Essence of small business and its place in Georgia is still vogue
Both parties have plenty of arguments. The complicity of Georgian tax code and accounting rules requires serious expenses from administration. In addition, there is a serious problem of entering new markets in Georgia and in former socialistic countries as well. There are difficulties in standardization, complying with European standards of packaging, non-tariff barriers and participating in various trade exhibitions. Nowadays, when the crisis is climbing down from foggy Albion to our valleys and it becoming a reality, this problem is bearing great importance. It is a praiseworthy fact that non-governmental sector has elaborated a draft bill and presented in to the parliament.
In terms of world economic crisis, every healthy state should develop policy of business development. Only major investments and giant project are not enough for business encouragement. Small business is considered as the engine of world economic growth in 21st century. At the time when US president Obama is assigning $15 billion to small business, (however $838 billion is assigned to major business), we are trying in Georgia to make the parliament to adopt draft bill about small business. It is impossible to develop small business without relevant political will. A country with such major problems in metrology-standardization, food safety regulation, and development of export industry, should not only worry about small business development, but extremely complicated overall situation in business in general also. Encouragement and development of small business is avowed as the priority of Georgian government. However, priority is left at the hope of rendered aid from foreign countries, programs elaborated by separate ministries or self-administrations, and banking credits. It should be noted that it is almost impossible to get credit for some business project financing). In 2006, Georgian parliament abolished the law about “Small and average business encouragement”. The law required fundamental amendments, but with the abolishment of it, the state finally obliterated the precedent of aggregate policy for the development of small businesses.
Non-governmental organization – Business and economy centre together with civil movement “Solidarity” elaborated a draft bill about small business and presented it to the society before committee hearing. Civil movement Solidarity is working on society problem solution in Georgia. Main spheres of its activity are economic and social field. According to the draft bill, some public legal body that will administer small business in Georgia should be established. It will support business structures by annually assigned funds from budget.
Representative of civil movement Solidarity Kakha Kokhreidze declared that they have started small business support project in 2008 with the help of Friedrich Ebert fund representative office. Several meetings and discussions have been held on this subject and as a result legislative offer has been elaborated that should be presented to the parliament.
Kakha Kokhreidze declared that the decision to elaborate a draft law has been made, as there is no corresponding legislative base in Georgia. Small business problems are not considered on a state level that is harmful for the country from economic and social point of view.
In terms of European neighbouring policy, there is an agreement about partnership and cooperation with Europe. It 64th article covers small business issues. Considering current economic and social situation in the country, it is essential to give due regard to the business. Kakha Kokhreidze declares that the main task of the state is to bring about a fundamental improvement in economic policy and elaborate action plan for small business. Draft law offers to establish independent public legal body that administers small businesses. However, if state shows some initiative, this legal body might work at the Ministry of Economic Development.
State is obliged to evaluate the current situation adequately and make corresponding steps. “Georgian economy is ill” – declared Mr. Kokhreidze and noted that rendering aid to small business might be the cure of whole economy also. Government representatives often coming out from neoliberal economic policy declare that it is unacceptable to separate small business. “Business is business, but draft law “about small business” doesn’t serve the aim of giving advantage to small businesses. On the contrary, the draft has been elaborated in order to create equal conditions for small, average and major businesses.” – said Kakha Kokhreidze. Small Business act is operative in USA already. It gives big stimulus to the development of small business. The institute in is direct supervision of the president.
Kakha Kokhreidze presented the action plan published in 2006, in Great Britain and signed by former prime-minister and Chancellor of the Exchequer. Financial aid of small businesses and development of state institutions in this field are discussed in the action plan in details.
According to the draft bill “about small businesses”, two definitions are adopted according to the standards – micro enterprise and small enterprise. According to European standard, annual turnover of small business is defined as ˆ10 million. In Georgian version of the draft, the enterprise is considered as small one if it has turnover of 2 million GEL and 50 employees, while micro enterprise might have 300 000 GEL and 5 employees.
