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On 28 September 2013, United National Movement presidential candidate Davit Bakradze appeared as a guest on Rustavi 2’s Business Courier

television programme. Discussing economic priorities, the presidential candidate highlighted the importance of industry and stated: “The foundation for economic development should be industry including processing and agro-based industry. Industry ought to be the cornerstone of the state economy. Even today, a large share of the GDP of Georgia comes from industry. The opening of 100 new factories was among the major promises of the new government and the fact that not even a single construction has been initiated is its biggest failing.”

FactCheck 

looked into the matter of enterprises.

Prior to getting to the actual subject of the research, we will try to clarify the essence of an enterprise itself. GeoStat defines an enterprise as an economic unit which produces goods or provides services and performs various sorts of activities. An enterprise can be an individual (physical) or a legal entity. According to the size, the enterprises are divided in the following manner. It is deemed to be large if the average number of employed in a year exceeds 100 people or the average yearly turnover is higher than GEL 1.5 million. An enterprise is considered to be medium if the number of its employees ranges from 20 to 100 in a year while the yearly turnover varies between GEL 0.5 million and GEL 1.5 million. The category of small

enterprises encompasses organisations employing a yearly average of no more than 20 people and having an average yearly turnover of less than GEL 0.5 million.

The abovegiven definition of an enterprise is important to keep in mind as according to the prevailing impression, the government’s promise to establish and finance enterprises implied the establishment of large enterprises.

The same implication goes for Davit Bakradze’s statement, as pointing to the unfulfilled pre-election promise of the Georgian Dream coalition, the presidential candidate was referring to the large enterprises as well.

As no precise definition could be found for a ‘factory,’ our further analysis will be based upon GeoStat’s definition of an ‘enterprise.’

One of the Georgian Dream’s most important pre-election promises was support for the establishment of enterprises. On the show Telekhidi Mosakhleobastan,

aired on TV 9 on 16 September 2012, coalition leader Bidzina Ivanishvili stated: “Hundreds and thousands of enterprises are to be opened and this will be real, unlike today, when they open one or two enterprises and then go on and on about it for two years. Hundreds of enterprises ought to be opened every month.”

It can be logically assumed that in his promise of opening new enterprises, Bidzina Ivanishvili intended, at the very least, for some of them to be large enterprises. It hardly seems feasible that the then leader of the Georgian Dream coalition had anticipated the opening of only small enterprises which employ solely up to 20 persons and have the average yearly turnover of up to GEL 0.5 million. This assumption also follows from the fact that over the last three years, an average of about 40,000 enterprises of different types were being registered each year without government assistance and, therefore, the establishment of small enterprises required no special support from the state. The same fact is implied in Ivanishvili’s statement in which he was critical of the previous government about the advertising of “one or two” enterprises.

Our presumption that Bidzina Ivanishvili was indeed referring to the opening of large enterprises is bolstered by his other statements and the pre-election promises of the Georgian Dream. For instance, appearing as a guest on Davit Akubardia’s show aired on the TV channel Kavkasia on 30 May 2013, the then Prime Minister stated: “The economy is enduring harsh times. At the very least, by the end of the year we have to manage to purchase and transport to Georgia the equipment for the 60 factories which we promised during the pre-election period. We might not have enough time to install the equipment, but the purchasing and transportation will be completed in time. In every region, there has to be at least one factory. How many of those will be located in Tbilisi is hard to say at this point.” Ostensibly, in this statement, the then Prime Minister was not referring solely to the opening of small enterprises.

With time, however, Bidzina Ivanishvili’s pathos shifted and, instead of the previously emphasised procurement, transportation and installation of factories, he came to stress only the funding of the enterprises. Meeting with journalists on 3 July 2013, Ivanishvili noted: “The opening of those 60 enterprises I talked about in the pre-election period is of the biggest interest to me at this last stage. I would like to report to you that 81 loans have been given out for the term of seven years. Subsidisation of enterprises is still carried out by the agricultural fund. At least one enterprise is to be established in every electoral district. We are encountering certain difficulties in some districts as we don’t have relevant proposals, but we are working on this issue in order to attract businessmen.  Twenty-four loans designated for the opening of new enterprises are being discussed. I reckon over 100 new enterprises will be funded by the end of the year instead of 60.”

