The Georgian economy faces many challenges, not least of which are access to finance and the extremely high cost of financing private enterprises. With the cost of borrowing (real interest rate) reaching 17.3% on average in April 2013, businesses find it very difficult to function, let alone invest in innovative technologies, long-term growth and development. These challenges can be directly traced to issues raised in one of the ISET Economist blogs: the Georgian financial industry is still very far from being a well-developed, efficiently functioning system. In one of the recent blogs, financial literacy among the general population was named as one of the culprits for the low levels of financial development. Yet financial literacy remains only one of the many pieces of the development puzzle. What are the other structural obstacles to financial sector development? Here is a partial list of potential problems leading to financial sector inefficiencies and a high cost of finance:
- Small market size and low real sector penetration prevent economies of scale for Georgian banks.
- Moderate country ratings on international markets and a reliance on external sources of funding for commercial banks. Short funding maturities for commercial banks lead to short-term lending.
- Low financial reporting standards among Georgian companies. Low levels of financial literacy among the general population.
- Long-term lending is done almost exclusively in foreign currencies, which creates a FX credit risk.
Let us examine each of these problems in turn.
1. Economies of scale refer to the cost efficiencies (lowering of average costs) the firms industry might realize if the scale of its operations increases. Since the fixed costs associated with operating a commercial bank are quite high (operating branches, loan monitoring departments, etc.), the profitability of the banking sector in particular suffers from the relatively small market size in which banks operate. In Georgia this problem is reflected in the total country GDP and the asset size of the commercial banks.
For example, according to the World Bank, the average private credit-to-GDP ratio in Georgia (2008-2010) was 30.5%, which suggests a low level of financial depth relative to developed economies (as a comparison, the private credit-to-GDP ratio in Germany and France is about 109%). In addition, the loan-to-GDP and deposits-to-GDP ratios are equal to 42.5% and 39.6% (by the end of 2012 Q3) respectively. However, this does not imply low indebtedness of the population, as individual borrowers exhibit quite high debt-to-income ratios stemming from short-term lending.
The problem of the economies of scale is further exacerbated by the fact that the industrial base of Georgia is largely underdeveloped, which prevents banks from diversifying their risk across different industries and regions. The situation results in a vicious circle of low diversification, high cost of finance and, consequently, low industrial development.
This is an example of a situation where private markets are unable to efficiently resolve the problem. Consequently, government involvement might be in order. For example, clear policies to increase and diversify the country’s industrial base could help commercial banks better assess the future direction of industrial development and increase private lending.
2. The level of domestic savings in Georgia is very low relative to the financing needs of the country. As a result, Georgian banks have to rely on external (international) financing to satisfy these needs. Besides the high costs of borrowing internationally for a small developing country such as Georgia, the reliance on external finance poses certain risks (capital flow reversals), especially in times of global crises. Thus far, Georgia’s banking system has managed to secure sufficient financing from abroad, but the luxury of foreign financing comes at a price. Georgian banks can only borrow at relatively short maturities on international markets, which translate into high financing costs and short loan maturities for domestic borrowers. As per the NBG’s data, the average maturity of loans is 15.8 months, while the average lending interest rate is 17.3%. The total loan amount is 5.2 billion USD as of the end of April 2013.
The lengthening of credit maturity and decreasing interest rates would undoubtedly have a significant positive impact on the indebtedness of borrowers and the cost of debt services. For instance, increasing the average maturity to three years and freezing the interest rate at the same level would decrease an average borrower’s monthly payments by 50%. However, only decreasing the interest rates would have a much more moderate impact. For example, decreasing the average interest rate to 16% would lower monthly payments only by 1 %.
Payment per Month with Changing Maturity
Source: own calculations
Payment per Month with Changing Interest Rate
Source: own calculations
Improving the maturity structure of private lending seems to be the most effective path for banking sector development. However, lengthening the maturity of private sector loans is a challenging task that would require overcoming informational as well as institutional hurdles.
3. In the economic literature, the maturity structure of bank credit depends on the institutional and political characteristics of a country. And yet, the quality of the information coming from firms and the ability of the banks to effectively monitor their borrowers are seen as one of the crucial determinants (see, for example, Ortiz-Molina, Hernan and Maria Fabiana Penas. "Lending to small businesses: The role of loan maturity in addressing information problems." Small Business Economics 30.4 (2008): 361-383; and Coleman, Anthony D. F., Neil Esho and Ian G. Sharpe. "Does bank monitoring influence loan contract terms?" Journal of Financial Services Research 30.2 (2006): 177-198.). Substandard financial reporting significantly complicates loan evaluation for commercial banks, leading to higher administrative costs and lower asset quality. In this environment, the development of a stock exchange is unfeasible.
