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Activity Data Sheet PROGRAM: Georgia TITLE & NUMBER: Accelerated Development and Growth of Private Enterprises, 114-013 STATUS: Continuing PROPOSED FY 2001 OBLIGATION AND FUNDING SOURCE: $16,250,000 FSA PROPOSED FY 2002 OBLIGATION AND FUNDING SOURCE: $16,200,000 FSA INITIAL OBLIGATION: FY 1993 ESTIMATED COMPLETION DATE: FY 2003 Summary: This SO includes funds previously reported under SOs 1.1, 1.2, and 1.4. Business development in Georgia is essential to create jobs, generate income, expand services, increase tax revenues, and produce other economic benefits. Georgia, with strong support from international donors, has made significant progress in solving some of the nation's most pressing economic problems by implementing a series of policies enabling economic stabilization and structural reform. These policies have cut inflation, liberalized prices, and established and stabilized a new currency. While Georgia has experienced economic growth following the years of internal conflict in the early 1990's, the rate of growth has slowed since 1998. By providing technical assistance to policy makers, legal specialists, and non-government organizations, USAID is working to establish an environment to accelerate the growth of the private sector and economy in Georgia. USAID is undertaking a broad, multi-year economic reform program, which includes comprehensive banking sector reform, international accounting standards, commercial law, land reform, improved fiscal policy and management, agricultural reform, and assistance to the small and medium enterprise sector. The direct beneficiaries of this objective are private enterprises, although all Georgians stand to gain from an active, growing private sector. Program Categories include Economic Policy Reform, Fiscal Reform, Banking Reform, Micro, Small and Medium Enterprise (SME) Technical Assistance; Micro-Enterprise Credit; Enterprise Fund; Commercial Law Reform; Agriculture and Agribusiness; and Activity Development and Support. Key Results: At present, USAID-funded activities focus on four intermediate results: increased access to credit for SMEs and micro-entrepreneurs; reduced transactions costs for enterprises; functioning land and real estate market to support SME growth; and selected agribusiness opportunities identified and facilitated. Performance and Prospects: Since USAID established its market reform program in 1996, economic reforms have been implemented through legislation in the areas of tax and fiscal policy, accounting, enterprise and agricultural land privatization and registration, as well as laws on securities and entrepreneurship. With assistance from USAID and other international organizations, Georgia acceded to the World Trade Organization in October 1999. USAID partners, including the U.S. Treasury (UST), have mobilized tax and budget specialists to provide technical support for the country's revenue raising effort. USAID, UST and the Ministry of Revenue are well into a comprehensive program to modernize the State Tax Department, as well as enhance tax administration and tax collection. Land reform has started to take hold in Georgia. The GOG passed a land law declaring that all land associated with private enterprises automatically is owned by those enterprises and implementing regulations that provide for the registration of ownership of this land have been approved. Titles for urban enterprise land have been issued, plots have been resold, and a land market has begun to function. In support of agricultural land privatization, USAID has demonstrated that it is possible to survey, title and register small-holder plots at a cost of about one-dollar per parcel. Since the inception of the project in 1999, over 1,000,000 parcels have been titled and registered. Land is increasingly being used as collateral for loans and Shorebank initiated the country's first mortgage loans with terms up to five years. A follow-on activity will be continued in 2001 with the goal of titling and registering approximately 2,000,000 additional plots. In addition, USAID will look to accelerate the liquidity and efficiency in the secondary land market by assisting in the development of self-regulatory organizations (SROs) for real estate agents and other professionals. In recent years a number of changes have occurred that are helping create a better enabling environment for agriculture/agribusiness. The almost complete withdrawal of subsidies, a relatively liberal trade regime, and the freeing of domestic prices for agricultural products are good examples. The interest and commitment of the Minister of Agriculture (MOA) to restructuring and downsizing of the MOA to meet the needs of a market-driven agricultural sector is another positive step forward. In early FY 2001, USAID was able to initiate support of this restructuring effort by providing a senior advisor and other experts to the Minister to develop a restructuring plan. Under the Georgian Enterprise Support Program (GESP) established in late FY 2000, USAID will continue technical assistance at the enterprise-level in selected geographic regions of the country, while looking to improve the overall business environment through targeted support for reforms and restructuring at the national level. This integrated project will help to identify obstacles to enterprise development and economic growth and help entrepreneurs and enterprises develop solutions through business associations and dialogue with national and local government officials. USAID partners have established models of successful lending to small, medium, and micro-enterprises. Successful micro-credit lending programs have to date provided credit to over 14,000 entrepreneurs and will continue with an eye on becoming self-sustaining. One such program, Constanta, has established itself as a trendsetter in this regard. Management of Constanta has been transferred to Georgian staff, while the organization has become operationally sustainable with a 95% repayment rate. USAID will move decisively