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As Putin's War Drives Migrants and Money out of Russia, these Economies are Booming

As economies around the world struggle to cope with the fallout from Russia's invasion of Ukraine, a handful of countries are actually benefiting from an influx of Russian migrants and their accompanying wealth.

November 25, 2022
13 minutes
minute read

As economies around the world struggle to cope with the fallout from Russia's invasion of Ukraine, a handful of countries are actually benefiting from an influx of Russian migrants and their accompanying wealth.

Georgia, a small former Soviet republic on Russia’s southern border, is among several Caucasus and surrounding countries that have seen their economies boom amid the ongoing turmoil. This includes Armenia and Turkey.

According to reports, at least 112,000 Russians have emigrated to Georgia this year. A first wave of almost 43,000 arrived following Russia’s invasion of Ukraine on Feb. 24, while a second wave – whose number is harder to determine – entered after Putin’s military mobilization drive in September.

According to an online survey of 2,000 Russian migrants conducted by research group Ponars Eurasia, the country’s initial wave of emigration accounts for almost a quarter (23.4%) of the total. The majority of the remaining Russian migrants have fled to Turkey (24.9%), Armenia (15.1%), and other countries (19%).

The influx of people into Georgia has had a significant impact on the country's economy. Georgia was already seeing an uptick in economic activity following a slowdown due to Covid-19, and this influx has further boosted the economy. The Georgian lari has also strengthened against the US dollar, rising by 15% so far this year.

The International Monetary Fund has revised its estimate for Georgia's economic growth in 2022 up to 10%, more than triple its original forecast of 3% from April. This is the second revision the IMF has made this month.

According to the IMF, the war has led to increased immigration and financial inflows, which have contributed to higher growth rates in Turkey and Armenia. Turkey is expected to grow by 5% this year, while Armenia is set to surge by 11% due to large inflows of external income, capital, and labor.

Georgia has seen a significant increase in capital inflows this year, largely from Russia. In October, Russia made up for over half of Georgia's foreign capital inflows, which saw a 725% year-over-year growth.

According to the National Bank of Georgia, Russians transferred $1.412 billion to Georgian accounts between February and October of 2021, more than four times the $314 million transferred over the same period in 2020.

Meanwhile, the number of bank accounts held by Russians in Georgia has almost doubled, to 45,000 as of September.

Georgia's location and economic ties to Russia make it an attractive destination for Russian migrants. Its liberal immigration policy allows foreigners to live and work in the country without a visa.

Armenia and Turkey have both resisted enforcing Western sanctions on Russia, leaving Russians and their money free to move across their borders.

Turkey has seen a surge in Russian migrants in recent years, with 118,626 Russians receiving residence permits this year alone. This trend is reflected in the property market, with one-fifth of all foreign property sales in Turkey in 2022 being made by Russians. The Armenian government did not provide data on its migration figures or property purchases when contacted by CNBC.

The economic impact of the pandemic has been surprising, even to experts.

"We've had double-digit growth, which is higher than anyone expected," Mikheil Kukava, head of economic and social policy at Georgian think tank the Institute for Development of Freedom of Information (IDFI), told CNBC via zoom.

To be sure, a significant proportion of the uptick in economic activity comes after growth was decimated during the coronavirus pandemic. But Kukava said it is also indicative of the economic activity of the new arrivals. And while an inflow of tens of thousands may appear minimal — even for a country like Georgia, with a modest population of 3.7 million — it is more than 10 times the 10,881 Russians who arrived through all of 2021.

"The first wave of migrants, many of them wealthy and highly educated, had a much greater impact on the Georgian economy than the second wave," Kukava said. The second wave of migrants was more likely to be motivated by "fear" than by economic opportunity, he said.

The influx of new arrivals has had a significant impact on Georgia's housing market. Property prices in the capital, Tbilisi, rose 20% year-on-year in September, and transactions were up 30%. Rents soared 74% over the year. This increase in demand has put pressure on the housing market, leading to higher prices and rents.

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

The Georgian lari is currently trading at a three-year high. This is good news for the Georgian economy, as a strong lari means more foreign investment and economic growth.

However, not everyone in Georgia is enthusiastic about the new outlook for the country. As an ex-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.

The Hudson Institute, a think tank based in Washington, D.C., has warned that the presence of Russian troops in Syria could be used by the Kremlin as a pretext for further interference or aggression.

Kukava worries that the Georgian economy could experience a "boom turned bang" if the Russian government and its emigres turn against them. He believes this is a real concern for Georgia.

Kukava continued, describing the majority of migrants as "new generation" Russians. "Even though they are not a threat per se," he said, "the Kremlin might use this as a pretext to come and protect them. That's what outweighs any economic effect that might have."

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

The International Monetary Fund (IMF) has revised its growth forecast for China down to around 5% for next year. This is a significant drop from the IMF's previous forecast of 6.8% growth.

The IMF said in a note earlier this month that growth and inflation are expected to slow in 2023, due to moderating external inflows and deteriorating global economic and financial conditions.

Kukava said that the Russian arrivals indicate that the Georgian government does not expect them to stay.

Ponars Eurasia's survey, conducted between March and April, found that less than half (43%) of Russian migrants said they planned to stay in their initial host country long term. Over a third (35%) were undecided, almost one-fifth (18%) intended to move elsewhere, and just 3% planned to return to Russia.

Kukava noted that both the government and the National Bank would be better off if they didn't base their economic assumptions on the assumption that people would stay.

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