With the recent changes in the Georgian government the Partnership Fund has received renewed attention. The fund is now head by two political heavy weights, the former Prime Minister, Nika Gilauri, and the former Minister of Finance, Dima Gvindadze. As the Messenger reports:

The foundation aims to facilitate cooperation between the public and private sector, creating investment projects, jobs, attract foreign investment and generally contribute to the development of the country’s economy. The four priority sectors include energy, agriculture, industry and real estate. The Partnership Fund’s financial participation is limited to 49% of the aggregated capital. The strategic investors are supposed to support the projects.

At the same time some unnamed voices raise concerns:

Some independent analysts challenge the idea of the Partnership Fund saying that there are already many banks and investment funds available in the country.

Which is nonsense. The partnership fund can do things banks or investment funds almost by definition cannot do – address market failures that hamper private investment. Examples for such market failures include coordination or information externalities, both of which imply less private investment than is optimal.

If done well this partnership fund can be instrumental in developing new industries in Georgia. I would argue that there are a few principles, adopted from Rodrik (2008)  that should guide the partnership fund:

1. Focus on projects that have demonstration potential; projects that if successful signal to entrepreneurs that this industry or activity works in Georgia and is worthwhile to invest into.
2. Focus on industries or activities that interact with other industries or activities, and generate positive externalities.
3. Experiment with different industries and activities, in order to find out what industries and activities can be successful in Georgia and which ones are not. As a corollary accept and tolerate that many if not most projects will turn out to be failures.
4. Have clear benchmarks for success and act if projects fail to meet these benchmarks.

Principle 3 in particular is critical as there is no way to know in advance what industries or activities can work in Georgia. The only way to find out is to try out, and to experiment. The problem with experimenting of course is that it implies many failures, something the political process, the media and the public have little tolerance for.