Document Type: Monitoring and Evaluation

The document assesses supply and demand constraints that block a more sustained access to finance for Georgian SMEs, both in agricultural and non-agricultural sectors. Assessment of supply side constraints includes focuses on both commercial banks and micro finance institutions. The document also lays out a comprehensive strategy to mitigate the constraints.

This report consists of an assessment of commercial bank capabilities to serve the SME segment and of the capabilities of micro finance institutions to serve micro enterprises, especially those operating in the agricultural sector. It also lays out a comprehensive access to finance strategy that will inform next activities in the EPI Project.

Georgia benefits from strategic location, beautiful physical features and historical treasures, and talented, energetic people. In recent years, a democratically elected, forward-looking government has created an empowering, laissez-faire business environment, complementing these natural endowments with an atmosphere in which business can flourish. Recognizing that this combination of assets and opportunity is rare in the world, the U.S. Government wishes to strengthen, deepen, and institutionalize these developments to ensure continued peace, stability, and democratic political and economic growth.

The Economic Prosperity Initiative (EPI) project has conducted 18 assessments for value chains in agriculture and non-agriculture sectors in Georgia. In addition, two deep sector assessments are underway, for ICT and Transport & Logistics. Through these assessments, the EPI team has identified 17 priority value chains as target partners for project implementation. EPI‘s work with the ICT and Transport & Logistics sectors, which are elements of many value chains, will contribute to the competitiveness of the entire economy.

This document briefly analyzes Georgia’s potential to manufacturer a small range of construction materials based on a range of factors. These include local growth potential, contribution to narrowing the trade deficit, ease of entry into the industry, production intensity, availability of inputs, technology needs and regional competition.

Rather than indicate specific construction materials Georgia has the potential to excel at, it does give a prioritization with which construction materials could be studied in greater detail.

SUMMARY OF FINDINGS

Insulated cables, plastic construction materials, gypsum and metal mountings/fittings (furniture accessories could be focused on depending on the growth of the furniture industry as it supplies inputs to furniture companies) could be industries with possible growth potential in Georgia in addition to timber, perlite and basalt and could be analyzed in further value chain assessments.

The growth in insulated cables, plastic construction materials (i.e. window/door profiles, plastic pipes) and gypsum in Georgia can very much be triggered by new construction and renovation projects that are expected in the local and to some extent regional market. Thus, the attractiveness of these sub-industries also depends on domestic market growth potential.

Insulated cables are raw material intensive but local copper could be used in production. Plastic construction materials, on the other hand, are also raw material intensive and the raw materials will mostly be imported as they are based on petrochemicals. However, this industry does not require significant upfront investment and will also create employment opportunities by creating an installation and assembly sector together with it (i.e. plastic window/door profiles installation and assembly) (although labor is minimal during production).

Gypsum mainly uses local materials and does not require significant investment. Metal mountings and fittings for furniture accessories could be focused upon if the furniture industry grows in Georgia.

Apart from these, if Georgia can have competitive energy costs (natural gas) as well as invest in development of local labor skills, then the ceramic tiles/ceramic sanitary ware industries could be good to focus on as most of the materials can be procured locally and would create employment opportunities (labor represents a critical percentage in production). However, these industries should be focused on mostly for the local market due to difficulty in competing regionally, as there is excess capacity and strong players in the region.

Consultant spent three weeks in Georgia and met with business sector representatives and Sakpatenti officials. In addition, consultant conducted a series of IPR-related workshops (nine sessions) for representatives of the business sector and university students. Based upon the meetings and the series of workshops, significant work remains in order to raise IPR awareness among current and future business sector representatives sufficiently for IPR to serve as a tool for business and economic growth. Future IPR activity requires expanding the outreach to engage all elements of the IPR “system”— including the enforcement “community” that includes judges, prosecutors, and customs — so that the IPR “system” can provide a level of protection to owners that will stimulate investment and risk taking in the economy.

Background

The IPR evaluation and resulting trip report from February 2011 identified numerous IPR-related challenges and listed many potential activities that the project could pursue in an effort to strengthen Georgia’s IPR system. Regarding government agencies, the recommendations included activities needed to increase Sakpatenti’s internal capabilities to modernize and raise efficiencies among its professional staff. Additionally, Sakpatenti was identified as the primary agency to engage in outreach in order to raise IPR awareness.

Other government entities, i.e., customs, judiciary, police, and prosecutors, were identified as specific future targets for IPR awareness raising and training regarding their specific IPR enforcement responsibilities roles in the IPR system. These government enforcement entities were identified and activities were outlined as part of a broad effort that would be necessary to create an effective IPR system.

