Georgia Economic Prosperity Initiative (EPI)

Abstract

This project is designed to stimulate increased economic growth and competitiveness, building on Georgia’s recent reform momentum and its positive economic performance in the mid-2000s.  Specifically, EPI seeks to improve enterprise, industry, and country-level competitiveness by identifying and targeting external and internal factors to enhance the growth rates and productivity of enterprises in the economy, thereby enhancing the economic well-being of Georgians. Deloitte advisors have been engaged to provide guidance on how to strengthen economic governance and increase private sector competitiveness in targeted areas of the agricultural, manufacturing, and services sectors.

The Challenge

EPI was launched in the aftermath of the twin shocks of border conflict and the global financial crisis. Recent years have recorded rising double-digit inflation, low and falling domestic savings, a shrinking tradable sector with stagnating agriculture, and a relatively low export share of GDP. The Georgian economy exhibits several characteristics which may impede sustained growth if not addressed properly, including underdeveloped support structures spanning from an insufficient physical transport and communications infrastructure to resource-constrained industry associations and economic institutions, deep gender disparities, and a disproportionate amount of self-employed citizens. Productivity and income levels in the agriculture sector remain particularly low, and competiveness in markets for key goods is lacking. Overall, Georgia has a tendency to import high-value consumer and capital goods while exporting low-value commodity products.

How We Helped

During the project’s first year, Deloitte built the foundation for its value-chain (VC) driven activities and related business enabling environment and policy reforms. Our team led a broad analysis of 28 agricultural and industry sectors to identify the leading opportunities for development impact and improved competitiveness. Deloitte utilized macro-level and enterprise-level data analysis, focus group interviews, and surveys to investigate factors including market opportunities and constraints, existing skills and capacities, resource requirements, and the likelihood of sustained growth.

The next phase of the project built upon this research base to develop VC-specific action plans. Targeted VCs include hazelnuts, mandarin oranges, greenhouse vegetables, and open field root vegetables (agriculture sector); perlite products, apparel, paper/corrugated (manufacturing sector); and wine tourism, business/conference tourism, transport and logistics, and information communications technology (services sector). Proposed EPI value chain activities are designed to help producers and value chain organizations seize market opportunities and adjust product and service production and delivery to meet market demand. Deloitte is also pursuing improvements to the business-enabling and policy environment. Deloitte-advocated advances have focused on VAT reform, improved accreditation and licensing, protection of property rights, strategic investment support, public sector procurement transparency, e-governance, and customs/trade reforms in keeping with international norms. We have already had several early achievements across targeted VCs, the business enabling environment, and cross-cutting areas, including:

• Apparel Sector Growth: Local apparel companies are achieving increased sales to foreign markets and noting the emergence of a wave of foreign investors
• Tourism: Following an EPI-funded study tour to U.S. wine tourism markets, the Georgian Wine Association (GWA) and Georgian Incoming Tour Operator Association (GITOA) have agreed to share resources and jointly promote development of Georgian wine tourism.
• Greenhouse and Cold Storage Investment: Deloitte stimulated demand and interest among investors resulting in investments and planned commitments of US $40 million.
• VAT and Customs Reforms: Deloitte advocated for and assisted the Government of Georgia with reforms to areas including waiving VAT for key elements of the apparel and transport sectors and establishing certification rules allowing goods made jointly in Georgia and Turkey to benefit from the GSP+ program for duty free entry into the European Union (EU).
• Leasing Market Expansion: The Government of Georgia has accepted and submitted to Parliament proposed amendments to leasing regulation, which resulted from Deloitte‘s technical guidance among a broad group of public and private sector stakeholders.
• IPR Filing Process Reengineering: Deloitte conducted a detailed Business Process Reengineering (BPR) assessment in preparation for an intellectual property rights (IPR) e-filing system and trained the Ministry of Justice’s (MoJ) Data Exchange Agency (DEA) and other government offices on BPR methodology.
• Investment Promotion: Deloitte established the Georgia Investment Promotion Partnership (GIPP), bringing together public and private sector players coordinating to achieve a common goal of promoting investment in Georgia among targeted sectors.

Deloitte’s approach to reform is designed to strengthen the value chain as a whole rather than provide ad hoc assistance to individual organizations and interest groups. Deloitte is working to promote PPPs to address weaknesses within value chains, improve access to finance, increase linkages between academic training and private sector skills gaps, and publicize market information through communications and information technology.

Solution

Deloitte is working with competitive, cooperating groups within each targeted VC to improve linkages and VC governance to enable these VCs to translate market signals into profitable, sustainable product and service enhancements that can improve quality, meet international product and food-safety standards, increase productivity, and create jobs. With Deloitte’s support, VC participants can also identify constraints within the business enabling environment, particularly those that hinder sector development, and obtain assistance to advocate for policy and regulatory change that can improve sector competitiveness. Implementation of these measures can stimulate increased domestic and foreign investment and improve access to finance, technology and new markets. Deloitte will also continue to stimulate greater value chain linkages to local academic institutions, which can enhance long-term sustainability, promote skills development and entrepreneurship, and nurture innovation.  Deloitte’s communication strategies can spread awareness of organizations that have met their business objectives as role models for actors in other Georgian value chains.