Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

4.5 Case Study: industrial investment4.5.1 Project objectivesIn order to assist a Convergence Region development strategy in a Cohesion Country, the governmentdecided to co-finance an industrial investment project.The objective of the project support is to pursue the productive base of the region in the manufacturingsector as a growth catalyst for economic development.Consequently, the project is expected to improve the regional competitiveness on national andinternational markets and to increase, directly or indirectly, the income level of the region.In order to limit the support to the private sector and to avoid strong displacement effects, thegovernment decided to keep financing under an acceptable threshold, in line with the priorities stated itsOperational Programme and in compliance with EU legislation on State Aid.4.5.2 Project identificationThe government identified an investment in the automotive supply-chain sector. This industry guaranteesa reasonably safe financial return and at the same time it assures an improvement in the technological levelof the regional industrial structure.Point B.5.1. of Annex XXII of Regulation (EC) 1828/2006 (Application Form for majorprojects/productive investments) requires an indication of ‘the extent to which the region(s) is/are atpresent endowed with the type of production facilities or activities covered by this application’: the regionin which the investment is expected to be realised, even with a low industrialization level, has a majority ofcompanies operating in traditional industrial sectors; thus, this investment integrates well into the existingeconomic environment and would increase business for local firms.The automotive components market has experienced a reasonably stable growth pattern in the last decade,confirming itself as a mature and relatively safe sector. The company currently has a 5% share of theEuropean market, compared to the 3% share of ten years ago, recording a better performance than itscompetitors. The market structure is expected to remain stable, partly due to the high entry barrierscharacterising the sector.The legislation on pollutant emissions calls for a series of standards that require the continuous innovationof some automotive components, a circumstance that guarantees a good outlook for the sector.Preliminary studies showed the project to be feasible from the technical, managerial and profitabilitypoints of view.4.5.3 Feasibility and option analysis4.5.3.1 Financial-economic reliabilityThe private actor who proposed the project to be co-financed is a multinational company active in theautomotive industry with production plants in many countries. The company has a long history ofsuccessful achievements in this sector and has demonstrated a reliable financial structure and strongeconomic performance in recent years.Point B.1.3 of the Application Form requests the definition of enterprise size. The company is notclassifiable as an SME (Small Medium Enterprise) according to the definition of Recommendation2003/361/EC because it has more than 250 employees and a turnover higher than €50,000,000. An indepthfinancial analysis of the balance-sheets of the last three years was conducted by expert auditors.186