The FINANCIAL — Most of the firms in Georgia are non-innovators and have low productivity, according to the latest Entrepreneurship Survey conducted by The World Bank, which surveyed 300 enterprises.
Less than 3 percent had any research and development (R&D) activity. Most of the firms sold non-innovative products: 90 percent domestically and only 10 percent internationally. The product innovation rate in Georgia is lower than elsewhere in the Southern Caucasus, according to the report.
“Only 3 percent of companies in Georgia had any research and development activity. This is a very low indicator. If we compare it to other European countries which invest much in R&D, we will see Georgia at the bottom,” said Angela Prigozhina, Private and Financial Sector Country Sector Coordinator in the South Caucasus, World Bank. “The European level requires 3 percent of GDP to be spent on R&D. Georgia has the potential to improve its low indicator. It is not relevant only to the private sector. Most of the countries have special programmes for innovation support and R&D development. In Armenia, nearly half of the companies invest in R&D and their levels of sales which are related to R&D are high,” she added.
Georgian companies surveyed by The World Bank distinguish certain main challenges in entering the market and continuing a successful business there. These challenges are as follows: little access to financing, market risk uncertainty, lack of highly skilled labour, technology risk, continually changing taxation regulations and high tax rates.
Almost 90 percent of the surveyed firms drew funding from the founders’ own savings, the report shows. Only 20 percent also drew on funds from banks. Private credit growth has been declining since 2011 and accounted for 14% y-o-y in March 2013 compared to its pre-crisis level of 68% in 2008, according to the World Bank.
“Tax legislation has changed in Georgia recently and many companies do not understand how to use it.”
“Tax legislation has changed in Georgia recently and many companies do not understand how to use it. As for access to financing, only 20 percent of SMEs have access to finance. There is slowing growth and banks are wary about businesses, at the same time companies do not want to borrow at high interest rates. There must be a reform for there to be easy access to financing in Georgia,” said Prigozhina.
“I completely agree with the results of the survey, Georgian enterprises are less innovative and have low productivity,” said Levan Alavidze, the Founder of Eco-Food. “The reason for such results is that access to financing is complicated for Georgian companies. Because of this it is difficult to start new projects and implement innovations, which ultimately inhibits the growth of companies’ productivity,” he added.
“Companies take risks very rarely and use one standard method for developing the product. But for innovators it is very important to take chances,” said Shota Khobelia, General Director of Teliani Valley. “Teliani Valley always tries to offer something new and interesting to customers. Not only innovation, but also public opinion research is very important. Our company carries out different kind of researches every year to find out customers’ attitudes towards our brand. Research and product development makes up 7 percent of our annual marketing budget,” he added.
“A good winemaker is an innovator for sure. He is in constant search for new and distinctive flavours. We have created a new, exclusive series of wine “Glekhuri”, based on the results of researches. This new sort of wine is different from the wines made from prefabrication and is very close to the taste of home-made wine. Bringing “Glekhuri” to the market was an interesting experiment, which fortunately, has justified our hopes,” Khobelia said.
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