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As war suffocates Europe, one country prospers as Russians flee Putin’s war

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As war smothers Europe, a tiny nation wedged under Russia enjoys an unexpected economic boom. Georgia is on track to become one of the world’s fastest growing economies this year following a dramatic influx of more than 100,000 Russians since Moscow’s invasion of Ukraine and Vladimir Putin’s mobilization campaign to recruit recruits for war.

As much of the world lurches into recession, this country of 3.7 million people bordering the Black Sea is expected to post a vigorous 10% growth in economic output by 2022 amid a consumption-led boom , according to international institutions.

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

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

“There is a kind of boom,” he added. “All industries are doing very well, from micros to corporations. I can’t think of any industry that is in trouble this year.”

At least 112,000 Russians have immigrated to Georgia this year, border crossing statistics show. A first major wave of 43,000 came after Russia invaded Ukraine on February 24 and Putin moved to quell opposition to the war at home, according to the Georgian government, with a second wave after Putin announced the national mobilization campaign. By the end of September.

Georgia’s economic boom, short-lived or not, has confounded many experts who saw the 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 severe blow to the Georgian economy. Likewise, the World Bank forecast in April that the country’s growth for 2022 would drop to 2.5% from an initial 5.5%.

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

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

However, the stellar growth is not benefiting everyone, with the arrival of tens of thousands of Russians, many tech professionals with deep pockets, driving up prices and driving some Georgians out of sectors of the economy such as the rental market. housing and education.

Business leaders are also concerned that 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 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 settle. business in the country without needing 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 during the same months in 2021, according to the Georgian central bank.

That inflow has helped propel the Georgian lari to its strongest level in three years.

Roughly half of Russian arrivals come from the tech sector, according to TBC chief executive Butskhrikidze and local media, coinciding with surveys and estimates from industry figures in Russia that point to an exodus of tens of thousands of highly mobile IT workers after the invasion. from Ukraine

“These are high-level people, 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 a lot of negative impacts,” he added. “But it turned out quite different. It turned out to be positive.”

THERE ARE NO ROOMS IN TBILISI

Nowhere is the impact of newcomers more apparent than in the capital’s rental housing market, where rising demand is adding to tensions.

Rent in Tbilisi has risen 75% this year, according to an analysis by TBC bank, and some students and low-income people are at the center of what activists say is a growing housing crisis.

Georgian Nana Shonia, 19, agreed to a two-year contract for an inner-city apartment at $150 a month just weeks before Russia invaded. In July, her landlord kicked her out, forcing her to move to a poor neighborhood on the outskirts of the city.

“It took me 10 minutes to get to work. Now it’s a minimum of 40, I have to take a bus and the subway and a lot of times I get stuck in traffic,” he said, attributing the change in market dynamics to the surge of newcomers.

Helen Jose, a 21-year-old medical student from India, has been staying at her friend’s house for a month after her rent doubled over the summer holidays.

“Before it was very easy to find a flat. But a lot of my friends have been told to leave, because there are Russians willing to pay more than us,” she 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.

‘CRISIS COULD HIT’

TBC’s Butskhrikidze said he saw potential in the newcomers to fill skills gaps in the Georgian economy.

“They are very young, they have technological education and they have knowledge; for us and for other Georgian companies, this is quite a useful opportunity,” he said.

“A key challenge for us is technology. And unfortunately on that side 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.”

However, economists and businesses remain concerned about the long-term negative effects of the war and what could 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 rental prices rising, Khetsuriani says development companies are unwilling to invest too much in the housing market, especially with rising prices for materials and equipment. While landlords may be cashing in on rising 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 foreign currency reserves while they 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,” said Bogov at the EBRD.

“The uncertainty is still there and the crisis could hit Georgia with some delay.”

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