Economies boom with Russian wealth, migration

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

Daro Sulakauri | Getty Images News | Getty Images

As many economies recover from the impact of the Russian invasion of Ukraine, a few selected countries benefit 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 surrounding countries, including Armenia and Turkey, to see their economies take a hit during the current turmoil.

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

The country’s initial wave accounts for almost a quarter (23.4%) of all emigres from Russia until September, according to an online survey of 2,000 Russian migrants conducted by research group Ponars Eurasia. The majority of the remaining Russian migrants fled to Turkey (24.9%), Armenia (15.1%) and unmentioned “other” countries (19%).

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

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

Mikheil 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 2022, after revising its estimate again this month and more than tripling its 3% forecast from April.

“A surge in immigration and financial inflows triggered by the war,” were among the reasons cited for the uptick. The IMF also sees fellow host country Turkey growing 5% this year, while Armenia’s is up 11% on the back of “large inflows of external income, capital, and labor into the country.”

Also Read :  Sugar Cosmetics posts Rs 222 Cr revenue in FY22, losses surge 3.6X

Georgia has benefited from a dramatic upswing in capital flows this year, particularly from Russia. Russia alone accounted for three-fifths (59.6%) of foreign capital flows from Georgia in October – the total volume of which increased 725% year-on-year.

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

Meanwhile, Russians opened more than 45,000 bank accounts in Georgia by September, nearly doubling the number of Russian accounts 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, their 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 imposing Western sanctions on the pariah state, allowing Russians and their money to move freely across its border.

Turkey, for its part, has residence permits to 118,626 Russians this year, according to government data, while one fifth of its foreign real estate sales in 2022 were from Russians. The Armenian government did not provide data on its migration numbers or property purchases when contacted by CNBC.

Nevertheless, the economic impact surprised even experts.

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

To be sure, much of the uptick comes after growth was decimated during the coronavirus pandemic. But Kukava said it is also indicative of the economic activity of the new arrivals. And while an inflow 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 throughout 2021.

“They are highly 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, were more likely to be motivated by “fear,” he said, than economic means.

‘boom got bang’

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

Elsewhere, 12,093 new Russian companies were registered in Georgia in January and November this year, more than 13 times the total number set for 2021, according to the Georgia 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 an ex-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 arrival could have.

Also Read :  Prices have not peaked yet, says Unilever CEO

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

IDFI Kukava worries, which could also mark a “boom turned bang” for the Georgian economy: “‘Boom has bang’ is when the Russian plutocratic government comes after them in this pariah country,” he said, referring to to Russian emigres. “That’s the basic concern in Georgia.”

“Even if they are not a threat per se,” Kukava continued, describing the majority of migrants as “new generation” Russians, “the Kremlin can use this as a pretext to protect them. have.”

Bracing for an extension

Forecasts 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 inflows, worsening global economic and financial conditions,” the IMF said in its note earlier this month.

“[That] shows that the Georgian government does not expect them to stay,” Kukava said about the Russian arrival.

According to the Ponars Eurasia survey, between March and April, less than half (43%) of Russian migrants said at that time that they planned to stay in their initial 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 the basis that these people will stay,” Kukava added.


Leave a Reply

Your email address will not be published.

Related Articles

Back to top button