Курсовая работа: Private sector and human-resource development in Georgia

Курсовая работа: Private sector and human-resource development in Georgia

TBILISI, GEORGIA

Private Sector and Human-resource Development in Georgia

Author: Lasha Martashvili

E-mail: lmg@bk.ru

 (18.02.2004)

TABLE OF CONTENTS

1.      Government Policies. 5

1.1        Government promotion policies of small and medium size enterprises. 5

1.2        National Investment Agency of Georgia.. 5

1.3        Georgian Investment Center. 5

1.2.1     Government’s Export Promotion Policy. 6

1.2.2     Georgian Export Promotion Agency (GEPA) 9

1.4        Foreign Investment Promotion.. 14

1.3.1     Government’s Foreign Investment Promotion Policy. 14

1.3.2     Foreign Investment Advisory Council (FIAC) 21

1.5        Tax Regime. 23

1.3.3     Taxation System and Tax Rates in Georgia. 23

1.3.4     Existing Taxation Practices. 34

1.3.5     Tax Reform Areas. 38

1.6        Legislative Basis for the Operation of the Private Companies. 44

1.5.1     Law of Georgia on Entrepreneurs (LoE) (Corporate Law) 44

1.5.2     Law of Georgia on Securities Market (SML) 51

1.5.3     Employment Regulations in Georgia. 57

1.5.4     Regulations about Real Estate in Georgia. 59

1.7        The Business Environment in Georgia.. 61

1.8        Institutional Arrangements. 64

1.3.1     Securities Industry. 64

2.      Society.. 65

2.1        Poverty issues. 65

3.      Economics. 70

3.1        Main economic indicators. 70

3.2        Agriculture. 77

3.3        Trade. 104

3.4        Construction.. 106

4.      Business. 110

4.1        Company Registration and Licensing System.. 110

4.1.1     Company Registration System.. 110

4.1.2     Company Licensing System.. 117

4.2        Local Enterprises. 119

4.1.3     Joint Stock Companies traded at Georgian Stock Exchange. 120

4.1.4     Joint Stock Companies not traded at Georgian Stock Exchange. 132

4.3        Human-Resource Development in the Private Sector. 134

5.      Other Donors Activities. 138

5.1        The World Bank and IMF. 138

5.1.1     List of the Active World Bank Projects in Georgia. 138

S – Satisfactory. 138

U - Unsatisfactory. 138

5.1.2     List of the Closed World Bank Projects in Georgia. 139

5.1.3     Description of the Closed World Bank Projects in Georgia. 140

5.1.4     The World Bank and IMF Cooperation in Georgia. 149

5.1.5     The World Bank Country Assistance Strategy for Georgia. 154

5.1.6     The World Bank Partners in Georgia. 161

5.2        USAID.. 162

5.3        EBRD.. 162

5.4        EU.. 162

5.5        GTZ.. 163

5.6        CIDA.. 163

5.7        DFID.. 163

5.8        The Government of the Netherlands. 163

5.9        IFAD.. 164

5.10      UNDP. 164

5.11      UNICEF. 164

Currency

(Exchange rate as of 01 Feb. 2004)

1.1  Government promotion policies of small and medium size enterprises

[To be described:] "Small and Medium Enterprise State Support Program for 2002 - 2004 in Georgia"

[To be described:] Law of Georgia "On Promotion of Small and Medium Enterprises"

1.2  National Investment Agency of Georgia

[To be described:] Law of Georgia "On National Investment Agency of Georgia"

[To be described:] Activities of the National Investment Agency of Georgia

1.3  Georgian Investment Center

[To be described:] Activities of the Georgian Investment Centre

1.2.1     Government’s Export Promotion Policy

Foreign Trade Regimes. Reforms carried out in recent years in Georgia, including serious legal reforms, are working successfully to create a favourable foreign trade regime in the country. Since 1995 the following major reforms have taken place in Georgian legislation:

