Daily Management Review

Putin's Ukraine War Drives Migrants And Money Out Of Russia, Helping These Economies


Putin's Ukraine War Drives Migrants And Money Out Of Russia, Helping These Economies
While many economies are reeling from the consequences of Russia's invasion of Ukraine, a few countries are benefiting from an influx of Russian migrants and their associated wealth.
Georgia, a small former Soviet republic on Russia's southern border, is one of several Caucasus and surrounding countries, including Armenia and Turkey, whose economies have thrived despite the ongoing turmoil.
According to reports, at least 112,000 Russians have emigrated to Georgia this year. A first wave of nearly 43,000 arrived following Russia's invasion of Ukraine on February 24, while a second wave — the size of which is unknown — arrived following 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 accounts for nearly a quarter (23.4%) of all emigrants out of Russia up to September. The majority of the remaining Russian migrants (24.9%) have fled to Turkey, Armenia (15.1%), and unspecified "other" countries (19%).
The influx has had a significant impact on Georgia's economy, which was already on the mend following a Covid-19 slowdown, as well as the Georgian lari, which has gained 15% against a strong US dollar this year.
The IMF now expects Georgia's economy to grow by 10% in 2022, up from 3% in April.
“A surge in immigration and financial inflows triggered by the war,” were among the reasons cited for the uptick. The IMF also sees fellow host country Turkey growing 5% this year, while Armenia is set to surge 11% on the back of “large inflows of external income, capital, and labor into the country.”
This year has seen a dramatic increase in capital inflows, primarily from Russia. In October alone, Russia accounted for three-fifths (59.6%) of Georgia's foreign capital inflows, with total volumes increasing 725% year on year.
According to the National Bank of Georgia, Russians transferred $1.412 billion to Georgian accounts between February and October, more than four times the $314 million transferred during the same period in 2021.
Meanwhile, Russians opened over 45,000 bank accounts in Georgia between July and September, nearly doubling the number of Russian accounts in the country.
The strategic location of Georgia, as well as its historic and economic ties with Russia, make it an obvious entry point for Russian migrants. Meanwhile, its open immigration policy allows foreigners to live, work, and establish businesses without requiring a visa.
The country, like Armenia and Turkey, has resisted imposing Western sanctions on the pariah state, allowing Russians and their money to freely cross its border.
According to government data, Turkey has granted residency permits to 118,626 Russians this year, with Russians accounting for one-fifth of all foreign property sales in 2022. When CNBC contacted the Armenian government, it refused to provide data on migration or property purchases.
Even experts were taken aback by the economic impact.
“We’ve had double-digit growth, which no one 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 portion of the increase comes after the coronavirus pandemic decimated growth. However, according to Kukava, it is also indicative of the new arrivals' economic activity. And, while tens of thousands may appear insignificant — even for a country like Georgia, with a population of 3.7 million — it is more than ten times the 10,881 Russians who arrived in 2021.
“They’re highly active. 42,000 randomly selected Russian citizens wouldn’t have had this impact on the Georgian economy,” Kukava said, 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,” he said, than economic means.
The housing market in Georgia has been one of the most visible effects of the new arrivals. According to Georgian bank TBC, property prices in Tbilisi rose 20% year on year in September, while transactions increased 30%. Rents increased by 74% year on year.
According to Georgia's National Statistics Office, 12,093 new Russian companies were registered in Georgia between January and November of this year, more than 13 times the total number established in 2021.
The Georgian lari has reached a three-year high.
The Kremlin could use their presence as justification for additional interference or aggression.
However, not everyone is thrilled with Georgia's new outlook. Georgia's relationship with Russia is complicated as an ex-Soviet republic that fought a brief war with Russia in 2008, and some Georgians are concerned about the socio-political impact of the arrivals.
Indeed, the Hudson Institute, a Washington, D.C.-based think tank, has warned that "the Kremlin could use their presence as a pretext for further interference or aggression."
According to IDFI's Kukava, this could also be a "boom turned bang" for the Georgian economy: "'Boom turned bang' is when the Russian plutocratic government and this pariah country come after them," he says of Russian emigrants. "That is the primary concern in Georgia."
“Even though they are not a threat per se,” Kukava continued, describing the majority of migrants as “new generation” Russians, “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 aware of the uncertainty. The Georgian government and the National Bank have both stated that growth will slow in 2023.
The IMF predicts that growth will slow to around 5% next year.
“Growth and inflation are expected to slow in 2023, on the back of moderating external inflows, deteriorating global economic and financial conditions,” the IMF said in its note earlier this month.
″[That] indicates that the Georgian government does not expect they are going to stay,” Kukava said of the Russian arrivals.
According to a Ponars Eurasia survey conducted between March and April, less than half (43%) of Russian migrants stated that they intended to stay in their initial host country for the long term at the time. Over a third (35%) were undecided, nearly one-fifth (18%) planned to relocate, 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,” Kukava added.