return on investment restricting SME access to commercial funding
• limited research and development facilities or resources; and
• limited opportunities for human networking.

Structural Funds were used substantially during previous programmes to enhance support provided by partner organisations. For example, capital investment and enterprise support schemes to boost job creation. Actions now envisaged seek to build on the progress of recent years, address change and changing circumstances and direct the limited resources available at SMEs in 'emerging or growth' sectors and increased value added - ie. those which have the greatest propensity to contribute to external and internal cohesion through GDP growth. They include:

• knowledge-based activities;
• high-value manufacturing and value-added processing;
• food and drink products;
• renewables; and
• creative industries.

Given the current labour market in the area, Priority 1 will concentrate on development and retention of jobs in the region. A key consideration here is the quality of jobs on offer. It is envisaged that there will be strong complementarity between assistance under this priority, Priority 3 and ESF assistance for training purposes.

This priority presents a key opportunity to concentrate on strengths and improve the performance of SMEs in the Highlands & Islands by ensuring that they develop best practice in terms of environmental management and their approach to social inclusion. High energy costs and lack of diversity of supply means that SMEs can be at an economic disadvantage. Alongside the provision of renewable energy, investments will be made in energy efficiency measures to reduce process costs amongst SMEs.

Projects will be expected to demonstrate that they have considered and included opportunities to promote:

• improved environmental performance within enterprises, including the promotion of waste minimisation and management (including effluent) and energy efficiency;
• training and associated support mechanisms which are designed to provide employment opportunities available to all, and which are in line with local strategies and community aspirations; and
• best practice in built development, covering aspects such as energy efficiency, habitat and landscape impact, and accessibility by public transport, walking and cycling.

There is also a need to lever a higher level of private sector investment in enterprise development as a means of sustaining employment, adding value and increasing incomes. The focus of effort will be on assisting enterprises through the establishment of a range of financial engineering initiatives which will be designed to address the difficulties faced by enterprises in the Highlands & Islands including:

• lack of financial resources due to low levels of profitability; and
• low rates of return which restrict access to commercial funding.

Such assistance will be through grant, loan or venture capital assistance.

RTD and innovation support

As set out in the socio-economic analysis, the difficulties faced by the Highlands & Islands with respect to RTD and innovation include:

• structural weaknesses in the Highlands & Islands innovation system;
• insufficient access to research institutions;
• lack of in-house RTD capacity; and
• fragile innovation culture and poor networking infrastructures.

Support needs to be used to tackle the impact of these difficulties on both existing and new enterprises, both directly and through expansion of the region's innovation and RTD capacity. The Programme should concentrate funding on the key RTD bottlenecks facing enterprises in the region. These include two areas of intervention:

• RTD support activities that benefit a wide group of enterprises. This will focus on addressing the key structural weaknesses in the regions innovation system, particularly through investments in key RTD resource centres. In addition, the scope would include the creation of region-wide collaborative research projects that address RTD bottleneck gaps in a sector and promotion of new sustainable RTD networks, particularly within the enterprise community, as well as measures that address the capacity of enterprise to absorb the output of the research base., will be addressed. Activities under this heading will also include support for the commercial spin-outs from research centres and improvements in academy-industry linkages, especially for local SMEs.
• Activities that target bottlenecks in the early development of commercial research ideas. Support for individual enterprises at particular stages in the RTD and innovation process will be important, again with SMEs as a particular target group. This includes support for converting key research ideas into potential products and services through research fellowship programmes, scoping studies, prototype development, investments in the company capacity to develop full product development and market research.

Action is required to raise the RTD capacity of the region, 'connectivity' between RTD and companies and the level of activity taking place in support of enterprise innovation as a means of creating employment and increasing incomes in the longer term. In particular, there is scope for enterprises utilising the expertise of UHI and other research institutions.

Information society support

The ISDN network received substantial improvement funded by the 1994-99 Objective 1 Programme. ICT provision was further enhanced under the 2000-06 programme with the extension of broadband technologies to all parts of the region to support enterprise and educational opportunities (highlighted by the Council of Ministers at their meeting in Lisbon) and help sustain communities. In particular, the opportunities afforded through the potential of e-commerce need to be harnessed to generate employment in the more remote communities.

The acquisition, analysis and use of knowledge will be the key to sustained competitiveness. Information and communication technologies will therefore need to be exploited to the full if the region is to achieve greater economic prosperity. Enhancing the take-up of ICT amongst SMEs, learning institutions and communities will be central to future success.

New and innovative services and applications will provide the Highlands & Islands with enhanced competitiveness in the global market. The delivery of services to remote areas via electronic points will encourage the sustainability of very remote areas, removing barriers to access and reducing the need to travel long distances. Services will be improved and communities empowered.

