NextGen Microcities - Next Generation Micro Cities of Europe

The cities of Ventspils and Valmiera in Latvia face significant skill and labour shortages, which are limiting their economic prosperity and growth potential. The cities are shrinking by an average of 0.59% annually, driven largely by emigration to the capital, resulting in a brain drain as workers and business owners leave[1]. This trend has resulted in a skills gap, particularly in ICT and other technical sectors, where demand for ICT specialists far outstrips supply by two to three times[2]. As a result, innovation is staling, business expansion is being hindered, and attracting new investments is becoming increasingly difficult. The disconnect between the available skills and the needs of modern businesses places the cities at a competitive disadvantage, making it difficult to retain and draw top talent. Additionally, there is a lack of comprehensive career development support for students and adults alike. Few young people pursue careers in science, technology, engineering, and mathematics (STEM fields), and adults require retraining to develop digital skills.

[1] NextGen Microcities - Next Generation Micro Cities of Europe | Portico

[2] NextGen Microcities - Next Generation Micro Cities of Europe | Portico

The NextGen Microcities project aims to create a comprehensive blueprint for revitalising the local labour market by addressing both the demand and supply sides. Its primary focus is transforming the local economy from an industry-based to a digital one, tackling the persistent skills gap that has been holding back growth. As part of NextGen Microcities, the Valmiera Development Agency, in collaboration with the local municipality and other stakeholders, launched the ZILE (ACORN) Programme to help address these challenges. The Programme was launched exclusively in the city of Valmiera.

The ZILE Programme serves as a targeted local grant scheme specifically designed to stimulate innovation in STEM fields in Valmiera. Its purpose is to support local businesses, start-ups, and entrepreneurs by providing funding in a form of grants, educational resources, and expert guidance. By doing so, the programme aims to not only drive innovation but also create new job opportunities, drive development, increase exports, foster public-private partnerships (PPPs), and promote social entrepreneurship.

The ZILE programme is an annual initiative launched during the city’s ‘Innovation Week’ at the end of February, when the official call for applications to the grant scheme is announced. Local businesses, start-ups and entrepreneurs are invited to apply. The application period runs until the end of March and requires both an application form and a budget proposal. To support businesses with their submissions, seminars are offered to ensure a clear understanding of the process and requirements. Shortlisted companies are required to present a five-minute pitch to the evaluation board, followed by a ten-minute discussion. The board uses a scoring system to select the projects that will receive funding for that year.

Figure 1: Visual representation of the way the IFS works

After the UIA project phase (2018-2021), the ZILE programme was divided into two sub-programmes – ZILE Development and ZILE start-up – and supports approximately 15-20 projects each year (see figure below). The municipality allocates an annual budget of 60,000 euros per call, with 2,000 euros dedicated to a training component. This training consists of 4-6 seminars held throughout the year, designed to assist businesses with their submissions while also being open to anyone interested in learning more about the programme. The remaining 58,000 euros is directed toward grants up to 10,000 euros per beneficiary for local businesses, fostering innovation and development across the region. To foster a culture of creative and technological advancement, ZILE targets innovation and development projects, which must meet sustainability criteria. The programme also facilitates knowledge expansion and partnerships development through dynamic networking events, aiming to drive substantial progress and collaboration within the local business community.

During the programme’s design phase, consultations and interviews with local businesses and entrepreneurs were conducted to assess the city’s needs. These revealed that existing national programmes were geared towards large companies, leaving smaller businesses without the resources needed to participate. Local entrepreneurs expressed a need for smaller-scale initiatives that would enable them to implement effective innovation projects. Combined with the low levels of innovation across the city, the municipality identified a clear need for tools or instruments to support small and medium-sized enterprises (SMEs) l to become more innovative and competitive. The ZILE programme addresses these by providing funding, advice, educational resources, and expertise to companies, start-ups, and freelancers. Its aim is to stimulate innovation, drive development, increase exports, create jobs, foster public-private partnerships (PPPs), and promote social entrepreneurship.

The process of developing and implementing the ZILE programme did not require new complex procedures.

The financial scheme began by developing the necessary documentation for the ZILE programme, detailing its purpose, application requirements, award criteria, total funding amount, and target groups. The UIA project planned to hold three open calls, one for each project year. All submissions would first be reviewed for compliance with formal criteria, followed by a detailed assessment of concepts. Based on these evaluations, the highest-rated concepts were selected for funding. Originally, the ZILE programme aimed to finance 10 projects over the three years, but ended supporting 5-6 projects annually (totalling 17 over the course of the project).