More importantly, the February assessment concluded that the business community lacked sufficient basic IPR awareness that would allow it to use IPR to commercial advantage. Essentially, there were inadequate resources among government and the business sector to raise IPR awareness. Industry associations indicated an inadequate level of internal IPR knowledge to offer IPR awareness and education to their respective members and the business community at large. Moreover, for future business leaders, the outlook of IPR awareness was bleak due to the lack of IPR education at the university level.

Based on the February assessment, the recommendations were primarily aimed at a program of IPR awareness raising. In view of the critical need for businesses to identify assets that could be protected by the IPR legal regime, the business sector was identified as needing immediate attention.

The EPI is a competitiveness program focusing on selected firm-level and industry-level improvement through assistance to selected agricultural and nonagricultural value chains. In support of its competitiveness work, EPI works with the Government of Georgia (GoG) to address key policy and administration areas that most directly affect Georgia’s competitiveness support private sector growth.

The project team determined that there is significant potential to pursue EPI objectives through e-governance support. The EPI project assigned Information and Communication Technology (ICT) and e-government subject matter experts to research, identify, and prioritize opportunities for potential EPI intervention. Interventions may include design and implementation of ICT solutions, business process re-engineering, change management, and training/capacity building. Due diligence for prioritization includes documenting a program description, designing an action plan for intervention, identification and description of resources, and an estimation of impact on key performance indicators related to Georgian competitiveness and private sector growth.

This report is intended to serve as an inventory and action plan for GoG e-governance opportunities that the EPI project will use to establish and refine work plan priorities.

Under the PROSPER project, ARD has committed to working in up to 9 sites in Liberia to support and build on the development of community forestry that was started under the USAID Land Rights and Community Forestry Project (LRCFP) and continued under the US Forest Service (USFS) Liberia Forestry Support Program (LFSP). USAID has limited sites to the following counties: Nimba, Bong, Margibi, Grand Bassa and Lofa. Two of the existing LRCFP/LFSP sites have already been approved by USAID through the proposal process: the Zor and Gba communities in northern Nimba County (see Figure 1.1 for location). Additional sites must be selected and approved by USAID within the first quarter of the project. This report is a contract deliverable under PROSPER, and provides a summary of findings from preliminary site selection assessments conducted by PROSPER team members in June 2012. It concludes with recommendations for site selection.

Payment for environmental services (PES) represent a range of approaches where beneficiaries of environmental goods and services compensate or reward resource managers, conditional on the continued provision of the goods and services (Wunder 2005, Sommerville et al. 2009).

Within PES, service providers are paid by a service buyer for land uses that result in a measurable environmental service, such as biodiversity, water quality and/or quantity, carbon sequestration or landscape value. PES relies on the “carrot” of a positive incentive, but also the “stick” of conditionality. Accordingly, a PES is not based on simply transferring payments to service providers, but requires direct links between positive incentives and the service or action provided by individuals, companies or community groups. Critical to this arrangement is the understanding that if the service or action is not provided to the service buyers, positive incentives will stop flowing. This means that the bundle of incentives proposed under a PES (and including existing incentives, legislation and policy) must be greater than the alternative of business as usual.

Monetary transfers are not the only incentive introduced through a PES, and the bundle of incentives in a PES will invariably include education and increasing awareness on relevant laws and performance, as well as monitoring and enforcement. In some cases the monitoring introduced by PES for the purpose of making payments creates the impression of third party monitoring for legal enforcement, thereby motivating behavior change. Yet within this framework, the positive incentives should outweigh the negative for a PES to maintain the principle of providing positive incentives.

PES AND COMMUNITY-BASED SCHEMES

This description is more complicated in community based systems where a subset of a population may engage in a PES through a community institution, based on their belief that they can influence the behaviors of the wider population. These sub-groups may in fact use social pressure and local enforcement rather than voluntary participation through positive incentives. Furthermore, in practice, many donors and development professionals are hesitant to engage fully in a conditional incentive, as it places risk on vulnerable populations in the event of non-compliance. Thus, many of the emergent “PES-like” interventions possess elements of a PES by trying to link incentives to performance, but lack the key motivational component of true conditionality.

PES AS A PRO-POOR INITIATIVE

Just because PES aims to transfer incentives to the local level does not mean that it is pro-poor. Indeed, the poor often have less secure tenure, fewer rights to manage resources, less negotiating power and control less land than their more wealthy counterparts both nationally and at the local level. As a result, PES in general and particularly community-based PES has a tendency to overlook poor and vulnerable populations, unless there is an explicit effort to engage these groups. Pro-poor PES can result in less efficient service provision than would otherwise occur with a given amount of funds due to increased transaction costs of working with numerous smallholders, particularly if the PES aims to contribute to resolving some of the issues that presently limit the participation of poor and vulnerable populations. Propoor PES is possible, but it should be recognized that it is often more costly to implement and may result in less efficient service provision than is otherwise possible. With this in mind, the development of a community-based PES scheme must consider the PES implications for all segments of the community so as to truly comprehend whether a pro-poor PES scheme is viable and can provide appropriate “carrots and sticks” while addressing the needs of the most vulnerable members of the community.

