The business sector and especially the Small and Medium-sized Enterprises (SMEs) play an important role in the development of the economy, contributing significantly to the sustainable and inclusive growth. SMEs, having enormous potential in employment generation and job creation, as well as in fostering economic growth, could be considered as a backbone of each country’s economy.
A strong and well-developed SME sector significantly contributes to export, innovation, and creation of modern entrepreneurial culture, playing at the same time a significant role in achieving prosperity in the country. Usually in advanced economies (e.g. those of the European Union (EU) countries) SMEs constitute the overwhelming share of operating enterprises, generate more than 50% of turnover and provide two out of every three jobs in the private sector. In OECD countries, more than 99% of companies are SMEs and generate about two-thirds of GDP on average. In developing countries or in countries in transition, SMEs represent more than 90% of the total number of companies, but their contribution to GDP is generally quite low – in many cases less than 20% (European Commission, 20101). During recent years, Georgia has undertaken broad and comprehensive reforms, including economic reforms, which have touched upon every aspect of people’s life.
The main aim of those reforms was the creation of favorable environment for doing business and foreign direct investment (FDI) via liberalization of the economy, reduction of administrative barriers and tax burden, streamlining public services, fighting against corruption, etc. Due to these reforms, Georgia achieved high rates of economic growth and significant FDI inflows. Georgia’s economic policy was positively evaluated by different rating agencies and International Financial Institutions (IFIs) and the results are reflected in different indices and ratings evaluating economic freedom and policies. For example, Georgia was recognized as the top improver country by the WB/IFC Doing Business (2015).
Despite the improvement of general business environment, Georgia faces broadly the same challenges in terms of SMEs development as many developing countries. Notwithstanding the fact that SMEs constitute the largest share of operating enterprises, their contribution to GDP is still very low and their performance remains weak. The Government of Georgia (GoG) recognizes the importance and role of SMEs in economic development and is committed to the further improvement of the business environment in order to enable SMEs to develop and grow. Support of the private sector development in general, and especially the development of SMEs, is one of the main aims of the GoG’s economic policy. Consequently it is one of the priorities of the “Socio- Economic Development Strategy of Georgia” – Georgia 2020 (June, 2014), as well as the Programme “For a Strong, Democratic and United Georgia” (July, 2014).
The GoG attaches particular importance to the enhancement of private sector competitiveness and especially enhancement of SMEs’ competitiveness, in the context of the EU-Georgia Association Agreement (with its integral part -– the Deep and Comprehensive Free Trade Agreement (DCFTA)), which was signed in June 2014 and ratified by the Parliament of Georgia in July, 2014. DCFTA started being provisionally applied from September 1, 2014. DCFTA provides Georgia with a unique opportunity to achieve deeper integration with the EU market and, at the same time, increases the potential to attract FDI. Adaptation to and implementation of DCFTA requirements is essential for Georgia in order to enable businesses to gain maximum benefit from the DCFTA by maximizing the export potential. The GoG is dedicated to implement its reform agenda under the DCFTA commitments.
With consideration of discussions above, a clear strategy and vision is essential in order to facilitate SMEs development and support the enhancement of competitiveness. The main aim of this Strategy, which is based on “Think Small First” principle, is the enhancement of SME sector competitiveness, which will create solid base for inclusive and sustainable economic growth. Strategy sets targets to be achieved by 2020. Strategic Directions and relevant Policy Actions laid down in the Strategy are elaborated based on the analysis of existing economic situation, institutional and operational environment for SMEs and with consideration of existing evaluations, assessments and recommendations. Effective implementation of policy measures provided in the strategy should lead to achieving of targets by 2020. Specific actions are provided in supplementary Action Plan. Strategy considers establishment of monitoring and evaluation mechanisms. SME Development Strategy is elaborated in close cooperation with OECD and GIZ support.