Private Sector Competitiveness DPO2

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The Program Development Objective is to increase private sector competitiveness through second generation business environment reforms, establishing enabling conditions for financial sector deepening and diversification, and increasing firms’ capacity to innovate and to export.The proposed Second Programmatic Private Sector Competitiveness Development Policy Operation (DPO2) to Georgia in the amount of EUR 44.6 million aims to support the government’s efforts to enhance the country’s competitiveness in order to spur inclusive economic growth. This is the second in a series of DPOs to achieve more inclusive economic growth through policies to stimulate private sector productivity, foster long-term savings and investment, strengthen financial and social safety nets, and create a fair business environment that enables growth of small and medium enterprises (SMEs) and new firms.The Georgian government is committed to developing a competitive economy in which the private sector can effectively leverage the trade and investment opportunities that come from the country’s geography and close relationship with the European Union and Asia.Faster progress on eradicating poverty and promoting shared prosperity was driven by higher labor income and redistributive fiscal policy that enlarged social transfers.This operation supports Georgia in its ambition to become a dynamic emerging market that is increasingly integrated into global value chains. For this next phase of economic development, the government is focusing on strengthening the private sector’s competitiveness, which will reduce the economy’s reliance on public investment as a source of growth.The operation has three pillars: The first pillar, second generation business environment reforms supported under this pillar focus on improving the predictability of the business environment, strengthening the consultation mechanisms for major economic reforms, and designing policies and institutions to support productivity growth and market access among SMEs. The second pillar, establishing enabling conditions for financial sector deepening and diversification its financial sector to mobilize additional investments needed for investment and to develop instruments that promote financial access, especially for SMEs.This pillar, focuses on addressing supply- and demand-side constraints faced by the financial sector through: the introduction of a deposit insurance system geared towards small depositors; an enhanced financial reporting and disclosure framework; and reforms aimed at increasing the soundness and growth of the insurance market. A comprehensive pension reform that incentivizes savings in pension funds will deepen the social safety net and underpin future growth of the domestic capital market.The third pillar, increasing firms’ capacity to innovate and to export is to increase their competitiveness, domestic companies need to strengthen their managerial capabilities, upgrade the quality of their products, invest in new technologies, and expand their market knowledge.