FAIRS AND THE LEGAL BUSINESS

By George Berinashvili

The share of illegal business in Georgia expands by day. If country is unable to eliminate the causes of this trend, it will soon face a catastrophe at both, economical and political sight. It’s mostly exposed in commerce that is one of the largest parts of our national product and the biggest employer.

The 1992 act on trade liberalisation was an important event following the destruction of soviet formation. The act plaid a huge role in increasing the employment and overtaking the lack of goods on the market. But, for today, the same liberalisation is destroying the economic basis of Georgia.
The solvency (probably the best) is found by Ivan Chkhartishvili the Minister for Economics, basing on Leshek Balzerovich’s recommendation.
Georgian government faces the dilemma at the moment. If illegal disorganised and unregistered commerce is not eliminated, country is doomed to be far back from civilisation. On the other side state is unable to employ population fit and, thereof, is afraid of social explosion. Where is the solvency?
The Ministry of Economics, Industry and Trade of Georgia suggested a new initiative concerning commerce development and its plans to the governmental sitting held on 23rd May 2001in the President Chancelerry. Against the initiative, we see the National Bank of Georgia and the State Secretary. As to supporters, they are Ministry of State Revenues of Georgia, and the regional governments. As the most important detail of issue, we see the thought prohibiting the sales with cash beyond 5000 laries. The idea is shared by Balzerovich group, however contradicted by IMF. What is the problem?
According to official figures of Georgia, commerce, comparing to other industrial fields, develops with high paces. Last year, domestic commerce growing pace reached 108,5%. The export in current year grew by 39,5% and reached the highest point – $460 million. Foreign trade balance improves by year etc.
Impressing is also the dynamic of domestic trade. During the years 1994-2000, turnover expanded from 88 millions up to 1,825, that’s about 20 times more.
Domestic market is taken by goods and the sales expand by day. The lack is practically overtaken. Privatisation process in commerce sector has reached the final spot, economy goes market-led etc. – declares the Minister for Economics, Industry and Trade, Ivan Chkhartishvili.
One is interesting – market is fool, but do the people have means to purchase?!
– If stipulate the current manners, no!
However, you may agree that Georgia, especially Tbilisi, is the country of surprises and thereof population is capable to purchase goods of all needs. Where from? – Of course from illegal and hidden business.
Now the legalisation of the above hidden business is on the agenda. But the question is how and when will it happen. Each unconsidered step may cause a crucial outcome and destroy the business and then economy of country in whole.
According to official data, there are 33 thousand trading and service objects registered in Georgia for today, but all they employ only 58 thousand people. Interesting is that the number of objects are half diminished from 1990, and the number of employees there, lessened about 5-6 times. All that, when the scales of illegal trade and the number of employed there expanded about 10 times.
Unfortunately, yet neither central, nor local government can control the illegal commerce. For that purpose, would be better to strengthen the counting discipline.
Interesting is that commerce boom was inspired by #522 state regulation on May 4, 1992 on Liberating the Commerce. By that document, all the juridical and physical entities were given a right to trade free of any limitations and prohibitions on location.
Right for the purpose to cancel the above regulation and change it with state program on commerce development that could be a step up for the real commerce in Georgia, acts the initiative by Ministry of Economics.
Should also be mentioned that for the period, when the #522 act was approved, there was no alternative way to improve social environment. So, if government supported population with the above regulation in 1992, what tools does the Minister for Economics has at his disposal to do so now?
Program mainly appeals to legislative changes and code perfection; introduction of entire state policy through the consumption market field; creation of recent standard infrastructure of trade; establishment of free and faithful competition; protection of customer rights and, what’s most important, coming out of WTO membership question, harmonisation of domestic and foreign commerce relations with international standards.
The most attractive question of that project for society and the members of governmental sitting on May 23, 2001 turned the idea of to prohibiting the trade with cash beyond 5000 laries and using only banking for that purpose.
It does mean that each entrepreneur will have to pass the official registration as a juridical or physical entity, no matter where does it trade. For today, 51 % of sales is unregistered. As soon as entrepreneurs accept the above initiative, if approved, their business becomes legal. Or in other words, it will diminish the hidden part of economy, turning it into legal one.
The system itself, is too impressive, but probably unacceptable for existing in Georgia conditions. The problem is again the corrupted lobby policy. Each trader prefers to pay the fixed illegal amount and feel free of any official charges then paying all the bills, right because of which state budget losses much. As the minister for State Revenues of Georgia Mikheil Matchavariani says, according to information by special operative group providing research on the illegal fairs, there are 3500 illegal traders only in Tbilisi, which totally trade more then 4000 laries together per day. Finally, illegal trade reaches 18 millions a month. Right from these amounts, state budget could collect enough solid amounts, thus it turns unachievable for long.
To the opinion of Mikheil Matchavariani, traders should pay a fixed amount that could combine all the bills due to them. As to administration of the above process, it has to be done by the executives of fairs. But, the same Machavariani explained that the traders favour to pay illegally then officially. “Thus, state provides better and softer conditions to entrepreneurs then the market executives do” – he said.
What’s the problem? The first is that each civilian has lost the state’s, especially those managing country finances, confidence. The second is that Minister for State Revenues, explaining state charge is less then unofficial bill, implied only a part of combines tax that probably is more then today’s liability due to traders.
The above initiative is protested by the president of National Bank of Georgia, Irakli Managadze. According to him, realisation of suggested is impossible and as the argument brings even the fact that IMF doesn’t support the idea.
Right here we face the strangest contradiction. The thing is that the above initiative was implied in Balzerovich’s recommendations, but later we describe that IMF thinks contrary and thereof, the idea is doomed to fail.
On the other side, Levan Mamaladze, the governor of the Kartli region praised the idea and to the proposal of president Shevardnadze about testing the above initiative declared that he is ready for starting the test process right in Kartli.
The experiment implies to establish the new scheme of trading, for the end of legalising the illegal sale in view. Namely, Matchavariani is suggesting an introduction of cash appliances (machine). These are the machines those have already failed once in the past.
We can not say that the governmental sitting approved the idea of introduction, as one more contradicting it was Gia Arsenishvili the State Secretary considering it unprofitable.
Finally, sitting approved the idea only after perfecting the structure of suggested. Namely, president Shevardnadze ordered to elaborate the new scheme that will foresee the ideas of all related bodies and then monthly declare about improvements to the governmental sitting.