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Programs
Economic Growth
Economic Growth
Objective
Current Situation
Successes
Program Activities
Assessments and Other Publications
Objective
Support lasting economic growth through good economic governance and promoting the growth of businesses
To support Georgia’s lasting economic growth, USAID’s activities help develop institutional and human capacity within government agencies and the private sector. Projects are designed to improve the business environment through commercial law, regulatory, tax, and customs reforms. Expanding access to capital for small- and medium-size businesses, in particular, and for the private sector more generally, is another goal of USAID assistance. Support is also provided to develop a properly functioning land market, improve agricultural productivity, increase competitiveness of Georgian exports, enhance the efficiency of the Georgian railway to effectively serve as a transportation corridor, and expand economic opportunities in rural communities.
Current Situation
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Since it came to power in early 2004, the government of Georgia has achieved remarkable improvements in Georgia’s economy. The government has reduced barriers to doing business, increased tax collections, and reinvigorated the privatization process. While macroeconomic indicators are positive, significant challenges remain. Many people live below the poverty line (52.5%), with about a quarter of Georgians living in extreme poverty. The shadow economy is large and thriving (about 68% of GDP) and many people survive on subsistence agriculture. While the government has made efforts to improve the business climate, reforms in critical areas such as tax, customs, and licensing need to continue. Major sectors of employment such as agriculture are not ready to compete in export markets. Inefficient state-owned enterprises dominate rail transportation, ports, and other key sectors. It is difficult for businesses to get medium and long-term business loans, and low entrepreneurial business skills further limit business growth. USAID’s economic growth program is helping to fill these gaps.
Successes
- Comments and analysis of USAID advisors were instrumental in reforming the licensing and standards regime -- the law on licensing and permits, which cut from 909 to 159 the number of licensed activities, was enacted in July 2005.
- Through USAID’s assistance to the National Agency for Public Registry, the time to register property fell by 75%, and the cost by 70%.
- In 2005, with USAID support, laws were enacted to protect parties in credit transactions, legalize microfinance lending to micro-enterprises, and privatize state-owned agricultural land.
- To ensure impartiality and transparency of the privatization process and world wide access to information, USAID helped the Ministry of Economic Development develop a privatization website (www.privatization.ge). The website is the country’s main source of distributing privatization information to local and foreign investors.
- USAID advisors helped the Ministry of Finance increase its tax revenues between 2003 and 2004 by 53%. The increased revenue reflects greater discipline within the ministry and has allowed the government to increase its budget.
- Georgia’s first-ever credit information bureau was created, and microfinance and rural credit institutions saw steady growth in loan portfolios with almost $20 million in loans outstanding. This represented a 46% increase in access to credit for micro-businesses.
- Policy assistance to the Ministry of Agriculture resulted in a simplified and more efficient ministry structure (the number of ministry-funded units was reduced from 36 to 17), and the development of the Food Safety and Quality Law, which was adopted by Parliament in December 2005.
- In 2005, USAID facilitated the production and export of quality agricultural products, generating almost $7 million in sales.
Program Activities
Assistance to the national government
Reforming the Business Climate
Establishing one-stop shops, or a “single window principle”, initiated by President Saakashvili, is an important step towards reducing administrative barriers to business growth. USAID supports this initiative through the Business Climate Reform project, implemented by Chemonics International (www.chemonics.com). Business Climate Reform is helping to streamline registration systems; simplify licensing procedures; and establish centralized registries and nationally accessible databases for movable and immovable property, collateral, and companies. However, operations of one-stop shops cannot be effective until all relevant legislation and regulations are properly developed and “filtered” through the one-stop concept. The project, therefore, also provides long-term technical assistance to help the State Ministry for Economic Reforms and line ministries to assess existing or planned legislation and develop policies and regulations that are clear, transparent, and that facilitate business operations. No effort at improving the business environment is likely to succeed if the business community, being the most closely affected, is not engaged in the planning and development of the reforms. Supporting the government in establishing and strengthening a mechanism to facilitate public-private dialogue is, therefore, the key objective of the project.
