Business environment for 22.05.2012-en

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Condition of business environment and the

concept for its improvement

Main directions


2.1. Depth of existing problems 2.1.1. Incomplete list of the problems

The essential segment of GDP growth is from state sector and it is supported by foreign credits. 1The share of real sector in GDP (agriculture, industry construction) is permanently decreasing. 2

3Turnover of bussiness sector and a volum of production sicne 2007 is falling down in the real figures. 4

Share of the capital formed by private sector compared with GDP is decreasing in recent years.

Share of small and medium enterprises (production turnover) in the economy is very insignificant. 5Despite nominal growth of GDP the emplyment indicators in the country are the same. 6

The problems in accesability of bank credits hinders business development. 7Tax administration and banckruopcy sistem problems deteriorate investment environment. 8Problems in protecting property rights as well as court sistem considerebly worsen business environment. 9Free trade and competition in the country is ignored. Monopolies and oligopolies exist in the market.10


2.1. Depth of existing problems 2.1.2. Condition of real sectors

Source: www.geostat.ge

Dynamic od real sector (agriculture, industry, construction) and its share in GDP

Share, %Million GEL


2.1. Depth of existing problems 2.1.3. Business sector turnover and production

Source : www.geostat.ge

Real turnover of business sector and a volume of production output (deflator corrected)


2.1. Depth of existing problems 2.1.4. Capital formed by private sector GDP and VAT


VAT and Share of capital formed by private sector in comparison with GDP (deflator corrected)


2.1. Depth of existing problems 2.1.5. Business sectors employment indicators

GDP growth and the quantity of employed in business sector (small, medium and large business)


Employment dynamicsRate of GDP growth


2.1. Depth of existing problems 2.1.6. Low level of development of small and medium business

The number of employed in 2010 in the SME, its turnover and the volume of production


Example: In the EU 27 countries turnover of small and medium size businesses in 2010 was 58% of the total turnover, while the production was 59%. 67% of total employed persons are employed in the small and medium size businesses.

MediumSmall

Large

MediumSmall

LargeMedium

Small

Large


2.1. Depth of existing problems 2.1.7. the indicators for small and medium size businesses in EU

Source: www.eurostat.com

Indicators for small and medium size businesses in EU 27 countries

The turnover

The volume of production

The number of employed


2.1. Depth of existing problems 2.1.8. Problems in protecting property rights

Georgia holds 120th position among 142 countries in regards of protecting property rights.


2.1. Depth of existing problems 2.1.9. Problems in protecting property rights

According to Heritage Foundation 2011 Economic Freedom Index data by property rights protection indicators Georgia stands next to Kazakhstan, Shr-ilanka, Pakistan, Nepal, Cambodia etc. (with 40 points).


2.1. Depth of existing problems 2.1.10. Credit accessibility problems


2.1. Depth of existing problems 2.1.11. problems of bankruptcy and closing down a company

Problem of bankruptcy and closing down of a company is a difficult issue in Georgia, because:

Bankruptcy and closing down (liquidation) of a company takes approximately 3.3 year; There are official state fees - GEL 5,000.

For your information, in eastern European countries bankruptcy process takes approximately 2.7 years and in OECD countries- 1.7 year.

Bankruptcy completion period

GeorgiaEastern

European countries

OECD countries

Time/years 3.3 2.7 1.7Source: Doing Business, 2011.


2.1. Depth of existing problems 2.1.12. The most problematic factors in business

Source: The Global Competitiveness Report 2011-2012, World Economic Forum, www.weforum.org

The most problematic factors while conducting business are.clear-cut fixed by the World Economic Forum.