THE PROSPER PROGRAM

The legal framework in Liberia provides for commercial, conservation and community (the 3 C’s) approaches to forest management. The PROSPER program is designed to build institutional capacity and support for community forestry through, inter alia, the development of community forestry models in Liberia that integrate the 3Cs so as to provide a diverse range of viable models for community forestry that reflect the complexity and diversity of Liberia’s forests and communities. Under USAID/Liberia’s Land Rights and Community Forestry Program (LRCFP), community forestry models adjacent to and within protected areas were the main focus of program efforts. These pilots provide the starting point for community forestry models under PROSPER, but will be expanded and adapted under PROSPER to take into consideration different forest types, different management objectives, and diverse communities.

Specifically, the new PROSPER sites differ from the LRCFP sites in the following ways:

• None of the new sites is located in or adjacent to protected areas;
• One of the new sites includes a mangrove forest (Barcoline Community in Grand Bassa);
• Four of the new sites comprise the Big Gio State Forest that is classified as a commercial forest and is an unallocated Forest Management Concession (Sehzuplay, Gblor, Yourpea, and Quilla sites in Nimba County); and
• Two of the sites are located in close proximity to active forest concessions (Gblor in Nimba County and the Kpogblen site in Grand Bassa.

While the governance structures for each of these community forests will adhere to the requirements of the Community Rights Law (CRL) – the legal basis for community forestry – management plans and objectives will differ greatly across sites.

PROSPER AND PES

As part of the site selection process, the PROSPER program examined the potential for PES to provide long-term sustainable financing for community forestry. In a country with scarce resources and limited technical capacity, communities may benefit from a PES scheme by not only receiving economic incentives for sustainable management, but PES may also provide resources for forest management monitoring and evaluation that might not otherwise be taking place because of the limited capacity of the Forestry Development Authority (FDA) – the agency with the mandate to manage the nation’s forests. That said, the PROSPER program is not in a position to finance a PES mechanism. PROSPER’s role could be one of facilitator (bring together service providers and beneficiaries) and providing training to communities and institutions to ensure that the capacity to provide environmental services is adequate to address the needs of beneficiaries.

The People, Rules, and Organizations Supporting the Protection of Ecosystem Resources (PROSPER) program is designed to introduce, operationalize, and refine appropriate models for community management of forest resources for local self-governance and enterprise development in Grand Bassa and Nimba counties. The three primary objectives of the program are:

1. expand educational and institutional capacity to improve environmental awareness, natural resource management, biodiversity conservation, and environmental compliance;
2. improve community-based forest management, leading to more sustainable practices and reduced threats to biodiversity in target areas; and
3. enhance community-based livelihoods derived from sustainable forest-based and agriculture-based enterprises in target areas.

The PROSPER Scope of Work identified the need to revitalize the Community Forestry Working Group (CFWG) with support from USAID. PROSPER has worked to build bridges between civil society organizations and government, two groups that had often been at odds during the Community Rights Law (CRL) drafting process. The development and implementation of an annual Outreach Campaign was envisioned as a shared activity that would allow these two groups to identify priorities, jointly develop key themes and messages, and cooperatively deliver and implement a campaign to further a shared vision for “[e]xpanded … capacity to improve environmental awareness, natural resource management, biodiversity conservation, and environmental compliance” as well as “[e]nhance community-based forest management” and “community-based livelihoods derived from sustainable forest-based … enterprises.”

The first outreach campaign focused on creating awareness of the CRL. The second outreach campaign focused on the process of establishing recognized community forests under Liberian Law. Through feedback and input from 10 communities in Grand Bassa and Nimba Counties, the third outreach campaign primarily focused on conserving biodiversity and reducing threats to it. Target audiences for the third annual outreach campaign were public officials, policy makers, stakeholders in the forestry sector, and forest user groups (FUGs)

This report reviews and makes recommendations on PROSPER’s third annual outreach campaign focused on pilot communities in and around Buchanan, District 4, Tappita, and Sanniquellie. The report discusses and makes recommendations on 1) the focus of the third campaign, 2) outreach products, and 3) the effectiveness of outreach activities. We conclude with discussion and recommendations for the focus of the fourth campaign.