In Georgia, overcoming informational hurdles may play a decisive role in lengthening the maturity structure of bank credit and thus promoting long-term lending.
4. Finally, due to the lack of domestic savings in GEL, as well as the inability to borrow in GEL on foreign markets, the long-term loans of Georgian banks are almost exclusively foreign-currency denominated. This exposes the country’s banking sector to the foreign currency induced credit risk (for example in the event of a sharp devaluation of the Georgian lari, businesses whose revenues are mostly GEL denominated, would suddenly become insolvent, unable to pay back their euro denominated loans. Such situations are by no means uncommon in developing countries, and the experience of Eastern European countries in 2008 bears witness to this type of risk).
While there is no easy, short-term solution to this problem, it is worth mentioning that higher levels of financial literacy can actually help increase the amount of domestic savings in the banks, thus increasing the pool of loanable funds in the domestic currency.
In conclusion, although one may say that the Georgian banking sector faces many challenges, it also has the possibility to tap into many growth opportunities by, amongst other things, increasing domestic saving, adopting well defined industrial policies, shortening loan maturities, standardizing financial reporting for companies, and improving the financial literacy of the population. A well-designed policy mix, aimed at increasing financial literacy and informational transparency; promoting a platform for direct financing (a stock exchange) and a diversified industrial base; and improving the maturity structure of bank loans to the private sector, could all significantly improve the growth prospects of the Georgian banking sector. This would mean greater efficiency and decreased interest rates, which would result in benefits for the Georgian economy as a whole.
Comments
dear friend,
I am not a big economist.I know one basic thing that to Bank we go for keeping our money safe and to borrow money if in need. Here in Georgia although our money is safe but we cant borrow the money easily.
Here bank before giving loan see if the person is having already running the business. Does he have a fix income so that he can return back the loan.
But my question is that if i am running a successful business why do i need to borrow the money. One will say that you may need to expand the business. if i need to expand my business i am already having good returns from my business. Why do i need to pay the interest and take tension of loan.
By this way the gap between rich and poor is growing on and on. Because if a poor person want to start some business he could not able to show a running successful business. Even though he can mortgage his land or house but bank will first see his running business.
Is this a policy of big corporate companies to keep a buyer as a buyer not becoming a manufacturer. Because this will lead to competition. This is a very big game going on the corporate world to kill a competition. The remaining part will be done by Government itself because of high-up links in government where policies are made to help corporates to rule world.
Maybe i am wrong, but i am layman and this is my thinking.
jaswinder singh mavi
593512321
Dear Sir, thank you very much for your comments and your question.
You are right in pointing out that the kind of businesses that banks would like to lend to are oftentimes not the ones that need these loans the most. Small businesses in need of a loan may not be profitable enough to afford paying even the average market interest rate, let alone a high interest rate which they are more likely to face.
In many developing countries there may in fact be only very few firms who could afford the luxury of borrowing from a bank. Does this mean that the banking system in those countries are fundamentally flawed?
Well, we have to keep in mind that a bank itself is a private business with the objective to maximize profits. Therefore, the bank's ideal client is a low-risk firm that would be willing to pay a high rate of interest on the loan. In reality of course the low-risk firms are larger, more profitable enterprises who could afford to use their own funds (retained earnings) to finance their investments. Knowing this, the bank would of course be willing to offer such firms the financing on very favorable terms.
(Certainly, there are many reasons why companies would take out a loan rather than use their own funds for a project. For example, one of the reasons is that by borrowing money for an investment I can multiply my gains from this investment, i.e. take advantage of 'leveraging').
In the same time, a small entrepreneur with limited funds but a very good idea for a new investment may also want to take a loan. In this case, however, the bank is asked to take a greater risk lending to this client. To compensate for the risk, the bank would require a higher interest rate. The higher the risk, the higher the interest rate.
Of course this could mean that some small firms are "priced out" of the market, and are unable to borrow at all. Is this bad for the country's economic development? May be, but such is the nature of the market.
