Making SME a priority for Georgia
14 October, 2010
Making SME a priority for Georgia

Georgian Small and Medium Sized Enterprises Association proposes a legislative initiative on purpose to make SME sector a priority in Georgia. The initiative offers establishment of Small and Medium Sized Entrepreneurs’ administration in Georgia focused on promotion of SME sector.
Georgian SME Association (GSMEA) founded just recently and focused to promote Georgian SME sector by word and deed launched a legislative initiative on October 8, 2010. The initiative idea is to adopt the best world experience and create the SME

administration body in Georgia that will be a public law entity and its activity will be tailored on small business.  According to the draft law the SME Administration will work out a special program that will be agreed with Georgian government and approved by parliament ultimately.

The program may include disbarment of guarantee letters and financial sources to insure credit access of SME sector via mediator organizations. All SME sector representatives including start up business may enjoy this preference. Moreover, the SME Administration will be providing with training opportunities for SME sector employees to raise their management  and business plan drafting skills, to consult petty businessmen how to communicate with banks and state institutions.
Moreover the Administration is supposed to work out recommendations and proposals to make SME sector operation as smooth and simple as possible.

It is an open secret that against the backdrop of financial crisis banks shun financing business specifically the petty fries. As an aftermath Georgian SME sector is actually cut out from banking loans to either start or develop business. GSMEA members believe their initiative may have a breakthrough effect in this stagnated situation and push Georgian economy forward.
According to the authors of the SME law, the recent economic procedures globe over and specifically in countries with the transit economy proved  that SME is the most active and mobile sector of economy and the basement to overcome the poverty. It creates jobs and does not require big investments. However Georgia unlike the civilized west still lacks a proper law regulating the SME sector and even proper definition of SME sector. Commensurately Georgian economy is still underdeveloped.
“We propose the model accepted worldwide,” Levan Kalandadze, Executive Director of GSMEA, told Georgian Journal. “In US for example the SME Administration is under the president’s private subordination and gets significant financing from the state budget. All developed countries have this model and make SME sector development as a priority. Unfortunately Georgian state makes statements that SME is the priority in Georgia but does not make actual steps to this end. We still lack clear definition of SME and how it is possible to regulate this sector and outline priorities. It is important to work out a package of bills to fill the legislative gaps in the tax law as well as in the law on entrepreneurs and number of normative acts to streamline SME regulation. And the law on SME sector must become a backbone of this package of bills.”

GSMEA stresses that the tax code definition of small business is controversial. According to tax code, physical law entities with annual turnover of less than 100 thousand are defined as small business and enjoy tax preferences. The definition does not include legal entities that means that  small LLC enterprise like a bakery or beauty salon are taxed similarly to big business like Rustavi Metallurgic Plant or Heidelberg Cement for example. That is extremely unfair Kalandadze believes. The law completely lacks definition of middle sized business.
GSMEA proposes to define all businesses [except joint stock companies] with less than GEL 2 million of annual turnover as small business. Kalandadze thinks that even this turnover is too insignificant as far as in Europe small businesses are defined as companies with less than EUR 10 million.
All the SME sector related issues should be regulated by the SME administration that can be based on public financing as well as on international and private allowances. The regulatory body will be represented throughout Georgia via regional offices and be controlled by government.  A Board Council staffed by 7 members will manage the SME Administration. Boar members are approved by parliament with 4-year office term.
The draft law on SME administration proposes to divert 2% of the state budget on its financing. Non-budgetary financial sources attracted by the Administration will be allocated via banks and micro-financing organizations in accordance with the business plans submitted by SME companies. To this end the Administration is supposed to announce an open tender for commercial banks and select three best proposals. At least 30% of attracted financial sources is recommended to divert on start up businesses.
The draft law is already sent to government and is supposed to go through parliamentary procedures if Georgian government gives consent to the idea.

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