While still recovering from the deadly floods that resulted in human and zoo animal casualties, Tbilisi hosted the Black Sea Trade and Development Bank's (BSTDB) annual meeting on June 21, which included a regional forum on “Development of entrepreneurship and access to capital”.
The event gathered speakers from policymaking and from the financial sector to discuss effective policies and best practices to finance small and medium-sized enterprises (SMEs) in the Black Sea region. In his opening speech, Georgian Prime Minister Irakli Garibashvili summarised Georgia's economic accomplishments and efforts towards supporting the business sector. “In the last year, the level of foreign direct investment (FDI) in Georgia increased by 32%, while our GDP grew by 4.6%, despite the crisis in other countries,” he noted. He also discussed the progress made in simplifying and alleviating taxation; some 80 categories of products have been exempt from import tax, while Georgia's 40 tax agreements enable its companies to reach a market of 900mn consumers without double taxation. Looking ahead, Garibashvili sees agriculture and hydropower as having the greatest potential for growth. “We have only developed 18% of our hydropower capacity,” he concluded.
Meanwhile, in the policymaking forum his deputy Giorgi Kvirikashvili discussed the programmes that the Georgian government has developed to support and finance entrepreneurs, particularly those companies that are underserved by the financial sector, such as start-ups and SMEs. “Producing Georgia” is one such initiative that subsidises bank interests for start-ups, provides collateral for banking loans, and technical assistance on business development.
Ali Arlsan from the Turkish Undersecretariat for Treasury spoke about his government's initiatives in this area, which comprise both traditional means, such as the setting up of a €165mn fund of funds to support SMEs, or the 2012 taxation law that provides incentives of up to 100% for such companies, and of experimental initiatives such as setting up a crowd-funding platform. “SMEs are very important to the Turkish economy,” he noted, “as they constitute 99% of all the companies in Turkey and create 70% of all jobs.”
Funding SMEs in the Black Sea region
The financing panel included speakers from direct and indirect sources of finance: BSTDB, the KfW development bank, the International Finance Corporation (IFC), US-based SEAF and Azerbaijan-based Accessbank. According to Giorgi Kadagidze, panel moderator and president of the National Bank of Georgia, “too much of the funding comes from financial intermediaries.”
However, the panel did not offer solutions to bridging the gap between international financial institutions (IFIs) and funds, on the one hand, and SMEs, on the other, and intermediaries like local banks and governments will likely continue to play an important role in disbursing funds to small companies in the Black Sea region. This has its advantages, according to David Tsaava, general director of Tbilisi-based BasisBank, because it enables local banks to give longer-term loans at lower interest rates, which they would not otherwise be able to give out. “BasisBank has worked closely with BSTDB since 2012 and with the European Bank for Reconstruction of Development (EBRD), and this collaboration is very important to us because their funding is generally long-term and cheaper than that from other sources, and it allows us to give out similar loans to our clients,” Tsaava said.
Accessbank's setup is one possible solution to the issue of eliminating intermediaries from the financing chain; the bank is owned by IFIs but is incorporated in Azerbaijan, and works mainly with small local businesses. According to Michael Hoffmann, the bank's CEO, Accessbank has had to work with some of its 150,000 clients to restructure the dollar-denominated loans after the devaluation of the manat in February. “After the events in February, there is more demand for loans in the local currency, while, at the same time, there is a shortage of manats in the banking sector because many have converted their deposits into US dollars,” he said, while noting that the “slowdown is slowing down” and that he expects lending to pick up in the second half of the year.
While larger IFIs like the EBRD, ADB, and the IFC are very active in the Caucasus and Black sea regions, medium-sized BSTDB strives to fill the gap in SME funding that is not currently covered. In Tbilisi, the bank signed agreements with FINCA, TBC bank and Accessbank's Georgian branch to finance SMEs, women entrepreneurs and micro entrepreneurs. According to Ihsan Ugur Delikanli, BSTDB's president, the bank aims to distribute its funding equitably among its 11 member countries, and disburses loans on a per-project basis, regardless of the economic situation in the country. In light of its positive financial results over the last decade, the bank aims for a yearly growth of 7.5% in its loan portfolio by 2018, which should be achievable if last year's results, a 30% year-on-year growth in lending, are anything to go by.
As for the host city Tbilisi, Georgian Vice Prime Minister Kvirikashvili claims that the floods have called into question many of the infrastructure projects in the city. “This flood indicated that more attention should be paid to the environmental impact of infrastructure projects. We have created a special commission that will redesign the transportation infrastructure. In the future, we will pay more attention to this issue. For the sake of the capital's dwellers and its zoo animals, we hope this will be the case.”