As can be gathered from the statement of Bidzina Ivanishvili, he was endeavouring to open at least one enterprise in every electoral district. This fact once again confirms that Ivanishvili is referring to large enterprises in as much as the establishment of one small or medium enterprise in each district can neither be considered as any sort of achievement on the part of the government nor will it have any tangible influence on the development of the state economy. It is, therefore, perfectly natural that in discussing the unfulfilled promises of the Georgian Dream, the coalition’s opponents highlight precisely the subject of the unopened large enterprises. Similarly, Davit Bakradze points to the large enterprises or factories when speaking about the unrealised promise of the Georgian Dream to establish new enterprises.

It is also to be noted that at his meeting with journalists, held on 3 July, Bidzina Ivanishvili sought to justify his promise regarding the opening of large enterprises (factories): “The opponents often have questions on where these enterprises are and why they are not operating. To my mind, these are mere speculations, considering the resources which are required for the financing, transportation and operation of enterprises. But, nevertheless, by the end of the year we will manage to finance over 100 enterprises. We are doing our best to ensure favourable conditions for achieving this goal.”

At his meeting with experts held on 25 September 2013, Bidzina Ivanishvili focused solely on the funding of enterprises and tried to defend his earlier promise but this time refrained from the repeating of his assertion about establishing one large enterprise in every electoral district: “We have already financed 205 enterprises. The miracle is happening. We promised only 100 enterprises but 205 enterprises are already funded. One year is a very short time for choosing the type of enterprise one wants to establish, finding interested parties, holding discussions with all parties, involving banks, acquiring funds, importing equipment and starting the enterprise.”

We also looked into the process of the funding of enterprises (of any type). For the purpose of carrying out the rural support programme, the Rural and Agricultural Development Fund as a non-entrepreneurial (non-commercial) legal entity was established on 22 January 2013 on the initiative of Bidzina Ivanishvili. Two legal entities of public law became the donors of the Fund:  the International Charity Fund for Rural and Agricultural Development and the international charitable Cartu Foundation. The Ministry of Agriculture informs that as of 18 September 2013, the Cartu Foundation had transferred GEL 192.3 million to the Rural and Agricultural Development Fund while the International Charity Fund for Rural and Agricultural Development provided GEL 11 million.

According to the information received from the Ministry of Agriculture, at the sitting held on 26 February 2013, the gamgeoba

of the Rural and Agricultural Development Fund approved the Preferential Agro-credits project which envisaged the receipt of preferential agro-credits from financial institutions in pursuance of the establishment of new agricultural enterprises and the technological re-equipment of the existing enterprises.

As defined in the project, the credits are given out by the financial institutions participating in the project (12 banks and two microfinance organisations). According to the approved project, the Rural and Agricultural Development Fund provides subsidies for covering the interest rates of the loans given to entrepreneurs.

As reported by the Ministry of Agriculture, the Rural and Agricultural Development Fund encompassed the Supporting Land-Poor Farmers’ Spring Agricultural Work Programme and the Preferential Agro-credits project.

The Preferential Agro-credits project, crafted by the Ministry of Agriculture, is being implemented by the Agricultural Project Management Agency which started operating in March of 2013. Based upon the Agency’s consultations with banking and credit organisations, as well as the providers of means of agricultural production, three components of the project took shape:

  1. Interest-free loans for the period of six months (instalment) for small farmers – 0% interest rate up to GEL 5,000.
  2. Preferential agro-credits for medium and large farmers with an interest rate of no more than 8% (short-term funding for the working capital and the purchase of supplies) from GEL 5,000 to GEL 100,000 for the period of up to two years.
  3. Preferential agro-credits for agricultural enterprises with the interest rate of no more than 3% (long-term funding for the main means of production and technologies) up to GEL 1 million (equivalent in USD) for a period not longer than seven years. (This component envisages the funding for start-ups as well as for the re-equipment and renovation of the existing enterprises).

The funding envisaged in the third component is of the biggest interest to us as it is precisely this component that covers the establishment and funding of enterprises.

On 29 July, as a part of the government-initiated Georgian Government for Open Governance project, the Minister of Agriculture, Shalva Pipia, presented the results of the Ministry’s work to the media. According to the Minister, 4,085 beneficiaries received a total of GEL 60,975,041 in loans through the Preferential Agro-credits project which provided funding for up to 25 start-up enterprises within the framework of the project’s third component. Loans have been granted to small entrepreneurs as well whose total number reached 1,736 (small enterprises – greenhouses, store houses, milk collection centres, etc.).

