Environmentally Friendly Standards open the gate to the EU Market
04 April, 2015
Environmentally Friendly Standards open the gate to the EU Market
UNIDO - Helping Georgian business get cleaner, cheaper and thus, more competitive

To get their own niche in the desirable but picky EU market, Georgian producers need to become more environmentally friendly. This is the only way to get benefits from the Deep and Comprehensive Free Trade Agreement Georgia signed with the EU last year. The huge European market offers an enticing prospect of high profit, but it also has high quality standards. Very few Georgian producers can afford these
standards at the moment. One of the major impediments is the obsolete machinery Georgian enterprises use, which wastes a lot of resources and money.

“The average energy saving varies from 10 to 15 percent but there is also potential for an even larger savings opportunity. For instance, an asphalt-producing company (one of the project participants) can invest about 14 thousand euros and have 20 thousand as annual savings. For the Kindzamarauli winery (another participant) the potential of energy savings was in the range of 18-19 percent and up. Water savings was at around 25 percent. Typically it is not so expensive and pays back in less than a year and half.”

This deals a blow to the en­vironment and the pockets of businessmen alike. The four-year UNIDO [United Nations Industrial Development Organization] Resource Efficient and Cleaner Production (RECP) demonstration project is to help Georgian business get cleaner, cheaper and thus, more competitive.
The project has just completed its first round in Georgia that was dedicated to assessing the cleaner production opportunities for ten Georgian enterprises. The second round is set to start in late April or early May. To find out the benefits of green economy for Georgian industry, Georgian Journal interviewed Rene Van Berkel, the chief of the Cleaner and Sustainable Production unit of the Environmental Management Branch at the UN Industrial Development Organization.

– Why is cleaner production important for Georgian business?

– First of all, it is important because saving resources, cutting costs, improving productivity and quality of the product presents an excellent business opportunity. This is especially important if they want to strengthen small enterprises. It strengthens the capacity of an enterprise by looking at how we use resources in an organized and efficient way.

– You have just finished the audit of ten Georgian companies. To demonstrate the benefits, could you give us an average saving potential for them?

– The average energy saving varies from 10 to 15 percent but there is also potential for an even larger savings opportunity. For instance, an asphalt-producing company (one of the project participants) can invest about 14 thousand euros and have 20 thousand as annual savings. For the Kindzamarauli winery (another participant) the potential of energy savings was in the range of 18-19 percent and up. Water savings was at around 25 percent. Typically it is not so expensive and pays back in less than a year and half. Small businesses should start with the low cost options: good housekeeping, fixing of leaks, neatly organizing their work. These low-cost opportunities streamline and optimize the existing production process. It does not cost much – the only thing it requires is attention of the management and this alone puts a start to a process of improving operations. But it is not the final goal; it is a starting point. The larger opportunities that offer bigger savings are more expensive and pay back in two to three years. Of course, bringing enterprises up to international standards often requires larger investments, replacement of technology and so forth. This is more expensive.

“People are always tempted to buy something cheap, but I also see that major companies are now bringing their production facilities from China back to Switzerland and Germany. They think that goods produced there can be of much better quality and more competitive. They can also be pricier, but people are fond of buying something that lasts. People are sick and tired of things that break down on the second day of use.”

– At any rate, renovation of the industry requires additional investments that are barely available to Georgian entrepreneurs, particularly for SME. Adoption of cleaner production looks burdensome even to Western businesses. The European entrepreneurs frequently complain that it increases their production costs and cuts competitive power down compared to countries like China or India that do not care as much about environment-friendly standards. How are Georgian entrepreneurs expected to get a profit out of this?

– There is an opinion that the environment regulations increase business costs. But the OECD has just published an interesting study that says the environmental rules are actually enhancing the competitive power. The countries that have better environmental framework and more predictable environment regulations are encouraging enterprises to be innovative. And when they are innovative, they are more competitive. They have better quality products and their prices are not necessarily high. Yes, people are always tempted to buy something cheap, but I also see that major companies are now bringing their production facilities from China back to Switzerland and Germany. They think that goods produced there can be of much better quality and more competitive. They can also be pricier, but people are fond of buying something that lasts. People are sick and tired of things that break down on the second day of use.

– This sounds good for European companies. They have access to the huge European market that has high purchasing power and cares about and pays for quality. But what opportunity does a small, poor local market that prefers cheaper products hold for Georgian business?

– With the Deep and Comprehensive Free Trade Agreements Georgia will get much closer to the EU. This means that companies that comply with European standards will be granted access to European markets. Companies that possess an export potential will start looking for clean production and efficiency opportunities to start moving towards the European standards. That is the only way they can benefit from the free trade agreement in the future.

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