The ZILE programme currently operates at an annual cost of 60,000 euros. However, its initial upfront investment was 94,768 euros, which covered a range of activities related to project funding. These activities included developing the programme's documentation, launching open calls for innovation projects by entrepreneurs and enterprises, transferring payments to beneficiaries during the implementation phase, conducting reporting, payments, and checks, preparing two evaluation reports, and producing a recommendations report.

The Business Environment Projects Office within the Valmiera Development Agency manages the programme and receives an annual budget of around 60,000 euros from the municipality. Administration cost of the programme is about 10% of the annual budget (around 6,000 euros) and is run by the Business Environment Projects Office.

The ZILE programme is managed by the Valmiera Development Agency, which oversees its operation and allocates an annual budget. During the UIA phase (2018-2021), the programme consisted of an evaluation committee composed by four representatives of the project consortium and two external experts to assess business ideas upon submissions and monitor their progress during project implementation. Additionally, the committee collaborates with local universities and vocational schools and frequently engages with representation form local business support organisations.

When designing and implementing ZILE programme, the following factors proved key:

• Insights from other cities implementing similar schemes – such as their specific approaches, results, and examples of best practices – were crucial to its success. Learning from these experiences helped minimise errors during the development phase and ensured a smoother, more efficient implementation
• Access to UIA funding for the programme. In the case of ZILE, the programme was tested and refined over three years throughout the UIA project.
• Strong partnerships and collaboration. Close cooperation between the Valmiera Development Agency, local municipalities, educational institutions, and business support organisations has ensured that the programme remains well-aligned with the needs of all stakeholders. These partnerships have strengthened the programme's capacity to support innovation and drive economic growth.

The buy-in from the municipality and locally elected representatives is crucial for the effectiveness of the programme, as their support ensures continued funding and resources, especially during election cycles when budget priorities may shift. By aligning the programme with local governance and local business interests, it increases the likelihood of securing necessary investments and continued funding for the programme.

From the outset, the programme engaged with local businesses and entrepreneurs to understand their specific needs and ensure the support provided was tailored to address local challenges. It led to the creation of an evaluation committee and the implementation of a feedback mechanism, including an annual survey for participants and inquiries to those who did not receive funding. This ongoing feedback process allows for continuous adjustments and improvements to the programme each year. Additionally, public events, such as seminars and networking opportunities have helped raise awareness, strengthened local buy-in, and encouraged wider participation from stakeholders.

The ZILE programme encountered relatively few obstacles. While some funded projects were occasionally unsuccessful—a common risk when financing startups—these instances offered valuable learning opportunities.  Through evaluation surveys and internal meetings, the programme was able to identify areas for improvement, refine its processes, and implement necessary adjustments to enhance its effectiveness and better support future projects.

The ZILE programme has helped foster the growth of companies and entrepreneurs in the city. Over the past six years (2018 to 2024), the programme has supported 82 projects, including 19 in 2024, with a total grant allocation of 332,729 euros. The programme’s commitment to STEM fields led to the support of 19 projects focused on digital transformation and the development of new digital solutions, fostering a culture of digital innovation. The programme has led to the creation of 68 new jobs and facilitated the development of 37 innovative products, services, as well as prototypes. In addition, two-thirds of the companies which received grants within the programme, have experienced increased turnover and profits, while one-third have maintained their previous activity levels.

Despite its relatively small size, the ZILE Programme has made an impact on the economic development of the municipality. Networking events organised by ZILE have strengthened local business community connections and enhanced interactions among entrepreneurs and stakeholders. Valmiera, recognised as a significant industrial hub in the Vidzeme region and Latvia, boasts the second-highest GDP per capita in Latvia (20,846 euros) after Riga (28,949 euros) in 2021[1]. The city’s high quality of life is reflected in the fact that approximately 9,000 people—36% of Valmiera’s population—commute daily from surrounding areas and municipalities[2].

Sustainability is a core component of the programme, with a strong emphasis on environmental responsibility. Projects must meet sustainability criteria to receive support, and annual training seminars, such as those on sustainable product packaging, help entrepreneurs adopt green practices. Consequently, SMEs are increasingly embracing green initiatives and the transition to a circular economy, inspired by the programme’s success stories and sustainability criteria.

