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

Russians cross the border between Russia and Georgia, days after President Vladimir Putin announced an unification campaign on September 21.

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As the fallout from Russia’s invasion of Ukraine affects many economies, select 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 one of several Caucasus and surrounding countries, including Armenia and Turkey, that have seen their economies flourish amid the ongoing turmoil.

At least 112,000 Russians have immigrated to Georgia this year, According to reports. A first wave of nearly 43,000 followed Russia invades Ukraine on February 24A second wave — the number of which is difficult to determine — entered after Putin Army mass campaign in September.

The country’s initial wave accounted for nearly a quarter (23.4%) of those who left Russia as of September. Online survey of 2,000 Russian immigrants Organized by the research group Ponars Eurasia. Most of the remaining Russian emigrants fled to Turkey (24.9%), Armenia (15.1%) and unknown “other” countries (19%).

The influx has had a major impact on Georgia’s economy – already surging after the Covid-19 recession – and the Georgian lari, which has appreciated by 15%. A strong US dollar So far this year.

We have double digit growth, which no one expected.

Mikhail Kukawa

Head of Economic and Social Policy, Freedom of Information Development Agency

The International Monetary Fund now expects Georgia’s economy to recover 10% increase in 2022By revising his forecast again this month and more than tripling 3% estimate From April.

“Increased immigration and economic flows caused by the war,” was one of the reasons for the increase. The IMF also sees the co-host country Turkey is growing by 5% this year Armenia will grow by 11% “Large flow of external income, capital and labor into the country.”

Georgia has benefited from a dramatic increase in capital flows this year, mainly from Russia. Account of Russia Three fifths (59.6%) The flow of foreign capital to Georgia increased by 725% year-on-year – in October alone.

Between February and October, Russian $1.412 billion transferred In Georgian accounts – according to the National Bank of Georgia – four times the $314 million transferred in the same period in 2021.

Meanwhile, opened more than Russian 45,000 bank accounts As of September in Georgia, the number of Russian-held accounts in the country has almost doubled.

‘Highly active’ migrants

Both Ukrainian refugees and Russian migrants have fled to Georgia, which has its own history of conflict with Russia, following that country’s February 24 invasion of Ukraine.

Daro Sulakouri | Getty Images News | Getty Images

“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.

Certainly, a significant amount of growth comes after growth was destroyed during the coronavirus pandemic. But Kukawa said it is also indicative of the economic activity of new arrivals. And while the influx of millennials may seem minimal — even for a country like Georgia, which has a population of 3.7 million — it’s 10 times higher. 10,881 Russians who arrived in 2021 as a whole.

“They are extremely active. 42,000 randomly selected Russian citizens would not have had this impact on the Georgian economy,” Kukawa 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 financial means.

‘Boom Turn Bang’

New arrivals have had the biggest impact on Georgia’s housing market. Property prices in the capital Tbilisi, 20% increase year on year in September and transactions were up 30%, according to Georgian Bank TBC. Rents increased by 74% during the year.

Elsewhere, 12,093 new Russian companies were registered in Georgia between January and November this year, 13 times more than the total number established 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 intervention or aggression.

However, not everyone is enthusiastic about Georgia’s new approach. As a former Soviet republic that fought a short war with Russia in 2008, Georgia’s relationship with Russia is complicated, and some Georgians fear the socio-political ramifications of the arrival.

Indeed, the Washington, DC-based think tank Hudson Institute has warned that “the Kremlin could use their presence as a pretext for further intervention or aggression.”

IDFI’s Kukawa worries that it could also mark a “boom turn bang” for the Georgian economy: “‘Boom turn bang’ is when the Russian plutocratic government and this pariah country come after them,” he said, referring to Russian immigrants. “That’s the fundamental concern in Georgia.”

“Even if that’s not a threat in itself,” Kukawa added, describing the majority of immigrants as “new generation” Russians, “the Kremlin can come and use that to protect them. That’s more than any economic impact. It is.”

Bracing for recession

Forecasters seem to take this uncertainty into account. Both the Georgian government and the National Bank expect growth to slow in 2023.

The IMF expects growth to fall to around 5% next year.

“Growth and inflation are expected to slow in 2023, as external inflows decline, worsening global economic and financial conditions,” the IMF said in its note earlier this month.

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

According to a 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 initial host country for a long time. More than a third (35%) were undecided, almost one-fifth (18%) wanted to move elsewhere, and only 3% planned to return to Russia.

“We are better off – the government and the National Bank – if we don’t base our economic assumptions on the premise that these people will stay,” Kukawa added.

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