• The system of quotas has been eliminated.
• Products included in the nation's export embargo policy include only works of art and antiques and items of national historical importance.
• There is no customs duty for exports in Georgia.
• A fiscal policy aimed at stimulating exports has been introduced whereby all export goods are free of VAT and excise duty;

Export of goods requiring an export license have been reduced to the following classes:

Collections and collectors' pieces of zoological, botanical, mineral, anatomical, historical, archaeological, paleonthological, ethnographic or numismatic interest (HS - 9705);

Wood and timber (4401, 4403, 4404, 4406, 4407);

Seeds of Caucasus Pine (120999100);

Ferrous and non-ferrous metal scrap (7204, 7404, 7602).

The system of compulsory registration of foreign trade contracts was eliminated in November 1997.

The establishment of favourable trade regimes with partner countries through bilateral and multilateral agreements has commenced. During the period 1992 - 1998, Georgia signed trade agreements with 22 countries. Agreements on free trade have been signed with eight CIS countries and Georgia already has working free trade agreements with Russia, Ukraine, Azerbaijan, Armenia, Kazakhstan and Turkmenistan. Currently a multilateral agreement on CIS free trade zone is being enforced. According to these agreements signatories to the agreement need not use customs duties and taxes for exports or imports of the goods originated in the territory of one party and destined to the territory of the other party.

Furthermore, Georgia has become a part of several international conventions.

On October 6, 1999 Georgia became a member of the World Trade Organization (WTO) which granted Georgia the status of the Most Favoured Nation with 135 WTO member countries. Through the mechanisms of this organisation, Georgia will be protected from discrimination, unfair competition, falsification and unjustified limitations.

In 1996 Georgia signed an agreement on partnership and cooperation with the European Union which deals with economic relations in almost every sector. In fact the agreement covers all sectors of the economy.

In 1999 Georgia became a member of the Council of Europe with full rights, which will further facilitate trade-economic relations between Georgia and member countries of the European Union.

Many countries have granted to Georgia reductions in import customs taxes to their countries, under the General System of Preferences. These include the countries of the European Union, Switzerland, the Czech Republic, Slovakia, Canada and Japan. This is one of the most important influences on the successful growth of exports for Georgia. The effective use of facilities such as GSP will substantially promote Georgian export development.

Law of Georgia "On Technical Barriers to Trade". The law "On Technical Barriers to Trade" lays down the basis for eliminating the technical barriers to trade during the process of the preparation, adoption and application of the technical regulations, standards and the procedures for the assessment of conformity.

The national technical regulations and standards should not create unnecessary obstacles to trade, which will put national products in favourable conditions. Therefore, the development of the national technical regulations and standards should be carried out on the basis of a direct use of the international standards.

Georgian legislation did not envisage the concept of technical regulations. The concept of technical regulations was defined by Law of Georgia "On Standardization" adopted in 1999. The technical regulations is a legal act, which defines the technical specifications for products or service, which is done directly or by means of referring to Georgian standards and requiring that complying with these standards is compulsory.

The principles of the state standards that are effective in Georgia envisage the application of the national standards on a compulsory basis from the moments of its effectiveness. However, based on the principles that define the standards as voluntary, the international practice envisages two-stage approach to making a standard as mandatory requirement: the standard that was adopted by national body is optional and it may be used by any party, however it will become mandatory, if it is defined by:

The legislation;

Such stipulation is indicated in the technical regulations;

A producer or supplier of services assumed such responsibility by the assessment of conformity.

The first chapter of the present draft law lays down the legal basis for eliminating the technical barriers to trade during the process of the preparation, adoption and application of the technical regulations, standards and the procedures for the assessment of conformity.

It defines the terms, including "Technical barriers to trade", which in fact is the discrepancy in requirements from those used at a national level or in international practice with respect to the technical regulations, standards and the procedures for the assessment of conformity.

It defines the different categories of technical regulations, which include:

Legislative acts, the decrees of the President of Georgia, which consist of the product requirements;

The national standards, the application of which is mandatory;

The agency specific normative acts issued by government bodies, the competency of which, according to the legislation of Georgia, includes laying down the mandatory product requirements.

