Resume: In 2014, as part of the Preferential Agro Credit programme, JSC Bagrationi, owned by Levan Vasadze, did indeed receive funding in the amount of GEL 600,000. The company’s profile is wine-making and the aim of the loan was the expansion/re-equipment of production.
Given the loan conditions, Levan Vasadze was supposed to pay GEL 495,000 in loan interest over the course of 66 months. Of this amount, the Agency paid GEL 363,000. Therefore, over the course of 5.5 years, Mr Vasadze paid only GEL 132,000 for debt service. Therefore, it turns out that citizens of Georgia in fact paid GEL 363,000 from their own pockets, or more precisely – we gave that money as a gift.
Levan Vasadze is not the only representative of big business who has been a beneficiary of a preferential loan as a part of the state-funded Preferential Agro Credit programme.
As the examples below indicate, Preferential Agro Credit programme is available for a certain category of beneficiaries alone. Certain criteria must be met in order for an individual to become involved in the programme. A current business or respective property should be used for loan collateral. Therefore, these criteria serve as an obstacle for small business to become involved in the programme.
Usually, these are current businessmen who are able to raise money to launch a new business or expand their existing one without state interference who receive funding as part of the programme. Therefore, for the majority of beneficiaries, government-provided financial assistance is more like “cheap money” rather than assistance for the development and launching of a new enterprise.
Analysis
As stated by European Georgia – Movement for Freedom MP, Giorgi Kandelaki, the Government of Georgia gave businessman Levan Vasadze GEL 600,000 in funding. Mr Kandelaki stated: “It is unfair when you give money paid by a small business to millionaire Levan Vasadze. Why is it necessary to fund the rich with the money of the poor?”
In 2014, as a part of the Preferential Agro Credit programme, JSC Bagrationi, owned by Levan Vasadze, did indeed receive funding in the amount of GEL 600,000. The company’s profile is wine-making and the aim of the loan was the expansion/re-equipment of production.
The Preferential Agro Credit programme was implemented in March 2013. The aim of the programme is to increase the initial production, processing production and storage of agricultural products through the increased access to finance for agricultural entrepreneurs. In 2012, one of the most important campaign promises of the Georgian Dream was the creation of enterprises (see: article). The Preferential Agro Credit programme was meant to assist the creation of new enterprises and expand/re-equip already existing ones. Farmers and enterprises employed in agriculture production as part of the programme receive preferential agro credits and agro-leasing from financial institutions for their fixed and liquid assets. At the same time, the Agriculture Project Management Agency (APMA) provides co-funding for the loan/leasing interest rate/leasing cost. The loan interest rate varies depending upon the loan volume and its aim.
Agro credits for fixed assets (fixed assets are assets at the disposal of enterprises which are intended to be used for more than one year. For instance: land, buildings and premises, machinery and equipment, transportation means, etc.) with the fixed and floating (changing) interest rates fluctuating between 6% and 16%. The interest rate for agro credits for liquid assets (assets which by their nature is short-term [current] and which are mostly intended for trade purposes or for other short-term goals) fluctuates between 4% and 16%.
In the case of fixed assets, the APMA provides 11% co-funding for servicing the interest rate for no more than 66 months.
In the case of liquid assets, the APMA provides 8% co-funding for loan service from 12 to 36 months, depending upon the aim of the existing loan.
As mentioned previously, the amount of Levan Vasadze‘s company’s loan is GEL 600,000. In accordance with the programme’s conditions, the loan interest rate amounts to 15% as is the case for fixed assets. In this case, the APMA provides funding for 11% of the interest rate over the course of a maximum of 66 months. Mr Vasadze was supposed to pay GEL 495,000 in loan interest over the course of 66 months. Of this amount, the Agency paid GEL 363,000. Therefore, over the course of 5.5 years, Mr Vasadze paid only GEL 132,000 for debt service. Therefore, it turns out that the citizens of Georgia in fact paid GEL 363,000 from their own pockets, or more precisely – we gave that money as a gift to Mr Vasadze.
Levan Vasadze is not the only representative of big business who has been a beneficiary of a preferential loan as part of the state-funded Preferential Agro Credit programme.
Kakhetian Traditional Winemaking (KTW, owned by Zurab Chkhaidze) has received funding as part of the Preferential Agro Credit programme. Despite the fact that KTW is one of largest wine and spirits companies not only in Georgia but in the entire Caucasus region, it received a USD 600,000 loan as a part of the programme and built a winery with this money.
Majoritarian MP from Gori, Ioseb Makrakhidze, has also used the Preferential Agro Credit programme and built a cold storage facility for fruits and vegetables. It is possible to store 100 tons of fruit in the facility.
Companies such as Askaneli Brothers, Dugladze Winery, Tbilghvino, Khareba Winery, Badagoni, Teliani Valley and others have also taken loans of different amounts as a part of the Preferential Agro Credit programme.
As these examples indicate, the Preferential Agro Credit programme is available for a certain category of beneficiaries alone. Potential beneficiaries must meet certain criteria in order to become involved in the programme. They should have a current business or respective property for loan collateral. Therefore, these criteria serve as an obstacle for small business to become involved in the programme.
It is mostly new businesses (which are also considered as start-ups) launched by current business-owners that receive funding as part of the programme or the issued loan is used to expand already existing businesses. Incumbent businessmen are able to independently secure funding to launch such projects without state interference. Therefore, for the majority of the programme’s beneficiaries, government provided financial assistance is more like “cheap money” rather than assistance for the development and launching of a new enterprise.
As mentioned previously, it is mostly the already robust entities that receive funding as part of the Preferential Agro Credit programme. This unconditional support given to them worsens competition and does not create a favourable environment for the development of small and medium-size businesses.
In accordance with the official data, 200 new enterprises were launched as part of the Preferential Agro Credit programme in 2013-2018 whilst 940 were reinforced (expanded/re-equipped). The total budget of the programme exceeded GEL 260 million in 2013-2018. In the reporting period, 34,141 loans were issued in the amount of GEL 1,831,925,461. In the aforementioned years, GEL 244,445,796 was spent from the state budget for loan interest rate co-funding. As part of the programme, nearly 12,600 jobs were created in 2013-2018.
Veriko Sukhiashvili
