Economies boom with Russian wealth, migration

Written by

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

Daro Sulakauri | Getty Images News | Getty Images

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

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

At least 112,000 Russians have emigrated to Georgia this year, according to reports. A first wave of nearly 43,000 arrived after Russia’s invasion of Ukraine on February 24while another wave – whose number is harder to determine – entered after Putin’s military mobilization effort in September.

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

The influx has had an overall impact on Georgia’s economy – already recovering after a Covid-19 slowdown – and the Georgian lari, which has risen 15% from a strong US dollar so far this year.

We have 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% in 2022after revising its estimate again this month and more than tripling it 3% forecast from April.

“An increase in immigration and economic inflows triggered by the war,” were among the reasons cited for the increase. The IMF also sees host country Turkey growing 5% this year, while Armenia will increase by 11% on the basis of “large inflows of external income, capital and labor into the country.”

Georgia has benefited from a dramatic increase in capital inflows this year, primarily from Russia. Russia was responsible three fifths (59.6%) of Georgia’s foreign capital inflows in October alone — whose total volumes rose 725% year-over-year.

Between February and October, Russians transferred DKK 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, the 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 émigrés have fled to Georgia, a former Soviet republic with its own history of conflict with Russia, following its February 24 invasion of Ukraine.

Daro Sulakauri | Getty Images News | Getty Images

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

Admittedly, a significant portion of the increase comes after growth was decimated during the coronavirus pandemic. But Kukava said it is also a sign 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 is more than 10 times that 10,881 Russians who arrived throughout 2021.

“They are very active. 42,000 randomly selected Russian citizens would not have had this impact on the Georgian economy,” Kukava 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 economic means.

‘Boom went off’

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

Elsewhere, 12,093 new Russian companies were registered in Georgia from January to November this year, 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 enthusiastic about the new prospects for Georgia. 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 has warned that “the Kremlin could use their presence as a pretext for further interference or aggression.”

IDFI’s Kukava worries that could also mark a “boom turned bang” for the Georgian economy: “‘Boom turned 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.”

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

Preparing for a deceleration

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 sees growth falling to around 5% next year.

“Growth and inflation are expected to slow in 2023 on the back of moderating external access, worsening 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 Ponar Eurasia’s 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%) were undecided, almost a 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,” Kukava added.

About the author

Leave a Comment