Is there a way for small and medium businesses to overcome the financing hurdles? Our post argues that it is possible. In some ways, the high perceived risk may be associated with the overall uncertainty about the economic and political situation in the country. The government's policies and actions can go a long way towards assuring banks that business environment will be fair and transparent in the future.
Another hurdle is informational in nature. Banks need access to the information on the company's creditworthiness and also need to be able to properly monitor the existing loans. The low standard of financial reporting keep banks' monitoring costs high and translate into high interest rates and short maturities of the loans.
Sounds like a tall order to be sure, but not impossible to overcome.
dear friend,
I am not a big economist.I know one basic thing that to Bank we go for keeping our money safe and to borrow money if in need. Here in Georgia although our money is safe but we cant borrow the money easily.
Here bank before giving loan see if the person is having already running the business. Does he have a fix income so that he can return back the loan.
But my question is that if i am running a successful business why do i need to borrow the money. One will say that you may need to expand the business. if i need to expand my business i am already having good returns from my business. Why do i need to pay the interest and take tension of loan.
By this way the gap between rich and poor is growing on and on. Because if a poor person want to start some business he could not able to show a running successful business. Even though he can mortgage his land or house but bank will first see his running business.
Is this a policy of big corporate companies to keep a buyer as a buyer not becoming a manufacturer. Because this will lead to competition. This is a very big game going on the corporate world to kill a competition. The remaining part will be done by Government itself because of high-up links in government where policies are made to help corporates to rule world.
Maybe i am wrong, but i am layman and this is my thinking.
jaswinder singh mavi
593512321
jaswinder_mavi@yahoo.com
I am absolutely agreed with Mr. Jaswinder Singh; however, there are many other issues, which should be taken care by Georgian policies' markers to create and implement effective policies. I think; one key problem in Georgia is low technology adoption which you people (Economist) always ignore to give importance. I do not know why you economists ignore to this very vital part of today’s trading system.
Conventional way of trade no longer is profitable for any businesses in the country like Georgia. As you already mentioned in post that Georgian market is relatively small, and obviously depended on cross-border trade. So now question arising, if in the real sector of economy micro and small businesses produce any product, then where to sell those products since the local market does not have good demand and going cross border requires huge search and value added network cost. Which micro and small businesses cannot afford. Where I believe technology play a vital role to improve over-all face of Georgian SMEs and real sector of Georgian economy. I think; Technology is the key to help Georgian economy and businesses to grow. Therefore, I like to request, ISET should write about technology adoption and how it can resolve several issues related to growth of economy and businesses. Also I to give feedback, when ISET guys write about the economic and social concerns then ISET should also give emphasis on viable solutions to resolve the problems and handle challenges. Otherwise, every year there are thousands of brilliant scholars passing out from university who talks about economic and social problem and tries to relate with some theory and publish articles and blog post. So give emphasis on solution while talking about concerns that will make great impact and bring good change.
P.S. Blog meant to interact with people who give feedback and suggestions, not just for posting articles and expect that writers should provide their outlook on comments. Because communication is the bridge of resolution of concerns, which bring learning, knowledge and new perspectives.
Sir, I certainly agree with you that low technology adoption is a very important problem for many developing countries, including Georgia. But surely that economists in general and our blog in particular do not ignore the problems of technological development. It is now considered a textbook truth in economics that technological advancement ( as opposed to 'conventional' trade) is the path towards the country's long-term growth.
Consider, however, that the reason a developing country may not be adopting new technologies could be related to many other associated problems - such as perceived risk of investing in the country, high cost of adopting such technologies due to the issues related to education, inadequate infrastructure development, etc., various types of coordination failures (e.g. adopting a new technology would only pay off if most of the firms in the market do it in the same time) and so on...
I would be interested in hearing your opinion on what kind of technologies you think would be most beneficial for Georgia adopt and develop.
Dear YB,
First of all, I like to thank you for reply.
As you mentioned about reasons not to adopting technologies in developing countries, then I like to bring to your attention that South-East Asia and several developing countries concentrating and investing high on technology advancement than Georgia. South-East Asia, as you know, has one of the largest consumer groups and fulfilling supply and demand require advancement on technology, especially on information technology. All these countries have adopted e-commerce as a growth enabler instrument for MSMEs. That’s the one significant reason that Asian B2B e-commerce channel or marketplace is some of the most profitable business model. Because it allowed micro, small and medium business to cut search cost on finding consumer and concentrate on core expertise. Take example of middle east, they are progressing toward information technology much faster than former USSR republics. About Europe and US, you all know. Booming economic in South America, if economist study in deep, then will find, the growth engines in these countries were not just economic policies but information technology is the one key component which is helping these countries to become fastest growing countries. The key of growth of four Asian tiger’s (Singapore, South Korea, Hong-Kong and Taiwan) economies is technology advancement because all are service oriented economies, somewhere similar to Georgia on some aspects.