Availability of finances

Inadequate education of manpower

Inflation

Low ethics of manpower

Taxation regulations

Unstable politics

Inadequate infrastructure

Tax rates

Instability of the government

Ineffective state bureaucracy

Poor public healthcare

Corruption

Limited labor regulation

Foreign currency regulation

Crime and theft


2005 2006 2007 2008 2009 2010 2011Court independence 94 110 112 112 117 104 91Effectiveness of legislation for dispute resolutions

91 89 82

2005 2006 2007 2008 2009 2010 2011Effectiveness of state regulation appeals

102 98 92

Local market competition 91 92 115 114 115 124 128

Quality of domineering on local market 102 101 108 95 98 113 112

Effectiveness of antimonopoly regulation

85 82 94 111 125 135 135

Diversity of financial services 106 107

Accessibility of financial services. 108 96Availability of deceiving finances in local market

108 108 111 107 125 125 122

2005 2006 2007 2008 2009 2010 2011Property right 86 99 117 109 109 120 120Small shareholders’ rights 93 114 123 123 117 122 119

2005 2006 2007 2008 2009 2010 2011Quality of education system 96 96 93 83 97 119 116Quality of management schools 104 103 114 110 106 116 115Potential of innovation 85 92 100 97 119 112 103Simple procedures of hiring and dismissing

24 14 14 5 7 9 10

Availability of scientist and engineers 44 64 93 84 96 122 120Brain gain 96 100 89 76 88 104 102Companies equipped with high technology 103 107 109 108 115 125 115

In Global Competetivness Report Georgia does not have desirable position in the key component indicators, often there is negative dinamics (the indicators show the rating of the country worldwide).

2.1. Depth of existing problems 2.1.13. The problems existing in key components


2.1. Depth of existing problems 2.1.14. Low level of investments caused by the problemsRecently investments’ volume into Georgia is decreasing in absolute figures as well as in comparison with GDP. Decrease of investments’ volume are mainly caused by the existing problems in business environment.



2.2. Goals to be achieved and target indicators 2.2.1. General objectives

Business environment:

1. Political and legislative frame;

2. Administrative stimulation;

3. Diversified communication network;

4. Sectoral stimulation;

5. Nation wide, regional and regional stimulus.

Investment climate

Open financial markets and credit accessibility

Fair and effective

labor market

Political stability

Infrastructure

Economic forecasting

Improving the legislation and

rule of law

Qualification and

development of

administrative resources

Improving of business environment through achieving following goals:

•Improving of legislation and guarantee of rule of law;

•Political stability;

•Development of labor force ;

•Creation of fair and effective labor market;

•Formation of economical prognosis;

•Arranging infrastructure;

•Formation of open financial markets and accessibility of credits.


2.2. Goals to be achieved and target indicators 2.2.3. Precise goals and target indicators


2.3. Steps to be implemented until end of current year

Precisely diagnosing business environment:- Identification a goal and tasks in details;

- Identifying main beneficiaries and the parties involved;

- Analysis for limitations and barriers;

- Analysis of the capacity of the state bodies which should be activated during the first stage of the reform;

- Valid accumulation of basic data;

- Attracting funds.

Preparing packages draft legislation amendments:- Law on Entrepreneurs;

- Georgian Tax Code and appropriate acts;

- Bankruptcy legislation.

PR and informative campaigning :- Carrying out PR activities for informing business sector and the society about the

forthcoming reforms

- Highlighting importance of reform in regards of increasing public welfare.


2.4. Short term tasks of the prime necessity

Formation of models for creating efficient public institution 1

Certification and traning on aproproate public servants 2

3

Harmonization of Labor Code to the European legislation 4

Accessibility of market information and availability of transparent state information

Caring out activities for facilitating free trade and competition 5PR campaign for reporting the process and completion of the above-mentioned tasks 6Perfection of the procedures of carrying out reforms based on feedback of beneficiaries 7


2.5. Medium term tasks as a second step

Simplification of the tax administration 1

Decrease of interest rates and improving the accessibility of bank credits 2

3

Perfection of competition policy 4

Guaranteeing legislative protection of the investors

Increasing business education level in the country 5

Reporting of the implemented reforms in 2016 6

Evaluating the impact of reforms on business environment 7


Thank you for attention!

E-mail: [email protected]

Tel.: (+995 32) 272 90 21

(+995 599) 11 66 33

Business environment for 22.05.2012-en

Business

problems of bankruptcy

depth of existing problems2

business sector small

business sector turnover

countries turnover of

share of real sector

banckruopcy sistem problems

state sector