EBRD and EU prepare businesses for free trade area in Georgia, Moldova and Ukraine

By Volker Ahlemeyer

EBRD and EU prepare businesses for free trade area in Georgia, Moldova and Ukraine

DCFTA offers new opportunities to businesses in all three countries

The prospect of free trade with the European Union offers many new opportunities to businesses in Georgia, Moldova and Ukraine.

The EBRD and EU are providing support to help businesses there take full advantage of unrestricted access to the world’s largest market: they help enterprises improve production and processes, adapt to EU standards and become more competitive in new export markets.

The three countries signed Association Agreements with the EU that foresee the establishment of a Deep and Comprehensive Free Trade Area (DCFTA) between each country and the EU.

Together with the European Union, we are helping business in Georgia, Moldova and Ukraine take full advantage of unrestricted access to the world’s largest market.

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This development is expected to provide businesses and the economy - from farming to the IT sector - with a vital boost. The EBRD is providing finance to small and medium-sized enterprises in all three countries, supported by the EU with a risk-sharing model.

“The DCFTA creates unique opportunities for small and medium-sized enterprises in Ukraine, Georgia and Moldova to export to the EU, with stable and predictable preferential access to the largest market in the world,” said Johannes Hahn, EU Commissioner for European Neighbourhood Policy and Enlargement Negotiations.

“At the same time, the new framework requires firms to make the necessary investments and to set up the right conditions to comply with higher technical standards involved and to encourage new business relationships.” 

“These are game-changing investments for local businesses in the three countries,” added Alain Pilloux, the EBRD’s Vice-President Policy and Partnerships.

“They bring long-term benefits to companies and, more widely, to economies – modern production processes, better services, more competitive businesses. The EBRD supports these vital steps towards economic integration.”

Boosting trade with the EU: Ukraine, Georgia and Moldova

“Agricultural production plays a vital role for Ukraine’s economy,” explained Kees Huizinga, CEO of Kischenzi. “For us, a fair share of our income is driven by export sales. Free access to the EU market offers us a great prospect for continuing to grow our business.”

Kischenzi’s main business derives from growing grain, oilseeds and vegetables, which it sells on to international traders.

“There is a lot of competition in the agribusiness sector,” Mr Huizinga added. “We have to use innovative farming techniques to obtain the best possible results and ensure that our activities are sustainable for many harvesting seasons to come.”

Such methods include precision agriculture which uses soil sampling and other techniques to help farmers manage variations between or within fields and achieves the best possible returns while preserving precious resources.

Furthermore, controlled traffic farming reduces damage to the soil by avoiding heavy or repeated machinery passes.

The EBRD provided Kischenzi with a loan of US$ 5 million (equivalent to around €4.5 million) to help the company purchase modern equipment, such as cultivators and new combine harvesters, to meet its ambitions.

The company exports large share of its production outside Ukraine, with increasing off-take by the EU. The potential for growth is large. The transaction is supported by the EU with a risk-sharing guarantee on a first loss basis as part of the EU4Business initiative.

This has a huge impact on the local economy as it helps to create new job opportunities. Kischenzi is the only sizable income provider for local women in the rural Mankiya Rayon, with almost half of their staff being female. There is good reason for this: the company undertakes various activities to support schools and nurseries that provide child care facilities to its employees.

Some 1,300 km south-west in Georgia’s capital Tbilisi, the EBRD’s and EU’s support to local broadcast operator Stereo Plus Ltd provides another example of how a company – and the population as a whole – benefits from the two organisations’ cooperation to boost economic development.

Stereo+ obtained an EBRD loan which supported the switch from analogue to digital broadcasting in Georgia. The EU backed this transaction again through a risk-sharing facility.

The digital switchover was critical in modernising Georgia’s information technology and communications sector and helped the country meet EU standards.

This helps to open up new market opportunities, as the move to digital broadcasting freed up frequencies. The freed up frequencies can be re-allocated for other uses, which can include more advanced communication services, the so-called ‘digital dividend’, leading to a more competitive market.

“We would not have been able to take part in the switch-over project without the EBRD’s loan,” said Professor David Zilpimiani, Founder of Stereo Plus. “Many businesses find it tough to access finance to further expand their activities, especially in the communications sector.”

Innovative services are vital to make companies more competitive, support their trade ambitions and boost sustainable growth.

In Moldova, leasing services are still in their infancy but provide more and more businesses with a viable financing option.

The EBRD and EU help small firms build up their export chances by supporting Total Leasing & Finance. To help the company expand its portfolio for small and medium-sized enterprises, the EBRD provided an EU-backed risk participation in a loan granted by local partner bank Mobiasbanca, to enable the company receiving a larger loan and for a longer term to invest in industrial and agricultural equipment.

This, in turn, made their business clients more competitive in the local economy and for export markets.

Most of their clients would not have been able to acquire necessary equipment other than by leasing it. Many companies are small producers and the new equipment helps them to manufacture higher-quality goods which they can then export to France, Germany and other countries.

EBRD and EU4Business support

These projects are part of a wide range of activities to support the private sector to make the most of the free trade area with the EU. They include providing local entrepreneurs with the necessary know-how to grow their business, training local partner banks and improving the business environment through policy dialogue with relevant government authorities.

Furthermore, the EBRD started in May 2016 to provide €380 million in loans and trade guarantees to local partner banks and other financial institutions for on-lending to businesses, while the EU is making available €19 million for technical assistance, investment incentives and risk-sharing.

The EU funds are part of the EU4Business initiative, which provides a comprehensive package of support to attract new investments and improve services and products to the benefits of all citizens and consumers across the Eastern partnership region.

With its local presence and 25 years of experience of working to develop the private sector in the three countries, the EBRD is strongly positioned to successfully promote this project. The Bank is the largest institutional investor in the three countries and has invested €2.7 billion in Georgia, €1.1 billion in Moldova and €11.7 billion in Ukraine.