Economies are booming 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 arrived after Russia’s invasion of Ukraine on February 24, while a second wave — the number of which is more difficult to pinpoint — arrived after Putin’s military mobilization in September.

The country’s first wave accounts for nearly a quarter (23.4%) of all emigrants from Russia through September, according to an online survey of 2,000 Russian migrants conducted 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 grow 10% in 2022, after revising its estimate again this month and more than tripling April’s 3% forecast.

“A wave of immigration and financial inflows caused by the war” were some of the reasons cited for the uptick. The IMF also sees host country Turkey growing 5% this year, while Armenia will rise 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, mainly from Russia. In October alone, Russia accounted for three-fifths (59.6%) of Georgia’s foreign capital inflows – whose total volumes rose 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 opened more than 45,000 bank accounts in Georgia through September, nearly doubling the number of Russian accounts in the country.

‘Highly active’ migrants

Georgia’s strategic location and historical and economic ties to Russia make it an obvious gateway for Russian migrants. Meanwhile, liberal immigration policies allow foreigners to live, work and set up businesses without a visa.

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

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

Still, the economic impact has surprised even experts.

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. Property prices in the capital Tbilisi rose 20% year-on-year in September and transactions rose 30%, according to Georgian bank TBC. Rents rose 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 main 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, due to 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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