Georgia’s Economic Policy to Enhance the Business and Investment Climate

The Organization for Economic Cooperation and Development (OECD) has, for the fourth consecutive time, designated Georgia as the unequivocal leader among Eastern Partnership countries in the assessment of the Small and Medium Entrepreneurship Policy Index – 2024 (SME Policy Index – 2024). This study, initiated in 2012, evaluates the alignment of the policies supporting small and medium enterprises with the “Small Business Act for Europe” (SBA) in various nations. The study is comprehensive and encompasses various areas including access to market, innovation, and business support.
Deputy Minister of Economy and Sustainable Development of Georgia, Irakli Nadareishvili, delves into the implications of this research. He explains why this comprehensive study holds particular significance in the context of the systemic reforms undertaken by Georgia in the past decade and what is the message it sends to international investors regarding Georgia’s business environment.
Which indicators determined Georgia’s leadership in the study of the Economic Cooperation and Development Organization? If possible, name the main directions in which the OECD distinguished our country among other Eastern Partnership states.
Primarily, this recognition highlights the country’s effective economic policy and its commitment to fostering a conducive environment for business and investment.
As you are aware, the assessment is comprehensive research is a multifaceted endeavor that spans diverse dimensions fields. OECD conducts a quadrennial assessment of the “SME Policy Index.” This assessment encompasses five crucial pillars within the participating countries: responsible governance, entrepreneurial human capital, access to finance, access to market, and innovation and business support. Notably, these pillars are further delineated into 12 specific dimensions. Georgia emerges as a leader in 11 of these dimensions, alongside the countries such as Ukraine, Moldova, Azerbaijan, and Armenia.
Through this study, the OECD evaluates the Eastern Partnership (EaP) countries regarding the alignment of their policies supporting small and medium enterprises with the “Small Business Act for Europe” and international best practices. The OECD’s assessment in the “SME Policy Index-2024” highlights that, with a strong post-COVID economic recovery, Georgia’s high-standard regulatory and business environment is globally recognised. Georgian SMEs now benefit from the easy registration for a preferential tax regime, the expansion of e-government services, simplified access to finance, and a more systematic application of Regulatory Impact Assessment (RIA).
I’d like to underscore that this accomplishment is not the outcome of a brief effort; rather, it stems from continuous and systematic work spanning since 2012. Georgia’s success reflects a dedicated and consistent approach implemented by our state. In 2015, we elaborated the first strategy for small and medium entrepreneurship development (2016-2020), and we successfully implemented it. Presently, the second strategy covering the years 2021-2025 is already in operation, aligning with the core principles of the Small Business Act for Europe, much like its predecessor.
Furthermore, the government endorsed the Capital Market Development Strategy for 2023-2028 in 2022. This strategy includes the introduction of supplementary instruments to bolster access to finance for small and medium-sized businesses. One such tool was utilized at the close of 2022, with the state investing in the inaugural venture capital investment fund managed by one of Silicon Valley’s highly esteemed asset managers.
I believe that the synchronization of our strategic goals and objectives with the Small Business Act for Europe, coupled with their steadfast implementation, shapes our success, exerting a direct impact on the economic landscape in Georgia. Notably, between 2015 and 2022, the output of the small and medium sector saw a twofold increase; productivity within the small and medium sector surged by 23 percent. Moreover, the share of small and medium business loans in the overall corporate loan portfolio expanded from 38 percent to nearly 50 percent, among other notable achievements.
In the formulation of comparable studies, particular emphasis is placed on scrutinizing both accomplished and ongoing reforms. Could you specify which specific reforms, in your view, played a pivotal role in influencing the outcomes observed in the OECD study?
It is crucial to acknowledge that the OECD assessment constitutes a comprehensive evaluation, wherein the reforms and measures undertaken across various facets in the country receive positive assessments, underscoring their significance and priority. Notable among them are the reforms in insolvency, the promotion of alternative dispute resolution, and the transformation of professional education, involving the introduction of a novel management model with active private sector engagement. Additionally, the establishment of a mechanism for monitoring and analyzing the impact of small and medium business support programs, measures aimed at revitalizing and expanding the national credit guarantee scheme for enhanced financial access, among others, stands out as pivotal accomplishments.
The issue of financial access is one of the challenges for small and medium entrepreneurs. What steps are you taking to overcome this challenge?
Certainly, we acknowledge existing challenges. For example, despite the improvements in access to finance, it remains as challenge. Consequently, starting current year, the “Enterprise Georgia” agency will introduce alternative capital market instruments tailored for small and medium-sized businesses.
Among these instruments is a capital market support program that aims to help SMEs issue securities. This initiative will enable these companies to secure necessary funds through non-banking/alternative channels. Additionally, for the next year we plan to launch a Private Equity Growth Fund, dedicated to fostering the growth of small and medium-sized businesses. While these two programs contribute to the mobilization of long-term capital, we recognize the importance and need for short-term, operating capital for small and medium-sized businesses. To address this, we plan to submit a draft law on Factoring to the Parliament in 2024, actively promoting the growth of this market in Georgia.
In addition, it is worth noting that the implementation of the above-mentioned mechanisms will contribute to the strengthening of financial education in the country.
Simultaneously, we persist in enhancing the access to the current finance programs. The “Produce in Georgia” agency oversees several crucial programs, undergoing continuous updates and refinements. Within the agency’s existing programs, small and medium-sized businesses have the opportunity to avail themselves of the following mechanisms:

• Loan interest co-financing: The agency subsidizes the interest on the approved loan/leasing object for the entrepreneurial entity throughout the full term of the approved loan, at a rate of 5% minus the refinancing rate (3% minus the refinancing rate in the case of leasing).
• Credit-guarantee mechanism: To enhance access to finance for small and medium-sized businesses unable to fulfill loan security requirements, the agency extends a credit guarantee for each loan issued by a commercial bank, up to 80% of the principal amount of the loan.
• Promotion of micro and small entrepreneurship: To provide essential financial support for initiating a new business or retooling an existing one, the agency offers a targeted grant for micro-entrepreneurs, capped at a maximum of 30,000 GEL.
The OECD study is a positive message for those interested in investing in Georgia. What benefits can these and similar indices bring in this direction, which positively assess the business environment in Georgia?
Over the past decade, Georgia has enacted a series of systemic reforms, resulting in the notable advancements in various domains such as human rights, government transparency, freedom from corruption, effective governance, market efficiency, and a conducive business environment. The successful and effective implementation of these systemic reforms has been instrumental in elevating Georgia’s standing in the reputable international rankings.
Despite prevailing challenges, Georgia has successfully preserved its sovereign credit rating, distinguishing itself amid a context where several countries experienced deteriorating credit ratings. As affirmed by the rating agencies such as Fitch, S&P, and Moody’s, despite the challenging external environment and geopolitical tensions, Georgia maintained sovereign credit ratings at the pre-pandemic level. Furthermore, in 2023 Fitch improved the outlook of Georgia’s sovereign credit rating from stable to positive and at the beginning of this year affirmed Georgia’s rating at “BB” with positive outlook. The rating is supported by Georgia’s strong governance and economic development indicators and its credible macroeconomic policy framework.
Therefore, each positive research, assessment, or rating regarding Georgia and its business environment serves as a crucial message for international investors who may be seeking comprehensive insights into the current investment attractiveness of our country.
On the other side, relying solely on the positive ratings is insufficient. Continuous economic reforms, aligned with the global economic trends, are imperative to enhance the country’s competitiveness and establish a robust foundation essential for the sustained development of its economy.