Economies boom with Russian wealth, migration

With many economies impacted by Russia’s aggression in Ukraine, a select few countries are benefiting from the influx of Russian immigrants and the wealth that accompanies them.

Georgia, a small former Soviet republic on Russia’s southern border, is among a number of Caucasus and neighboring countries, including Armenia and Turkey, that have seen their economies develop amid ongoing instability.

According to reports, at least 112,000 Russians have moved to Georgia this year. A first wave of about 43,000 arrived after Russia’s invasion of Ukraine on February 24, while a second wave – the number of which is difficult to determine – entered after Putin’s military mobilization operation in September.

The country’s initial wave accounted for nearly a quarter (23.4%) of all migrants leaving Russia as of September, according to an online survey of 2,000 Russian migrants conducted by the Ponars Eurasia research group. Most of the remaining Russian emigrants fled to Turkey (24.9%), Armenia (15.1%) and undisclosed “other” countries (19%).

The arrival has had an external impact on Georgia’s economy – already post-Covid-19 recession – and the Georgian lorry, which grew by 15%. A strong US dollar Until this year.

The International Monetary Fund now expects Georgia’s economy to grow 10% in 2022, revising its estimate again this month and tripling its 3% forecast from April.

Among the reasons cited for the increase were “surges of financial inflows resulting from immigration and war”. The IMF sees fellow host country Turkey growing by 5% this year, while Armenia will grow by 11% on the back 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 accounted for three-fifths (59.6%) of Georgia’s foreign capital flows in October alone – with the total volume up 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 as of September, nearly doubling the number of Russian-held accounts in the country.

Georgia’s strategic location and its historical and economic ties to Russia make it an obvious entry point for Russian immigrants. 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 enforcing Western sanctions on the pariah state, leaving Russians and their money to flow freely across its borders.

Turkey, for its part, granted residence permits to 118,626 Russians this year, according to official data, while one-fifth of its foreign property sales in 2022 were to Russians. The Armenian government did not provide its migration statistics or property purchase data when contacted by CNBC.

Still, the economic impact has surprised even experts.

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

To be sure, a significant proportion of the increase comes after growth slowed during the coronavirus pandemic. But Kukava says it also indicates the economic activity of new arrivals. And while the influx of thousands of people may seem minimal — even for a country like Georgia, which has a population of 3.7 million — it’s 10 times more than the 10,881 Russians arriving in 2021.

“They are very active. 42,000 randomly selected Russian citizens will not have this impact on the Georgian economy,” Kukava said, referring to the first wave of immigrants, many of whom are wealthy and highly educated. The second wave, by comparison, was more likely to be motivated to leave by “fear” than economic means, he said.

One of the most visible impacts of the new arrivals has been 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 are up 74% year over year.

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

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

However, not everyone is enthusiastic about the new vision 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 that the arrivals could have socio-political implications.

Indeed, the Washington, DC-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 could mark a “boom turned bang” for the Georgian economy: “The ‘boom turned bang’ is when the Russian plutocratic government and this pariah country come after them,” he said, referring to the Russian diaspora. “That’s Georgia’s main concern.”

“Even though they are not a threat in themselves,” Kukava added, describing the majority of immigrants as “new generation” Russians, “the Kremlin can come in and use that as an excuse to protect them. That outweighs any economic impact that might have.” “

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

The IMF sees growth falling to around 5 percent next year.

“Growth and inflation are expected to moderate in 2023, due to modest outflows, 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 arrival.

According to the Ponars Eurasia survey, conducted between March and April, less than half (43%) of Russian immigrants said at the time that they planned to stay in their primary host country long-term. More than a third (35%) were undecided, about 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 have these people based on our economic projections,” Kukava added.