EXECUTIVE SUMMARY

The goal of this study is to provide the UNDP Inclusive Access to Markets (IA2M) project with the selection of at least six sectors/subsectors in the Georgian economy where small- and medium-sized enterprises (SMEs) have established or potential opportunities for exporting to the European Union (EU) and European countries. The research aims to identify sectors/subsectors where SMEs are best positioned to increase their exports, either by diversifying products and services or by penetrating new markets in Europe.

The study was conducted using both quantitative and qualitative data collected from multiple sources. This included a desk review and data collection from statistical agencies and other publicly available sources, as well as from interviews with key informants. The study pursued a comprehensive examination of export growth potential by supplementing quantitative analysis with qualitative insights from interviews with key stakeholders.

The primary objective of the qualitative analysis was to validate and enrich the findings of the quantitative analysis by investigating the practical experiences and perspectives of individuals directly involved in various economic sectors. This holistic approach aimed to uncover opportunities and challenges that statistical data alone might not have adequately captured. In response to these challenges, stakeholders proposed a series of recommendations aimed at fostering sustainable export growth. These encompassed initiatives such as capacity building for SMEs, adopting green technologies, identifying niche markets, continuous monitoring of market trends and strengthening public-private collaborations. Key stakeholders emphasized enhancing quality infrastructure and standardizing processes to streamline certification procedures, thereby boosting the competitiveness of Georgian exports in global markets.

The analysis compiled a comprehensive dataset covering 33 sectors of manufacturing and service provision. Among the sectors, six were identified as best positioned to enable SMEs to increase their exports. The sector selection process primarily relied on quantitative analysis, utilizing a set of indicators to assess export competitiveness, market demand in both the EU and Georgia, employment trends and prospects for value addition.

Based on our research findings, the manufacture of beverages sector received the highest score, primarily due to its strong performance in export competitiveness indicators. From 2020 to 2023, wine emerged as the primary export product, followed by mineral and aerated waters, waters containing added sugar, and then spirits distilled from grapes. Despite the significant export rates of these products, the EU’s share remains relatively small, indicating potential for further expansion in this direction. The International Trade Centre’s Export Potential Indicator (EPI) highlights further export potential in wine, mineral and aerated waters, and spirits distilled from grapes. However, the Product Diversification Indicator (PDI) suggests limited room for diversification.

The manufacture of beverages sector ranks relatively high in the dimension of employment dynamics, with notable levels of labour productivity and SME employment rates. Between 2020 and 2022, SMEs accounted for an average share of 35 percent of the turnover within the sector. Compared to other sectors, manufacture of beverages scores lower in market demand and value addition dimensions, ranking 27th and 17th, respectively.

The transport sector, ranking second highest, demonstrates positive performance in the dimensions of market demand and employment dynamics. Its high ranking in the market demand dimension is primarily driven by high and rapidly growing demand in the EU market. Additionally, the sector holds the second position in the dimension of employment dynamics, attributed to a high rate of SME employment. In terms of export competitiveness, the transport sector secures the 8th position and has a significant 28 percent share of total service exports in Georgia. Notably, the largest subsector within transportation is the pipeline transport and electricity transmission subsector, contributing 38 percent to the total exports within the transportation sector. Following that is air transport, comprising 19 percent of exports, while the road, sea and rail transport subsectors contribute 18 percent, 15 percent, and 9 percent, respectively. SMEs have significantly contributed to this sector, representing 44 percent of the total turnover.

The telecommunications, computer and information services sector secured the third position in our ranking. This sector exhibited robust performance in the dimension of market demand. It should be noted that in the export competitiveness dimension, the EU market significantly contributed to Georgia’s exports, representing 42 percent of the total exports in this sector. During the 2020 to 2022 period, the telecommunications, computer and information services sector accounted for 9 percent of total service exports. In terms of subsectoral analysis, computer services constituted 69 percent of exports, followed by telecommunication services at 20 percent and information services at 10 percent. In terms of other dimensions, this sector ranked highly in value creation and employment, securing the 8th and 9th positions, respectively. Notably, SMEs played a crucial role in this sector, with computer services exhibiting the highest contribution from SMEs (84 percent of the total subsector turnover).

The manufacture of wearing apparel is highlighted as a significant sector, primarily due to its outstanding performance in export competitiveness. Notably, T-shirts and vests (knit/crochet) dominated exports from 2021 to 2023, constituting 40 percent of total sector exports, followed by cotton variants at 9 percent, and men’s trousers and shorts made of synthetic fibres (knit/ crochet) at 26 percent. While these products performed well, others in the industry showed potential for further development, as indicated by relatively lower export percentages. This finding is supported by the PDI results. The top 10 products from the apparel industry in terms of product diversification in the EU and Western Europe held strong positions compared to other priority sectors, ranking among the top 100 products for this region according to the International Trade Centre. From 2020 to 2022, SMEs contributed approximately 29 percent of turnover in the manufacture of wearing apparel sector.

Mining of metal ores ranks 5th among assessed sectors, demonstrating strong performance in export competitiveness and employment dynamics. Notably, it scored highly in the direction of revealed comparative advantage and the EPI. Copper ores and concentrates dominate the sector’s exports, comprising 92 percent of the total share. However, there has been a notable decline in the EU market share of Georgia’s exports of copper ores and concentrates from 2018 to 2023. Despite this decline, there remains untapped export potential, particularly in copper ores and concentrates, with an unrealized export potential of US$8.7 million to the EU and Western Europe markets and US$9.1 million for precious metal ores and concentrates. Unfortunately, the mining sector shows no potential for further diversification of export positions, according to the ITC assessment. Additionally, SMEs contribute only 12 percent to total sector turnover, which is relatively low compared to other priority sectors.

The manufacture of basic metals, the final priority sector, holds the second position in the export competitiveness dimension and excels in the export potential and product diversification indicators. Similar to the mining of metal ores sector, its exports are primarily centred around one good, ferro-silico-manganese, constituting 72 percent of total sector exports. Notably, there is substantial untapped export potential for this product to the EU and Western European markets, with an additional $88 million. According to the ITC assessment, the sector only utilizes 20 percent of its export potential. Additionally, products like bars and rods and semi-finished products of iron and steel show unrealized potential. Furthermore, ferro-nickel, tubes of iron/ steel and flat-rolled products of iron or non-alloy steel rank highly in product diversification indicators, suggesting room for expanding the export basket to EU and Western Europe markets. However, this sector ranks relatively low in market demand (16th place), employment dynamics (20th place), and value addition prospects (24th place). Notably, SMEs contribute only 12 percent to the total turnover of this industry (To view the study in full, see attached research report above).