The FINANCIAL — Georgian experts predict growth of agriculture business in the country despite being in a recession. Agriculture is presumed to become one of the most stable and profitable businesses over the next few years.
During 2008 ProCredit Bank’s agro loan portfolio grew by 61%. As of December 2008, the share of loans for agricultural purposes was 7.3%.
“We look pessimistically at the development of agriculture however it does indeed have big potential. Food is not a thing of luxury, that’s why it will pass through all crises. I can’t define any direction which could be more profitable. Cattle-breeding, poultry farming and agriculture will be the most flexible during the recession,” Akaki Kheladze, head of the management department at CSB, CU, told The FINANCIAL.
“First of all, people must have a concrete business plan. Otherwise it will be hard to attract financial support. People must be competent in any work they are going to start. People starting business in the agricultural sphere won’t be able to base it solely on innovations,” Kheladze noted.
“There is no practice of disbursing a loan when a client doesn’t have any source of income. Nevertheless, a client can receive a loan if s/he has a different source of income, for instance, another type of business,” George Jguburia, in charge of Agricredit products at Procredit Bank, told The FINANCIAL.
“We disbursed 4,599 agro loans to the amount of USD 10 million, out of which 1,240 were receiving an agro loan for the first time. We estimate that at the end of 2008, ProCredit Bank’s share was approximately 50% in the total outstanding agro loan portfolio of Georgia,” an official of Procredit Bank notes.
BasisBank, co-owned by EBRD (Total Assets in 2007: 102,976; Credit Portfolio: 62,476), provides credit for the development of agriculture in rural areas with the support of the Government of Georgia, International Development Association and International Fund of Agriculture Development. David Tsaava, BasisBank, says that people who want to get financing for an agricultural project must have experience in this field of business.
“Persons eligible for a loan in the aforementioned programme must be legal entities meeting the following requirements: Having experience in activities in the field as stipulated in the suggested project; Financial participation covering 25% of the project cost; Authorized capital of the project participant being at least 35% of the amount of loan applied for; Direct implications of the project for raising the social background in rural areas. Eligible activities are: agro-processing, packaging and sorting, production of agricultural materials, etc, excluding the kinds of activities with a possible environmental impact,” BasisBank told The FINANCIAL.
The main demand for starting up an agribusiness is high educational skill in this direction so as to compete with imported goods.
“The local market is already saturated with imports which is why they will face hard competition. In spite of this, in the case of good educational skills an enquiring local market agribusiness will certainly be profitable,” Kheladze, CSB, CU, declares.
As the main supporter and guarantor for starter businessmen experts discuss the Government.
“Against the background of current unemployment I hope that the Government will start focusing on developing agribusiness. Starting up a new agribusiness will help them to employ more and more people,” Kheladze says.
Like Kheladze, Akaki Tavadze, Tbilisi free university, the ESM Tbilisi management programme teacher notes that, “the Government should start thinking about developing agriculture and employing freed workers from different organizations”.
“The Government must ensure people with trainings and by preparing them as staff; informing them about the different details of mechanization. If an employer does not have enough skills and knowledge of modern technologies, he won’t survive on the market. That’s why the Government must provide people with different trainings to get qualifications in this direction. Otherwise they won’t be able to compete with imported goods,” Kheladze, CSB, says.
“The level of risk will be lower in the case of small sized industries. They won’t need a huge amount of finances and therefore any losses will be less,” Tavadze, ESM, says.
“Rehabilitation of a bankrupt industry will take more financial resources than starting up a new agribusiness. I have the information that a lot of foreign companies are oriented at purchasing financial resources for the purpose of enlarging the agricultural sector,” Kheladze, CSB, declares.
“The first incentive from the Government will be ensuring customers with cheap and flexible credit lines. The mortgage rate for credit lines is high which complicates the situation for customers. The Government has to have different models with which to supply customers financially. In the direction of agribusiness the Government must make some changes in tax payment. The subject of competition must be mentioned and as like beginners in any kind of business it is necessary to start up work with modern technologies and then follow the demands of the modern market,” notes Tavadze, CSB.
At Procredit Bank clients can choose from two agricultural loan products.
“A client can apply for amounts from USD 100 up to USD 100,000. Maturity of the loan differs from one month up to 120 months depending on the purpose of a loan. Taking into consideration the specifics of a small agricultural business, there is a condition when a client may receive a loan of up to USD 8,000 without collateral participation,” George Jguburia explains.
“USD 15,000 will be enough to start up a medium sized agribusiness from the beginning,” Kheladze, CSB, presumes.
“Business can’t be discussed as a source of fast results and profit. In the starting period you may even be working at losses. However this business will show results in a middle term perspective. If we had already started thinking and working in this direction we would have had results by now,” Kheladze declares.
The results of 90% of imported goods, demographical problems, while all Georgians are focused at working in capital, in Kheladze’s words, are worse than two or three years of waiting for your profit. The popularization of different things is done after getting results, good results.
“If we had a lot of examples of successful employers in agriculture it would soon become popular. We need more examples of booming businessmen in agriculture to restore people’s trust in this neglected direction,” Tavadze says.
“Investing money is the necessary first step for an agricultural business. Profit is the next. That’s why agribusiness was less popular with investors. Another reason could be the environment. Investing money in real estate and the banking business was much more popular among foreign and local investors because of its immediate profit. In the construction business employers even managed to sell spaces of thin air before any construction had taken place whatsoever,” Kheladze says.
“Private human habits play a big role but the main thing is to question how people became unemployed and thus estimate their situation and what they are trying to get. If one’s ambitions won’t let them start working at a lower position than they had in their previous job, and one has some managerial experience they could easily start up their own business in agriculture and other developing industries. People must accurately estimate themselves and whether it would be worse to begin working at a lower position than previously held. Agriculture has big potential and needs huge support from banks, the Government and other financial sources,” Kheladze, CSB, CU, says.
Written By Madona Gasanova