Document Type: Studies

Compliance verification through post-clearance audit (PCA) is a basic instrument of customs control to balance gaps and potential risks caused by any procedural simplification in customs. In developed customs administrations, the major function of control is done by PCA. Risk management plays a significant role in its effective implementation.

Georgian Customs PCA is currently at a very basic level. However, Georgia‟s Customs Administration has implemented significant trade facilitation measures, which have led to simplification of customs procedures. However, simplification revealed drastic need for alternative mechanisms of control. This report examines international best practice PCA and provides recommendations for the implementation of risk-based PCA controls that will serve as an integral part of Georgian Customs‟ reform and modernization program.

The purpose of this report is to provide recommended actions that the Government of Georgia and the private sector can undertake with the support of international donors and agencies to grow capital formation and access to financing by furthering the use of financial leasing. These actions are recommended as three steps, including:

• Amendments to Civil, Tax and Banking Laws in Georgia to address current shortcomings while enacting a comprehensive Leasing Law, based on international best practices;
• Capacity building by providing expertise and applied knowledge to private sector players and government officials to apply the law and practices in order to achieve the objectives of sustainable capital formation and access to financing, within a framework of furthering foreign investment in Georgia; and
• Business development, by bringing relevant international players, such as equipment vendors and international financial institutions to provide equipment and funding to Georgia through their interaction and undertakings with Georgian leasing players.

This report provides an overview of the Republic of Georgia’s Cut-Make-Trim apparel sector and recommendations for the sector’s development. It includes a summary of the four major changes underway in the global textile and apparel industry: sourcing or garment procurement, consumer behavior, raw materials selection, and access to capital. A rapid assessment of Georgia’s sector is presented, based on visits to a selection of factories in April 2011. The report outlines overall training needs and offers a long-term vision and goals for Georgia’s apparel industry development, marketing, and investment promotion followed by a recommended action plan.

Significant improvement to a country’s business environment can be achieved only with complex reorganization of key government institutions and public service providers. Such complex reorganization requires political will, administrative power, and the capability to engage information and communication technology for building solutions aligned to business needs and allowing for interoperability.

A business enabling environment, environments in which businesses establish and operate easily and without overwhelming administrative burden, is a precondition for each country’s economic growth.

During the last few years, Georgia was a leader in the Doing Business Survey. (http://doingbusiness.org/rankings – Georgia is ranked 12 in 2010 among 183 countries; the break-point was in 2008) Despite this, the Georgian government is determined to work toward the country’s economic prosperity through further improvements within the business environment and by establishing public service practices that are compliant with international standards. The USAID-funded Economic Prosperity Initiative (EPI) is designed to provide technical support to the Georgian government in achieving its goals.

One of the areas that should be addressed to improve the business environment (BE) is public services to businesses, which include tax administration and customs services. This document addresses tax audit functions of the tax administration.

At the beginning of 2011, the Revenue Service (RS) published its “New Course” paper outlining several main directions, including implementation of the new tax code, allowing for reliable services, and fair administration.

Some initiatives are already under way, including:

• Organizational changes;
• Development and implementation of e-audit and audit case management software solutions;
• Establishment of a mediation process as an integral part of the tax audit process;
• Development of manuals, guides, and templates for tax audits in order to impose standards; and
• Establishment of a tax audit quality control practice.

The leadership of the RS and the Audit Department realize and admit the need for changes to the existing practices in the areas of compliance risk management, tax audit planning and execution, and the quality of tax audits. They are determined to introduce new models of tax audits; a relevant quality control system; and a standard, manageable, and controllable business process widely supported by IT solutions in order to achieve their objectives. The leadership also realizes that these changes are possible only with highly qualified human capital. This is why the immediate short-term goal is to build capacity and capability through formal and informal training programs.

While the current status of a tax audit’s organizational structure and operational levels has its justification in economic and political events, which occurred during the last few years, it is time for significant transformations in organizational structure and the scope of tax audits.

This should be accomplished by building on human capacity, capabilities, and operations in order to achieve Georgia’s economic goals.

This report addresses three main topics: organizational structure of the Audit Department, business processes, and IT solutions facilitating those business processes.

Due to the agility of the BE during the period of this assignment: April 18-May 20, 2011, not all business processes were documented.

Information and facts reflected in this report were gathered from research on regulations, existing documents, and multiple working meetings with managers and employees of the RS, mainly from Audit Department.

The goal of this assignment is to make a comprehensive analysis of demographic and macroeconomic data that are essential for pension development, and to perform estimations and projections in order to define potential sources of accumulated savings.

The study has been performed to overview the current public pension system and to make some assumptions and analysis with regard to the existing pension system and also potential supplementary pension systems, particularly, World Bank Pillar II, i.e., mandatory pension savings and World Bank Pillar III — voluntary pension systems. Some attempts were carried out to presuppose the development of the mandatory and voluntary pension systems by producing and composing mandatory pension savings and voluntary pension scenarios.

The initial tasks involve gathering, organizing and analyzing demographic and economic data and indicators from the National Statistics Office of Georgia (Geostat), National Bank of Georgia (NBG) and Social Service Agency (SSA). Based on these statistical data, we made our estimations and projections.

