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Resume: The Agriculture Projects Management Agency (APMA) covers a large part of accrued interest on loans issued as part of the Preferential Agrocredit project. Therefore, project beneficiaries have to pay 3-8% of their loan interest rates. The loan interest rate varies depending upon the loan volume and its aim. In addition, the Preferential Agrocredit project has another component which concerns funding for small-land farmers and is interest-free (0%) whilst the amount of loans is GEL 5,000 with a six-month duration. Given the aforementioned circumstances, it is safe to say that preferential agroloans are in fact being issued as part of the Preferential Agrocredit project but not for such a low interest rate (there are no loans with a 1-2% interest rate issued as part of the Preferential Agrocredit project) as stated by Levan Davitashvili.

In addition, the project is accessible for a certain category of beneficiaries only. In order to get involved in the project, a potential beneficiary has to meet a specific criterion. The Preferential Agrocredit project mostly provides funds either for new businesses launched by the incumbent business owners or for the expansion of already existing businesses. Therefore, for most of the project’s beneficiaries the government’s assistance is more like “cheap money” rather than an essential means for the development and launch of a new enterprise. Of additional note is that the money spent by the government as part of the project exceeds the total additional tax revenues (as compared to taxes paid in 2012) paid by the beneficiary companies in the reporting years. To put it more simply, as a result of the state’s spending of GEL 244,445,796, we received GEL 181,935,303 in benefit (in 2013-2018, the total amount of taxes paid by the enterprises is GEL 181,935,303 more as compared to 2012) which is GEL 62,510,493 less as compared to the money spent.

Analysis

The Minister of Environmental Protection and Agriculture of Georgia, Levan Davitashvili, during a presentation of the Ministry’s 2019 activities, highlighted the Preferential Agrocredit program. As stated by Mr Davitashvili, loans are issued for 1%, 2% and 3% interest rates whilst interest rates are often zero and loans are issued basically for free. The Minister stated: “One of the most important promises of our government was cheap funding resources for the agriculture field. We delivered on that promise. From 2013, there is the Preferential Agrocredit project and over GEL 2 billion in funding has been provided as a part of that project.”

The Preferential Agrocredit project has been implemented since March 2013. The aim of the project is to increase initial production, processing production and storage of agricultural products through the increased access to finance for agricultural entrepreneurs. Farmers and enterprises employed in agricultural production as part of the project receive preferential agrocredits and agro-leasing from financial institutions for their fixed and liquid assets. At the same time, the 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.

Agrocredits 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 a fixed interest rate fluctuate between 14%% and 16%. In the case of fixed assets, the APMA provides 11% in co-funding for servicing the interest rate for no more than 66 months. Therefore, the beneficiary has to pay 3%, 4% or 5% of the loan interest rate depending upon the loan volume.

The interest rate for agrocredits with liquid assets (assets which by their nature are short-term [current] and which are mostly intended for trade purposes or for other short-term goals) fluctuates between 12% and 16%. In the case of liquid assets, the APMA provides 8% in co-funding for loan service from 12 to 36 months depending upon the aim of the existing loan and the beneficiary has to pay 4%, 5%, 6%, 7% or 8% of the loan interest rate. In the case of preferential agro-leasing, from GEL 20,000 to GEL 1,500,000, with no more than 21%, the agency provides 12% in co-funding for the leasing fee. Therefore, the beneficiary pays 9% of the leasing fee.

In addition, the Preferential Agrocredit project has another component which concerns funding for small-land farmers and is interest-free (0%) whilst the amount of loans is GEL 5,000 with a six-month duration.

In accordance with the official data, 200 new enterprises were launched as part of the Preferential Agrocredit project in 2013-2018 whilst 940 were reinforced (expanded/re-equipped). In the reporting period, the project budget exceeded GEL 260 million in total. In 2013-2018, there were 34,141 loans issued with a total value of GEL 1,831,925.461. In those years, GEL 244,445,796 from the state budget was spent on co-funding the interest rate. In the same reporting period, nearly 12,600 new jobs were created as a part of the project.

Large companies, such as Bagrationi 1882, Georgian Traditional Winery Askaneli Brothers, Dugladze Winery, Tbilghvino, Khareba Winery, Badagoni, Teliani Valley, Kapa and others, have also taken loans as a part of the Preferential Agrocredit project (see FactCheck’s article). As the aforementioned examples indicate, the Preferential Agrocredit project is accessible for a certain category of beneficiaries only. In order to get involved in the project, potential beneficiaries have to meet a specific criterion – they have to have an active business or property as loan collateral. These criteria are an obstacle for small businesses to become involved in the project.

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 project’s beneficiaries, the government’s 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 Agrocredit project. This unconditional support given to them worsens competition and does not create a favourable environment for the development of small and medium-size businesses.

The context of Levan Davitashvili’s statement assumes that the Preferential Agrocredit project is a success. In order to measure the project’s effectiveness, it would be appropriate to compare the value of the output produced by the beneficiaries to the total added value produced by the entire country. This type of comparison would give a better picture in order to measure the project’s effectiveness although it has not been analysed from this angle. We need to look at the data in terms of the taxes paid by the Preferential Agrocredit project beneficiary companies to the country’s budget.

Table 1: Taxes Paid to the Budget by the Preferential Agrocredit Project Beneficiary (only those registered as tax paying entities) Companies in 2010-2018

Year

Taxes Paid by the Enterprises to the State Budget (GEL)

Growth of Paid Taxes as Compared to 2012 (GEL)

2010

70 659 107

-

2011

94 944 612

-

2012

97 420 387

-

2013

111 187 102

13 766 715

2014

122 752 475

25 332 088

2015

129 262 629

31 842 242

2016

124 389 173

26 968 786

2017

133 301 287

35 880 900

2018

145 564 959

48 144 572

Total

-

181 935 303

Source: Ministry of Finance

The total amount of taxes paid by the Preferential Agrocredit project beneficiaries to the state budget in 2013-2018 is GEL 766,457,625 which does indeed exceed the money (GEL 244,445,796) spent by the state in the same period for co-funding the loans of the project’s beneficiaries.However, in order to measure the project’s effectiveness, it is appropriate to compare the annual amount of taxes paid by the beneficiaries to the period before the project; that is, 2012. In accordance with the statistical data, taxes paid by the enterprises registered as taxpayers were GEL 97,420,387 in 2012. In 2013-2018, the total amount of taxes paid by the Preferential Agrocredit project’s beneficiary enterprises is GEL 181,935,303 more as compared to the 2012 figure. In the same period, the state spent GEL 244,445,796 for the co-funding of the loan interest of the project’s beneficiaries. Therefore, the amount of moneyspent by the state is higher as compared to the additional taxes (as compared to the taxes paid in 2012) paid by the beneficiary companies in the aforementioned years. To put it more simply, as a result of the state’s spending of GEL 244,445,796, we received GEL 181,935,303 in benefit (in 2013-2018, the total amount of taxes paid by the enterprises is GEL 181,935,303 more as compared to 2012) which is GEL 62,510,493 less as compared to the money spent.


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