Long Live Old Faces, Down with the Startups
12 June, 2014
Long Live Old Faces, Down with the Startups
Produce in Georgia, a program initiated by the government on June 1st, neglects startup businesses, which mark the economic progress of any country and bring on innovation and creativity. This kills competition and new initiatives, and hinders middle-class development – the foundation of a democratic society.

Although Georgia is ranked in the top ten of countries for ease of doing business, research shows that startup businesses are short-lived and ineffective in Georgia. According to Giorgi Kvirikashvili, Minister of Economy and
Sustainable Development of Georgia, half of the operating businesses cannot manage to enhance sales even five years after their start. Poor management skills and limited access to cheap finances and infrastructure are among the major problems that hold the Georgian private sector back.
The recently initiated Produce in Georgia program, with 46 million GEL at its disposal, is an attempt to make all the three components available to entrepreneurs who want to set up a new business in agriculture or industry. It offers cheap credits, infrastructure and consultancy. Up to 2 million USD in banking credit will be available at an 11-13 percent interest rate with the state co-financing 10 percent of that for two years. That means businesses will maximum pay 1-3 percent which is a dream rate for Georgian entrepreneurs. The credit benchmark starts at 150,000 USD and 600,000 USD for industry and agriculture respectively.
The state will also cover 30 percent of the collateral [that secures the credit] for 2-4 years. To make real estate more available the state is ready to hand around 100 real estate and infrastructure properties over to entrepreneurs for the symbolic price of 1 GEL. Thirty million GEL will be allocated for agriculture and 16 million GEL will go toward industry.
Economic analyst Irakli Lekvinadze approves of the initiative, “This is a really good project as it creates access to finances, infrastructure and service all at once, something that has never happened before.”
Yet Ditrikh Muller, co-founder of the Georgian Investment Group, expects no breakthrough as the program befriends only those new enterprises that will be set up by entrepreneurs who are already operating businesses at the moment. The newcomers or classic startups remain as throttled as they have always been in Georgia with no access to finances and service. On the other hand, he believes the new program is an opportunity for big businesses and that the small businesses can never meet the program criteria.
“This is obviously calculated for big business that has always enjoyed a perfect lobby with the government. No small entrepreneur in agriculture can take on as big a credit as 600,000 USD which is the benchmark credit for agriculture. Thus the gap between the rich and poor will expand and this will choke middle-class development,” he said.
Soso Archvadze, an economic analyst, is disappointed by the lack of new faces in the Georgian business scene. “They do not admit new faces because very likely feel a little bit scared of them. They are afraid of failure and think that new faces with no backgrounds in business may be less successful whereas old familiar faces seem more trustworthy. This fear bespeaks of nothing more than incompetence. New faces are the source of creativity and innovation.”
Muller points out some loopholes for nepotism and state money embezzlement because program states nothing about possible sanctions that will punish entrepreneurs if they fail to meet the assumed obligations. Muller fears that this gives participants in the program a chance to misuse the financing and enhance their core businesses instead of investing in new enterprises.

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