By: Sosanidze Maka and Mamulashvili Leila
The Development of Small businesses has the greatest importance for each country. It has an enormous impact on the innovation of new technologies, creating new jobs, and the formation of gross domestic product. It is complicated to imagine a certain country’s economic circumstance without entrepreneurship, commerce financial institutions, and other industrial or social infrastructure.In recent years, Georgia has implemented several events to develop in this direction and the main goal of these was to develop the vital capacity of business and increase the rate of foreign direct investment. Georgia also faces challenges like many developing countries in the world despite the improvement of the general business environment. Although most of the operating enterprises come from small and medium enterprises and their share in GDP is still quite low.
According to the World Bank, it is important to support fast-growing entrepreneurship and innovation to ensure jobs and sustainable economic growth. Having an attractive investment climate and a stable business environment is a prerequisite for future economic growth and poverty alleviation. Small business accounts for 20% in Georgia of GDP, which is quite low.
The process of creating small enterprises in Georgia is quite contradictory and has significant socioeconomic costs. All this is due to factors such as low rate of investment and credit attractiveness and market imperfection. The above-mentioned financial problems are compounded by the lack of information of businessmen both in the capital and in the regions. Small entrepreneurs do not know how to run their business properly and they do not have a business plan that will guide them in the future. Starting a business and then running it must be well planned and thought out so that thepercentage of risk does not exceed a reasonable threshold. Risk reduction methods (self-insurance, business insurance, etc.)[1]are also necessary and important.
Investors realized that everything evolves and changes and therefore traditional forms of doing business are no exception. It has also become clear to the owners of innovative ideas that the initial investment necessary to implement the idea in reality, alone the idea can not bring material benefits. Numerous units emerged as a result of the demand: incubators and intermediary services. They help to connect the demander and the supplier, the author of the idea, and the investor. Business start-ups know that if they want to develop in the future, they have to go beyond the borders of the country.[2]
The decline in demand for products and services is the most pronounced side effect of the COVID-19 pandemic. The revenues of most of the surveyed enterprises (65%) have already led to a decrease of more than 50%. Most of the respondents were affected by hotels and restaurants of which 75% suffered a significant decrease in revenue. Also, half of the respondents predict a further 50% drop in revenue in the future. In this case, too, the most negative prognosis is in the field of hotels and restaurants.
Decreased demand from customers, late payments, and changes in consumer behavior, in general, has led to a reduction in companies’ liquidity. 28% of the surveyed companies have already encountered problems with meeting their existing liabilities. Only 15% of companies plan to maintain liquidity without reductions.
The companies had to reduce the number of employees in time to respond to the problems related to the reduction of demand. More than 50% of enterprises have already reduced the number of employees on different scales. The highest percentage is observed in the hotel and restaurant business here as well. More than 40% of companies in this sector have completely laid off all employees. With the spread of the pandemic, most companies have faced the challenge of finding additional funding. 79% of respondents need financial assistance, of which 85% have not applied yet, 36% are waiting for an answer, and 22% have refused. Only 42% of applications were approved positively for obtaining funding.
Based on the processing of the studied materials and the analysis of the research results, it can be said that small business is considered as one of the main preconditions for the economic prosperity of the country. The state must create all the conditions for the development of entrepreneurial skills and support of local production, which means investing as much money as possible in small business development, proper social infrastructure, social base, social insurance, modern production technologies, and appropriate social or economic base. Employment will increase, consumer prices will stabilize, the national currency will strengthen, and budget revenues will increase. All this is a guarantee of a strong economic environment and the future development of small businesses.
Used literature and web-sources:
- Business Administration (Manual) Edited by professor T. Shengelia, Tb. Publishing company “Universal”, 2009;
- https://commersant.ge/ge/post/mcire-da-sashualo-biznesi-ver-vitardeba-problema-araswor-regulaciebshia ; 03.03.2017
- https://ajaratv.ge/article/58546
- http://www.enterprisegeorgia.gov.ge/ka/business-development/microgrants
- https://forbes.ge/blogs/biznesi-romelshits-tsarmat/ ; author N.Enukidze; 10 july 2015
- https://gita.gov.ge/geo/static/9
- http://www.economy.ge/?page=services&s=74
- https://www.pwc.com/ge/en/assets/pdf/may-2020/Georgia_Covid-19_survey_Report_Final_Georgian_21.05.20.pdf
References
[1] https://commersant.ge/ge/post/mcire-da-sashualo-biznesi-ver-vitardeba-problema-araswor-regulaciebshia ; 03.03.2017
[2]https://forbes.ge/blogs/biznesi-romelshits-tsarmat/ ; author N.Enukidze; 10 july 2015
About the Authors
Sosanidze Maka
Academic Doctor of Economics, Associate Professor,
Gori State Educational University, Mr. Gori
Mamulashvili Leila
Academic Doctor of Economics, Professor,
Gori State Educational University, Mr. Gori