Improving Tax and Customs Administration Systems
Despite recent improvements, tax and customs administration remain one of the leading complaints of Georgian business. The fiscal component of the Business Climate Reform project, therefore, is designed to support regulatory, procedural, and operational improvements in tax and customs administration systems. Support is provided to the tax department to strengthen its strategic planning capacity and develop and implement a new organizational structure, as well as new operating procedures for all functional units. In order to improve taxpayer services and increase the tax department’s transparency and efficiency, USAID works to streamline and automate tax and business registration, introduce electronic data exchange systems between taxpayers and the tax department, and enhance the overall capabilities and compatibilities of the tax department’s, customs department’s and the Ministry of Finance’s information systems. The fiscal reform component also supports the government’s new initiative to decrease the time required to complete all border clearance procedures to one day. Development of a one-stop-shop for exporters and importers and development of secondary regulations for the new customs code are part of this initiative.
Supporting Agricultural Policy Reform
Agriculture production currently accounts for about 20% of GDP and when combined with agribusiness, principally processing, the total contribution to GDP is nearly one-third. It also accounts for more than half of all employment. Given agriculture’s centrality in Georgia’s economy, development of a long-term national policy that promotes the growth of the agricultural sector is of paramount importance. USAID, through its AgVANTAGE project (www.agvantage.org.ge), is providing advisory assistance to the Ministry of Agriculture to build its analytic and policy development capacity, prepare a national food and agriculture strategy, and to implement food safety legislation to protect consumers and meet export requirements.
Efforts to Expand Private Sector Activities
Supporting Small- and Medium- Enterprise Growth
As in most economies, SMEs have the potential to be a force for economic growth and job creation in Georgia. USAID’s SME Support project, implemented by the US-based private not-for-profit organization International Executive Service Corps (IESC) (www.iesc.ge), aims to strengthen private business dialogue with the government of Georgia to improve the operating environment for SMEs. The project works to develop competitive business support organizations in Tbilisi and the regions that provide full-range business related services to SMEs, and also works to assist business associations to introduce self-certification and ISO standards for Georgian businesses. Improving entrepreneurial and general business skills throughout the Georgian population, including youth and ethnic minorities, is also a key objective of the project.
Increasing Access to Credit
Georgia's banking and credit sectors remain under-developed. Access to credit is problematic, medium- and long-term financing is limited, and financial institutions are hesitant to introduce new products due to the perceived risks involved. USAID’s SME Support project supports increased access to capital by improving the ability of borrowers to provide financial information, mobilizing loan guarantees for local banks and microfinance organizations, improving the capacity of banks to provide specialized products such as agricultural finance and leasing, and supporting the expansion of microfinance operations. In 2005, a loan portfolio guarantee for $3,000,000 was provided to Bank Republic to extend commercial credit to enterprises and farmers in the agricultural sector. This sector comprises nearly 20% of GDP, but receives only 2% of commercial bank loans. The guarantee not only provides funding for the sector, but also encourages the participating bank to enter into a new type of financing. USAID, through its Georgia Microfinance Stabilization and Enhancement Akhalkalaki project, supports two partner microfinance organizations, Constanta and Credo, to provide credit to the population of Akhalkalaki, one of the most economically disadvantaged regions of Georgia.
Developing Land Market
USAID’s Land Market Development II project aims to complete the agricultural land privatization process, develop a properly functioning land market, and establish a clear, transparent, streamlined and user-friendly property registration system. USAID's partner, the Georgian non-governmental organization Association for the Protection of Landowners Rights (www.aplr.org), has been instrumental in supporting the Georgian government to develop a new bill on additional privatization of large tracts of agricultural land. The bill was enacted in July 2005, allowing the Georgian government to initiate the privatization process for all state-owned arable land (totaling 889,580 acres) into large, economically viable parcels. USAID advisors also supported the Georgian government to develop and adopt legislation to extend the timeframe for land registration in Adjara, a region on the Black Sea coast formerly beyond reach of the central government. This was a significant achievement, as the new statute authorized free-of-charge transfer of land to 50,000 households that had failed to obtain land titles over the last decade due to the political situation in the region. Over the next two years, the project will help the Georgian government to complete the privatization of all state-owned agricultural land.
