Interventionism to Make Georgian Businesses Fit for Europe

The Georgian government has launched a 46 million lari (26 million US dollar) programme to boost domestic production capacity to prepare for competition in European markets.

Georgia is due to sign an Association Agreement with the European Union on June 27, paving the way for closer trade and integration with EU states.

“The time is not far away when Georgian products will freely enter the European market and the words ‘Made in Georgia’ will have special meaning,” Prime Minister Irakli Garibashvili said on May 19. “Georgia has all the necessary resources to produce everything it needs and import nothing. Yet it is flooded with low-quality, cheap products from outside. This is in a country that has always been famous for the quality of its products, particularly agricultural ones.”

The government programme, launched on June 1, will invest 30 million lari in developing the agricultural sector and 16 million in other areas.

Giorgi Tsikolia, acting director of the Agency for Business Development, said the aim was to increase competitiveness.

“Apart from our agency, other government bodies – primarily the economy and agriculture ministries – are involving in implementing this programme. We aim to increase the competitiveness of entrepreneurs and the private sector, and provide them with advice on how to diversify their markets,” he said. “We have studied the capacity of local industry, and selected [for support] construction materials, rubber, plastic, paper, the assembly of electronic goods and other areas – ten industries in total.”

Businesses joining the programme can obtain loans of between 150,000 and to two million lari on soft loans, with the government gifting them ten per cent of the capital.

The government will also sell off several dozen state-owned asets for nominal sums, on condition that the new private owners invest in whichever town or region they are located in.

Many economists have raised doubts about the effectiveness of the programme, not least because they believe the sums involved are too low to lift local producers to a competitive level.

“This initiative is wrong and it will produce nothing good,” Paata Sheshelidze, head of the New Economic School, told IWPR. “Resources will be reassigned from more successful parts of the economy to less successful ones, from more profitable parts to less profitable ones, and this will make businesses dependent on political decision-making.”

He continued, “This 46 million, which incidentally is not set aside in the budget and will have to be found separately or reassigned from other areas, will be spent for nothing, and only the banks will win, by being given money directly from the budget.”

Sheshelidze said the switch to interventionism was a wrong move.

“The solution to the current situation would be further economic liberalisation, further reductions in taxes, withdrawing the state from the business sector, and attracting investment instead of driving it away,” he said. “But the opposite is happening. In the long term, it will harm the economy, but it’s clear the government is interested only in short-term political impact.”

Levan Kalandadze, a former head of the Association of Small and Medium Businesses, agreed that the government had not committed enough money to the project. He said the 16 million laris earmarked for non-agricultural sectors would only pay for a few new buildings which the government could show off in its adverts.

As for farmers, he said, “the problem is selling their products, not subsidising them”.

The Association of Young Economists of Georgia welcomed the government aim of helping small businesses, while reserving judgement until it became clearer how the programme would work.

“This tactic was used in Georgia in 2008-09, when the government launched its ‘cheap credit’ programme,” Giorgi Tsimintia, chair of the association, told IWPR. “Leaving aside the question of whether government should get involved in financing the private sector, it’s good that they are trying to solve the problem of access to finance. It’s important that this programme doesn’t repeat the same mistakes as before.”

Tsimintia also warned of the risks of corruption, for example if the scheme was used to support the business interests of government insiders.

“It isn’t clear why the programme has prioritised certain areas – ten in industry, and eight in agriculture,” he said. “We think it would be better for businessmen to decide for themselves which areas interest them most, whether that be producing plastics or opening a hotel.”

Tinatin Jvania is a freelance journalist in Georgia.