From Russia with Money: Georgia thrives as Russians flee Putin’s war

TBILISI (Reuters) – As war chokes Europe, a small country trapped under Russia is enjoying an unexpected economic boom.

Georgia is on track to become one of the world’s fastest growing economies this year after the massive influx of more than 100,000 Russians since Moscow’s invasion of Ukraine and Vladimir Putin’s mobilization campaign for war recruits.

With much of the world teetering into recession, this Black Sea nation of 3.7 million is expected to register a robust 10% growth in economic output for 2022 amid a consumption-led boom, according to international institutions.

That would see the modest $19 billion economy known in the region for its mountains, forests and wine valleys, bypassing supercharged emerging markets like Vietnam and oil exporters like Kuwait buoyed by high crude prices.

“On the economic side, Georgia is doing very well,” Vakhtang Butcheridze, CEO of the country’s largest bank, TBC, told Reuters in an interview at its headquarters in Tbilisi.

“There is a kind of prosperity,” he added. “Every industry is doing well from micro to corporate. I can’t think of any industry that has problems this year.”

Border crossing statistics showed that at least 112,000 Russians immigrated to Georgia this year. The first large wave of 43,000 people arrived after Russia’s invasion of Ukraine on February 24 and Putin moved to crush opposition to the war at home, according to the government of Georgia, with a second wave emerging after Putin announced a nationwide mobilization campaign in late September.

Georgia’s economic boom – short-lived or not – has baffled many experts who have seen dire consequences from the war on the former Soviet republic, whose economic fortunes are closely tied to its larger neighbor through exports and tourists.

For example, the European Bank for Reconstruction and Development (EBRD) predicted in March that the conflict in Ukraine would deal a major blow to the Georgian economy. Similarly, the World Bank in April projected that growth in the country for 2022 would fall to 2.5% from 5.5% initially.

“Despite all the expectations we had… that this war on Ukraine would have significant negative effects on the Georgian economy, so far we don’t see the realization of these risks,” said Dimitar Bogov, EBRD’s chief economist for Eastern Europe. . Caucasus.

“On the contrary, we see the Georgian economy growing well this year, in double digits.”

However, the stellar growth does not benefit everyone, with tens of thousands of Russians, and many tech professionals arriving with lots of money, driving up prices and driving some Georgians out of parts of the economy such as the housing rental market and education.

Business leaders also worry that the country could face a hard landing if the war ends and the Russians go home.

To Georgia for a billion dollars

Georgia itself fought a brief war with Russia in 2008 over South Ossetia and Abkhazia, territories controlled by Russian-backed separatists.

Now, though, Georgia’s economy is reaping the benefits of its proximity to a superpower — the two share a land border crossing — and a liberal immigration policy that allows Russians and people from many other countries to live, work and set up business in the country without the need for a visa.

Moreover, fleeing from the Russian war is accompanied by a wave of money.

Between April and September, Russians transferred more than $1 billion to Georgia via banks or money transfer services, which is five times higher than the same months in 2021, according to the Georgian Central Bank.

This influx helped push the Georgian lari to its strongest level in three years.

Nearly half of Russian arrivals are from the tech sector, according to TBC CEO Potskritze, and local media, who chime in with surveys and estimates from Russia’s industry figures that have indicated an exodus of tens of thousands of highly mobile IT workers after invasion. Ukraine.

“These are classy and wealthy people… who come to Georgia with some business ideas and dramatically increase consumption,” said Davit Kishelava, senior researcher at the International School of Economics at Tbilisi State University (ISET).

“We expected the war to have many negative effects,” he added. “But it turned out to be completely different. And it turned out to be positive.”

There are no rooms in Tbilisi

Nowhere is the impact of the new arrivals more evident than in the capital’s rental housing market, where rising demand is exacerbating tensions.

Rents in Tbilisi are up 75% this year, according to an analysis by TBC, and some low-income earners and students are finding themselves at the center of what activists say is a growing housing crisis.

Georgian Nana Shunya, 19, agreed to a two-year deal for a downtown apartment for $150 a month, just weeks before Russia invaded. In July, the homeowner evicts her, forcing her to move to a harsh neighborhood on the edge of town.

“It used to take me 10 minutes to get to work. Now the minimum is 40 minutes, I have to take the bus and metro and often get stuck in traffic jams,” she said, attributing the change in market dynamics to the increase in new arrivals.

Helen Jose, a 21-year-old Indian medical student, crashed into her friend’s house for a month after her rent doubled during the summer holidays.

“Previously it was very easy to find an apartment. But many of my friends were asked to leave, because there are Russians willing to pay more than us,” she said.

University figures also reported that large numbers of students are delaying their studies in Tbilisi because they cannot afford accommodation in the city, said Kishelava at ISET.

‘Crisis can strike’

TBC’s Potskrekidze said he saw the potential of the new arrivals to fill skills gaps in the Georgian economy.

“They are young, technologically educated and have the knowledge – for us and for other Georgian companies, this is a very useful opportunity,” he said.

“The main challenge for us is technology. Unfortunately in this aspect we are competing with high-tech companies in the United States and Europe,” he added. “To get a quick win, these immigrants are very helpful.”

However, economists and businesses remain concerned about the long-term negative effects of the war, and what might happen if Russians go home.

“We don’t base our future plans on new arrivals,” said Shio Khetsuriani, CEO of Archi, one of Georgia’s largest property developers.

Even with rising rental prices, Khatsuriani says developers are not keen on over-investing in the housing market, especially with soaring prices for materials and equipment. He said that while landlords may be benefiting from higher rents, profit margins for apartment sales have hardly changed.

Economists also warn that the boom may not last, and encourage the Georgian government to use good tax revenues to pay down debt and build up foreign exchange reserves while it can.

“We have to realize that all these factors that drive growth this year are temporary, and do not guarantee sustainable growth in the following years, so caution should be exercised,” said Bogov of the EBRD.

“The uncertainty remains, and the crisis may hit Georgia with some delay,” he added.

Reporting by Jake Cordell. Additional reporting by David Chikvichvili. Editing by Guy Faulconbridge and Praveen Shar

Our criteria: Thomson Reuters Trust Principles.