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Georgian Government to Work With IFC on Improving the Business Enabling Environment for SMEs


In Tbilisi, Georgia        
Tamar Razmadze
Phone:  +1 995 32 91 26 89/ + 1 995 32 91 29 58

Fax.: +995 32 91 34 80

Email:
trazmadze@ifc.org

In Washington
:

Irina E.Likhacheva

Phone: +1 202 473 1813

Email:
ilikhachova@ifc.org


Tbilisi, April 11, 2005 —  Today Georgia has fewer small and medium sized enterprises (SMEs) per capita than other countries in the region such as Russia and Ukraine. The growth of the SME sector has been slow, about 6% between 2002 and 2004. Among the key reasons behind the slow progress, Georgian SMEs name obstacles to conducting import and export transactions, complex certification and standardization processes, and complex taxation and inspection regimes. Georgia has some of the highest levels of tax evasion in the region. Only seven percent of SMEs reported their revenue to the government in 2004. On the other hand, Georgian SMEs enjoy a favorable environment in the areas of business registration, issuance of permits, and the number of business inspections. These are some of the key findings of a survey of Georgian SMEs conducted by the International Finance Corporation with funding from the Canadian International Development Agency (CIDA).

IFC’s survey, Business Environment as Seen by Small and Medium Enterprises, is the largest of its kind conducted in the country, polling 910 businesses across 9 regions of Georgia. The survey looks at regulatory and administrative issues from the viewpoint of local entrepreneurs. Based on the findings of the survey, IFC developed specific recommendations for the government to consider in order to improve the business enabling environment for SMEs.  They include the following:


       
Import/Export Operations Major disincentives to foreign trade include lack of information on the process and non-transparency in procedures when clearing goods through customs. Corruption is widespread amongst customs officials according to entrepreneurs.
       
Certification and Standards Existing procedures hamper imports because certificates issued by other than CIS countries remain unrecognized. The continued reliance on obsolete GOST standards also hinders export, as local companies are discouraged from producing goods to international standards.


       
Taxation 82% of firms surveyed cited the tax system as very problematic for their business activities. Key issues include tax rates, number of taxes and lack of stability in tax legislation.

       
Inspections Although the average Georgian small business hosts only 2.5 inspections per year, inspections are also a problem. A lack of transparency in procedures and state requirements results in 60% of inspected firms facing penalties as a result of their inspections. Such results show that inspections currently focus on punishing violators rather than promoting public safety by preventing violations.  


Recently IFC’s team presented the findings of the survey and its recommendations at a Georgian parliamentary meeting that included Nino Burjanadze, Chairman of the Parliament of Georgia, the Deputy Chairman, heads of Parliament’s economic commissions, members of parliament and selected business organizations. IFC’s recommendations to stimulate the SME sector growth included establishing a separate agency with sufficient authority to oversee regulatory reforms and to insure their successful implementation. Following IFC’s presentation, the participants of the meeting discussed steps the government needs to take to address the existing regulatory barriers to SME growth. The Chairman of the Parliament of Georgia stated, ”I would like to thank IFC for conducting the survey and for developing a set or recommendations. I also want to make it clear that these issues are a genuine priority for the Georgian government.“


Tania Lozansky, IFC Senior Operations Manager for IFC’s SME Policy Projects, commented: “With respect to many regulatory indicators, Georgia looks better off than many CIS countries. For instance, it takes only 6 days to register business in Georgia that is a good indicator with regard to other countries. Given a focused approach to solving key remaining regulatory issues, Georgia should soon see a strengthened and dynamic SME sector. IFC has 12 years of experience in working with SMEs in this region, and we are ready to use all of our expertise to address the remaining bottlenecks.”


“We are encouraged by government’s rapid response to our survey. To invite us to present our conclusions to Parliament is not going to solve the problems, but it suggests a commitment to change. It’s a very promising first step,“ Colin H. Buckley, IFC Project Manager in Georgia, said.


The International Finance Corporation (IFC) is the private sector lending arm of the World Bank Group. The mission of IFC
(www.ifc.org) is to promote sustainable private sector investment in emerging markets, helping to reduce poverty and improve people’s lives. IFC finances private sector investments in transition and developing countries, mobilizes capital in the international
financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. From its founding in 1956 through FY04, IFC has committed more than $44 billion of its own funds and arranged $23 billion in syndications for 3,143 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY04 was $17.9 billion for its own account and $5.5 billion held for participants in loan syndications.