The Russian migrants are reshaping Central Asia and the Caucasus (CCA) economies
It is less likely that businesses in the CCA region will continue to reap the rewards of the surging demand driven by a substantial influx of Russians in 2022. The reasons are apparent. High domestic prices continue to erode purchasing power, squeezing consumption, and more and more Russians are now either fleeing back home or moving elsewhere, typically opting for Western countries. A new electronic military draft system will also prevent any further large waves of immigration from Russia. B2C companies need to find ways to accelerate demand through marketing tools and focusing on lower-cost products. To attract consumers, businesses should aim to offer greater value for the price (e.g., discounts).
As more companies with operations in Russia relocate or redirect their exports to Central Asia and the Caucasus, competition in the region is set to intensify. To date, only those firms with the most extensive, robust operations prior to the war have successfully reoriented their business, though most other firms are increasing activity as well. MNCs need to closely watch and assess their existing and potential competitors. Such relocations could also create new B2B opportunities and provide access to cheaper inputs.
- The number of Russians traveling to the CCA region at least doubled last year compared to 2021, reaching over 5 million people.
- In January 2023, Kazakhstan tightened visa rules to end unlimited stays for those coming from Russia (technically the entire Eurasian Economic Union).
- In 2022, the CCA region exceeded growth expectations in 2021, with a robust expansion of 5.1%.
- Some currencies in the CCA region (e.g., Georgia, Armenia) demonstrated a strong performance due to rising money transfers from Russia.
Since no accurate data is available on how many Russians ended up staying in the CCA region, the complete impact of relocation remains uncertain. However, as more and more Russians are now leaving the CCA region, the positive spillovers seen last year are subject to a risk of reversal. Even the second expected mobilization is less likely to generate a huge inflow of Russians to the CCA countries, as the new draft notice system will ban conscripts from leaving the country.
Following the war in Ukraine, Central Asia and the Caucasus experienced an unprecedented influx of Russians which took place in two waves: February/March 2022 following the invasion and September 2022 following mobilization. While the first wave mainly included qualified young professionals, artists, journalists, and politicians opposing the war, the second wave of Russians were young people from all backgrounds trying to escape mobilization. The prevalence of the Russian language, proximity and historical ties with the CCA region made those countries the most preferred destinations.
So far, the impact of Russian immigrants on the CCA economy has been twofold. On one hand, demand from Russian migrants placed additional pressure on inflation, leading to a spike in food, rental, and housing prices. On the other hand, the inflow of Russians brought much needed specialists and capital flows, boosting consumption and economic activity in those countries. For example, both Armenia and Georgia have seen double-digit growth rates thanks to large inflows of money from Russia. In Kazakhstan, deposits of non-residents increased by 280% 3.8 times YOY in January 2023 due to FX accounts of Russian citizens. The relocation of Russian companies has led to an increase in the number of new businesses being registered in the region. As of November 2022, Kazakhstan saw a 30% increase in the number of registered businesses compared to the previous year.
So, while the inflow of Russian immigrants and money resulted in higher-than-expected growth in the CCA region, it also brought economic hardships through rising prices and social tension. Amid the mounting pressures on the economy, Kazakhstan passed a more stringent visa regime to prevent a massive influx of Russians. However, they are also preparing a new bill that will allow those who invest more than US$ 300,000 in the Kazakh economy to obtain a long-term visa. The arrival of a large number of Russians also carries some political and security risks in the region, which might lead to social unrest in countries such as Georgia and Kazakhstan.
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