I like to ask one question; I am sure you use mobile phone and use for various purposes like sending SMS, take a note, picture and videos, personal organizer and many other tasks. What are the reasons' people now preferred using mobile phone over dot phone (land line)? What key motivation drives them to use mobile phone? How they are learning to use mobile phone? The answer of these three questions is the answer of adopting technology, education and high cost, especially information technology.
Now let’s come to the real solution, how information technology can help MSMEs’ Georgia. As you mentioned and everyone knows, Georgian market is reasonably small, I say not relatively but very small. So how many businesses can operate in this small market when there is no significant consumer base to cater. Therefore, there is a need to look-out opportunities in other big markets (forget about Russia, it will never be a good market for Georgia and always be very volatile because of Geopolitical issues.) Micro and Small businesses do not have a capacity to find trade opportunities in these markets; sometime medium-size businesses are not able to go out in these markets because of expensive value added network cost and convention way of establish trade network relationship. So what could be optimum solution to resolve this problem?
In recent years, Georgian ICT infrastructure has improved significantly, which reduce the cost of utilizing IT services. B2B e-commerce provides several opportunities to handle the basic problems like find sourcing partner, buyers, advertising product and services, creating the value added network, ensure timely payment, cutting cost on production, focus on core expertise and many more (FYI this is not just textbook truth but today’s reality).
“Adopting a new technology would only pay off if most of the firms in the market do it in the same time” This is the mindset which creates constraints in growth (Being a devil’s advocate with solution is much better and effective than just being a devil’s advocate). Georgia got independence in 90s and was independent for the shorter period (three years) in 20s. Everyone was living in Georgia peacefully and often perceived aristocrat during USSR regime. Then one man or few men think about being independent since they study their history and found the real essence of being Georgian, many were not sure, being independent will pay off or not but movement started, and today you are living in the independent country, which is progressing toward democratic nation. Therefore, one has to start first then few will start using it and when they start getting the benefit from it. They will start talking about and other will follow. This is how trending start and spread, like twitter revolution. When people see and understand how some technology and something is beneficial for them, they start adopting, but start is necessary so one day most of the firms start using it and starting is always tough part.
Let’s get to the main issue, right now there is no local B2B e-commerce channel in the country which can ease the process of trade and international B2B e-commerce channels do not focus on the local market, neither many people aware about B2B e-commerce in Georgia. Until there will not be local B2B e-commerce channel, which concentrates on local businesses to help them to find opportunities in local and other markets. MSMEs’ problem won’t be resolve as per modern day trade practices. Conventional way of doing business will increase the gap to meeting demand and supply, and make Georgia as a lucrative business destination.
Bank definitely will ask for security while providing a loan to any micro, small and medium-size businesses and if these businesses won’t have information, from where they can buy sourcing material and selling final product. Then these businesses will not be able to pay back their loan. So B2B e-commerce is one of the key solutions in the great puzzle of MSMEs growth in Georgia.
Now implementation, it is believed by World Bank and other international institution that Georgia is progressing toward free economic model and is a free economy. However, if one look in depth, then Georgia is an oligopoly market, where only businesses are nurturing, those are anyhow closer to ruling government. Every year, new businesses registering in Georgia with 12.54% CAGR but in those new businesses and existing businesses hardly 50K businesses are active and operating. Others are only on books as a business unit. Based on book or textbook truth, World Bank and other international institutions declared Georgia as 8th best nation on doing business. In those 50K, major large and medium businesses belong to associate of political leaders and who is closer to government because only these businesses get the benefit of government policies. Creating competition and transparency is an issue in Georgia.
I can tell you feasibility of such project or framework in Georgia and why it is still a textbook truth in Georgia.
Once I proposed B2B e-commerce information framework for trade that can help MSMEs in the country to some government and non-government organizations in Georgia. Unfortunately, everyone agreed with feasibility, profitability and usefulness but not agrees on implementation. Reasons are not investment, capacity, education, and infrastructure but TRANSPRENCY. Such framework will make trade process transparent and become a great advantage for MSMEs’ in the country, but implementation cannot happen since TRANSPRENCY is a big concern in the countries and create a threat of competition to large businesses in the country, who influence the policy market and government to implement such framework, which is very useful for MSMEs.