to support initiatives that can rapidly and directly demonstrate the practical, people-level benefits of a market-oriented economic system. Under USAID leadership, 500 Georgian enterprises have adopted International Accounting Standards (IAS). Support is also being provided to convert the Georgian banking sector to IAS. USAID is working with the National Bank of Georgia (NBG) to improve its supervision of commercial banks and to incorporate information technology systems necessary to interface with and monitor the commercial banking sector. In addition, USAID is helping to establish an integrated accounting system and electronic interbank payments system to provide technical capacity for real-time settlements and payments among the NBG and commercial banks. The government passed a new Securities Law with USAID assistance, creating the foundation for a modern capital markets system. In April 2000, the Georgian Stock Exchange (GSE) began trading. In FY 2001, limited support will be provided to the GSE to create a strong business model and ensure the sustainability of the institution. USAID and the World Bank collaborated to provide significant support to the National Securities Commission of Georgia. USAID has provided technical assistance for the development of independent share registry management, and has carried out extensive public education activities throughout Georgia related to corporate governance and shareholder rights. During FY 2001, USAID intends to obligate the following levels for program categories under this strategic objective: 1) Micro, Small and Medium Enterprise Technical Assistance - $2,100,000; 2) Fiscal Reform - $3,369,350; 3) Banking Reform- $3,380,650; 4) Agriculture and Agribusiness - $3,500,000; 5) Enterprise Funds - $2,250,000; 6) Commercial Law Reform- $1,000,000; 7) Micro-enterprise Credit - $600,000; 8) Economic Policy Reform - $950,000; and 9) Activity Development and Support - $600,000. These resources include $16.250 million in FY 2001 FSA funds and $1.5 million in FY 2000 carryover, previously notified under the military relocation program for Georgia. In FY 2002, current support to the agriculture sector will be supplemented by a new agribusiness activity that will focus on supporting value-adding enterprises. The concept for a new credit activity will be finalized and will focus on assuring sustainability of the micro-finance and SME credit programs. Continued assistance will be provided to strengthening economic policy and legislation, especially as it relates to SMEs. The strengthening of SMEs, especially through the support of business associations, will a central component of the assistance in FY 2001. Continued, but reduced and focussed assistance will be provided in the areas of fiscal and banking reform. Beneficiaries: 1) Private Sector: Georgian Stock Exchange, Micro, Small and Medium Enterprises, including self-employed poor, Private Shareholders, Farmers, Agribusinesses, Microfinance Institutions, Commercial Banks. 2) NGO: Business Associations, Universities, Credit Associations, Georgian Federation of Public Accountants and Auditors, Georgian Young Lawyers Association, Association for the Protection of Land Rights. 3) Public Sector: Parliament, Ministry of Agriculture, Ministry of Revenue, Ministry of Finance, National Bank of Georgia, Georgian National Telecommunications Regulatory Commission, Ministry of State Property Management. Possible Adjustments to Plans: None anticipated. Other Donor Programs: The World Bank, European Bank for Reconstruction and Development (EBRD), European Union (EU TACIS), and United Nations Development Program (UNDP) are supporting small and medium enterprise development with various projects including access to financing, technical assistance, institutional development, legal/regulatory framework, and business environment. Both the World Bank and EU TACIS have substantial programs to the agricultural sector, while the World Bank and Germans are providing support to land privatization efforts. The World Bank and the International Monetary Fund continue to support fiscal reform. Principal Contractors, Grantees, or Agencies: USAID activities are implemented by Save the Children/Constanta, KPMG/Barents, IBTCI, Sibley International, Shorebank/Foundation for International Community Assistance (FINCA), Agricultural Cooperative Development Institute/Volunteers in Overseas Cooperative Assistance (ACDI/VOCA), Development Alternatives, Overseas Strategic Consulting, World Bank, U.S. Department of Treasury, U.S. Customs, U.S. Department of Justice, and U.S. Securities and Exchange Commission. FY 2002 Performance Table Selected Performance Measures: Accelerated Development and Growth of Private Enterprises, 114-013 Indicator FY97 (Actual) FY98 (Actual) FY99 (Actual) FY00 (Actual) FY01 (Plan) FY02 (Plan) Indicator 1: Increase in number of private enterprises registered N/A 10,062 5,920 8,667 8,920 10,420 Indicator 2: Increased access to credit by domestic SMEs and micro-entrepreneurs N/A 1,600 6,575 14,301 16,150 21,225 Indicator 3: End of period real value of deposits N/A 156 164.9 293.74 672 974 Indicator 4: Number of land parcels traded during the year N/A 25 492 1103 1110 1400 Indicator Information: Indicator Level (S)or(IR) Unit of Measure Source Indicator Description Indicator 1: SO Number State Department of Statistics Increase the number of enterprises registered over the previous year's level Indicator 2: IR Number FINCA, ACDI/VOCA, Save/Constanta Total number of borrowers by the end of the fiscal year Indicator 3: IR Millions of Lari National Bank of Georgia Deposits: deposit liabilities of the commercial banks, including current accounts, time deposits of enterprises, household deposits, and other demand deposits. Real Value: nominal values adjusted for inflation as reflected in the consumer price index (CPI) Indicator 4: IR Number Association for Protection of Landowners' Rights Land parcels traded include those registered and sold U.S. Financing (In thousands of dollars)

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