The FINANCIAL – Little is known about the mode of activity of the self-employed except that they live mainly in rural areas and that some may de facto run micro-enterprises. By the same token, there is very few information on micro and small businesses. Yet, this portion of the Georgian amounts to more than 2/3 of the total employment and 20% of GDP. The purpose of the study by ASCN Academic Swiss Caucasus Net and EPRC, Economic Policy Research Center was to know if that portion of the Georgian economy can give rise to organized and registered small and mid-sized firms.
It should not come as surprises that about 60 percent of the self-employed surveyed are living from agricultural activities. If agriculture is the default activities for the self-employed in Georgia, micro and small firms show already a more diverse picture. 20 percent of them are active in manufacture, 38 percent of are trading and 40 percent of them are in the service sector, which includes transport and communication, education, private household employing domestic staff.
While the majority of self-employed are “necessity driven entrepreneurs” at all age, the oldest segment of this study clearly differentiate itself from the youngest one when it comes motivations, confidence and attitude to risks, according to study. There is a higher percentage of younger self-employed who do plan to sell more the next 6 months to 2 years. By the same token, 74% of the self-employed below 39 would be ready to follow training courses to improve their business, while only 20% of those above 60 would agree to do so.
Level of education is lower among self-employed than among micro and small firms, where one can observe a web of linkages: education and growth; education and planning ahead; education and formality; education and risk taking. One should be cautious, however, not to isolate education as a uniquely important variable, as there are most certainly other ones weighting on entrepreneurial success.
What has changed in two years?
The longitudinal research methodology made it possible to observe changes in perceptions of the self-employed and micro and small businesses over the course of 2 years. Looking back at the first round and comparing the answers to the replies received during the fourth round, one can notice changes in perceptions of the entrepreneurs with regards to the macroeconomic conditions and business environment as a whole. They are more pessimistic about the future economic prospect of Georgia. This change in perceptions is probably shaped by the worsened economic outlooks in the country. Other factors such business formalization, relationships with financial institutions, risk-taking behavior and material conditions did not see a dramatic change during this period.
Entrepreneurship starts at small enterprises
The data produced by the project does not let one think that this an entrepreneurial process driven by opportunity is taking place among the self-employed and micro firms. It rather starts with small enterprises. Indeed, micro enterprises display many similar characteristics than the self-employed. If they differ in their activities and education – micro enterprises are better educated, have even university degree, more active in trade and services while self-employed are mostly active in agriculture – they display the same motivation, attitude to formality, attitude to risk.
Seizing opportunities is a motivation for only 5-10% of both group. By the same token, around 35% of the self-employed and micro enterprises do what they do by default. Both among micro firm and the self-employed, 70% of the respondent do not have bank account and 90% of them conduct their business without written contracts.
Informality does not end at business registration
In other words, it is not only determined by tax compliance, but also by a certain way of organizing business activities. From that point of view, self-employed and micro enterprises should be grouped together.
The ASCN dataset also provides information on another dimension of informality: the reach of official governance. Tax rates and licenses and permits are not viewed as a major obstacle. Self-employed, micro and small enterprises do not have any reasons to complain and do not report having any problems whatsoever with any state administration. Micro businesses in Georgia are exempt from taxes, licenses and permits are completely liberalized and brought to the minimum.
The informal sector can be viewed as a healthy distance that the state imposed between small businesses and itself. By not interacting anymore with it, it does not constitute a barrier. On the other hand, it has to face problems of economic integration.