Thanks!
now this blog is going interesting. Well said MR. Vivek Singh. i would like to continue from mr. Vivek Singh comments. maybe you may call this as a duel conversation between vivek and jaswinder. One day i buy a the housefly killer plastic stick on which it was written Made in Turkey. For making such a small thing Georgians do not need much technology knowhow.
last year i gone to Agriculture office in Tbilisi and asked the expert about the time of growing Corn in Georgia. The expert said the time has gone but unofficially i cant suggest you to grow corn now. It is a simple fact that Corn can be grown throughout the year.
We may take the example of Slovakia or maybe Slovenia. I was watching BBC news. The president of that country said that his country is now looking into E-business. India is earning billions of dollar by the means of E-commerce, why not Georgians. E-commerce is nil in this country and if somewhat exists it is having language (English) problem.
So my suggestion according to my thinking is that Georgia if want to develop should first lay emphasis on english learning. English learning should be made a compulsory subject in every school and college. i am not against the Kartuli language or the mother language. It is mother language which connect ourselves to the roots, nationality, religion, customs etc. But one should also keep in mind the upliftment of community in the international arena.
Second is Technology Advancement in Agriculture. Let say that people dont have money or financial means to establish big or small scale factories. According to me Georgia is basically is agriculturist country (as Russian develop (or make it underdeveloped) Georgia as food basket for Russian). If we dont have expert in agriculture we can import it from other countries. USAID, an american organisation can be bring into the picture. US is the biggest supporter of this country and can help this country in technological advancement in agriculture. Later on industrialization. This pace can be done on ministry level.
Third suggestion :- There are government organisation or department which help or wants to help farmers. Yes, they definitely should do more for small or marginal farmer, but side by side they should help big farmers also because big farmers are directly or indirectly employs local people and giving them employment. From the help means subsidies in the way of seed available at Government Department at subsidized rates. Developing new orchards or fruits plants by the way of Tissue Culture by importing some worldwide export varieties. I am having an agriculture land here in Georgia, i lost 25 hectare of standing corn crop last year. I could not able to reap even a 1kg of Corn because of drought in Kakheti. As i was having 25 hectare i could not get compensation for my corn crop because they counting me in big corporate farm. Well, now i am doing small pity job in a chicken farm near Tbilisi to make my end meet.
Sir you are big economists having internationally accreditation, what you say about this loss. Am I a big farmer. According to me in today world Farmer maybe small or big he is at the loosing end. Only the middleman is earning. If a crop fail, irrigation failure, drought, thunderstrom, or any other natural clamity only farmer suffer maybe big maybe small and what about middleman, if dont have to worry. if he didnt get crop from me he will get it from someone else. if the price is more, he will pass on the buck to the customer. ultimately a citizen have to shell out the more money from his pocket.
I dont know where the conversation of mine is going on, but i think you must have understand what is want to say.
in the last i would like to say that technology advancement in core activity of a nation should be first tackle with. Agriculture advancement in Animal husbandary sector (Development of ETT-Embryo Transplant Technology), and Plant Technology (Tissue Culture)
Then come industrial technology. The industrial technology can easily be bought at the price.
Thanks
jaswinder singh mavi
Dear Jashwinder,
Yes, Mr. Jashwinder, now this post is becoming interesting
I don’t say that only technology can resolve all the issues related to development and growth. Technology is now become one of the key elements to help in economic and social development. Question is how country use technology to gain maximum advantage.
“One day i buy a the housefly killer plastic stick on which it was written Made in Turkey. For making such a small thing Georgians do not need much technology knowhow.” Making House Fly Plastic Stick, need to know, how to make and what are components to make, giving a shape need to use instruments (Technology). Now if Georgia wants to sell same “House Fly Plastic Stick," then already they are in the market produced by Turkey, China and other countries, so your point is somewhere right. But still I want to sell “House Fly Plastic Stick” but how and where? For selling same stuff, I need to recognize the markets where Turkey and Chinese's businesses have low penetration or do not sell “House Fly Plastic Stick” in those markets. If I recognize, then this is good opportunity for me to sell. So where can I find this information and buyer, as I am a micro business owner, cannot afford going other markets only option I have, the local market. I'm micro business owner but use mobile phone. Here comes technology in play to find markets and buyers, so I can sell same stuff in another market.
