The FINANCIAL — The agriculture and service sectors are the best areas to establish SMEs in at present in Georgia, specialists say. The options are quite wide, but the key factor for success is calculating everything beforehand and knowing who exactly the user of the product or service will be.
“The latest tendencies in Georgia show that investments were mainly capitalized in the hotel and restaurant sector, construction, transportation and communication as well as energy sectors,” said Kakha Kokhreidze, Executive Director of the Georgian Small and Medium Enterprises Association. “But the latest survey of EPI showed that other sectors also have huge advantages, for example growing some special vegetable or fruit varieties, winemaking, textiles, the wood industry, ICT etc. A well-prepared project of any of these business ideas has realistic potential for success given the current climate.”
“Starting SMEs with up to just 10,000 USD is quite possible in Georgia as all the procedures for setting up a business in the country are greatly simplified. The determining factor for building a successful SME is a fresh, live and original idea,” Akaki Tavadze, Professor of Management, told The FINANCIAL.
“I always teach my students to come up with fresh, original ideas and think about what the sector is lacking,” Tavadze stated. “For example agriculture has very good perspective in general, but currently there is a deficit of locally produced pork. Most pork in the country is imported from Brazil, but Georgians always tend to prefer local products. 10,000 USD is enough to start up such a business as this, which would be certain to be a success as the region is lacking this product.”
“At the same time the pig business would not be very risky unlike for example a hazelnuts business. Currently hazelnuts can have quite high profit margins but this depends on several factors including weather, prices set by Turkey, proper care etc,” the professor added.
If a beginner businessman is thinking about starting up a kind of service business he/she must offer a complex service, Tavadze claims.
“Creating a group which will offer complex home renovation works is a very good business idea. There are some companies who currently offer this service but their prices are relatively high. On the other hand there are cheap workers but everyone knows that it requires a certain person to control them and ensure that they work together efficiently. Therefore offering high quality complex renovations for reasonable prices will gain great success. Such a service is really very limited at the moment,” he stated.
“Another sphere which will be successful and which 10,000 USD is quite enough for is launching a law consulting office. This service is in high demand and brings in high profit as well,” Tavadze added.
Trade is currently the easiest and most common business in Georgia. Opening a small shop is quite easy and if the owner offers high quality service and some kind of innovations, the shop will quickly gain the loyalty of customers.
“The minimal investment for opening a small shop is 5-10,000 USD,” said Levan Kalandadze, economic expert. “This is currently the most successful small or medium business model in Georgia.”
Another potential option that requires just 10,000 USD is opening a ‘Tone’ (traditional Georgian bread bakery). In terms of this finding a proper place for this kind of business is essential.
“Manufacturing paper bags is currently a good idea in Georgia,” Tavadze said. “The rest of the world prefers to use paper bags instead of polyethylene ones. Paper bags will eventually become popular in Georgia as well if they are made of high quality. The Georgian Government can support this with an initiative banning polyethylene bags.”
All procedures for registering and running a small or medium size business are quite easy. The main problem of SMEs and startups is getting initial capital. Amounts of up to 10,000 USD are available in the Georgian banking market without collateral, Georgian banks claim.
Bank Constanta started intensive operating in the field of financing SMEs last year.
“We developed as a micro banking structure because we could serve our clients better,” said Levan Lebanidze, the General Director of Bank Constanta. “We have sufficient experience to be able to offer qualified products to small businesses that they really need.”
“Our clients are mainly from the following sectors: trade including grocery or clothes, manufacturing furniture or some other products. Agriloans make up quite a big amount of our SME portfolio. We finance all directions is this sector and getting a loan is available from 100 GEL,” said Nana Chkhikvadze, PR Officer of Bank Constanta.
“For some reason banks are afraid of funding startups as they don’t have experience. But one of the ways to reduce risks for banks could be 30 percent complicity of their clients,” said Kakha Kokhreidze.
In spite of impending facts, starting an SME is quite easy in Georgia if one has a really good idea, specialists say.
“A beginner has to plan everything beforehand including a general overview of the business, structure of management, market analyses, analysis of competitors, marketing plan, SWOT analysis, setting ambitious but reasonable goals, financial calculations and plan to attract investments,” Kokhreidze advises.
A survey conducted by the Economic Prosperity Initiative (EPI) showed that only a small portion of the national loan portfolio is directed towards small and medium sized borrowers. In fact, only 5.4% of the national loan portfolio’s value was for loans for 1,000 GEL or less and only 19.8% were for 20,000 GEL or less. Conversely, 65.5% of the national loan portfolio’s value went to only 0.5% of all approved loans. These loans were for more than 100,000 GEL, which is not typical for SME borrowings.
SMEs in Georgia are still at the beginning stages of development. Global statistics show that SMEs account for up to 90% of jobs in a given country. In Georgia however, despite a successful development agenda and strong economic growth, SMEs provide 42.2% of jobs, hold only 16.5% of fixed assets, generate 15.6% of overall turnover and produce 18.5% of national output.