Home / Business / Importance of Government Programs for Small and Medium Business Development

Importance of Government Programs for Small and Medium Business Development

After the change in power in 2012, the new government launched a new state program for the small and medium business sector development, but this initiative is frequently criticized under the pretext of budget funds squandering.

Similar formulation of the issue is incorrect and many factors should be taken into account. This process should be valuably appraised and analyzed in terms of efficacy of government interventions for the business sector advancement. Moreover, we need realistic perception of the current condition of the small and medium business sectors. The practice of the world’s developed countries prove that it is impossible to develop this field in any country without clear state policy. In this article we will overview the issues that hinder development of this field.

Attainability of Finances

We can talk endlessly about reasons and various circumstances because of which the small and medium business sectors remain undeveloped, but attainability of finances remains number one problem. Today in Georgia commercial banks represent an  only source for drawing capital. Alternative mechanism for attracting finances such as the securities market has become useless, in practice.

The bank sector owns 58% of the stock exchange assets and thanks to this factor, the bank sector creates the situation when clients have to seek financial resources only at commercial banks. To this end,  guaranteed successful business plan and substantiated accountancy do not suffice. The so-called guarantors with high revenues do not suffice, because the loans’ averaged weighed interest rate exceeds the analogical European indicators considerably and it represents heavy burden on the business.

It should be also noted that, besides revenues, businessmen also lose mortgaged property, when their businesses fail and they go bankrupt. The nearest past of Georgia has recorded many similar facts.

This is the reality in which representatives of the small and medium business sectors have to seek financial resources. If the government manages to co-finance the interest rate through special programs and, in this way, alleviates monthly payments on behalf of the business sector, this will not be wasted money, because this is an investment that will be returned to the economy in the future! If the government does not make this, then it should promote the securities market development to make bank credits alterable. Today, securities market represents a driving engine for the world’s developed economies.

Incompetence

Lack of competence creates one more and decisive problem in the small and medium business sectors. This gap concerns all opportunities and issues related to the business sector development. This may include a lack of information about government projects that enable to obtain cheap loans. Qualified business plan can persuade a potential investor in the business profitability. Lack of competences among beginner businessmen also create serious vacuum. At the same time, the programs that the government has been implementing free of charge for upgrading qualifications of entrepreneurs and developing entrepreneurial skills should not be appraised negatively, for example, trainings conducted by the Entrepreneurship Development Agency for managers of exports-oriented companies, as well as trainings for those wishing to launch micro business activities, in terms of drafting a business plan. They have received  a grant of 5 000 GEL as part of the project. There are a lot of other projects that are being carried out as part of the joint concept for development of small and medium business sectors.

International Experience

For example, the European Commission finances several support networks for stimulating small and medium business sectors in the EU:

The production network of Europe that assists small companies in resolving such issues that, as a rule, are problematic for them and are related to huge finances. It provides required information for the business such as: sales markets, expected legal obstacles, search of potential business partners all over Europe. This network embraces 600 partner organizations in more than 50 countries and consists of about 3 000 qualified employees that are experts in small and medium business issues.

Europe’s small business portal – unites all sorts of information for small and medium business sectors. Small companies and enterprises are able to search such information as access to finances, penetration into new markets and so on.

Small and medium business internationalization portal – designed for small and medium businesses to  take roots on domestic markets and considerably boost exports to international markets.

The mentioned mechanisms represent only a small part of the promotion policy that is carried out by the European Union for developing the small and medium business sectors. We see that in the developed EU market the arranged system operates efficiently and it subsidizes the ordered small and medium business sectors, while in Georgia extreme criticism is staged on the field that produces about 8% of GDP and employs more than 60% of the total workforce.