Report: Small businesses in Georgia, Ukraine and Moldova do not understand DCFTA benefits

Only half of small and medium-sized enterprises (SMEs) that operate in Georgia want to sell their produce to the European Union (EU), and of the ones that do, only eight percent say they understand the opportunities the trade deal offer.

This was one of the main findings of the East Invest report that highlighted the Deep and Comprehensive Free Trade Area (DCFTA) challenges for SMEs in Georgia, Moldova and Ukraine.

East Invest is a regional investment and trade facilitation project for the economic development of the Eastern Neighbourhood region, launched in the framework of the EU’s Eastern Partnership initiative.

A survey of 902 SMEs (comprising 521 in Georgia, 185 in Moldova and 196 in Ukraine) showed amongst the SMEs surveyed, there was no understanding of the scale of benefits that will result from the Association Agreement (AA) – including the DCFTA implementation – and how it will affect local businesses.

Moreover, only 79 percent of SMEs in Ukraine, 72 percent in Georgia and 32 percent in Moldova had heard of the agreements, the research found.

The research claimed SMEs in Georgia and Moldova did not think their business would be affected, and although in Ukraine the majority of SMEs surveyed thought the AA/DCFTA would have a serious impact, most believe it only affected exporters.

Even among thee SMEs that knew of the AA/DCFTA deals, there was little or no understanding of the specific scope and coverage and how it would impact on business, the report noted.

The needs of SMEs to take advantage of the provisions of the AA/DCFTA

The majority of SMEs surveyed wanted to export to the EU but only half of SMEs in Ukraine and Moldova believe the DCFTA provided business opportunities, with only 27 percent in Georgia.

In terms of SMEs by sector that want to export to the EU, there was little sectoral difference in Moldova and Ukraine. In Georgia, the predominance was amongst agricultural producers.

The report claimed there was a lack of knowledge amongst SMEs as to the changes in market access under the DCFTA, with 37 percent of SMEs in Ukraine and 21 percent of SMEs in Georgia and Moldova stating they knew, or knew where to obtain information on exporting to the EU.

SMES themselves perceived they need the following support:

• Financial support (Georgia and Moldova);
• Detailed Information (Georgia, Moldova and Ukraine);
• Collaboration with EU firms (Moldova and Ukraine);
• Training (Georgia);
• Human resources (Georgia); and
• New technologies (Georgia)

Georgia’s SME sector

By value, SMEs were most active in industry/manufacturing (€348 million), real estate/business services (€145 million) and wholesale/retail (€86 million and hotel/tourism (€78 million). In terms of SME numbers, the largest SME sectors were wholesale/retail, real estate and industry/manufacturing and; by employment wholesale/retail, real estate, industry/manufacturing and construction.

The majority of registered SMEs in Georgia were located in Tbilisi, Adjara and Imereti regions, which collectively accounted for 75 percent of all SMEs in Georgia. It should be noted for the agricultural sector, there were 560,000 households in Georgia where at least one member was a farmer, of which it was estimated that 292,000 households sold to formal markets.

In addition, there were 680 agricultural cooperatives in Georgia. When considering the impact on agricultural producers, these should be added to the 532 registered SMEs, stated the report.