- At least 112,000 Russians move to neighboring Georgia
- Georgia is expected to be one of the fastest growing economies
- Some residents are deprived of housing, education
- The economy could face a hard landing if newcomers leave
TBILISI, Nov 5 (Reuters) – As war suffocates Europe, a small nation pinned under Russia is experiencing an unexpected economic boom.
Georgia is on track to become one of the fastest growing economies in the world this year after a dramatic influx of more than 100,000 Russians since Moscow’s invasion of Ukraine and Vladimir Putin’s mobilization campaign to recruit war recruits.
With much of the world teetering into recession, this Black Sea nation of 3.7 million is expected to record robust 10% growth in economic output for 2022 amid rising consumption, according to international institutions.
That would see the modest $19 billion economy, well known in the region for its mountains, forests and wine-growing valleys, overtake supercharged emerging markets such as Vietnam and oil exporters such as Kuwait, buoyed by prices. raised from crude.
“Economically, Georgia is doing very well,” Vakhtang Butskhrikidze, CEO of the country’s largest bank, TBC, told Reuters in an interview at the Tbilisi headquarters.
“There is a kind of boom,” he added. “All industries are doing very well, from micro to enterprise. I can’t think of any industry that’s having trouble this year.”
At least 112,000 Russians have emigrated to Georgia this year, according to border crossing statistics. A first big wave of 43,000 people arrived after Russia invaded Ukraine on February 24 and Putin decided to crush opposition to the war in his country, according to the Georgian government, with a second wave after that Putin announced the national mobilization campaign at the end of September.
Georgia’s economic boom – whether short-lived or not – has baffled many pundits who have seen the disastrous consequences of the war for the former Soviet republic, whose economic fortunes are intertwined with its larger neighbor by exports and tourists.
The European Bank for Reconstruction and Development (EBRD), for example, predicted in March that the conflict in Ukraine would deal a severe blow to the Georgian economy. Similarly, the World Bank predicted in April that the country’s growth for 2022 would fall to 2.5% from 5.5% initially.
“Despite all the expectations we had…that this war against Ukraine will have significant negative implications for the Georgian economy, so far we do not see the materialization of these risks,” said Dimitar Bogov, Senior Economist from the EBRD for Eastern Europe and the Caucasus.
“On the contrary, we see the Georgian economy growing quite well this year, in double digits.”
Yet the meteoric growth isn’t benefiting everyone, with tens of thousands of Russians arriving, many tech professionals with big money, driving up prices and crowding out some Georgians from parts of the world. economy such as the housing rental market and education.
Business leaders also fear the country could face a hard landing if the war ends and the Russians return home.
TO GEORGIA WITH $1 BILLION
Georgia itself fought a short war with Russia in 2008 over South Ossetia and Abkhazia, territories controlled by Russian-backed separatists.
Today, however, Georgia’s economy is reaping the benefits of its proximity to the superpower – the two share a land border crossing – and a liberal immigration policy that allows Russians and nationals of many other countries to live , to work and set up businesses in the country without the need for a visa.
In addition, those fleeing the Russian war are accompanied by a wave of money.
Between April and September, Russians transferred more than $1 billion to Georgia through banks or money transfer services, five times more than in the same months of 2021, according to Georgia’s central bank.
This influx helped push the Georgian lari to its highest level in three years.
About half of Russian arrivals are from the tech sector, according to TBC CEO Butskhrikidze and local media, echoing surveys and estimates by industry figures in Russia that pointed to an exodus of tens of thousands of highly mobile IT workers after the invasion. from Ukraine.
“These are high-end people, rich people … coming to Georgia with business ideas and dramatically increasing their consumption,” said Davit Keshelava, senior fellow at the International School of Economics at the State University of Georgia. Tbilisi (ISET).
“We expected the war to have a lot of negative impacts,” he added. “But it turned out quite different. It turned out positive.”
NO ROOMS IN TBILISI
Nowhere is the impact of new arrivals more evident than in the capital’s rental market, where rising demand is adding to tensions.
Rents in Tbilisi have risen by 75% this year, according to analysis by TBC bank, and some low-income earners and students find themselves at the center of what activists say is a growing housing crisis.
Georgian Nana Shonia, 19, agreed to a two-year contract for a downtown apartment at $150 a month just weeks before Russia invaded. In July, her landlord kicked her out, forcing her to move to a tough neighborhood on the outskirts of town.
“Before, it took me 10 minutes to get to work. Now it’s a minimum of 40, I have to take a bus and the metro and I’m often stuck in traffic jams,” she said, attributing the change in market dynamics to soaring. new arrivals.
Helen Jose, a 21-year-old medical student from India, crashed at her friend’s house for a month after her rent doubled over the summer vacation.
“Before, it was very easy to find an apartment. But many of my friends were told to leave, because there are Russians willing to pay more than us,” she said.
University figures also signaled a significant number of students delaying their studies in Tbilisi because they cannot afford housing in the city, ISET’s Keshelava said.
“THE CRISIS COULD HAPPEN”
TBC’s Butskhrikidze said he saw potential in newcomers to fill skills gaps in Georgia’s economy.
“They are very young, tech-savvy and knowledgeable – for us and for other Georgian companies, this is a very useful opportunity,” he said.
“A key challenge for us is technology. And unfortunately, on that side, we are in competition with high-tech companies in the United States and Europe,” he added. “To have a quick victory, these migrants are very useful.”
Nonetheless, economists and businesses remain concerned about the long-term negative effects of the war and what might happen if the Russians return home.
“We don’t build our future plans on newcomers,” said Shio Khetsuriani, CEO of Archi, one of Georgia’s largest real estate development companies.
Even with soaring rental prices, Khetsuriani says development companies are not keen on overinvesting in the housing market, especially with rising prices for materials and amenities. While landlords may be benefiting from higher rents, profit margins on apartment sales have barely changed, he said.
Economists are also warning that the boom may not last and are encouraging the Georgian government to use healthy tax revenues to pay down debt and build up currency reserves while they can.
“We have to be aware that all of these factors driving growth this year are temporary, and that doesn’t guarantee sustainable growth in the years to come, so caution is in order,” Bogov told the EBRD.
“The uncertainty is still there and the crisis could hit Georgia with some delay.”
Reporting by Jake Cordell; additional reporting by David Chkhikvishvili; edited by Guy Faulconbridge and Pravin Char
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