This report is based on the results of the Lessons Learned Workshops held December 14, 15, and 23, 2015, in Tappita, Sanniquellie, and Buchanan, in which 199 participants discussed observations and issues from the campaign. It considers results from the Knowledge, Attitudes, and Behaviors (KAB) baseline and endline surveys for forest communities conducted June 1–13, 2015, and September 15–25, 2015, respectively. It is also based on independent interviews (held February, 1–5, 2016) with Community Forestry Working Group (CFWG) members and Community Forestry Organizing Committees (CFOCs)’ co-chairs for Gbear-Gblor.

The management, privatization, and disposal of state property in Georgia is primarily governed by the Law on State Property of 2010 (LSP) and the various pieces of secondary legislation issued under that Law. The LSP did not radically change the framework for management, privatization, and disposal of state property which existed before 2010, and although the LSP has undergone several revisions since it was passed (a new set of amendments is currently being proposed by the Ministry of Economy and Sustainable Development (MoESD)), these relate mainly to the processes by which the Law’s objectives are to be attained and not the underlying principles and methods of management, disposal, and privatization of state property.

This report is an assessment of the Government of Georgia‘s (GoG‘s) privatization process, including the regulatory environment, with recommendations for improvements in that process to bring it into line with international best practice. We are therefore proposing high level recommendations for improvement of the legal and regulatory framework, as well as more specific proposals for the subsidiary (but critically important) process by which the GoG’s privatization goals can be achieved in accordance with international norms in this field. Our review of the framework and the process has identified some considerable gaps between Georgian law and practice, both pre-2010 and since the LSP was passed, and that which is applied in most other countries which have undergone large-scale state property privatization programs. It is recognized that good progress has been made and a substantial amount of state property has already been sold or disposed of in the 20 years since Georgia‘s independence and our focus therefore is primarily on the two key types of state property where there is still much to be done and where many issues remain unresolved– state owned land and state enterprises.

In compiling this report, we have:

• Interviewed officials at the MoESD, including two deputy ministers
• Talked to representatives of the private sector with an interest in privatization and to colleagues at EPI with expertise in key areas
• Met with organizations independent of government with objective views on the privatization process
• Reviewed all relevant current laws and secondary legislation relating to privatization of state property
• Reviewed the World Learning/FORECAST E-Government Report Stage II
• Researched available written and online data and information on privatization and economic matters, generally in Georgia

Obtaining consistent and accurate information on privatization in Georgia is problematic, in particular up-to-date translations of the laws are not available. This is partly because of what has been termed the chaotic and rapidly changing nature of the process of state property management and privatization and also the lack of reliable electronic sources of information. Privatization has, up until recently, been a largely report-based exercise, and recordkeeping and document storage have not been practiced by relevant agencies to the highest standards. This has resulted in a focus in this report on relatively high-level benchmarking in terms of the framework and the process of privatization. However, we are confident that our overall conclusions on that framework and process indicate that there are achievable solutions to making significant improvements in the important areas of policy, decision making, implementation, and process, in relation to:

• Transparency
• Public availability of information
• Clarity of transaction structure and process
• Higher financial returns for the GoG
• Greater investor quality and confidence
• Speedier and more efficient procedures in state bodies responsible for privatization

Georgia is blessed with a strategic location, beautiful physical features and historical treasures, as well as talented, energetic people. In recent years, a democratically elected, forward-looking government has created an empowering, laissez-faire business environment to complement these natural endowments as well as an atmosphere in which business can flourish. Recognizing that this combination of assets and opportunity is rare in the world, the U.S. Government wishes to strengthen, deepen, and institutionalize these developments to ensure continued peace, stability, and democratic political and economic growth.

USAID designed and procured the Economic Prosperity Initiative (EPI) – a four-year USD 40.4 million program – to build upon this context of opportunity. Its broad goal is as follows:

“EPI will improve enterprise, industry, and country-level competitiveness by identifying and targeting key external and internal factors to enhance the growth rates and productivity of enterprises in the economy, thereby enhancing the economic well-being of workers in the economy.”

EPI contract sections “Component 2 – Improve the Competitiveness of Targeted Agriculture Sectors” and “Component 3 – Improve the Competitiveness of Targeted Non-Agriculture Sectors” require the evaluation of agriculture and non-agriculture sectors to be carried out, that ICT be one of the sectors evaluated, and that value chains be selected from priority sectors. When the EPI was mobilized in late October 2010, teams of value chain analysts began the process of prioritizing economic sectors by their potential in achieving the goal above, and in meeting various high-level EPI targets of productivity, employment, investment, access to finance, and exports.

This document details the initial research that led to the priority agricultural sectors, non-agricultural sectors and “cross-cutting” sectors. Value chains within these initial priority sectors will now be assessed in greater detail to determine priority value chains that EPI will partner to support Georgia’s competitiveness growth.