Economy booms with Russian wealth, migration

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

Daro Sulakauri | News from Getty Images | Getty Images

While many economies are suffering from the impact of Russia’s invasion of Ukraine, a select few countries are benefiting from the influx of Russian migrants and the accompanying wealth.

Georgia, a small former Soviet republic on Russia’s southern border, is among several Caucasian and surrounding countries, including Armenia and Turkey, whose economies are thriving amid ongoing turmoil.

At least 112,000 Russians have immigrated to Georgia this year, according to reports. The first wave of almost 43,000 arrived after Russia’s invasion of Ukraine on February 24, while a second wave – the number of which is harder to determine – arrived after Putin’s military mobilization in September.

The country’s initial wave accounted for almost 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. The majority of the remaining Russian migrants fled to Turkey (24.9%), Armenia (15.1%) and unquoted “other” countries (19%).

The influx had a huge impact on Georgia’s economy — already up after the Covid-19 slowdown — and the Georgian lari, which rose 15% against strong US dollar so far this year.

We had double-digit growth, which no one 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 grow by 10 percent in 2022, after revising its estimate again this month and more than tripling its 3 percent forecast from April.

“A surge in immigration and war-induced financial flows” were among the reasons cited for the rise. The IMF also projects host country Turkey to grow by 5% this year, while Armenia is expected to grow by 11% on the back of “large inflows of foreign income, capital and labor into the country”.

Georgia has benefited from a dramatic surge in capital inflows this year, mostly from Russia. Russia accounted for three-fifths (59.6%) of foreign capital inflows into Georgia in October alone — the total volume of which increased by 725% year-on-year.

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

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

“Highly active” migrants

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

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

Turkey, for its part, granted residence permits to 118,626 Russians this year, according to government data, while a fifth of property sales abroad in 2022 were to Russians. The Armenian government did not provide data on migration data or property purchases when contacted by CNBC.

Yet the economic effect 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, since that country’s February 24 invasion of Ukraine.

Daro Sulakauri | News from Getty Images | 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.

Certainly, a significant part of the uplift comes after growth was destroyed during the coronavirus pandemic. But Kukawa said it was also indicative of the economic activity of the new arrivals. 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’s 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 this impact on the Georgian economy,” Kukawa said, referring to the first wave of migrants, many of them wealthy and highly educated. The second wave, by comparison, was more likely to be motivated to leave by “fear,” he said, than by economic means.

“Boom turn bang”

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

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

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

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

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

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

IDFI’s Kukava worries that this could also mark a ‘boom-turned-thunder’ for the Georgian economy: “A ‘boom-turned-thunder’ is when the Russian plutocratic government and this pariah country come after them,” he said , referring to the Russian emigrants. “That’s the main concern in Georgia.”

“Although they are not a threat in themselves,” Kukawa continued, describing the majority of migrants as “new generation” Russians, “the Kremlin can use this as a pretext to come and protect them. That’s what outweighs any economic effect I might have.”

Preparing for a delay

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

The IMF also predicts a drop in growth to around 5% next year.

“Growth and inflation are expected to decelerate in 2023 amid slowing external inflows, worsening global economic and financial conditions,” the IMF said in a note earlier this month.

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

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

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

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