The second chapter defines the requirements to the content of technical regulations, preparation of technical regulations and procedures for the assessment of conformity, coordination of the activities related to the development of technical regulations, and recognizing the technical regulations of foreign countries as an equivalent to the national technical regulations.

Chapter three defines the procedure of applying technical regulations and standards, which includes making references to standards in technical regulations, fulfillment of standards as a mandatory requirement, fulfillment of standards as a voluntary requirement, and the national arrangements for applying the technical regulations and standards with respect to the national and imported products.

Chapter four defines the principles of providing information relating to technical barriers to trade. The main emphasis is placed on the Central Information Center of Standards, the main function of which is the relationship with the World Trade Organization. The Central Information Center of Standards provides information about the technical regulations, standards and the procedures for the assessment of conformity that are already developed or are in the process of development. It should carry out the coordination of activities of the centers set up in this field by other government bodies.

Chapter five defines the authority and responsibility of the National Standardizing Body and other government bodies.

Chapter six lays down the principles of the state control and supervision on complying with the requirements of technical regulations, as well as the responsibility for violating the requirements of the law.

Chapter seven states that the process of developing technical regulations has to be financed by the state on a mandatory basis.

Chapter eight contains the provisional clauses, which states that the government bodies should adopt and publish those technical regulations, which envisage complying on a mandatory basis with the standards that ensure the quality of products, processes and service, security, protection of human life, protection of the health, property and environment. With this respect it will be significant to employ, whenever developing the technical regulations, the directives issued by the countries that are members of the European Union.

Chapter nine defines the amendments that have to be made into Georgian legislation after this law becomes effective.

The Law of Georgia "On Technical Barriers to Trade" should initiate the practical efforts towards the preparation, adoption and application of the technical regulations, which will be step forward towards setting up voluntary standardization system that is one of the attributes of modern market relationships.

1.2.2     Georgian Export Promotion Agency (GEPA)

The Georgian Export Promotion Agency was set up by the Georgian Government and the European Union's Technical Assistance Programme TACIS with the principal aim of assisting Georgian companies to increase exports and thus to stimulate an improvement in the country's trade balance. The GEPA was established in April 1999. Since then, the German Government's Technical Assistance Programme GTZ (Deutsche Gesellschaft fur Technische Zusammenarbeit GmbH) has also invested in the agency both in its personnel and in its activities.

GEPA supports Georgian business interests in the global marketplace, assists in forging business alliances, facilitates establishment of international business relationships. GEPA provides comprehensive information on business opportunities both for Georgian and overseas companies.

Export Information Center. GEPA Export Information Centre (EIC) promotes Georgian companies and their products on the global marketplace. It offers the services of two Georgian business information officers and a librarian who work in cooperation with specialists from EU countries. The EIC holds a wide range trade information resources including reference materials, manuals and textbooks on exporting, sector related journals from overseas, CD-ROM and online databases, information on local and foreign markets, trade regulations and has wide access to trade leads databases.

The EIC services include but are not limited to:

Providing market information to Georgian exporters

Introducing Georgia and Georgian products to companies around the world

Assisting foreign companies in sourcing products in Georgia

Offering online trade leads both for Georgian exporters and overseas importers

Assisting Georgian companies in developing an export marketing strategy

Overseas Exhibitions and Trade Missions. GEPA is actively involved in preparing overseas business visits for Georgian business groups to meet with new trading partners; we also prepare and part finance Georgian sectors' participation at international exhibitions. Many foreign delegations, commercial and governmental, pay a visit to our agency during their visits to Tbilisi. Study tours for sectors with potential have been organized to Canada, UK and Germany.

With financial assistance from the German government's technical assistance programme, GTZ, GEPA part-finance participation of Georgian exporters in overseas trade shows/exhibitions. GEPA/GTZ have already assisted companies to take part in exhibitions in Germany, France, Italy and the Middle East.

