Cheap Money As Panacea for Feeble Georgian Export
04 October, 2012
Cheap Money As Panacea for Feeble Georgian Export

The way-out to unfold Georgia’s agriculture export potential and replace the infesting import by local production is cheap and long-term money. Once we get it, Georgia may think of a bigger picture of exporting and re-exporting products between the East and the West too.

Georgian negative trade balance reached USD 3. 544 billion by August of 2012 that already covers 53% of the entire trade statistics figuring USD 6.649 billion. The import makes the overwhelming 76% accordingly and the major part

of it is the food including agriculture product that can be easily harvested in Georgia and even be exported if the sector had an access to cheap money.

Georgia been the shortest route between the East and West on the map is and has always been a natural hub in the region within the historical Silk Road corridor. This favorable geographical location doubled with the good climate and natural resources, especially hydro resources, as well as backgrounds in ancient agriculture technologies like wine, honey and wheat producing gives a chance to the country to act not just a mere transit corridor passing goods between the eastern and western markets as it already does, but be an exporter and re-exporter country itself.

Free trade with the countries of the Commonwealth of Independent States (CIS), also upcoming free trade prospects with the EU and the US markets makes Georgia unequal globe over with unfettered trade opportunities to that many big markets.

But to turn this natural priority into reality Georgia needs to develop its agriculture producing first so as to supplant the infesting import and go on export.

Georgian experts think the key issue Georgian agriculture potential lays untapped so long is simply money or lack of cheap and long-term money supply. If this issue is solved the dexterous business will handle with the rest. Georgian commercial banks shun crediting agriculture and offer credits at 35-45% while the maximum interest rate is 15% is the west,  Badri Ramishvili, an agriculture marketing expert, said. According to him, other three key points to boost agriculture producing is: the state support – not subsidizing the sector but creation of proper business environment; development of scientific infrastructure and setting up of consultation centers in the regions so as to bring the new skills and information to farmers; and strong self-governance in order to make rural population to define their own priorities and find solutions to problems.

“I do not believe in subsidizing of agriculture like a fostered child. The state should create a proper business environment, make credits cheaper, develop scientific infrastructure and leave the rest to the business – it will find its way of the profit,” Ramishvili elaborated.

Davit Shervashidze, Senior Advisor in Agribusiness Sector at Georgian Regional Development Fund of SEAF, agrees that the cheap financial resources are crucial but he does not see any prospects for Georgian agriculture export  if the quality, uninterrupted supply of due volumes of the product of similar sort and taste are not insured.

“Quality, securing due volumes of only similar kinds of the product is essential for the western market. If the EU opens up its market today we cannot meet all these demands. But all these are attainable if the credits get cheaper. If someone asks me what is the instant way-out for agriculture I would say cheap money, other problems can be solved simply,” he said. “But this money must be long-term and targeted at certain purpose. No farmer in the world has due business planning skills. The US financial institutions for example go to farmers and draft business plans for certain fee but this is affordable for farmers as the loan is so cheap. Private sector should do this. Georgian banking sector should revise its strategy of financing agriculture,” he said.

On the other hand, Shervashidze recommends the government to work out a clear strategy of agriculture development and set up an agro-bank with farmers as stake-holders like the Dutch Rabobank.  If quality and quantity problems are solved Shervashidze believes Georgian agriculture product especially sweet water, honey, wine, fruit and vegetables will easily find the export market for product in Georgia is biologically clean and demand on bio-product is high today.

“Georgia is the second richest country in Europe by sweet water resources running after Norway and the UN conclusion stipulates that there will be a serious problem in sweet water and food in the second half of this century. I think that even water has very strong potential for export, also many agriculture product like fruit, honey, cheese [very few knows that there are around 300 sorts of Georgian cheese] – these  products have an export potential to the EU if the cheap money problem is solved,” Shervashidze elaborated.

As the private business lacks financial to to resources the state decided this summer find a solution to dwindling export by setting up the State Fruit and Vegetables Export Company responsible for procurement of all the fruit-and-vegetable harvest and their exporting alike.  It will handle with both marketing and logistics of the harvest from the fields to the export markets - in Ukraine at the moment, Giorgi Jakhutashvili, head of this export company, assures. The company is expected to be kind of an ice-breaker to private business thanks to good marketing and management skills plus  sufficient financial resources that private sector lacks at the moment.

“For example we can pay GEL 30 million in 25 thousand tons of citrus to insure due volumes and quality and wait for 10 years to pay back the money since it is a matter of macro-economy and strategy to us to develop export but private sector cannot do this. If it finds GEL 30 million it will build up a skyscraper and enjoy quick profit.  But later they can also take their place in exporting agriculture product after the state builds up smooth sale chain,” Jakhutashvili elaborated.

Ramishvili doubts the commercialized state-venture may pose monopoly risks and thinks it’s better for the state to take care of proper business environment, first of all making credits affordable and leaving the rest to the business.

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