Economies explode with Russian wealth, migration

Russians cross the Russia-Georgia border just days after President Vladimir Putin announced a mobilization campaign on Sept. 21.

Daro Sulakauri | Getty Images News | Getty Images

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

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

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 determine – entered after Putin’s military mobilization in September.

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

The inflow had a huge impact on Georgia’s economy – already on the upswing following a Covid-19 slowdown – and the Georgian lari, which rose 15% vs. a strong US dollar so far this year.

We had double-digit growth, which nobody expected.

Mikheil Kukava

head of economic and social policies, 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 upwards again this month and more than tripling its forecast to 3% since April.

“An increase in immigration and war-triggered financial inflows” were among the reasons given for the increase. The IMF also sees host country Turkey growing 5% this year, while Armenia is set to rise 11% on the back of “large inflows of foreign income, capital and labor into the country”.

Georgia has benefited this year from a dramatic increase in capital inflows, mainly from Russia. Russia accounted for three-fifths (59.6%) of Georgia’s foreign capital inflows in October alone, with total volumes rising 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 have opened more than 45,000 bank accounts in Georgia as of September, nearly doubling the number of accounts held by Russians in the country.

“Highly active” migrants.

Georgia’s strategic location and its historical and economic ties to Russia make it an obvious entry point for Russian migrants. Meanwhile, its liberal immigration policy allows foreigners to live, work and start businesses visa-free.

Like Armenia and Turkey, the country has resisted the application of Western sanctions on the pariah state, letting Russians and their money move freely across its border.

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

However, the economic impact has surprised even experts.

Both Ukrainian refugees and Russian émigrés fled to Georgia, a former Soviet republic with its own history of conflict with Russia, following that country’s invasion of Ukraine on 24 February.

Daro Sulakauri | Getty Images News | Getty Images

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

To be sure, a significant portion of the increase 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 — that’s more than 10 times the 10,881 Russians who arrived during 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. The second wave, by comparison, were more likely to be motivated to leave by “fear,” she said, than by economic means.

‘boom turned bang’

One of the most visible impacts of the newcomers has been on the Georgian real estate market. Property prices in the capital, Tbilisi, rose 20% year on year in September and transactions increased 30%, according to Georgian bank TBC. Rents are up 74% over the year.

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

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 excited about the new prospects for Georgia. As a former Soviet republic that fought a short war with Russia in 2008, Georgia’s relationship with Russia is complex and some Georgians fear the socio-political impact the arrivals could have.

Indeed, the Washington-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 concerns could also signal a “boom gone bang” for the Georgian economy: “‘Boom gone bang’ is when Russia’s plutocratic government and this pariah country are after them,” he said, referring to Russian émigrés. “That’s the primary concern in Georgia.”

“Even if they are not a threat per se,” Kukava continued, describing most of the migrants as “new generation” Russians, “the Kremlin could use this as a pretext to come and protect them. This is what outweighs any effect cheap it could have.”

Prepare for a slowdown

Forecasters 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 expects growth to fall to around 5% next year.

“Growth and inflation are expected to slow in 2023 on the back of 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 Ponars Eurasia’s survey, conducted between March and April, less than half (43%) of Russian migrants said at the time they would like to stay long in their initial host country. Over a third (35%) were undecided, nearly 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,” added Kukava.


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