Georgia is set to become one of the world’s fastest-growing economies this year after a dramatic influx of more than 100,000 Russians since Moscow’s invasion of Ukraine and Vladimir Putin’s mobilization drive to round up war recruits. As much of the world heads into recession, this country of 3.7 million people bordering the Black Sea is expected to post a robust 10% increase in economic output for 2022 amid a consumption-driven boom, according to international organizations . That would see the modest $19 billion economy, known in the region for its mountains, forests and wine valleys, outpace supercharged emerging markets such as Vietnam and oil exporters such as Kuwait buoyed by high crude prices . “Economically, Georgia is doing very well,” Vakhtang Buchrikidze, CEO of the country’s largest bank TBC, told Reuters in an interview at its headquarters in Tbilisi. “There is some kind of explosion,” he added. “All industries are doing very well from SMB to corporate. I can’t think of any industry that is struggling this year.” At least 112,000 Russians have immigrated to Georgia this year, according to border crossing statistics. A first major wave of 43,000 arrived after Russia invaded Ukraine on February 24 and Putin moved to quell opposition to the war at home, according to the Georgian government, while a second wave comes after Putin announced national mobilization in end of September. Georgia’s economic boom – whether short-lived or not – has confounded many experts who saw dire consequences from the war for the former Soviet republic, whose economic fortunes are closely tied to those of its larger neighbor through exports and tourists. The European Bank for Reconstruction and Development (EBRD), for example, predicted in March that the conflict in Ukraine would deal a significant 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 an initial 5.5%. “Despite all the expectations we had … that this war in Ukraine would have significant negative effects on the Georgian economy, so far we do not see these risks materializing,” said Dimitar Bogov, the EBRD’s chief economist for Eastern Europe and the Caucasus. “On the contrary, we see the Georgian economy growing quite well this year, in double digits.” But the stellar growth isn’t benefiting everyone, with the arrival of tens of thousands of Russians, many cash-strapped tech professionals, driving up prices and squeezing some Georgians out of parts of the economy like the rental market and education. Business leaders also worry that the country could face a hard landing if the war ends and Russians return home.
IN GEORGIA WITH 1 BILLION
Georgia itself fought a brief war with Russia in 2008 over South Ossetia and Abkhazia, territories controlled by Russian-backed separatists. Now, however, Georgia’s economy is reaping the benefits of its proximity to the superpower – the two share a land border – and a liberal immigration policy that allows Russians and people from many other countries to live, work and set up businesses in visa-free country. In addition, those fleeing Russia’s 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 higher than in the same months of 2021, according to Georgia’s central bank. That inflow helped push the Georgian lari to its strongest level in three years. About half of the arrivals from Russia are from the tech sector, according to TBC CEO Butskhrikidze and local media, with surveys and estimates from industry figures in Russia pointing to an exodus of tens of thousands of IT workers after the invasion . of Ukraine. “These are high-level, rich people… who come to Georgia with some business ideas and drastically increase consumption,” said Davit Keshelava, a senior researcher at Tbilisi State University’s International School of Economics (ISET). “We expected the war to have many negative effects,” he added. “But it turned out to be quite different. It turned out to be positive.”
NO ROOMS IN TBILISI
Nowhere is the impact of new arrivals more apparent than in the capital’s rental housing market, where increased demand is exacerbating tensions. Rent in Tbilisi has risen by 75% this year, according to an analysis by TBC bank, and some on low incomes and students are at the center of what activists say is a growing housing crisis. Georgian Nana Shonia, 19, agreed to a two-year deal for a $150-a-month apartment in the city center just weeks before the Russian invasion. In July, her landlord evicted her, forcing her to move to a rough neighborhood on the edge of town. “It used to take me 10 minutes to get to work. Now it’s at least 40, I have to take the bus and subway and I’m often stuck in traffic,” he said, attributing the change in market dynamics to the wave of newcomers. Helen Jose, a 21-year-old medical student from India, has been crashing in her friend’s house for a month after her rent doubled during the summer holidays. “Before it was very easy to find an apartment. But so many of my friends have been told to leave because there are Russians willing to pay more than us,” he said. University data also indicated a significant number of students delaying their studies in Tbilisi because they cannot afford housing in the city, Keshelava told ISET.
“CRISIS CAN HIT”
TBC’s Butskhrikidze said he saw potential in the new arrivals to fill skills gaps in the Georgian economy. “They are very young, tech-educated and knowledgeable – for us and other Georgian companies this is a very useful opportunity,” he said. “A key challenge for us is technology. And unfortunately on that front we are competing with high-tech companies in the United States and Europe,” he added. “To have a quick victory, these immigrants are very useful.” But economists and businesses remain concerned about the long-term fallout from the war and what might happen if Russians return home. “We are not building our future plans on newcomers,” said Shio Khetsuriani, CEO of Archi, one of Georgia’s largest real estate developers. Even with rental prices rising, Khetsuriani says developers are reluctant to overinvest in the housing market, especially with prices for materials and equipment rising. While landlords may be cashing in on rising rents, profit margins on condo sales have almost shifted, he said. Economists also warn that the boom may not last and are encouraging the Georgian government to use healthy tax revenues to pay down debt and build foreign exchange reserves as much as they can. “We need to know that all these factors driving growth this year are temporary and do not guarantee sustainable growth in the coming years, so caution is needed,” Bogov told the EBRD. “Uncertainty still exists and the crisis could hit Georgia with some delay.” Report by Jake Cordell. additional reporting by David Chkhikvishvili; editing by Guy Faulconbridge and Pravin Char; Our Standards: The Thomson Reuters Trust Principles.
