In the market economy Georgia strives to develop, one of the essential components is small and medium enterprises (SMEs). Qualifications of staff directly or indirectly involved in SMEs, is one of the major obstacles to SME development in Georgia. The Economic Prosperity Initiative (EPI) has performed assessments of business training and advisory service providers’ capacity to meet the training and advisory needs of SMEs and finance providers in Georgia to be used as a baseline data for the development of an access to finance action plan Through these assessments, EPI expert and author of this report, Levan Gogoladze has identified numerous demand-side and supply-side constraints from the perspective of access to higher education, trainings, consultancy and advisory services.
The following assessment was carried out both qualitatively and quantitatively and through meetings with respective individuals, as well as analysis of secondary data during March 7- 25, 2011. The consultant used quantitative data when available, and qualitative analysis based upon inputs from interviews with all the stakeholders directly or indirectly connected with SMEs.
Small and medium-sized enterprises (SMEs) play a very important role in the economy of any country. In Georgia, SMEs with a large share in total number of enterprises and in total employment still contain many weaknesses, including:
- Insufficient access to finance
- Insufficient credit guarantee system
- Insufficient education level
- Lack of expertise in technology, R&D and innovation
- Low level usage of loans
- Lack of modern marketing techniques
- Lack of consciousness of quality and trademark concepts
- Lack of capital for high technology investments
- Lack of institutionalization
- Low level of networking
- Lack of harmonization to global standards
For many years, the Government of Georgia in cooperation with international donor agencies have implemented a variety of programs to support SME’s with the above mentioned constraints. This cooperation played an immense role in further developing SME’s. However, SME’s need continued support to achieve a higher level of sustainability. Thus, EPI considers support to SMEs as a priority and, in particular, is focusing activities targeting one crucial area – the education and training of consultancy and advisory services.
There are many state and private universities with business programs in Georgia. The number of students studying at business schools currently amounts to 18,560 and the share of students who graduate from business school annually reaches 20% ( 2009/2010 year, source National Statistics Office of Georgia). Apart from business schools, there are number of business training and advisory service providers who serve the business sector in Georgia, including SME’s. However, the activities supported by these education programs and service providers have many weaknesses. Meetings with key representatives of these institutions demonstrated a number of common problems from both the supply and demand sides that hinder SME development. These issues are outlined below.
Supply side constraints:
- Lack of capacity in education, training and consultancy, especially in regions
- Insufficient motivation of educational, training and consulting institutions to attract SME clients
- Lack of experienced instructors/trainers in regions
Demand side constraints:
- Inability of SME’s to pay for education, training and consultancy services
- Lack of access to training and consultancy in the regions for SME’s
- Lack of understanding among SME’s about added values to use services of training and advisory service providers.
- Mismatch of SME needs with curricula of degree and non-degree programs
Although list of constraints are similar, a level of competency of employees in the third party – microfinance organizations, banks, insurance companies etc. – is higher. They recruit nearly 95% of employees from state and private business schools, with the remaining share of employees from the pool of students who have received education abroad. Most microfinance institutions (MFI’s), banks, insurance companies and leasing companies conduct additional training modules for their employees. The leading banks have their own training centers that offer courses for small and medium-size loan officers inter-ally other training programs. Small banks and other financial institutions typically outsource training services.. However, this sector also has constraints in terms of both supply demand-sides. These constraints are outlined below.
Supply- side constraints:
- Lack of skills and knowledge to offer the right product to SMEs
- Inability to advice business solutions to SMEs
Demand- side constraints:
- Lack of knowledge of products they would successfully use in their business
- Low credibility of financial institutions among SMEs
In the main part of this paper EPI consultant provides the detailed information regarding demand -side and supply -side constraints obtained through published and online data, official statistics, 20 meetings with businesses, government and other organizations in different fields, consultant’s own extensive knowledge and experience. It also provides recommendations aimed at development and implementation of a comprehensive action plan to improve access to finance for SMEs.