The FINANCIAL — With just 50 employees in total, Economic Prosperity Initiative’s (EPI) project in Tbilisi, financed by USAID, has so far secured USD 109 million in foreign investment and commitments, with an additional pipeline of investment opportunities of USD 559 million.
The FINANCIAL — With just 50 employees in total, Economic Prosperity Initiative’s (EPI) project in Tbilisi, financed by USAID, has so far secured USD 109 million in foreign investment and commitments, with an additional pipeline of investment opportunities of USD 559 million. “In close cooperation with governmental agencies EPI facilitated USD 155 million in exports, mostly through its efforts in the wine and MICE tourism, hazelnut and apparel sectors,” said Tina Mendelson, Project Director for EPI. Tina Mendelson, currently residing in Georgia, is a senior manager at Deloitte Consulting, LLP, the implementing firm of the EPI project.
“EPI also achieved consistent increases in productivity with 40% average productivity increases for all of its value chains. Our sectors generated 7,050 new jobs and contributed to annual revenue increase of 27% or USD 11.8 million for the agricultural sector, and 61% increase or USD 47 million for the manufacturing and services sectors. As you can see we are passionate about measuring our results, so we better understand our return on investment before we engage in new project activities.”
“Since 1992 USAID has implemented projects in Georgia that stimulate economic growth, improve the business environment and expand opportunities for the private sector. To this end USAID has invested almost USD 2 billion in Georgia. Recognizing the opportunity to build upon the combination of assets and an attractive business environment available in Georgia, USAID designed EPI to further increase the country-level competitiveness. The EPI approach is unique in Georgia as it is foremost commercial, targeting whole sectors to improve their competitiveness, benefiting as many companies and employees as possible.
Similarly, we look for opportunities within Georgia to identify interested private companies to serve as our partners. EPI facilitated an alliance with Ferrero, a global confectionary company, to provide their own resources and know-how. We conduct a joint programme to enable hazelnut growers in West Georgia to adopt the best growing practices that can significantly increase the quality and yield of Georgian hazelnuts.
We try to help Georgian companies implement production, marketing or other practices that do not require heavy investments. Sometimes very small change can make a huge difference. The mandarin sector is the best example in this regard. Modern techniques of pruning or orchard floor management require even less efforts compared to what is common here in Georgia. However, adoption of these practices will significantly increase yields and quality of Georgian mandarins that can eventually compete with mandarins from Spain or Turkey.
Q. What are the main challenges that Georgian businesses currently face and how does EPI support the solving of such challenges?
A. The Georgian business climate has changed dramatically over the past decade. The removal of petty corruption, efficiencies in customs operations, low and streamlined tax rates and eGovernance systems that focus on efficiency and customer services, are just some of the benefits Georgian businesses can take advantage of that don’t exist in other countries in the region. The challenges, however, that the businesses face, are much more structural in nature. With some notable exceptions of course, a vast majority of businesses, and especially small and medium-size enterprises, still need to increase their competitiveness to be able to compete domestically and globally. With Georgia being a small country, the only option is to connect to global markets in order to achieve economic development that will allow its population to prosper.
To start with, businesses need to understand their market and the customer, their specific preferences, standards and quality requirements. Once they know that, they need access to finance and relevant workforce skills that allows them to develop the right product or services, streamline production processes, manage their supply chain efficiently, and adopt new technologies. And this is where the challenge exists – businesses lack market linkages and even when they establish them, their access to finance and skilled employees is often very limited. This prevents whole sectors from increasing their competitiveness and that is exactly what EPI was designed to support.
Q. What are Georgia’s main perspectives globally?
A. Georgia benefits from a strategic location, beautiful physical features and historical treasures, and talented, energetic people. These assets can be successfully used to become a part of today’s global economy. For instance, Georgia has the potential to become a regional hub for trade and transit goods – a regional centre for moving goods between large markets in Europe, Central Asia, and even China. Georgia has already been placed on a wine tourism map with its long-standing wine tradition and history, numerous historical places, largest grape varieties and excellent wines, Georgia will be a favourable destination for wine lovers and enthusiasts. Another important sector is Georgia’s hydro energy potential, especially when supported by the right regulatory and policy framework. I think Georgia’s strength is in these rare assets. And of course, there is the role of the government – creating a predictable, business friendly environment that encourages transparency and promotes economic development. The rest is a matter of aspiration of Georgian businesses and people. It is their decision what story they would like to tell to the rest of the world.
Q.EPI is supporting several sectors in Georgia. From your point of view, which sectors need the biggest support in Georgia and why?
