These economies are booming as Putin’s war drives migrants and money out of Russia

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

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

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

The country’s initial wave accounts for nearly a quarter (23.4%) of all emigrants outside Russia through September, according to an online survey of 2,000 Russian migrants by research group Ponars Eurasia. The majority of the remaining Russian migrants fled to Turkey (24.9%), Armenia (15.1%) and “other” countries not listed (19%).

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

The International Monetary Fund now expects Georgia’s economy to grow by 10% in 2022, after revising its estimate upwards this month and more than tripling its April forecast of 3%.

“A war-triggered increase in immigration and financial flows” were among the reasons given for the increase. The IMF also sees host country Turkey growing 5% this year, while Armenia is expected to jump 11% thanks to “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 volumes of which 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 over the same period in 2021 — according to the National Bank of Georgia.

Meanwhile, Russians have opened more than 45,000 bank accounts in Georgia through September, nearly doubling the number of accounts held by Russians in the country.

Georgia’s strategic location and its historical and economic ties with Russia make it an obvious point of entry for Russian migrants. Meanwhile, its liberal immigration policy allows foreigners to live, work, and start businesses without needing a visa.

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

Turkey, for its part, granted residency permits to 118,626 Russians this year, according to government data, while a fifth of its overseas property sales in 2022 were by Russians. The Armenian government did not provide data on its migration figures or property purchases when contacted by CNBC.

Yet the economic impact surprised even the experts.

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

Admittedly, a significant portion of the upside comes after growth was decimated during the coronavirus pandemic. But Kukava said it’s also indicative of newcomers’ economic activity. And while an influx of tens of thousands may seem small – 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. 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 whom were wealthy and highly educated. The second wave, by comparison, was more likely to be driven by “fear,” he said, than by economic means.

One of the most visible impacts of newcomers 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 rose 74% over the year.

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

The Georgian lari is now trading at its highest level in three years.

However, not everyone is excited about Georgia’s new prospects. As a former Soviet republic that fought a short war with Russia in 2008, Georgia’s relations with Russia are complex and some Georgians fear the socio-political impact the arrivals could have.

Indeed, the 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’s Kukava worries it could also mark a ‘boom turned bang’ for Georgia’s economy: “‘Boom turned bang’ is when the plutocratic Russian government and this pariah country get take it out on them,” he said, referring to Russian emigrants. “That’s the fundamental concern in Georgia.”

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

Forecasters seem to take this uncertainty into account. The Georgian government and the National Bank have said they expect slower growth in 2023.

The IMF also forecasts a decline in growth to around 5% next year.

“Growth and inflation are expected to slow in 2023, due to moderating external flows 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 said at the time that they planned to stay in their initial host country for the long term. More than 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 assumption that these people will stay,” Kukava added.