On 11 September Shalva Pipia met with journalists again and discussed the outcomes of the Ministry’s work. As reported by the Ministry, 5,343 loans were administered by 10 Septemberin all three components of the Preferential Agro-credits project with a total sum of GEL 94,103,126. Therein, a total of 49 start-ups were financed as a part of the third component. As clarified by the Ministry of Agriculture, processing enterprises within the project’s third component were given preferential loans with a maximum period of 12 months which is to say that the banks grant enterprises a 12-month timeframe for the release and realisation of the first set of their products. Accordingly, after the provision of funding the maximum time for opening the enterprise can be defined to be 12 months while the minimum time varies depending upon the size and profile of the enterprise. The Ministry reports that within the first component, 2,685 beneficiaries were given instalments on goods with a total value of GEL 1,106,478; within the second component – 2,439 beneficiaries received credits amounting to a total of GEL 48,433,133 while in the third component – 200 beneficiaries were given credits totalling USD 25,591,932.

Two further components were added to the Preferential Agro-credits project in September. The project’s fourth component, preferential agro-leasing, supports the development of an enterprise and equipment which createadded-value agricultural products (modern farms, greenhouse thrifts, etc., as well as storing, packaging, processing and production of packing material). The fifth component provides preferential loans to wine producing companies – a 15-month loan with an interest rate of 12%-15% of which 9% is covered by the government.

Later on,an additional two components were adjoined to the Preferential Agro-credits project: the sixth component of the project for the companies exporting and processing citrus and the seventh component providing agro-credit to companies operating in economically less active regions which process agricultural products and are funded with a concurring grant.

FactCheck

additionally requested public information with regard to the establishment and funding of enterprises. In response, on 19 September, the Ministry of Agriculture provided the following information:since the beginning of the Preferential Agro-credits project, 2,685 beneficiaries were given instalments on goods within the first component with a total value of GEL 1,106,478; within the second component credits with a total value of GEL 48,433,133 were administered to 2,432 beneficiaries while in the third component 212 beneficiaries were given credits in total worth USD 27,397,453 (this is the exact component which provides funding for enterprises but the abovegiven figure [212] includes the credits granted for start-ups as well as for the technical re-equipment of existing enterprises).

In the month of October the Ministry of Agriculture also published a map of Georgia depicting the financed enterprises by cities. As can be gathered from the map, in 2013 funding was provided to 49 new and 155 operating (for the purpose of their development) enterprises. It is also to be noted that in his statements Bidzina Ivanishvili often mentions “new” enterprises but, apparently, he also refers to those registered before 2013 and given funding as a part of the Preferential Agro-credits project.

FactCheck analysed the list of those 49 enterprises, made public by the Ministry, which were funded as a part of the third component. Of those 49, 15 enterprises are newly-registered (thus, established under the current government). We checked the dates of their establishment in the Public Registry. The rest of the enterprises were registered in the past years, some of them as far back as the 1990s. The fact that except for 15 enterprises all 34 are established in the past years (earlier than 2012-2013) does not mean that the work performed by these enterprises cannot be considered as a start-up. Specialists do not define a start-up necessarily as a newly-registered enterprise. An enterprise might have existed previously but have taken up new activities with the help of a granted credit. Hence, an enterprise may have been established years ago but its activities can still be new. It is hard to establish whether or not the abovementioned 34 enterprises were active prior to 2013 but it is safe to say that they were given funding under the governance of the Georgian Dream, renewed their business and took up new activities. FactCheck

also tried to contact the owners of those 49 funded enterprises and inquire about the construction of their enterprises.

We managed to get in touch with several entrepreneurs.

Individual entrepreneur Zviad Bikashvili told FactCheck

that he holds storage facility thrift in the Dedoplistskaro district which was given the funding of USD 117,000 in April of 2013. Presently, one-third of the work is completed on the construction but the facilities are already being used for storing cereals. The enterprise employs nine people.

Individual entrepreneur Bondo Rakviashvili registered in February of 2012 as a vineyard owner in Gurjaani. He found his vineyard damaged by haillast summer and this year he received a preferential agro-credit (of USD 90,000) for the recovery of his hail-damaged grapes.