4.3 Priority 2 - Sustainable Communities

The social and economic sustainability of communities is a critical component of regional competitiveness. This link was recognised in the Lisbon Council in 2000, which acknowledged the scale of poverty and social exclusion in certain areas was a major constraint on the EU achieving its competitiveness aims. Failure to tackle the problems associated with geographical pockets of intense exclusion is not only contrary to a shared EU commitment to social justice but also represents a failure to make best use of all of the economic resources at our disposal in order to drive growth. While this tends to manifest itself particularly in urban areas, the rural dimension presents particular challenges. Main contributory factors here include sparse and widely dispersed population, access to services, jobs and training and isolation. This principle underlies the Scottish Executive's recent policy statement on regeneration, People and Place, as well as A Smart Successful Highlands & Islands.

The sustainability of communities is a particularly important issue in the Highlands & Islands, where many communities are threatened by the challenges of peripherality, limited access to services, out-migration and a weakened enterprise foundation. In combination, the problems will hinder the capacity of the region to contribute fully to the achievement of Lisbon goals. The need for geographically-targeted funding at communities or groups of communities where this issues are most acute has shaped the design of this priority. Overall, the priority aims:

To support communities across the region by promoting community sustainability and thereby contribute to Lisbon goals

The priority will act through two subordinate objectives that will operate in tandem:

• to support the development of community economic infrastructure in the region, in support of economic sustainability, not least that which complements the social inclusion activity under the ESF programme; and
• to increase the capacity of disadvantaged communities to attract and sustain SME activity.

Community economic infrastructure

The Highlands & Islands are characterised by fragile and remote communities and economies. The priority will support the drive for a more entrepreneurial spirit within communities by increasing provision of core facilities and services and maximising the benefits of existing services and infrastructure. The provision of local community resource support is crucial to strengthen and develop communities. This priority seeks also to strengthen the training and learning networks and infrastructure.

The provision of social and community facilities, including childcare, training infrastructure, and support for national and regional initiatives aimed at effecting structural change is a key element in tackling social exclusion and in sustaining local communities particularly in the rural and island areas of the region. The actions will seek to address a range of disadvantages ranging from a lack of services, normally available commercially, to accessing employment or training opportunities and in relation to dependent care.

A vibrant social economy exists in the Highlands & Islands and the important role of communities is recognised in the vision behind this programme. With an emphasis on sustainable community economic development, the Programme will build on best practice from the previous programmes. Communities need to harness the resources they have at their disposal to enable them to prosper and overcome the barriers they have experienced to date. This priority will complement other actions supported under the Programme to sustain and help communities to help themselves.

Providing services that allow for greater participation of women. It is recognised that activities supported by women often underpin community and social development, however the participation of women in decision making and project management remains low. Flexible learning opportunities will allow greater take up by women and in sectors with marked gender segregation both women and men will benefit.

Supporting SME activity in vulnerable communities

In order to attract and sustain SMEs to areas that can directly benefit the most fragile areas and to encourage the development of entrepreneurship within those communities we will fund additional specialised enterprise support in fragile communities. As initiatives that are imposed on such areas are only rarely successful and also reinforce the sense of exclusion within that community, it will be essential for successful sponsors to be able to demonstrate that ERDF projects in this Programme are delivered with the support and active involvement of the local community. It is, however. recognised that circumstances vary across communities, different communities are at different stages of development and the level of local participation will need to be considered at an individual project level rather than attempting to set programme-level standards.

Key activities in support of this objective may include:

• support actions to provide access to information, consultancy and hands on support to new and established SMEs based within, or serving the needs of, fragile areas to help increase sales, develop new markets and develop enterprise ideas and products;
• support for entrepreneurship in targeted community by providing advice and support; access to finance through grants; micro credit schemes; guarantee programmes public/private loan funds;
• support for refurbishment of existing facilities within targeted communities to make them suitable for new or established SMEs;
• support for schemes to improve efficiency of SMEs based within, or serving the needs of, fragile areas through technological audits, advice on efficient energy use and use of (small-scale) renewable energy;
• support for the promotion of target communities aimed changing the perception of those communities with the specific aim of facilitating access to employment and educational opportunities;
• support for small-scale conversion and adaptation to enterprise/community centres/facilities that offer employment or training opportunities to people living in targeted areas;
• support for community investment funds including support for increasing capacity within credit unions and other schemes; and
• investment to support the increased local access to ICT facilities within communities with the intention of improving skills of local people seeking to re-enter the labour market.