Now suppose, I don’t have a mobile (or don’t know how to use information technology or mobile or computer) and only can access local market but there are already Turkish and Chinese “House Fly Plastic Stick” in the market. Then why would consumers buy same thing from me? From Chinese's product, I cannot compete on price, so now what? Again here comes technology in play, how? If I modify same “House Fly Plastic Stick” by adding electric net and add some kind of chemical that attract houseflies and when the housefly comes in contact with the stick, it will die and consumer can hang this in the room corner, and it will work automatically rather consumer has to kill by himself and waste lots of energy and time. Now modify same “House Fly Plastic Stick” require technology to make advancement. This gives me the upper hand and competitive advantage to sell “New House Fly Plastic Stick” in the local market. Therefore, again, technology opens a door for me bring the better products in the market, so I can sell in local market and can compete with other producers of same stuff.
“I gone to Agriculture office in Tbilisi and asked the expert about the time of growing Corn in Georgia. The expert said the time has gone but unofficially I can’t suggest you to grow corn now. It is a simple fact that Corn can be grown throughout the year…. As you own or leased the land then you can harvest whatever you want to harvest, I do not understand officially or unofficially on harvesting. About "simple fact," many do not know the simple facts. Technology and media can work effectively to increase farmer awareness to spread "simple facts on agriculture." On the other hand, on expert in Agriculture, IT provides flexibility to reach-out expert on Agriculture and contacts them to ask suggestion regarding Agriculture. If you know, now Govt. of India started providing call center and SMS services for farmers to ask expert suggestion on any Agriculture-related issues. I don’t know about Georgia that Georgia started these kinds of services or not. However, this is how technology helps farmers. Even on selling your final product to market, by utilizing IT services, you can reach out valuable buyer and markets. So here also technology is helping people. Big question in Georgia that still Technology and IT are understood just textbook truth because economists actually do not know, how technology can resolve several issues. Until they do not find any supportive literature, which was written by another economist, they thought and take this key element of growth as textbook truth only.
I don’t know anything about Slovakia and Slovenia, so I cannot provide any comment what their president said about what. I agree with you on English learning till the certain extent. If Georgian want to sell (Which anyway need for them to look for other markets), then they should have to learn English. So they can conduct trade in the international market. However, I do not think, that micro; small and medium-size businesses in Georgia think going beyond then Russian-speaking markets. Because any way unofficial more than half of Georgian population can speak and understand Russian very well. I totally agree with you that for overall upliftment of Georgian society, Georgia has to adopt English as a secondary language.
However, I am not agree on using E-commerce services only required to know English. Several European, south-east Asian, middle-east and South American countries e-businesses running successfully in native language and most successful than English oriented e-business model. So in this context language is not a big constraint. In India, e-commerce phenomena become successful because India has the largest English-speaking population, at the same time, English is creating constraints for E-business companies to grow in India. So e-commerce is just limited to people who can understand and speak English in India and only these people getting the benefits from E-commerce, also India is the largest uneducated country in the world. However, Georgia is not, and E-commerce is the key for Georgian businesses to grow. Transparency is great issue in Georgia. Therefore, government or businesses are not implementing E-commerce framework or say that some big bosses don’t want that Georgia becomes transparent and open for the world to recognize as fastest growing country from former USSR republics. Even we in India are not much transparent, but we are very much Jugadu (Solution oriented). So even if we cry, shout, give lectures, disappointed from government in the evening then next morning, we start finding the solution by own to make things happen, sometime things take place fast sometime takes time, but anyway, we anyway find the resolution of our problems. That’s what I say to all my Georgian friends, that cry, shout and make noise about your problem but don’t expect someone will solve your problem but you yourself solve your problem so get on working on that.
“Second is Technology Advancement in Agriculture. Let say that people dont have money or financial means to establish big or small scale factories. According to me Georgia is basically is agriculturist country (as Russian develop (or make it underdeveloped) Georgia as food basket for Russian). If we dont have expert in agriculture we can import it from other countries.”…. I have already provided my views on gaining expert suggestion on Agriculture in last para. About money and fiscal means, here Georgia needs to require to work more on creating good financial instruments. And I believe, should start micro finance and most importantly accountability. When banks or micro finance landing money to micro, small and medium businesses or farmer for harvesting then just do not lend the money but provide all the necessary information that once their product will be ready, what is the best way to sell in market and which market. Whom they should contact to sell and get expertise and how they pay off their loans. Banks and micro financial institution must come out with integrated services, which can help to grow and pay off loans. That way, they will be sure about return of loan with interest rate, and this creates healthy financial environment and increase awareness of financial literary among natives.
