The FINANCIAL — Q. EMH offers project management service from project conceptualization through the total process. Which stage is more in demand and why?
A. Our strategy is to offer investors a range of comfort zones wherein they feel that they have a credible and professional local anchor which can guide them through the complex processes of establishing or expanding a business in Georgia. Most investors are often diffident about investing and ensuring sustainability and growth in a foreign land, especially where language, business culture and levels of governance are vastly different from the more established and mature economies. In Georgia, while speed of opening companies, bank accounts and other facilities are of excellent standard, ground level realities of starting up and operating businesses need to be more clearly understood and appreciated. Mainly for small and medium enterprise investors whose investment scale is around US$250,000, expectations of return on capital are high as much as 50% per annum. These expectations are risk-related and at the same time aligned to high costs of borrowing in Georgia, from banks at around 16% and from microfinance institutions at around 40%.
Project conceptualizations and project implementation in Georgia needs to take into account a number of critical factors which relate to management competence, work ethics, cost of goods and the internal as well as external markets. Georgia still remains a narrow and limited market. Manufacturing often has high costs and profit margins can be low.
The biggest demand from investors is mainly for a highly professional and bankable project analysis and due diligence on companies which may wish to form joint-ventures with local individuals or corporations.
Q. Currently EMH is oriented on developing and attracting small and medium investors. Why?
A. Small and medium investments in Georgia is our focus area, mainly on account of the fact that there is space for this scale of investments in agriculture and agro industry, in eco tourism, in fashion, in food outlets, in education and training and in specialized services. It is also based on our own network of investors who have expressed interest in moving risk capital to emerging markets to test the waters and position themselves with the first-mover advantage. EMH is an independent accredited investments facilitator for the Georgian National Investment Agency of the Ministry of Economy and Sustainable Development while I am, on an individual basis, advisor to the TBC Bank for foreign term deposits. We have recently invited a number of small and medium investors from Singapore to consider depositing funds with the TBC Bank and taking advantage of our services to develop project pipelines in Georgia in which they could invest or undertake co-financing of third party ventures in cooperation with TBC Bank.
There is also the social and economic dimensions to small and medium investments. Small and medium ventures are drivers of economic growth and employment generation. Coupled with our education, training and capacity building programs, we plan to create a holistic platform for investments and graduate employment.
Q. Majority of foreign businesses in Georgia are large enterprises. Why? How would you estimate such a situation?
A. Majority of foreign businesses are engaged in offering critical products and services such as gas. There is a captive market for their operations and they are profitable. Independent Georgia created a large vacuum for essential services such as telecommunication, oil and gas, infrastructure and some manufacturing. Most of these enterprises required the injection of large capital and it was only possible from foreign companies, either as stand-alone investments or in joint venture with local companies.
Q. How could the investment climate for foreigner businesses be improved in Georgia?
A. Overall, the climate for investment is good. Law and order and the security situation is excellent, compared to some years ago. There is confidence in the country’s ability to manage itself, without any potential chaos. Public services that support investments are proactive and highly efficient. There are also a number of clear opportunities for investments across a range of industrial sectors. I see the lack of sufficient, fine-tuned capacities at the middle and top management and the need to bring foreign professionals to take leadership roles at much higher wages as an issue. While foreign professionals bring a variety of skills and a body of knowledge, and do transfer them to nationals, the education system needs to revamp to cater to current demands. Language too can be a barrier and the introduction of English as a lingua franca needs to be encouraged. A key concern with most investors is the level of corporate governance and abiding by some of the key standards and best practices. Quality of work, commitment to higher levels of performance across most segments of the workforce, from white to the blue collar, needs much grading up.
Q. Since 2005, Georgia has moved up to 12th place from 112th among 181 countries surveyed on the World Bank ’s annual Doing Business ranking. What are the perspectives of Georgia in term of attracting foreign businesses?
A. Georgia’s ranking for Ease of Doing Business is creditably high. It is evident in the range of public services, from registration of a company to income revenue reporting, from the highly efficient immigration points at the airports to the movement of goods from overseas or from Georgia to other ports. There is however a widespread feeling among most small and medium investors that the average Georgian business does not understand the need to drive a comfort zone to foreign investors in terms of providing full and clear information, of conducting negotiations on established lines of transparency and in ensuring the security and profitability of foreign investments. Foreign investors entering new and emerging markets usually carry a number of risk-related concerns and it is important to ensure that these risks are addressed clearly by local partners and collaborators.
Q. In your opinion, what could be main guidelines for foreign business to operate successfully in Georgia?
First, of course, is their own understanding of investments, markets, margins, profits and risks. They also need to understand the social and cultural aspects of Georgia which, as a nation, is still young in attuning itself to international standards and practices. EMH, as a rule does not encourage borrowing in Georgia as the cost of debt is very high. It is wise to ensure that investments are mainly equity-funded. Unless there is very clear prospect of a zero-risk operation, it would be best to move a venture through a gradual process. It is also important to understand the road map and milestones of a venture and the risks and rewards on the way. There is also a necessity to pick and right people, with the right attitude and the right commitment and loyalty to support the ventures. While there is widespread unemployment in Georgia, there no abundance of highly qualified and competent professionals. Those who have the right qualities are often picked quickly by international organizations, big corporations and foreign companies at above-market rates.
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