This report explores the past, present, and future of greenhouse-grown vegetables in the Republic of Georgia.

To properly contextualize greenhouse growing in Georgia, the report looks first at the history of greenhouses in the region, both during the Soviet era and after Georgia’s independence in 1991. Many greenhouses were built in the decades that Georgia was a part of the Soviet Union, but the transition to a market economy in the past two decades has significantly changed the way that they operate. Market-based fuel prices make heating some greenhouses exorbitantly expensive and the industry is a fraction of what it once was.

Several suggestions are made for the development of an economically viable future for heated greenhouses and greenhouse-grown vegetables. Many are ground-level issues, such as understanding the importance of temperature, humidity, and wind; knowledge of grafting methods; and information about proper spacing, variety selection, and nutrient management. There are also some higher-level administrative and organizational suggestions, such as the formation of working groups and greenhouse growers associations. These types of organizations will serve as a vital web of support for the development of viable and efficient greenhouse vegetable production.

The report also describes a newly created Greenhouse Budget Template, a tool that investors, owners, and growers can use to determine the economic feasibility of the changes recommended in the report. Throughout the report, there are suggestions of how to most efficiently use the Greenhouse Budget Template.

A final section of recommendations contains specific suggestions for how to best implement many of the ideas presented earlier in the report. Included are instructions on what types of personnel would be required to maintain and manage efficient greenhouses, what systems might be necessary for interns and consultants, and an overall plan for building a support network of growers, investors, and consultants.

Since Georgia started on-going development towards the formation of a free and competitive economic system, various areas of private sector have achieved significant results. Nevertheless, owing to various factors, numerous small and medium enterprises are experiencing difficulties in terms of access to finance. According to the 2010 UNDP survey, 43% of businesses failed due to the absence of free capital, when 66% of respondents reported that a bank loan was the main option for start-up and expansion.

The USAID-funded Economic Prosperity Initiative (EPI) is a 40.4 USD million, four year program designed to strengthen country’s economic development and ensure its sustainability. The overall goal of the project is to improve enterprise, industry, and country-level competitiveness by identifying and targeting key external and internal factors to enhance the growth rates and efficiency of enterprises in the economy. A subset of that goal is to increase capacity of the Georgian financial market.

Within the pool of generally renowned non-banking financial institutions, investment funds, factoring companies and asset-based companies are those which have not achieved tangible growth in Georgia. On the other hand, financial institutions like MFIs, leasing and insurance companies as well as private pension funds can be considered relatively well-developed segments of the non-banking financial sector,
which despite legislative and other constraints.

In order to map the inventory of financial products available for SMEs, EPI closely cooperated with key players of the non-banking financial sector. EPI conducted meetings with representatives of Georgian National bank (regulatory board) and chairpersons of key associations (GSMEA, AMI, GIA, LAG). This report was prepared through of the examination of related legislation and other materials, as well as through interviews of key participants in the market. The selection of organizations was based on the following criteria: assets, market share, experience and awareness, geographical coverage, and number of employees.

This study analyzes the factors that may hinder the development of Georgia’s aviation sector and proposes a national air transport policy in order to increase the sector’s competitiveness. The first section of the report analyzes the institutional framework, the separation of functions among the different bodies and their capability to undertake defined responsibilities. The second section focuses on the country’s airport infrastructure and its capacity to accommodate sector growth. The third section is an assessment of the current market in terms of routes, destinations and frequencies. The fourth section analyzes the fees and charges levied from the airlines and passengers at the airports of Tbilisi and Batumi and benchmarks these costs with other relevant airports in the region to assess whether the country’s air transport competitiveness is affected by these costs. Finally, a proposed formulation of a national aviation policy for Georgia is presented in order to increase Georgia’s air transport competitiveness.

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.

At the end of 2010, USAID launched the EPI project. The project aims to support businesses operating in different economic spheres of Georgia, together with promoting increased overall economic competitiveness for the country’s sustainable development. The survey research aims to examine the knowledge, attitudes, and experience of medium and large Georgian businesses and a nationally representative sample of the general public regarding select topics directly related to the EPI project. For businesses, the survey also contained questions specific to certain value chains to provide information for program targeting and gain insight into business perceptions. The business survey also included a replica of the 15 EPI-selected WEF indicator questions, which were handed to respondents for self-completion and were formatted as close as possible to the online Executive Opinion Survey. These perception surveys will be conducted annually to track changes in perceptions of select EPI project indicators.

The Georgia EPI will improve enterprise, industry, and country-level competitiveness through the following three components (1) expand and deepen
Georgia’s economic governance capacity and country-level competitiveness; (2) improve private sector competitiveness in (a) the agricultural sector and (b) nonagricultural industries; and (3) crosscutting activities.

The research is composed of two different surveys:

• EPI Competitiveness Perception Survey – Household Survey
• EPI Competitiveness Perception Survey – Business/Enterprise Survey

A brief description of the main results of both surveys is summarized in the executive summary with more detail provided in the appendices. The EPI project was provided with complete data sets from the surveys for further analysis and reference.