Conditions for participation are that export products must be of export quality, prices examined by German specialists and a group of a minimum of three producers from one sector participates in each exhibition.

Training Center. GEPA offers a wide range of export training courses to Georgian businessmen, civil servants, and commercial banks, on subjects ranging from export pricing to utilizing e-commerce in exporting. All courses are taught by international and Georgian specialists in their given fields of specialization.

A new Training Programme that Georgian Export Promotion Agency offers to Georgian companies differs considerably from the Programme already conducted by GEPA within the framework of previous TACIS project. It includes an In-Company Training that is designed to meet the training needs of companies participating in GEPA's Export Development Program.

Customized programs have been developed for specific companies to increase the professional skills of company managers and staff and thereby help them improve their export activities. In-company training is considered as part of the consultancy service provided by GEPA to existing exporters and to companies with the potential to export. Format and content of training depends on business features of individual companies. Mostly practical exercises and case studies have been used to achieve the best results.

Alongside in-company training, GEPA continues to offer general training in Export Marketing, Export Promotion, Strategic Business Planning etc.

GEPA hopes that new arrangements run in the field of training, will be of real assistance to Georgian companies in enhancing their export marketing activities and in achieving increased export orders.

Publications. GEPA staff prepares a variety of publications for both Georgian exporters and overseas companies. These publications include Export Newsletter, Market Briefs, Fact Sheets and the Directory of Georgian Exporters. Recently a brochure on Georgian viticulture and winemaking was prepared in corporation with the Institute of Viticulture.

Export Newsletter. Export Newsletter is available both in print and electronic formats on our website. It is circulated to Georgian companies and international organizations. It includes information on opportunities outside Georgia for exporters, case studies on successful Georgian and foreign companies and an update on any changes in Georgian, and foreign legislation, which may affect exporters. It also advises of forthcoming exhibitions and incoming buying missions from overseas.

Market Briefs. Market Briefs are prepared in Georgian and are available for Georgian companies interested in specific industries and markets. Market briefs prepared to date are as follows:

1.    UK Wine Market

2.    Pipes' Market in Italy

3.    Organic Food market in Germany

4.    UK Nuts Market

5.    Timber Market in Germany

6.    UK Tea market

7.    Intellectual Property - overview

8.    EU Fertilizer Market

9.    USA and EU Markets for Essential Oils

10.  Wine Market in Japan

11.  Mineral Waters in Japan

Sample Market Brief: Wine Market in Japan

Sample Market Briefs: Mineral Waters in Japan

1.4  Foreign Investment Promotion

1.3.1     Government’s Foreign Investment Promotion Policy

Removing Administrative Barriers to Investment in Georgia. FIAS (Foreign Investment Advisory Service, a joint service of the International Finance Corporation (IFC) and the World Bank) conducted a study of administrative barriers to investment in Georgia. The principal counterpart for this project was the Presidential Commission on Support of the Private Businesses in Georgia. The Presidential Commission on Support of Private Businesses is the lead counterpart for this project (for more details refer to Paragraph 1.3.1 describing the activities of Foreign Investment Advisory Council - FIAC). The main objective of this study was to identify the major administrative impediments to investment and to recommend the steps for streamlining, simplifying and increasing transparency in order to help improve the environment for business in Georgia. Although the primary focus of the study was foreign investment, the administrative procedures and regulatory framework affect domestic investors as well. Therefore, applying the principle of national treatment (i.e. no preferential treatment for foreign investors), this study is intended to help strengthen the business environment for all investors—domestic and foreign alike.

The study covers the core administrative processes for:

·     Establishing a business - including investor entry (visa and residency requirements for expatriates) and business registration.

·     Locating a business - including land acquisition, site development, construction and operation.

·     Operating a business - including taxation, trade regime and customs, licensing, permits, inspections, intellectual property issues, and product standardization.

