TBILISI, Nov 5 (Reuters) – As war suffocates Europe, a small nation nestled under Russia is enjoying an unexpected economic boom.
Georgia is poised 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 drive to drum up recruits of war
As much of the world heads into recession, this country of 3.7 million people bordering the Black Sea is expected to post robust 10% growth in economic output by 2022 amid a boom driven by consumption, according to international institutions.
That would put the modest $19 billion economy, known in the region for its mountains, forests and wine valleys, ahead of supercharged emerging markets like Vietnam and oil exporters like Kuwait buoyed by high crude prices.
“On the economic front, Georgia is doing very well,” Vakhtang Butskhrikidze, chief executive of the country’s largest bank, TBC, told Reuters in an interview at its 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 is struggling this year.”
At least 112,000 Russians have immigrated to Georgia this year, border crossing statistics show. A first big wave of 43,000 came after Russia invaded Ukraine on February 24 and Putin moved to stifle opposition to the war at home, the Georgian government said, with a second wave after Putin announced the campaign of national mobilization at the end of September.
Georgia’s economic boom, short-lived or otherwise, has confounded many experts who saw dire consequences of the war for the former Soviet republic, whose economic fortunes are closely tied to 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 major blow to Georgia’s economy. Likewise, the World Bank predicted in April that the country’s growth for 2022 would drop to 2.5% from the initial 5.5%.
“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 these risks materializing,” said Dimitar Bogov, the EBRD’s chief economist for Europe in the East and the Caucasus.
“On the contrary, we see the Georgian economy growing quite well this year, at 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 pushing some Georgians out of parts of the economy like the housing rental market and education.
Business leaders also worry that the country faces a hard landing if the war ends and the Russians return home.
IN GEORGIA WITH $1,000 MILLION
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 crossing – and a liberal immigration policy that allows Russians and people from many other countries to live, work and establish businesses in the country without needing a visa.
Also, those fleeing war in Russia 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 during the same months in 2021, according to Georgia’s central bank.
This inflow helped push the Georgian Lari to its strongest level in three years.
About half of the Russian arrivals are from the technology 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 IT workers very mobile after the invasion. of Ukraine
“These are high-end people, rich people … who come to Georgia with some business ideas and dramatically 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 impacts,” he added. “But it turned out very differently. It turned out positive.”
NO ROOMS IN TBILISI
Nowhere is the impact of the newcomers more evident than in the capital’s housing rental 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 students and low-income earners are at the center of what campaigners say is a growing housing crisis.
Georgian Nana Shonia, 19, agreed to a two-year deal for a downtown apartment for $150 a month just weeks before Russia invaded. In July, her landlord evicted her and forced her to move to a rough neighborhood on the edge of town.
“Before it took me 10 minutes to get to work. Now it takes at least 40, I have to take a bus and the subway and I often get stuck in traffic jams,” he said, attributing the change in market dynamics to increase. of the newcomers
Helen Jose, a 21-year-old medical student from India, has been crashing at her friend’s house for a month after her rent doubled during the summer holidays.
“It used to be very easy to find an apartment. But many of my friends have been told to leave, because there are Russians willing to pay more than us,” he said.
University figures have also reported a significant number of students delaying their studies in Tbilisi because they cannot afford accommodation in the city, Keshelava told ISET.
“THE CRISIS COULD COME”
TBC’s Butskhrikidze said he saw potential in the newcomers to fill skills gaps in the Georgian economy.
“They’re very young, they’re technologically educated and they’re knowledgeable, for us and for other companies in Georgia that’s a pretty useful opportunity,” he said.
“A key challenge for us is technology. And unfortunately on this side we are competing with high-tech companies in the United States and Europe,” he added. “To have a quick victory, these migrants are very useful.”
However, 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 rising rental prices, Khetsuriani says development companies are unwilling to overinvest in the housing market, especially with rising prices for materials and equipment. While landlords may benefit from rising rents, profit margins on apartment sales have barely changed, he said.
Economists also warn that the boom may not last and are encouraging Georgia’s government to use healthy tax revenues to pay down debt and build up foreign reserves while it can.
“We have to be aware that all these factors driving growth this year are temporary and do not guarantee sustainable growth in the following years, so caution is needed,” Bogov told the EBRD.
“Uncertainty is still there and the crisis could affect Georgia with some delay.”
Reporting by Jake Cordell; additional reporting by David Chkhikvishvili; edited by Guy Faulconbridge and Pravin Char
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