HomeWorldEconomies boom with Russian wealth, migration

Economies boom with Russian wealth, migration

Russians cross the border between Russia and Georgia days after President Vladimir Putin announced a mobilization drive on Sept. 21.

Daro Sulakauri | Getty Images News | Getty Images

While many economies are reeling from the fallout from Russia’s invasion of Ukraine, a select few countries are benefiting from an influx of Russian migrants and the wealth that comes with it.

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

At least 112,000 Russians have emigrated to Georgia this year. according to reports. A first wave of nearly 43,000 followed Russia’s invasion of Ukraine on February 24while a second wave – the number of which is more difficult to determine – came in after Putin’s military mobilization action in September.

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

The inflows have had a disproportionate impact on the Georgian economy – already on the rise after a Covid-19 slowdown – and on the Georgian lari, which is up 15% against a strong US dollar so far this year.

We’ve had double-digit growth, which nobody expected.

Mikhail Kukava

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

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

“A wave of immigration and financial inflows caused by the war” were some of the reasons cited for the uptick. The IMF also sees fellow host country Turkey grow by 5% this year, while Armenia will rise by 11% on the back of “large inflows of external revenue, capital and labor into the country.”

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Georgia has benefited this year from a dramatic increase in capital inflows, mainly from Russia. Russia settled three fifths (59.6%) of foreign capital inflows into Georgia in October alone — the total volumes of which increased by 725% year-on-year.

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

Meanwhile, Russians opened more than 45,000 bank accounts in Georgia until September, almost doubling the number of Russian accounts in the country.

‘Highly active’ migrants

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

Daro Sulakauri | Getty Images News | Getty Images

“We have had double-digit growth, which nobody expected,” Mikheil Kukava, head of economic and social policy at Georgian think tank the Institute for Development of Freedom of Information (IDFI), told CNBC via zoom.

To be sure, a significant portion of the upswing comes after growth was decimated during the coronavirus pandemic. But Kukava said it is also indicative of the newcomers’ economic activity. And while an influx of tens of thousands may seem minimal – even for a country like Georgia, with a modest population of 3.7 million – it is more than 10 times the 10,881 Russians who arrived in all of 2021.

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

‘Boom became bang’

One of the most visible effects of the new arrivals was on the Georgia housing market. Real estate prices in the capital Tbilisi, up 20% year-on-year in September and transactions were up 30%, according to Georgian bank TBC. Rents increased by 74% over the year.

Elsewhere, as of January and November this year, 12,093 new Russian companies were registered in Georgia, more than 13 times the total number set up in 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.

However, not everyone is thrilled with Georgia’s new prospects. As an ex-Soviet republic that fought a brief war with Russia in 2008, Georgia’s relationship with Russia is complex, with some Georgians fearing the socio-political impact the arrivals could have.

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

IDFI’s Kukava worries that this could also indicate a “boom turn bang” for Georgia’s economy: “‘Boom turn bang’ is when the Russian plutocratic government and this pariah country come after them,” he said, referring to Russian emigrants. “That’s the fundamental concern in Georgia.”

“While they are not a threat in themselves,” Kukava continued, describing the majority of the migrants as “new generation” Russians, “the Kremlin could use this as a pretext to come and protect them. That is what outweighs any economic effect that could have.”

Brace yourself for a delay

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

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

“Growth and inflation are expected to slow in 2023, reflecting moderating external inflows and deteriorating global economic and financial conditions,” the IMF said in its note earlier this month.

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

According to the 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 for a long time. More than a third (35%) were unsure, almost a fifth (18%) planned 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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