On 2 May 2013, the Georgian Subtropical Fruit Company was registered in the village of Natanebi in the Ozurgeti district. The company received a loan of USD 235,000 with which it purchased fruit storing refrigerators for the purpose of exporting the fruit. Currently, 80% of the enterprise’s construction has been completed and its work will start from 15 November (the start of the subtropical fruit season). Overall, 70 people are projected to be employed in the enterprise.

Individual entrepreneur Davit Beriashvili was registered in the Public Registry on 5 August of 2013. He intends to found a pig farm in Telavi for which he took a credit of USD 84,700. According to him, the construction is to be completed by the end of December following which four-to-five people will be employed in the enterprise. Currently, ten-to-15 people are employed in the construction work.

The Geo-Fruit Company received a preferential agro-credit (with a value of USD 95,000) on 24 June 2013. The company plans the cultivation of fruit trees on four hectares of land. The saplings have already been purchased and the company is waiting for the favourable season for planting.

The registry enlists the AgroTech company starting from 14 March 2013. The preferential agro-credit in the amount of USD 185,000 was granted to the company for the building of a modern farm. The company brought 50 cows from Switzerland and purchased up-to-date milking equipment. The farm is already operating and employs a total of ten persons.

The Vaziani Company received the preferential agro-credit of USD 600,000 and constructed a wine making factory including the purchase of up-to-date equipment. As of November 2013, 40 persons are employed in the factory. The company has been listed in the registry since 27 July 2012.

The company Punic Georgia appears in the registry starting from 16 July 2008. The enterprise received the preferential agro-credit in the amount of USD 600,000 and renovated a poultry raising farm including the purchase of equipment. The company has been operating since 10 September and is employing 40 persons.

Conclusion

The pre-election promise of Bidzina Ivanishvili and the Georgian Dream coalition regarding the opening of new enterprises referred to large enterprises. In his TV appearances, Ivanishvili noted that at least one enterprise was to be opened in every region.

In the course of the research, FactCheck

established thatas of September 2013, 49 new and 155 operating enterprises were given funding as a part of the third component of the Preferential Agro-credits project which envisages the funding of enterprises.

Naturally, it was impossible for us to contact all of the benefitting entrepreneurs but we were able to get in touch with some of them. Our respondents report that they have already received the credits and nearly all enterprises are operating. We also established that in 2013, a total of 15 enterprises have opened or would do so by December. We were unable to obtain information on whether or not the rest of the enterprises had already been opened. However, as clarified by the Ministry of Agriculture, the maximum term granted for the opening of enterprises is 12 months, while in October only eight months had passed since the initiation of the Preferential Agro-credits project (the project was approved on 26 February 2013 and, therefore, the final result will be evident in March of 2014).

It should be born in mind that the indicated enterprises are not being financed from the budget; the financing received by the enterprises is a preferential credit and not budget funding. As FactCheck

was informed by the Ministry of Agriculture, the financing of enterprises will continue at least into 2014.

Based upon the information acquired by FactCheck,

it is safe to say that the funded and opened enterprises do not qualify as large enterprises; an enterprise is deemed to be large if the average number of employed in a year exceeds 100 people or the average yearly turnover is higher than GEL 1.5 million. Our query revealed that of the opened enterprises, only one employed 70 persons (and even that only in the season of delivering citrus fruit). In other enterprises, the highest number of employed equalled 40 persons.

Obviously, FactCheck welcomes the fact that the Preferential Agro-Credits project is certainly being carried out and some of the funded enterprises are indeed already operating. Nevertheless, FactCheck’s

purpose lies in checking the accuracy of a particular statement and, therefore, justice demands it to be noted that the opened enterprises do not represent large enterprises and factories as outlined in the election promises.

Taking into consideration all of the abovementioned circumstances, FactCheck rated Davit Bakradze’s statement as MOSTLY TRUE.

Editor’s note: After the publication of the initial version of the article, we were approached by representatives of Davit Bakradze. The presidential candidate disagreed with our research and provided additional materials in support of his statement’s accuracy. These materials depict the promises of Bidzina Ivanishvili and the Georgian Dream which undoubtedly refer to the financing and opening of large enterprises and factories. Having studied the given material, FactCheck recognised the legitimacy of Davit Bakradze’s arguments. Accordingly, the article as well as FactCheck’s verdict have been corrected.