Relevant state institution should be created according to the draft, which together with civil society, other governmental structures, legislative body of the country and business representatives will elaborate relevant annual action plan for the changes.
with three employees in agriculture sector has different problems and they need special support. More emphasis in the draft law is made on administration and its detailed functions.
Small business subsidies are mentioned in the draft bill. If we discuss Poland example, parliamentarians assign funds to the Economic Ministry for participation of small and average business representatives in various exhibitions and other similar events. The half of necessary funds is financed by the state. To my mind, the main aim of draft bill is that the state would help small business in Georgia with concrete measures. Unaccomplished projects are acute problem either. One cannot see a statement about company’s bankruptcy, everybody just declares that they stopped functioning. The procedure of registering a company are too simplified and this is very good factor. However, together with simplified market entering law, it is necessary to simplify company’s closure procedures that are connected with huge difficulties.
Economic expert Mr. Emzar Jgerenai also spoke about the definition written in general regulations of the draft bill: annual turnover – coming out from the aims of the mentioned draft bill, the totality of annual income gained by the small enterprise. He noted that this definition should be more accurate. If the money would be transferred to the company for some service, the sum shouldn’t be considered as its overturn. He also declared that despite very liberal tax rates, tax code has complicated mechanisms. Therefore accounting benefits should be established for small and average businesses.
Attended society expressed common opinion that if there wouldn’t be self-regulated body that will annually publish report of its activities then this becomes a source of intense bureaucracy. There were adversaries to the self-regulation of business administration too, which were insisting that if small business would be in the state priorities and country takes responsibility then it should be correspondingly regulated by the state either. Mr. Emzar Jgerenaia reckons that small business administration should help small enterprises in standardization and technical conditions’ elaboration matters. This would be a big assistance to the businessmen involved in agriculture.
One thing is clear – small business is not in need of tax or other types of benefits. It requires conscious state policy and institutional (and not bureaucratic or declarative) support, especially at this stage.
(we present some extractions from the draft law that were the matters of dispute)
Draft Law of Georgia “About Small Business”
Article 2 – Definition of terms
b) Small enterprise – enterprise established according to Georgian law “about entrepreneurs”, except joint-stock companies, annual overturn of which doesn’t exceed 2 million GEL and the number of employees is not more than 30 people. In addition, enterprise’s activity must not be banking, insurance, other type of financial, or advocacy services. It must not produce excisable production, organize lotteries or work in gambling industry. Moreover, a person, which does not satisfy the standards established by the law, must not have a stake in the capital of the company.
g) Micro enterprise – enterprise established according to Georgian law “about entrepreneurs”, except joint-stock companies, annual overturn of which doesn’t exceed 300 thousand GEL and the number of employed people is not more than 5. In addition, enterprise’s activity must not be banking, insurance, other type of financial, or advocacy services. It must not produce excisable production, organize lotteries or work in gambling industry. Moreover, a person, which does not satisfy the standards established by the law, must not have a stake in the capital of the company.
d) Annual turnover – coming out from the aims of this law, is a totality of incomes received by a small enterprise for the previous calendar year.
Article 3 – Aims of the law
1. Law serves the aim of small business development by complying with the principles of free competition and free entering at the market, in order to
a) Encourage employment by creating new working places;
b) Increase competitiveness of small entrepreneurs towards import;
g) Increase export potential of small entrepreneurs;
d) Improve quality of service and manufactured goods, so that they could enter international markets.
Small Business Administration
Article 4 – Legislative status of the administration
1. In order to elaborate and carry out small business support and development the state policy small business administration is being created;
3. Georgian government is controlling the activity of administration;
Article 5 – Management of administration
1. Managing body of the administration is management committee that consists of seven people;
2. Georgian parliament adopts the committee members for four-year term, of which:
a) two members will be nominated by the president of Georgia, two will be nominated by Georgian government, one member will be nominated by National Bank of Georgia and two member will by nominated by financial-budgetary committee of the parliament and committee of branch economy and economic policy.
Article 6 – Functions of the administration
The functions of the administration are:
a) Quarterly and annual report preparing and publishing that must reflect data of small business in the given period: 1. About failed projects (closed down enterprises)
9. About issued shares (bonds)
Article 10 – Source of financing
In order to accomplish own functions properly administration will be given state property and funds will be assigned from state budget for it.
