Economies boom with Russian wealth, migration

Russians cross the Russia-Georgia border days after President Vladimir Putin announced a mobilization operation on September 21.

Daro Sulakauri | Getty Images News | Getty Images

While many economies are reeling from the Russian invasion of Ukraine, a select few countries are benefiting from the influx of Russian migrants and their accompanying wealth.

Georgia, a small former Soviet republic on Russia’s southern border, is among several Caucasus and surrounding countries, including Armenia and Turkey, that have seen their economies boom amid ongoing unrest.

At least 112,000 Russians are reported to have immigrated to Georgia this year. The first wave of nearly 43,000 people arrived after Russia’s invasion of Ukraine on February 24, while the second wave — the number of which is harder to determine — entered after Putin’s military mobilization effort in September.

The country’s initial wave accounted for nearly a quarter (23.4%) of all emigrants from Russia through September, according to an online survey of 2,000 Russian migrants by research group Ponars Eurasia. Most of the remaining Russian migrants fled to Turkey (24.9%), Armenia (15.1%) and unspecified “other” countries (19%).

The influx had a huge impact on the Georgian economy – already on the rise after the Covid-19 slowdown – and the Georgian lari, which rose by 15% in comparison. strong US dollar so far this year.

We had double-digit growth, which no one expected.

Mikhail Kukava

head of economic and social policy at the Institute for the Development of Freedom of Information

The International Monetary Fund now expects Georgia’s economy to grow by 10% in 2022, revising its estimate again this month, more than tripling its 3% forecast from April.

“The large increase in immigration and the financial influx brought about by the war,” were among the reasons given for the increase. The IMF also sees its partner host country Turkey growing by 5% this year, while Armenia is expected to grow by 11% due to “large inflows of external income, capital and labor into the country”.

Georgia has benefited this year from a dramatic increase in capital inflows, primarily from Russia. In October alone, Russia accounted for three-fifths (59.6%) of Georgia’s foreign capital inflow – its total volumes increased by 725% year-on-year.

Between February and October, Russians transferred $1.412 billion to Georgian accounts — more than four times the $314 million transferred during the same period in 2021 — according to the National Bank of Georgia.

Meanwhile, Russians had opened more than 45,000 bank accounts in Georgia by September, nearly doubling the number of accounts held by Russians in the country.

“Highly active” migrants

Georgia’s strategic location and its historical and economic ties with Russia make it an obvious entry point for Russian migrants. Meanwhile, its liberal immigration policy allows foreigners to live, work and start businesses without the need for a visa.

Like Armenia and Turkey, the country has resisted enforcing Western pariah sanctions, allowing Russians and their money to flow freely across its borders.

For its part, Turkey granted residence permits to 118,626 Russians this year, according to government data, with one-fifth of its foreign property sales in 2022 being to Russians. The Armenian government did not provide data on its migration data or property purchases when contacted by CNBC.

Nevertheless, the economic impact surprised even the experts.

Both Ukrainian refugees and Russian émigrés have fled to Georgia, a former Soviet republic with its own history of conflict with Russia following that country’s February 24 invasion of Ukraine.

Daro Sulakauri | Getty Images News | Getty Images

“We had double-digit growth, which no one expected,” Mikhail Kukava, head of economic and social policy at the Georgian think tank Institute for the Development of Freedom of Information (IDFI), told CNBC via Zoom.

To be sure, a significant portion of the increase comes after growth was decimated during the coronavirus pandemic. According to Kukava, this also indicates the economic activity of the newcomers. And while the influx of tens of thousands may seem minimal — even for a country like Georgia with a modest population of 3.7 million — it’s more than ten times the 10,881 Russians who arrived in all of 2021.

“They are highly active. 42,000 randomly selected Russian citizens would not have such an impact on the Georgian economy,” Kukava said, referring to the first wave of migrants, many of whom were wealthy and highly educated. By comparison, the second wave was likely motivated to leave more by “fear,” he said, than by economic means.

‘Boom turned bang’

One of the most visible impacts of the new arrivals has been on Georgia’s housing market. Property prices in the capital Tbilisi rose by 20% year-on-year in September and transactions rose by 30%, according to Georgian bank TBC. Rent increased by 74% year-on-year.

Elsewhere, 12,093 new Russian companies were registered in Georgia between January and November this year, more than 13 times the total set for 2021, according to Georgia’s National Statistics Office.

The Georgian lari is now trading at a three-year high.

The Kremlin could use their presence as a pretext for further interference or aggression.

Not everyone is excited about Georgia’s new outlook, however. As a former Soviet republic that fought a brief war with Russia in 2008, Georgia’s relationship with Russia is complex, and some Georgians fear the socio-political impact the arrivals could have.

Indeed, the Washington, DC-based think tank Hudson Institute warned that “the Kremlin could use their presence as a pretext for further meddling or aggression.”

IDFI’s Kukava fears that this could mean a “boom turned into a bust” for Georgia’s economy: “‘Boom turned into a bust’ is when the Russian plutocratic government and this dispossessed country come after them,” he said, referring to Russia’s emigrants. “That’s the basic concern in Georgia.

“Even if they are not a threat in themselves,” Kukava continued, describing most of the migrants as “new generation” Russians, “the Kremlin could use this as an excuse to come to protect them. That outweighs any economic effect it might have.”

Prepare to slow down

Forecasters seem to take this uncertainty into account. Both the Georgian government and the National Bank said they expect growth to slow in 2023.

The IMF also expects growth to fall to around 5% next year.

“Growth and inflation are expected to moderate in 2023 against a backdrop of softening external inflows and deteriorating global economic and financial conditions,” the IMF said in a statement earlier this month.

“[That] it indicates that the Georgian government does not expect them to stay,” Kukava said of the Russian arrivals.

According to a Ponars Eurasia survey conducted between March and April, less than half (43%) of Russian migrants at the time said they planned to stay in their original host country long-term. More than a third (35%) were undecided, almost one fifth (18%) intended to move elsewhere and only 3% planned to return to Russia.

“We are better off – both the government and the National Bank – if we don’t base our economic assumptions on these people staying,” added Kukava.

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