Increasing Agribusiness Productivity and Promoting Georgian Exports
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USAID's partner ACDI/VOCA (www.acdivoca.org) implements the AgVANTAGE project (www.agvantage.org.ge), which is designed to expand production and sale of export-oriented agricultural products. The project identifies markets for Georgian value-added products and then works through the market chain to ensure timely delivery of quality products. AgVANTAGE stakeholders sell quality greens, onions, apples, mandarins, oranges, pears, peaches, hazelnuts and early potatoes to the domestic as well as existing and newly-opened export markets in Ukraine, Armenia, U.K., Estonia and Germany. In 2005, the project facilitated production, processing, and sales of value-added agricultural products, generating $6,976,861 in sales. Assistance was provided to 18 associations with over 1,800 members. In addition, five new products with market potential were identified, and nine new technologies were introduced, such as drip irrigation and over-wintering.
Through AgVANTAGE, USAID supported the establishment of the greens consolidation center in Imereti (West Georgia), and the mandarin consolidation center near Batumi (principal city on the black-sea coast). The centers not only serve as collection points to consolidate small volumes of products into industrial quantities, but also enable selection, sorting and packing of products to meet international quality standards and buyers’ specifications. Furthermore, the consolidation centers provide seasonal jobs to over 100 villagers working, for example, as graders and packers.
The lack of food safety and quality management systems in Georgian companies is one of the major constraints impeding the export of Georgian agricultural products. In order to assist Georgian companies to comply with increasingly demanding internationally accepted standards, AgVANTAGE works on a one-to-one basis with local Georgian companies by rendering assistance to introduce and implement food safety (HACCP) and quality management (ISO 9001:2000) systems. In 2005, AgVANTAGE had its first major success in this area -- Hazelnut Factory Ltd. successfully received ISO 9001:2000 certification from an international certifying body.
AgVANTAGE actively addresses the needs of regions populated by ethnic minorities. The first regional office was opened in Akhalkalaki to increase incomes and create new employment opportunities for local farmers and processors. A seasonal early potato information center opened in Bolnisi to help local growers access market information and weather forecasts, and prepare export papers.
Restructuring Assistance to the Georgian Railway
The Georgian Railway (GR) makes it possible to capitalize on Georgia's favorable location, enabling the country to successfully compete with other transport routes for the handling of large volumes of oil products and other traffic moving between the Caspian region and world markets. In 2005, USAID partner organization, Booz Allen Hamilton (www.bah.com), conducted a comprehensive assessment of the GR, and developed a restructuring strategy, including strategic alternatives, restructuring options, and financial projections. The restructuring strategy, designed to move the company towards commercially- oriented, economically efficient railway operations, was accepted by the Georgian government in late 2005. USAID is currently assisting the GR in the implementation of the strategy.
Economic Livelihood/Community Mobilization
USAID promotes improvement of economic livelihood in local communities through community investment projects, economic activities and public-private partnerships. USAID partner, Community, Habitat, and Finance International (CHF), (www.chfhq.org), is implementing a 5-year project, Georgia Employment and Infrastructure Initiative (GEII) (www.chf.ge), that supports income and employment generating initiatives for households, entrepreneurs and community-based enterprises through a combination of information and linkages, training and technical assistance, and project development and support. Communities are stimulated to engage in participatory planning and take action to improve services and infrastructure. Additionally, communities are empowered to leverage resources through innovative partnerships with government, the private sector, and other communities. To date, a total of 193 USAID-assisted communities have successfully launched 250 community investment projects, benefiting nearly 200,000 people and creating over 500 jobs. Additionally, about $84,000 in government funds have been leveraged through joint planning exercises with government leaders. In 2006, GEII will mobilize 90 new communities, initiate 250 new projects, including 55 cluster and public works grants, provide 40 loans, and disburse 50 socio-economic investment grants.
Assessments and Other Publications
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