A. Currently EPI is focusing on mandarin, hazelnut, open-field and heated greenhouse sectors in agriculture, and several manufacturing and services sectors like apparel, wine and MICE tourism, transport and logistics, paper packaging and information and communications technology. Together, the selected value chains constitute a substantial portfolio that will contribute powerfully to Georgia’s economic growth in terms of employment generation, export growth and attraction of foreign investment.
For example, support of the apparel sector is important as it is the fastest way to introduce light manufacturing in Georgia that currently represents a very small percentage of Georgian productive sectors. Apparel business can increase jobs and incomes for the Georgian population. This is especially critical for the rural population where a majority of the population is subsistence farmers. Since the beginning of our assistance, Georgian-owned apparel sector companies reported their first exports and overall sector exports increased by USD 5.6 million.
Q. What do you consider the biggest achievement of EPI in Georgia?
A. It is hard to focus on one achievement, since every single activity EPI does is committed to the revitalization of different sectors that, in turn, contribute to the economic growth of Georgia.
Our programme activities have created an impact for broad groups of stakeholders – this past year alone we managed to reach almost 6,000 farmers, over 200 agribusinesses, and almost 600 businesses in the manufacturing and services sectors through our training and consulting activities. EPI also engaged over 130 agricultural and business service providers so that they increased their capabilities, building their long-term sustainability long after EPI ends – a key premise of the USAID Forward initiative.
During this year, EPI engaged farmers and agribusinesses at EPI Knowledge Plots focusing on low-cost technologies that, when adopted, will significantly increase productivity. Overall, these increases in productivity resulted in increased sales of USD 12 million including exports, during the year. Accompanied by the project’s development and dissemination of feasibility and financial models for investors and financial institutions to better understand the returns, investment requirements, and investment facilitation services for interested investors, generated over USD 26.5 million in domestic investments to establish or expand heated greenhouses, significantly increasing the industry’s capacity. Foreign investment outreach generated additional results, with USD 63.8 million in foreign investments currently being facilitated by EPI to establish heated greenhouses for this and the upcoming off-season vegetable production.
Focusing on the export of agricultural products, EPI also provided targeted assistance to local testing laboratories to gain international accreditation by the American National Standards Institute. This will allow for the first time recognition of Georgian laboratories test results by buyers in European and other high-value markets, for such products as fruits, vegetables, hazelnuts, mineral water and wine. The estimated impact on hazelnut exports alone ranges from USD 7.5 million to USD 18.8 million per year. Another important area related to agriculture is our support in the development of the crop insurance industry in Georgia. Our assistance in the development of crop insurance products, tailored training programmes for the insurance industry on agricultural insurance, and a crop insurance pilot project have created 17-fold growth in the annual total sum insured to over USD 7.3 million in 2012, only two years since the project’s start.
On the policy side, EPI garnered the support and resources of global shipping lines and port operators, Georgian railways, freight forwarders, the Customs and Data Exchange Agency to jointly implement a port community system similar to those of the most developed ports, such as Rotterdam and Singapore. The first releases of the system are already underway, which will create further trade efficiencies in cargo management, and position Georgia closer to its aspiration to become a regional trade hub. We also partnered with Sakpatenti and directly contributed to a sharp and sustained increase in trademark applications and at least USD 2.4 million in annual savings for public and private sector stakeholders through the development of an e-filing system of Intellectual Property Rights applications. Also, through our assistance to the Revenue Service on a number of fronts to implement a risk-based approach to the tax audit and administration and a streamlined tax payments system, Georgia will have a more efficient tax environment for Georgian and international businesses. The estimated benefits for business include as much as USD 14.6 million in annual cost savings.
Q. How would you evaluate the business environment in Georgia?
A. Georgia has been rated as one of the best countries for doing business according to its business infrastructure, financial, legal and professional services, and its tax policy. This year Georgia climbed 11 ranks in the World Economic Forum’s 2012-2013 Global Competitiveness Report. With an overall score of 4.1 out of a possible 7, the country moved to 77th position out of 144 economies. According to the same report, the country has shown some positive indicators in relation to the removal of trade barriers and the burden of customs procedures and I am proud that EPI contributed to improvement in this area.
Of course, Georgia still faces a number of challenges that need to be addressed to achieve economic prosperity. Predictable business environment, enforcement of property rights, and especially intellectual property rights to spur innovation, effective tax administration, sustainable environmental policy, fair competition and targeted educational and workforce policies, are among them. The new policy makers have a difficult task ahead of them and I look forward to being able to support Georgia through the EPI project in taking solid steps to improve the country’s competitiveness and achieve prosperity for Georgians.
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