Economies are booming with Russian wealth, migration

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

Daro Sulakauri | News from Getty Images | Getty Images

While many economies are suffering from the effects of the Russian invasion of Ukraine, a select few countries are benefiting from an influx of Russian migrants and the wealth that comes with them.

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

At least 112,000 Russians are reported to have migrated to Georgia this year. A first wave of nearly 43,000 arrived after Russia’s invasion of Ukraine on February 24, while a second wave — harder to pinpoint numbers — arrived after Putin’s military mobilization campaign in September.

By September, the country’s first wave accounted for almost a quarter (23.4%) of all emigrants from Russia, 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 inflow has had an outsized impact on the Georgian economy – already on the up after a slowdown caused by Covid-19 – and the Georgian lari, which, in contrast, is up 15% a strong US dollar so far this year.

We had double-digit growth, which nobody expected.

Mikhail Kukawa

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 upwards again this month and more than tripling its April 3% forecast.

The reasons given for the increase included “an immigration surge triggered by the war and financial inflows”. The IMF also expects host country Turkey to grow 5% this year, while Armenia will grow 11% on “large inflows of external income, capital and labor into the country”.

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

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

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 historical and economic ties to Russia make it an obvious entry point for Russian migrants. Liberal immigration policies allow foreigners to live, work and start businesses without a visa.

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

For its part, Turkey has granted residence permits to 118,626 Russians this year, according to government figures, while a fifth of its foreign property sales in 2022 were made by Russians. The Armenian government has not provided any data on its migration numbers or property purchases when asked 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, following the February 24 invasion of Ukraine.

Daro Sulakauri | News from Getty Images | Getty Images

“We had double-digit growth, which nobody expected,” Mikheil Kukava, head of economic and social policy at Georgia’s think tank Institute for Development of Freedom of Information (IDFI), told CNBC via Zoom.

Certainly, a significant portion of the upside comes after growth was decimated during the coronavirus pandemic. But Kukava said it was also an indication of the economic activity of the newcomers. 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.

“You 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. In comparison, the second wave was motivated more by “fear” to leave than by economic means.

“Boom became a bang”

One of the most visible impacts of the new arrivals has been on the Georgian housing market. Property prices in the capital Tbilisi rose 20% year-on-year and transactions rose 30% in September, according to Georgian bank TBC. Rents rose 74% over 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 established in 2021, according to the Georgian National Bureau of Statistics.

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

The Kremlin could use their presence as an excuse 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 of the arrivals.

In fact, the Washington, DC-based think tank, the Hudson Institute, has warned that “the Kremlin could use their presence as an excuse for further interference or aggression.”

IDFI’s Kukava fears it could also mean a ‘boom-turn-bang’ for Georgia’s economy: “‘Boom-turn-bang’ is when the Russian plutocratic government and this pariah country are after them,” said he, referring to Russian émigrés. “That is the basic concern in Georgia.”

“Even if they don’t pose a threat per se,” Kukava continued, describing the majority of the migrants as “new generation” Russians, “the Kremlin could use this as an excuse to come and protect them.”

Prepare for a slowdown

Forecasts seem to take this uncertainty into account. Both the government of Georgia and the National Bank have said that they expect growth to slow in 2023.

The IMF also assumes that growth will fall to around 5% next year.

“Growth and inflation are expected to decelerate in 2023, reflecting weakening external inflows and deteriorating global economic and financial conditions,” the IMF said in its statement earlier this month.

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

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

“We’re better off — both the government and the national bank — if we don’t base our economic assumptions on these people staying,” Kukava added.