Article 14 – Business crediting by intermediary banks
1. Administration is announcing bidding according to the law “about state purchasing”, for depositing funds, which were attracted to support small business, in commercial banks. Three best offered bids will be chosen. 50 percents of funds will be assigned to the first chosen bank, while second and third will receive 30 and 20 percents accordingly. Minimum 30 percent of assignments will be directed for financing of start-up firms, if such statements will be presented.
Article 15 – Types of activity Þ
1. Administration during activity management:
a) Publishes information about projects supporting small business, programs, biddings, awarded commercial banks and trainings.
Article 17 – Small business taxation and calculation system
For maximal support of small business development, simplified standards of taxation and accounting can be established.
Small business administration in USA
The U.S. Small Business Administration (SBA) was created in 1953 as an independent agency of the federal government to aid, counsel, assist and protect the interests of small business concerns. Since its founding, the U.S. Small Business Administration has delivered about 20 million loans, loan guarantees, contracts, counseling sessions and other forms of assistance to small businesses. The SBA was officially established in 1953, but its philosophy and mission began to take shape years earlier in a number of predecessor agencies, largely as a response to the pressures of the Great Depression and World War II. The Reconstruction Finance Corporation (RFC), created by President Herbert Hoover in 1932 to alleviate the financial crisis of the Great Depression, was SBA’s grandparent. The RFC was basically a federal lending program for all businesses hurt by the Depression, large and small. Concern for small business intensified during World War II, when large industries beefed up production to accommodate wartime defense contracts and smaller businesses were left unable to compete. To help small business participate in war production and give them financial viability, Congress created the Smaller War Plants Corporation (SWPC) in 1942. The SWPC provided direct loans to private entrepreneurs, encouraged large financial institutions to make credit available to small enterprises, and advocated small business interests to federal procurement agencies and big businesses. SWPC was dissolved after the war, and its lending and contract powers were handed over to the RFC. At this time, the Office of Small Business (OSB) in the Department of Commerce also assumed some responsibilities that would later become characteristic duties of the SBA. Its services were primarily educational. Believing that a lack of information and expertise was the main cause of small business failure, the OSB produced brochures and conducted management counseling for individual entrepreneurs. Congress created another wartime organization to handle small business concerns during the Korean War, this time called the Small Defense Plants Administration (SDPA). Its functions were similar to those of the SWPC, except that ultimate lending authority was retained by the RFC. By 1952, a move was on to abolish the RFC. To continue the important functions of the earlier agencies, President Dwight Eisenhower proposed creation of a new small business agency — the Small Business Administration (SBA). In the Small Business Act of July 30, 1953, Congress created the Small Business Administration, whose function was to “aid, counsel, assist and protect, insofar as is possible, the interests of small business concerns. By 1954, SBA already was making direct business loans and guaranteeing bank loans to small businesses, as well as making loans to victims of natural disasters, working to get government procurement contracts for small businesses and helping business owners with management and technical assistance and business training.
The Investment Company Act of 1958 established the Small Business Investment Company (SBIC) Program, under which SBA licensed, regulated and helped provide funds for privately owned and operated venture capital investment firms. They specialized in providing long-term debt and equity investments to high-risk small businesses. Its creation was the result of a Federal Reserve study that discovered, in the simplest terms, that small businesses could not get the credit they needed to keep pace with technological advancement. In 1964, SBA began to attack poverty through the Equal Opportunity Loan (EOL) Program. The EOL Program relaxed the credit and collateral requirements for applicants living below the poverty level. Over the past 47 years, SBA has grown in terms of total assistance provided and its array of programs tailored to encourage small enterprises in all areas. SBA’s programs now include financial and federal contract procurement assistance, management assistance, and specialized outreach to women, minorities and armed forces veterans. The SBA also provides loans to victims of natural disasters and specialized advice and assistance in international trade. Nearly 20 million small businesses have received direct or indirect help from one or another of those SBA programs since 1953, as the agency has become the government’s most cost-effective instrument for economic development.