Standardization is one of the most significant issues in economy.
On the one hand, Georgian consumers suffer damage due to production of non-standard commodities and on the other entrepreneurs incur losses as it is impossible to export products to developed markets. United Nations Development Program (UNDP) is working on these issues in Georgia. At the initiative of UNDP a workshop on “importance of standards and standardization for Georgian economy and how standards might be implemented in Georgia” has been held on Dec-07 in hotel Tbilisi Marriot. Managing director of Policy and Management Consulting Group (PMCG), Mr. Aleksandre Margishvili acquainted the attending society with the subject “Importance of standards and how to support their implementation”. The speaker introduced the system of financial risk insurance of international standards in Georgia.
G.E. – Mr. Aleksandre, what is the importance of economy standardization for a country?
A.M. – Standardization is of special importance for any economy. Georgia is trying to become a part of Europe and full-pledged member of international economy. There is a lack of experience in the country and private sector is unable to independently achieve modern standards existing in the West. Standardization is one of the most significant features that encourages private sector and ensures economic development and stability. If one desires to increase competitiveness of local production, then standards must be given due regard in an economy.
G.E. – What is the role of UNDP in the standardization process in Georgia?
A.M. – UNDP together with independent experts studies and elaborates many themes in Georgia. Priorities of UNDP are chosen in accordance with of state of affairs. In case of standards, UNDP asked me to develop a theme on importance of standards and standardization for Georgian economy and how standards might be implemented in our country. UNPD invited various interested parties and conducted a workshop. The main idea is that Unites Nations and UNDP should encourage dialogue between various participants and thus achieve progress in economy thinking of the country by means of discussions. The target field here was standards that support development of private sector.
G.E. – What are the specific challenges of Georgian economy in this field?
A.M. – There are two separate issues identified while talking about challenges: the products manufactured in Georgia over the last years (and in the nearest future) cannot complete with foreign products at export markets. Nowadays, food industry of Georgia cannot compete with Turkish, Greek, Bulgarian, European products either in quality or some other factors. Agribusiness and food industry of Georgia cannot meet with qualitative requirements. Here, it is meant not the quality that consumers would prefer to have, but the quality that is required at international markets. It is essential manufacturers to understand the requirements of standards, then they should analyze how far the company might meet these requirements and what changes must be made in order to comply with them. One cannot find a person in Georgia that might be against deepening cultural and economic cooperation with Europe. Economy must be a locomotive of cooperation. Georgian production is not presented at European market and it seems that quite a long might be needed to achieve this. The main reason of this is that Georgian products do not meet the standards; they are non- homogeneous and instable.
G.E. – To tell how it is, goods produced in Georgia cannot enter foreign markets due to incompliance with standards?
A.M. – This is the major damage to potential of Georgian production. Our country has a big potential, but unfortunately it is only expressed theoretically. Georgian entrepreneurs have traditions, skills; we have a capability to find our niche at European, American and Asian markets. Due to object and subject reasons the capability is not used. It should be noted that, before any country or specific company starts exporting, it should enter local market. Consequently, export is rather early to discuss as we cannot satisfy local market yet. The role of imported goods and services is so high in our country that in case of global crisis or restriction of import due to some subject reasons catastrophic situation awaits Georgia.
G.E. – Obviously, standardization is essential for entering export and local markets. What steps are made by the state for the standardization of economy in Georgia?
A.M. – This issue must be concern of many interested parties and their multilateral cooperation. Government, as one of the main participants should cooperate with private sector, donor organization and what is more importance with consumer market or with the society in general. Unfortunately, this not observed in Georgia, but there were some attempts, initiatives of government, private sector or donor organizations aimed to achieve cooperation. However, actually, separate participant parties are acting without agreement and coming out from their own concerns. Common strategy would have accelerated solution of this issue. The solution might be found in thirty years, but society will have to pay a high price for this. If talking about government specifically, it has made some steps, but there is no coordination between interested parties and government’s efforts seem ineffective. For instance, government made a decision to implement food safety principles in big and medium sized enterprises. Food safety is an important standard and there are various capacities to ensure it. One of the generally recognized, internationally acknowledged systems HACCIP (Hazard Analysis Critical Control Point). Law on Food Safety should have come into force a year ago, but it has been postponed till Jan-01-2010. At present, president’s initiative to suspend the mentioned law has been introduced to the parliament of Georgia. Some progressive schedule is being elaborated: the system will be implemented in the most high-risk and big enterprises from Jan-01-2010, the process of implementation in relatively high risk enterprises starts in Jan-01-2013, and from Jan-01-2015 in relatively low risk enterprises. Law on animal feeding will be adopted in Jan-01-2017. There is some gradation. It’s hard to say whether this process is positive or negative. Anyway, it’s a fact that in accordance with EU Committee the law should have come into force in 2009Y. There are some reasons of postponing this law: economy is not ready for such obligatory changes. This, once again proves necessity of coordination. It is unacceptable just to adopt some law and rest obligations upon economy. The best solution would be to elaborate joint strategy and enable economy (enterprises) to get prepared and actually implement food safety principles in the enterprises. Of course, the process requires financial sources, but Georgian companies have no capacity of finding funds.