4.4 Priority 3 - Sustainable Infrastructure

Previous Programmes tackled many of the underlying constraints to the development of the Highlands & Islands area. These have made a great difference to the economic performance of parts of the region, through key investments such as the Scalpay Bridge, the Berneray Causeway, the new terminal at Inverness Airport and improved telecommunications links. The unique physical characteristics of the region, typified by scattered islands and remote and peninsular communities, continue to present a compelling case for continuing infrastructure investment. However, the level of need and the limited resources available dictate that major investments must be pursued through 'mainstream' channels. Complementary, 'local strategic' developments should be encouraged. The double disadvantages of remoteness and low productivity in the Highlands & Islands can be addressed through the provision of sustainable infrastructure. Achieving this will contribute to the creation of conditions for regional competitiveness and remove some of the remaining internal barriers to development. Defining criteria for the selection of projects will cover projects which are:

• of strategic importance;
• generative of wider economic benefits;
• linked with other related (sectoral/spatial) developments/initiatives; and
• improve local connections with existing provision.

With this in mind, the third priority will aim:

To support strategic investments in the economic infrastructure that will improve regional competitiveness

It will do this by funding a series of targeted investments in the following set of contributing objectives:

• to develop the higher and further education infrastructure;
• to invest in key renewable energy infrastructure that will support regional competitiveness in the renewables sector;
• to maximise the economic and social benefits of tourism and the region's environmental and cultural heritage through strategic investments
• to support strategic small-scale transport links in improving access and reducing peripherality; and
• to continue targeted improvements in the ICT infrastructure underpinning enterprise competitiveness.

Higher and further education infrastructure

Developing the capacity of the UHI and the college network for teaching and research underpins much of the Programme activity - and key priorities - set out not just in the ERDF Programme for the region, but the ESF one as well. Developing a strong university and college cluster of learning that can support not just skills development in the area but the research excellences that will reinforce the competitiveness of key Highlands & Islands industries will be a critical legacy of the Programme (such as marine and environmental science, nuclear decommissioning and life sciences). Consequently, support will be available for making key investments in improving the teaching and student infrastructure of the UHI and the college network (particularly around accommodation) as well as the ICT/communications links that facilitate remote learning and research centres, not least in ensuring access to the more remote parts of the region and to participation by non-traditional groups of learners. Investments under this part of Priority 3 will be strongly co-ordinated with support under Priority 3 in the ESF Programme for the region (access to lifelong learning).

Renewable energy

The Highlands & Islands exhibits particular characteristics compatible with the development of renewable energy. Development of this will provide a sustainable means of energy provision, create employment and enhance skills development in a growing field while minimising the impact on the environment. Investment in renewable energy will enable the region move towards fulfilling its needs in energy provision, with particular benefits for remote, island and peninsular areas. While investment per se will not be eligible, RTD supply chain, spin-off activity and local schemes all have potential benefits and transferable opportunities. Support will be available for key infrastructure projects with widespread commercial spin-offs for the region with an emphasis on development and pilot projects.

Tourism

Targeted investments in the sustainable development of the natural and cultural assets of the region would be supported through the Programme. Large-scale infrastructure investments would not be possible - support would be made for making fuller commercial use of existing sites and assets, whether relating to the distinctive culture of the region or its wealth of natural landscape attractions. Eligible activity would also include support for key regional events, such as the Year of Highland Culture.

Transport infrastructure

Transportation infrastructure in the Highlands & Islands received significant investment under the previous programmes to reduce disadvantage to the fragile areas of the Highlands & Islands, including access to markets. Problems currently faced include:

• infrequent and expensive sea and air transportation;
• poor inter-modal linkages;
• poor quality road networks;
• poor regional air facilities and links; and
• poor public transport provision in remote areas,

While work remains, this should largely fall to the statutory agencies, leaving ERDF to concentrate on strategic local projects that complement other investments, improve 'connectivity', reduce development constraints. Public transport provision is in the process of being reorganised, with the development of a strategic regional dimension to public transport provision in the Highlands & Islands. While the revenue support of individual services will remain the responsibility of local authorities and the Scottish Executive, ERDF can assist with some small-scale strategic investments to improve existing facilities, encourage greater use of public transport and facilitate access to jobs and markets.

ICT and communications infrastructure

Positive use of the Information Society is highly important to the economic development of remote rural and island areas such as the Highlands & Islands. The availability of a comprehensive broadband telecommunications infrastructure provides a foundation for combating the problems caused by peripherality for many enterprises, learning institutions and community groups in the region. While this will enable equality of access to all business, education and training purposes and improve the overall economic performance of the area, it is essential to 'keep pace' with developments and maintain competitiveness. Significant improvements to the region's telecommunications infrastructure have resulted from major investments supported by previous Programmes, including mobile telecoms, enhancement of the digital networks and provision of broadband technology. While these investments have allowed the remoter areas of the Highlands & Islands to take advantage of greater global economic opportunities, parity in ICT provision does not fully exist: in particular, speed and capacity vary substantially. This needs to be tackled and the Programme will seek to provide limited enhancements to ICT infrastructure of the region where normal commercial interventions would not take place and to upgrade and extend across points in more peripheral areas.

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