[1] https://stat.gov.lv/en/statistics-themes/economy/national-accounts/2352-gross-domestic-product-regions?themeCode=IK

[2] Valmiera’s ZILE Programme contends in the Excellence Awards Final – EBN | EU|BIC Innovation Community

The ZILE Programme has been highly effective in helping the project reach its core objectives of empowering local businesses and stimulating the local economy. By providing tailored support to businesses and entrepreneurs, the programme successfully facilitated job creation and helped bridge the skills gap in key sectors like ICT. Additionally, ZILE has helped attract new investments and supported industrial projects, positioning Valmiera as a growing economic hub in Latvia.

The ZILE Programme has proven highly effective in fostering innovation within the local business community. Through its grant scheme, training seminars, and networking events, the programme has empowered companies to adopt innovative approaches and develop new products, services, and prototypes. This focus on innovation has not only enhanced the competitiveness of participating companies but also contributed to a broader culture of creativity and technological advancement across the region.

The sustainability of the ZILE programme is evident in its continued success and integration into the local business support ecosystem. Local politicians and businesses have demonstrated strong commitment to the programme, recognising its long-term impact on the community. Moreover, the programme’s integration with educational institutions and its focus on fostering entrepreneurship among students add an additional layer of sustainability. By preparing the next generation of entrepreneurs and aligning with educational objectives, the programme helps to build a foundation for ongoing innovation and business growth within the region.

In 2022, the programme was successfully expanded and extended to new areas within the municipality. Following Latvia's Administrative Territorial Reform[1], which significantly increased the municipality's size, the programme is now being implemented across the entire municipal territory, encompassing both urban and rural regions. The expanded programme now features two distinct sub-programmes: one focused on development innovation projects, and the other dedicated to supporting business idea holders and new start-ups. This structure makes the programme highly adaptable and transferable, allowing for easy expansion to other parts of the city, as well as to additional cities and rural areas.

[1] After the 2021 municipal elections, Latvia reduced its municipalities from 119 to 42. More information available at: https://www.saeima.lv/en/news/saeima-news/29027-saeima-adopts-administrative-territorial-reform

The ZILE Programme has strong potential to be replicated due to its relatively simple implementation and proven success. Its adaptable structure, which supports smaller-scale projects, makes it accessible to a broad range of local businesses. Additionally, the programme’s focus can be tailored to different sectors and local priorities, allowing it to be adapted to various regional contexts. It is worth noting that the financial instrument chosen (a grant) was familiar to the beneficiaries, which facilitated its implementation. This approach was well-suited to the programme’s needs, providing valuable insights into the effectiveness of grants as a financial instrument for the supported projects. The positive results it has achieved, such as increased business growth and innovation, further highlight its effectiveness, making it an appealing model for other cities looking to implement similar initiatives.

No complementarity with other funds was detected.

The ZILE business support programme embedding an IFS under the form of a local grant scheme, is designed with a universal framework that can be adapted to different regions. While minor adjustments may be necessary to accommodate national, regional, or local regulations, the core principles of the programme can be effectively implemented across various contexts.

When adapting the ZILE programme to other contexts, it is important to consider the following factors:

• Economic context and sectoral specificity: Tailor the programme to support industries and sectors that are particularly relevant or promising in the region.
• Regional needs and goals: Ensure that the programme’s objectives align with the specific needs and development priorities of the local area, addressing the requirements of entrepreneurs and residents.
• Funding sources: Adapt funding mechanisms, terms, and amounts based on available resources and regional priorities. Explore additional funding opportunities from sources such as European Union grants or local, regional, or national government support.
• Partnerships and cooperation: Foster collaboration among local governments, development agencies, educational institutions, business incubators, and other key regional stakeholders to ensure successful programme implementation.
• Regulatory and policy support: Align the programme with local and national policies and regulations to enhance its effectiveness and sustainability.
• Monitoring and evaluation system: Implement a robust system for monitoring progress, evaluating impact, and making necessary adjustments to the programme.

• Population and population change | Oficiālās statistikas portāls
• NextGen Microcities - Next Generation Micro Cities of Europe | Portico
• Leveraging innovation ecosystems for Sustainable Cities - Workshop 5 - Developing an investment and innovation strategy in micro-cities , feat. the cities of Ventspils and Valmiera, Latvia
• Valmiera’s ZILE Programme contends in the Excellence Awards Final – EBN | EU|BIC Innovation Community
• NextGen Microcities Application Form, Internal document, made available by UIA Permanent Secretariat
• NextGen Microcities Project Closure & Sustainability Fiche, Internal document, made available by UIA Permanent Secretariat
• NextGen Microcities Final Qualitative Report, Internal document, made available by UIA Permanent Secretariat
• Interview with Ilze Eglāja, Member of the Board at Valmiera Development Agency
• Survey responses from members of the project team