G.E. – Is there some support scheme developed for private business that would enable to implement corresponding standards in Georgian enterprises?
A.M. – There are two main standards. HACCIP system in food industry and managerial standards of ISO (International Organization for Standardization). If generally discussing Georgian companies, in most cases they have no capacity of financing the implementation of international standards or to attract funds for these aims. Georgian commercial banks usually consider standardization as a long-term investment. Generally, agrarian sector is not given a preference by Georgian banks. Except of some exclusions agrarian sector is not financed by the banks. I mean whole sector, but not separate companies. It is necessary to finance entire sector. We have elaborated a theme in PMCG. In case of approval, it will satisfy every participant according to our calculations – consumers, Georgian society, private sector, state and donor organizations. The system covers mechanism of risk insurance. In other words we have analyzed the reasons of non-financing Georgian agribusiness by banking sector. One of the main reasons are high risk and long-term. In order to overcome these barriers, we recommend donor organizations to insure risks of Georgian commercial banks. This will encourage commercial banks to invest funds in economy. By distribution of risks, the part of private sector that won’t be able to cover the credit leaves the market. Banks will insure risks and donor organizations’ funds will be spent more effectively; private sector becomes more competitive and survives only the strong. What is more important standardization quality will be risen to relevant level in two-three years. This increases the satisfaction of consumers and export potential. All in all this will be a step made forward.
G.E. – Standardization and laboratory are indivisible issues. What is the situation of laboratories existing in Georgia?
A.M. – There are some laboratories in Georgia, but they are commercially unsuccessful. Laboratory is not a luxury. It implies the expenses that should be incurred by every country. Laboratory creates high value of product and thus it is importante for a company and the costs are justified. Today, laboratory services are considered in Georgia as a luxury or something obligatory.
G.E. – Can existing laboratories in Georgia issue certificates that enables Georgian products to enter international market?
A.M. – There are strict requirements at European and USA markets. Distribution is difficult even for local companies. There are strict requirements for quality standards and homogeneity. In some cases, EU accrediting organizations allow accrediting of these organs abroad, those who approves quality, but this happens quite rarely. We should not have expectation that Georgia manages to independently and fully approve product suitability. Georgian laboratory will need to receive right from European institutions. If Georgian entrepreneurs want to export in Europe, he or she first should receive approval from Georgian laboratory and then it is simpler to receive permit from EU institution.
G.E. – If private sector has no will to product goods complying with standards?
– One of the main problems is mental. Laboratory helps entrepreneur to realize own potential. If entrepreneur cannot understand necessity of this, then he or she requires re-training, compulsion or one can just let them to do what they want. Compulsion implies a law with some specific form that would consider its negative sides, such as gradation. President initiation on gradation of the time when law comes into force is taking this aspect into consideration. One cannot solve this problem at once. It is impossible to have standardized economy in a year. This creates big dangers for economy. Many enterprises might be closed.
G.E. – I agree with you. However, standardization problem exists in Georgia for a long time. One cannot say that we had no time to work on this issue. Therefore, phrase that something is impossible in a year might seem rather harsh.
– I agree with you. We frequently declare that we live in a free economy that implies that state is not responsible for everything. State might define some general principles, frames and enable private sector to use these opportunities. Private sector must understand that it should offer the product that is demanded at the market instead of supplying the one that it has. This requires transformation of entrepreneurial process. I want to emphasize that cooperation is essential. There is a lack of cooperation in private sector, government, donor organizations and technical performers. The workshop conducted by UNDP is very important and it is necessary to have such events more frequently that encourages elaboration of common strategy.
Standardization is essential factor in economic development of a country. This is a sore point in Georgia. Georgian entrepreneurs have lost neighboring market. We have received polite refusal from Europe. It might be extremely difficult to maintain partnership, if Georgian state organs do not manage to administer and regulate established standards. Constant delay of implementation process of international standards creates vague future for the country. It is obvious that without cooperation of every interested party and common, clear strategy products manufactured in Georgia cannot enter European or any other developed markets.