Georgia, which is flourishing with the money of the Russians fleeing to it, is worried about the end of the war

Georgia’s economy appears to be on a date of great prosperity and rapid growth, taking advantage of the billions of dollars brought with it by some 112,000 Russians who fled to it due to the consequences of the war in Ukraine and Western sanctions against Moscow, while there are fears of a deterioration of the Georgian economy if the Russians later they leave the country.

So what happened?

While most of the world staggers into recession, the Black Sea country of 3.7 million people is expected to post strong growth of 10% in 2022, amid a rise in consumption, according to Reuters, citing international institutions.

The modest $19 billion economy of the country known for its mountains, forests and wine valleys will outperform emerging markets such as Vietnam and some oil exporters such as Kuwait, boosted by higher crude prices.

“Economically, Georgia is doing very well,” the chief executive of the country’s largest bank, TBC, Vakhtang Butcheridze, told Reuters in Tbilisi, adding that “there is some kind of boom, all sectors are thriving, and I can” any sector could have problems this year.”

Meanwhile, border crossing statistics showed that at least 112,000 Russians have migrated to Georgia this year, with the first big wave of 43,000 people arriving after the February 24 invasion of Ukraine, and a second wave after President Vladimir Putin announced in late September partial mobilization last September.

However, Georgia’s economic boom has baffled many experts who have seen the war’s dire consequences for the former Soviet republic, whose economic fortunes are closely tied to its larger neighbor through exports and tourists.

Among them is the European Bank for Reconstruction and Development (EBRD), which predicted in March that the war in Ukraine would deal a major blow to the Georgian economy. In April, the World Bank expected growth to fall to 2.5% in 2022 from 5.5% at the start of the year.

In this context, Dimitar Bogov, Chief Economist of the European Bank for Reconstruction and Development, said: “Despite all our expectations that the war will have significant negative effects on the Georgian economy, we do not yet see the embodiment of these risks. On the contrary, we see that the economy is growing well this year and in double figures.”

Concern prevails in Georgia, despite a growing economy

Despite these advantages, which surprised experts, the excellent growth does not benefit everyone, because the arrival of tens of thousands of Russians and numerous technological experts, who bring huge sums of money with them, has led to higher prices and the expulsion of segments of Georgians. from economic sectors, such as the housing rental market and education.

Business leaders are also concerned that the country could face a hard landing if the war ends and the Russians return home with their money and profits.

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

Now Georgia’s economy is reaping the benefits of its proximity to the superpower, with both sides sharing a land border crossing and a liberal immigration policy that allows Russians and people from many other countries to live, work and do business in the country without the need for a visa.

Money of Russians immigrating to Georgia in numbers

The wave of people fleeing the Russian war is not only carrying people, but also their 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 period in 2021, according to Georgia’s central bank. This inflow helped push the Georgian lari to its highest levels in 3 years.

It should be noted that approximately half of Russian expatriates are active in the technology sector, according to the CEO of TBC Bank Butcherikidze and local media, according to surveys and estimates from the figures of this sector in Russia, which indicate the relocation of tens of thousands of information technology workers who are are very mobile after the invasion of Ukraine.

In this context, Davit Kishilava, a senior researcher at the International College of Economics at Tbilisi State University, ISET, said: “These are posh and rich people who come to Georgia with some business ideas and significantly increase their spending,” adding: “We expected that the war would have a lot of negative effects, but it turned out to be completely different, and a positive thing at that.”

The housing crisis in Georgia and the technological advantages of the arrival of the Russians

Currently, the impact of the newcomers is most evident in the capital’s rental market, where rising demand is exacerbating tensions, to the extent that Tbilisi’s population has grown by 75% this year, according to analysis by TBC Bank, while some recipients feel low, including students themselves. they are at the center, as activists say, of the “growing housing crisis”.

On the other hand, Butcherikidze said he is watching the potential of the newcomers to fill the skills gaps of the Georgian economy, adding: “They are young, they have technical education and they have knowledge, and for us and other Georgian companies this is a very useful opportunity.”

But he added: “Our main challenge is technology. Unfortunately, in this aspect we are competing with high-tech companies in the US and Europe, and for a quick win these immigrants are very useful.”

Economic fears in Georgia from the possibility of the Russians leaving

However, economists and entrepreneurs remain concerned about the long-term negative effects of the war and what might happen if the Russians go home with their talents and money.

In this regard, Cheo Khtsuriani, CEO of “Arki”, one of the largest real estate development companies in Georgia, says: “We are not basing our future plans on newcomers.”

Even with skyrocketing rental prices, Khetsuriani says developers are reluctant to overinvest in the housing market, especially with rising materials and equipment. He said that while landlords may benefit from higher rents, profit margins on apartment sales have hardly changed.

Economists also warn that the boom may not last and are urging the Georgian government to use healthy tax revenues to pay down debt and build foreign exchange reserves while it can.

“We have to understand that all these factors driving growth this year are temporary and do not guarantee sustainable growth in the coming years, so caution should be exercised,” said Bogoff of the European Bank for Reconstruction and Development.

(Reuters, The New Arab)