Financial institutions basically banks are in Georgia afraid to lend money because they are just providing money but not telling lenders that how they can pay off and what are the best and optimum way make their businesses or agriculture tasks profitable, so they can return money with interest. So conventional way of lending cannot be much effective in Georgia. Institution must come out with good financial framework and work out with lenders by providing add-on information services, so they can return money on time.
“USAID, an American organization can be bring into the picture. US is the biggest supporter of this country and can help this country in technological advancement in agriculture.”…. Do you really think, that US is a big supporter of Georgia? I do not think so, because US never invested anything in the country until they are not assured about long-term returns. Georgia is in the picture because of Geopolitical reason in this region, Iran, Russia and Middle East. US basically sees opportunity in tragedy. If somewhere is no tragedy, then they create catastrophe. So they see opportunities in other countries' misfortune. This is their policy. If you remember back in 2011, US created the big buzz about Iran nuclear program, which can threaten Middle East and make Saudi Arabia believe that Iran is really a treat for them. They gave more than 3 billion arms order to US, and WikiLeaks cable hype to reconstruct its foreign policies to recognize ally and enemy or give them priority based on that. Keeping whistle blower is good in business, especially stock market. US is a financial hub of international business. Wikileak's founder got asylum or refuge in Britain, which is closet US ally. Now Snowden, do you still think; US is the supporter of Georgia. Its Georgia compulsion to be with US otherwise ready for Russian aggression or Soviet style domination. US and Russia are like Coca-Cola and Pepsi, in the market no other cold drink product can dominate, if any product comes, then both reduce their prices to kill third competition from the market. So basically both are strategically internal friends to dominate markets. Same like US and Russia, because both want to dominate the world so one should always be in competition to another, and this will not allow third one to take their place. However, their domination is in risk by south-east Asian countries like China and India. So US and Russia will never be anyone's friends, everything they do even take a single step, that is strategically decided to ripe fruits in long terms and in this strategically approach sometime small countries do not count much rather keep them as a strategic place if in the future, some uncertain event takes place, then can handle and taken care.
About USAID, once I visited EPI office in Tbilisi regarding some discussion on the Information Technology policy framework in Georgia. I asked about if there is some project, which can help industry, then Will EPI provides grant or find investors for that project? Their officials personally told me, USAID never invests in projects where money is not doubling and returning to them. So they give grants on those projects on which they are sure, that in few years they can get triple or double return. So they calculate ROI on every grant, they provide to anyone in any country. I am not just talking about only monetary benefits, but other related benefits in the long run.
About your loss, this is really depressing fact, and I am sure; you are not only the one. Sir, if you heard about “Crop insurance," then facing such natural insecurity govt. institution and some private insurance companies provide assistance to cover the loss of crops due to natural disasters. I am not sure about Georgia, such kind of insurance instruments are available in the country or not.
On middle man, technology provides flexibility to direct access of buyers and markets, and it gives advantages to farmers to take decisions, which crop they should grow when and in which market; they can get maximum return on crop. In Georgia, transparency is big issue to implement such technology framework, and it is not at all expensive. As you are commenting here, the same way, you can find markets and buyers and conduct trade with them, and you are saving lots of your search cost on establish the value added network for your crop and removing the middle man from the picture. In fact, these e-business do not charge you much like middle man; their charges are minimum, e.g. on 100 GELs, 10 teteries. Such framework makes trade process transparent, so there is no hidden cost to conduct trade. Even you can export tissue culture from producers who are providing on reasonable cost with good quality. By going through middle man, cost obviously increases and no transparency in this process and by adopting technology, you are saving much more and getting maximum benefits.
Last but not least, I am not big internationally accredited economist. I personally hate being an economist to draw conclusion based on textbook facts or past events. I am also a layman, who like to start IT project in Georgia since there are good potential and demand in CIS region on B2B e-commerce, and Georgia is only good free market in the region. Hope my examples will help you to understand significance of technology adaptation. If you have any other question, please write me on e-mail and skype or we can continue here as well.
Thank you