Georgia: A small country whose economy grew by 10% this year thanks to the war in Ukraine
- Author, Cecile Barria
- role, BBC News World
The war in Ukraine led to a spectacular economic boom in Georgia, a country of the former Soviet Union. The authorities did not expect such an increase.
Georgia, with a population of 3,700,000, is located on the southern border of Russia. The country has welcomed thousands of Russian immigrants and an influx of capital not seen since the start of the war in Ukraine.
Its economy, which grew by about 5% before the war, grew by 10.2% this year.
“There is a huge increase in the flow of Russian money into the country,” Yaroslava Babych, director of the Center for Macroeconomic Policy Research at Tbilisi State University’s International School of Economics, ISET-PI, told BBC Mundo.
The researcher estimates that the financial income between January and October last year was 1.4 billion dollars. In 2022, it increased 3.6 times.
On the other hand, the Georgian lari gained 15% value against the dollar this year.
Mass arrival of Russians
Although estimates vary, it is estimated that 70,000 to 100,000 Russian citizens have immigrated to Georgia since the start of the war.
It is very difficult to know the exact number because there is no need to explain whether the visitors from Russia, Ukraine or Belarus came and crossed the border for vacation or live in Georgia.
Indeed, when they are in the country, they can live and work there for a year without any problems.
Moreover, they can leave the country and come back to stay for a year. Thus, thousands of people were able to settle in Georgia without restrictions.
“It’s a very flexible immigration policy,” Babych told BBC Mundo.
Although the flow of Russian migrants has been steady since the start of the war, two waves have been identified. One in May and one in September.
President Vladimir Putin announced that the army is now mandatory. He wants to build up troops to better fight Russia.
Russian migrants settled in cities like Tbilisi. There were long queues to get into banks and high demand for rental houses.
Landlords seized the opportunity to raise prices to unprecedented levels, creating a difficult situation among residents who could not afford such high prices.
Russian companies in Georgia
It is very easy for a foreigner to establish a company in Georgia. Babych says it’s possible to start a business in a matter of days.
The number of companies founded by Russian citizens has increased. 10 times more than in 2021.
The economist says that between January and September, Russian citizens opened about 9,500 companies in Georgia.
The vast majority of them are registered as self-employed, which gives little information about their fields of activity.
In addition, the opening of bank accounts by Russian citizens has increased rapidly.
A double-edged sword
As a former Soviet republic that fought a brief war with Russia in 2008, Georgia has a complicated relationship with its neighbor.
Some Georgians fear the socio-political impact of Russian migration.
Mikhail Kukava, head of the economic and social policy department of the Institute for the Development of Freedom of Information (IDFI), told BBC World that the migration flow could become a “double-edged sword”.
As with Ukraine, Russia may invade Georgia in the future because of its wealth: “If they decide to invade us, we will allow all the positive effects of the current economic growth.”
For now, this unexpected growth economy is based on agricultural production (grapes, citrus fruits, nuts), mining (manganese, copper, gold), small wine industry, steel production and fertilizers.
Georgia, located on the border between Eastern Europe and Western Asia, on the Black Sea coast, has also experienced a tourism boom in recent years, which is another source of income for the country.
How long will this phenomenon last?
The government expects current growth to slow in 2023, while the International Monetary Fund and IMF estimate growth will fall to around 5% and return to pre-war levels.
How long these migrants will stay is an open question. Remote workers are more likely to stay, but the situation is not easy for local job seekers.
“I don’t think this economic growth will last long. In any case, evolution will depend on war,” says Babych.
“Capital flows are unlikely to translate into long-term investments,” he warns. He adds that given the country’s conflicts with Russia, some social tensions are possible.
Immediately, migration led to inflation, which affected low-income citizens, albeit temporarily.