Home / Business / Myths about the Small and Medium Business Sectors in Georgia

Myths about the Small and Medium Business Sectors in Georgia

In many poorly developed countries, people demonstrate one specific characteristic– they pick up  a certain topic, and then this topic  is widely discussed everywhere, while nobody understands the nature of this. This consideration refers to politicians, first of all.

In the Post-Soviet space, which includes  Georgia, small and medium business sectors are one of these sacred topics. All politicians, all economic experts or self-proclaimed ignorant experts talk about these topics.

Our society refers to small and medium business sectors as an answer to all questions and a universal panacea. We are close to sanctifying these sectors.

What can actually help to develop production? The development of small and medium businesses. What creates new employers? The Development of small and medium businesses. What attracts investments? You should have already guessed what…

Politicians and experts perform ritual dances around the issue of small and medium businesses. The Authorities adopt laws, simplify taxes, introduce preferences and so on.

In a word, even praying seems to  be sufficient for the revival of small and medium business sectors and the Georgian economy, in general.

However, the reality is different. Collective dances around the fire cannot resolve the problem, while small and medium businesses are represented only in restaurants, street peddlers and beauty salons.

The point is that the belief that the small and medium business sectors can rescue the country from decades of poverty is a typical Post-Soviet myth, which has nothing in common with the reality. This stereotype has already become an inseparable part of public opinion, and it is repeated endlessly without analysis.

The number one problem stems from the incorrect and superficial perception of the issue of small and medium businesses. This perception results in unachievable dreams in the countries like Georgia, where people repeat with a child’s impatience – “Small and medium businesses create 60% of jobs  in Germany”.

And this is true, and not only in Germany, but… what do we mean by small and medium business sectors?

The point is that the majority of Georgian citizens have the psychology of a street merchant. Everything is small and thin in Georgia. Tbilisi is full of hundreds of microscopic automobile maintenance centers, small workshops for assembling and producing something, tiny trading outlets.

In developed countries, one major high-technology plant works, and in Georgia there are thousands of small enterprises, where ignorant former peasants work without knowledge, qualifications or  technological expertise.

In Germany, 80% of small and medium business companies are not represented by beauty salons and bakeries, like Georgia – primarily, these are enterprises with about 150 employees, and they represent strong and high-technology plants and their value makes up tens of millions of EUR.

They are smaller or medium sized compared to BMW or Siemens, but in Georgia, the  investments of tens of millions of USD are required to build similar enterprises. Moreover, we also need a highly-qualified workforce and engineers, labor culture, sales, markets – and Georgia lacks  all of these components.

Another factor is less discussed  – besides the aforementioned plants, the fulfillment of orders for major business is one of the key functions of  small and medium business companies.

For example, today in Munich there is a giant BMW plant and hundreds of small companies functions around it, which manufacture glass, rubber, spare parts, engines  and thousands of other details, without which an automobile could not be assembled.

There are also a lot of developed companies in Munich which build houses and apartments for workers at BMW and related companies; restaurants, where the workers of BMW and related companies have meals, beauty salons, schools, kindergartens, supermarkets and so on.

In a word, the majority of small and medium business companies are directly affixed to giant corporations, which acts as a locomotive and without which nothing would be created.

And the consideration that “80% are represented by small and medium business companies” should not let someone make the erroneous conclusions that if BMW factory closes tomorrow, 80% of these small and medium companies will disappear like last year’s snow.  Only restaurants, beauty salons and several small workshops, and a lot of fair sellers will remain, as its happens in Georgia.

You will find no country has flourished thanks to the small and medium business sectors.

In Georgia, we keep making useless conclusions over the past 20 years, and the time has come to understand that, naturally, small and medium business sectors play a significant role, but only major business create an economy – major plants, major hotels, giant HPPs, huge farms with tens and hundreds of hectares, major investments in agriculture.

Today,  business should strive for maximal concentration and enlargement, and only this method will stimulate the development of small and medium business sectors, not the inverse.

And if we continue to pray and dance around the fire, nothing will change anyway.

By Tengiz Ablotia