The FINANCIAL — From the service industry to agricultural sector, Georgia boasts numerous untapped resources for small and medium business development. The FINANCIAL asked some of the most prominent business people in Tbilisi to share their thoughts on these underutilized prospects and factors that prevent their realization.
David Lee, General Director of MagtiCom and President of the American Chamber of Commerce in Georgia, believes that there are opportunities for new SME (small and medium sized enterprises) “in almost every sector” in Georgia.
Lee specifically singled out the agricultural segment. “Many of Georgia’s foodstuffs, even traditional products such as milk, cheese, tomatoes and meat are now imported,” he said. “In the Soviet times, the reverse was true, Georgia exported food.”
Until 1991 the other Soviet republics imported 95 percent of Georgia’s processed tea, 62 percent of its wine, and 70 percent of its canned goods. After the collapse of the Soviet Union, these numbers fell drastically, making Georgia an importer of agricultural products and foodstuffs. According to the statistics provided by the “Invest in Georgia” project, in the first two quarters of 2008 the country imported almost 20 million USD worth of agricultural products, while its export in this sector reached only 2.56 million USD.
The largest shares of imported agricultural products and foodstuffs in 2008 were those of meat and meat products (12.6 percent), wheat (10.7 percent), wheat flour (8.8 percent), sugar (8.6 percent), vegetables (7.6 percent), and milk and milk products (6.3 percent). As of 2007, the country’s main agricultural exports were shelled hazelnuts, distilled alcoholic beverages, non-alcoholic beverages, and wine.
High start-up costs and the lack of technical knowledge, however, are stalling the agricultural sector’s development. “Even small-scale agricultural businesses require investment in equipment, fertilizer, herbicides, distribution and so forth,” Lee said.
Besides, loans for starting a business as such are expensive, with rates reaching 20 percent per year and more. “An even greater problem is that local knowledge of modern techniques is weak or non-existent requiring expensive training and consultation,” Lee said.
Fady Asly, chairman of the International Chamber of Commerce of Georgia and President and CEO of Agritechnics Holding, also said that while opportunities exist in almost every sector, high interest rates stall business development in Georgia. “There are so many untapped resources here in Georgia that unfortunately will still remain untapped for some time until it is easier and cheaper to get a credit line,” he said. “There is huge potential in many sectors, but unfortunately there is no access to money and getting money is very expensive.”
More specifically, Asly said that value added agriculture (alternative production and marketing strategy that contributes to increasing the economic value and consumer appeal of an agricultural commodity), for example green house production and flour production, represents one of the available opportunities. “Here we are speaking of investment in the range of between 200,000 and 100,000 USD, which is not much, but can serve as a catalyst for later bigger investment to be added,” Asly said.
The service sector proves another field in need of development. “Anything that relates to insurance brokerage, not a big [insurance] company, needs to be developed as well,” he said. “There is big potential, and this could eventually be coordinated with insurance companies so there would be no competition between the brokers and the insurance.” Insurance brokers sell the product (various insurance packages) while insurance companies provide the coverage, thus being “owners” of the product.
Betsy Haskell, former owner of Betsy’s Hotel who has spent years in Georgia as a real estate investor and developer, also said that the service industry here could accommodate a score of new businesses, ranging from Laundromats to care services for the elderly.
“A series of Laundromats would be a money-maker,” she said. “It only requires the cost of buying washing machines and some dryers and renting a place, but basically all of these would be at a very low cost.”
Haskell said that a business as such could be launched with less than 25,000 USD.
A growing number of Georgians who have relocated abroad creates a market for a service company aimed to take care of the elderly. “That would be a good business to start and it takes practically no capital at all,” Haskell said. “… Women could start that in a New York minute on practically nothing.”
Additionally, Haskell said that any import substitution business is worth a look and further examination. According to the Ministry of Foreign Affairs website, Georgia’s negative trade balance in 2009 equalled 3243.4 million USD, with the ratio of import coverage by export being only 25.9 percent.
Availability of accessible capital, however, remains a cornerstone for developing any untapped SME opportunities. “Nothing is easy or very cheap to start, but there are a lot of different opportunities in a lot of different areas, if you have a little money to get going with,” Haskell said.
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