The small country whose economy has grown 10% this year thanks to the war in Ukraine

the war on Ukraine it has caused a spectacular economic boom that Georgia, a small former Soviet republic, did not expect.

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With 3,700,000 inhabitants and located on the southern border of Russia, the country has received thousands of Russian immigrants and an unprecedented flow of capital since the war began.

Its economy, whose growth was around 5% before the war, has soared to 10.2% so far this year.

“There is a gigantic increase in the flow of Russian money that has entered the country”Yaroslava Babych, director of the Center for Macroeconomic Policy Research at ISET-PI, at the International School of Economics at Tbilisi State University, Georgia, tells BBC Mundo.

The researcher calculates an entry into the country of US$1.4 billion between January and October of this year, 3.6 times more than the flow in the same period of 2021.

On the other hand, Georgia’s currency, the lari, has seen a 15% gain against the dollar so far this year.

an avalanche of russians

Although estimates vary, it is estimated that, since the start of the war, they have migrated to Georgia, between 70,000 and 100,000 Russian citizens.

Georgia has received thousands of Russian immigrants and an unprecedented flow of capital since the war began. /GETTY IMAGES

It is very difficult to know the exact number because visitors from countries like Russia, Ukraine or Belarus who cross the border do not need to explain whether they are going on vacation or living in Georgia.

In fact, when they are in the country, they can live and work for a year without any problem.

In addition, they can leave the country and re-enter to stay another year and, in this way, thousands of people have managed to settle in Georgia without restrictions.

“It is a very generous immigration policy“, says Babych in dialogue with BBC Mundo.

The second wave of migration came after Putin announced compulsory recruitment. /GETTY IMAGES

Although the flow of Russian migrants has been constant since the war began, two waves can be identified: one in May and another in September, the latter linked to the rapid departure of men from Russia after the president Vladimir Putin will announce a mandatory conscription to fight on the battlefield.

This is how the latest wave of Russians has become evident in cities like Tbilisi, with long lines to enter the banks and a high demand for rentals that has pushed prices to levels never seen before, generating discomfort among locals who cannot pay such high prices.

Russian companies in Georgia

It is very easy to create a company in Georgia for a foreigner. In just a couple of days, Babych explains, a firm can be registered, a reality that differs sharply from the bureaucracy that an entrepreneur can find in any other part of the world.

The latest wave of Russians has been evident in cities like Tbilisi, with long lines to enter banks and high demand for rent. /GETTY IMAGES

The number of companies registered by Russian citizens has skyrocketed so far this year: 10 times more than in 2021.

Between January and September alone, Russian citizens registered nearly 9,500 signatures in Georgia, says the economist.

The vast majority registered as people starting their own business, a situation that makes it very difficult to know what they do.

In addition, the opening of bank accounts of Russian citizens has grown rapidly.

The risk of a “boom turned bang”

As a former Soviet republic that fought a brief war with Russia in 2008, Georgia’s relationship with its neighbor is complex, and some Georgians fear the sociopolitical impact Russian migration could have.

Georgia has 3,700,000 inhabitants and is located on the southern border of Russia.

The recent influx could become a “boom turned into explosion”says Mikheil Kukava, head of economic and social policy at the Institute for the Development of Freedom of Information (IDFI) think tank, in conversation with BBC Mundo.

An explosion in the sense that in the future the Russian government might consider invading Georgia, just as it did in the Ukraine.

“If they decide to invade us, the current economic growth could end up turning into a conflict”point.

Georgia and Russia drag a historical antagonism. /GETTY IMAGES

For now, this unexpected growth has had a strong impact in a country whose economy is based on agricultural production (grape crops, citrus fruits, nuts), mining (manganese, copper, gold), a small wine industry, in addition to the steel production and fertilizers.

Located on the border between Eastern Europe and Western Asia, on the Black Sea coast, Georgia has also seen a surge in tourism in recent years, another source of income for the country.

How long can this phenomenon last?

The government expects the current level of growth to slow in 2023, while the International Monetary Fund, IMF, estimates that growth will fall to around 5%, returning to its pre-war level.

How long these immigrants will stay is a question that has no answer.

Those who do remote work are more likely to stay, but for those looking for a local job, the situation is not easy.

The government expects the current level of growth to slow in 2023. / GETTY IMAGES

“I don’t expect this economic growth to last for a long time. In any case, the evolution will depend on what happens with the war,” says Babych.

“Capital flows are unlikely to be transformed into long-term investments”he warns.

And it is possible that some social tensions will appear, he adds, given the conflicts that the country has had with Russia.

Immediately, migration has caused an increase in prices that, even if temporary, is affecting citizens with fewer economic resources in large cities.

Source: Elcomercio