Establishing a Business—Investor Entry and Business Registration. The procedures for obtaining entry visas are relatively transparent and present no significant administrative impediments. Most notably, foreign investors and expatriate employees do not require special work or residence permits to live and work in Georgia.

The court registration procedures have been simplified in the past 2 years. However, because of the lack of technical and human capacity, court registrars are unable to fulfill the provisions of the Law on Entrepreneurs aimed at guaranteeing timely service, ensuring public availability of information on companies, publishing data on newly registered companies, and protecting company names. The most pressing issues relate to length of time required to register (2 to 3 weeks) and to retrieve information on companies.

The principal recommendations for improving the business registration process and the access to company records include:

·     Modernization of the registration and data filing systems by taking advantage of new technologies (including the internet) to speed up processing and to improve the access to information, as provided under the law.

·     Centralization of the court registration system.

·     Publication and dissemination of information on business registration procedures, requirements and fees.

·     Resolution of the legal provisions for information disclosure under the Law on Entrepreneurs and the Tax Code.

Locating a Business. Locating, acquiring and constructing or rehabilitating real estate for business activities are not perceived as significant problems by either foreign or domestic investors in Georgia. The current system may not pose an overwhelming difficulty for investors because of the low volume of transactions and the institutionalized system of unofficial payments and influence peddling to facilitate the process. However, there are a number of specific areas where regulations, requirements, and procedures need to be clarified, simplified and streamlined. The report includes a number of detailed short and long-term recommendations for strengthening the laws related to the privatization of agricultural land and improving the quality of service provided by the various bureaus responsible for processing the permits necessary for property development and construction in Georgia.

One of the principal recommendations relates to the Law On Privatization of Agricultural Land.  The set of laws on privatization of real estate exclude a legal basis for privatization of large agricultural holdings, all of which are presently held under government leases. To the extent that investment in commercial scale agriculture is viewed as having significant potential in Georgia, privatization of larger agricultural holdings is an appropriate next step. A law on privatization of large agricultural holdings is being developed and is an element of the government’s longer-term plan for further development of property relationships.[1] Enactment of this law should be a priority.

Operating a Business - Tax Administration. On the basis of interviews with representatives of the private sector, government officials, and technical assistance experts, it appears that the tax administration system is fraught with problems that seriously constrain the activities of private enterprises. The recurring themes voiced by the private sector as being burdensome for business included the complexity of the tax system, the lack of clarity in some aspects of the Tax Code and the sheer number of taxes itself. Foreign-owned enterprises seem to be particularly affected under the existing system. In keeping with the scope of this study, the discussion is focused on taxation administration. Recommendations on tax policy are confined to those issues that directly affect administrative procedures and impede business activity. It should be noted that the International Monetary Fund, the World Bank and USAID are currently providing assistance to the Government of Georgia on taxation policy issues.

The main recommendations include the following (for more detailed discussion of tax issues please refer to the next paragraph - "1.4 Tax Regime"):

·     Adopt and implement the proposed amendments to the Tax Code. These proposed amendments cover a number of policy and tax administration issues. They are broadly in line with IMF recommendations, except the Government proposal for the fixed tax and the elimination of the payroll tax.

·     Simplify the procedures for filing VAT. The proposed measures include allowing quarterly, rather than monthly filings for small businesses.

·     Establish an effective tax-refund system. The International Monetary Fund has outlined a refund strategy that includes limiting entitlement to immediate refunds, distinguishing claimants with a history of compliance, and using pre-refund audits for high-risk refund claims and post-refund audits for claims of lesser risk.

·     Review the micro level target-based system for tax collection. It is important to distinguish between the fiscal macro targets which are an important aspect of revenue administration and micro or firm-level targets which are often arbitrarily established within tax jurisdictions. These targets must be realistic and they should be part of a number of efficiency and effectiveness indicators.

·     Improve information compilation and dissemination. Taxpayers must be informed of changes in the Tax Code and related regulations, legal interpretations, and instructions in a timely manner. Also, a credible resource must be established to respond to queries offer binding interpretations of the Tax Code.

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