Will Ukraine’s stock market take off — and where will the first money come from? Alexander Pivovarsky

“What’s up with the economy?” is a weekly podcast by the Centre for Economic Strategy in collaboration with Hromadske Radio and supported by PrivatBank.

Hosts Anhelina Zavadetska and Maksym Samoiliuk speak with experts, entrepreneurs, analysts, and government officials about the current state of Ukraine’s economy.

In the new episode, we discuss what makes a capital market “developed” and why Ukraine doesn’t yet have one, where the first money to launch it could come from, how other countries in the region built theirs, and what Ukraine could realistically put on such a market.

The guest of the episode is Alexander Pivovarsky, Director for Capital and Financial Markets Development at the European Bank for Reconstruction and Development EBRD.

We have summarised the main points of the conversation:

What a developed capital market looks like — and why Ukraine doesn’t yet have one

Pivovarsky begins by pointing out that a securities market of sorts already exists in Ukraine — it simply revolves around government borrowing, with state bonds and the institutions that service them forming its current core. A full-fledged market is something else, and he defines it demandingly.

“A developed market is one where a company or an entrepreneur found in that country can be financed at every stage of its development within that same market. And that’s a very high bar: even in Europe there are only a few countries where this is possible at a quality level.”

This is a standard most of Europe struggles to meet, he notes: fast-growing companies, particularly in technology, often migrate from Europe to North America, Britain or Asia, where the full range of instruments, the depth to finance them, and the liquidity to trade and exit all exist — which also tends to lower the fees entrepreneurs actually pay. Ukraine was not at that level before the war either, though some first steps had been taken; during the war, according to Pivovarsky, the EBRD’s partners have been working to prepare this still-hypothetical market for the moment it becomes viable, since basics such as security have to be resolved first.

As for why a real market never formed, he traces it to the same cause as Ukraine’s chronically low investment — for years around 20% of GDP, where a developing country should be closer to 40% — which in his reading meant investors did not see the country as an attractive place to put money. The remedy, he argues, runs through institutions, the independence and quality of courts, and trust between participants in the financial sector. But he adds an important qualification about how far institutions alone can carry a market.

“But over recent years, particularly working in this team, I’ve understood: institutions are necessary but not sufficient. To accelerate the market, especially amid the globalisation of finance, other things are needed too.”

Is Ukraine simply stuck? Why open talk about corruption is a good sign

Back in 2013, in an interview the hosts dug up, Pivovarsky was already prescribing reforms, the fight against corruption, and the rule of law — advice that still sounds current today. His view on these questions, he notes, has not changed across his academic and professional career, and it applies not only to Ukraine but to all of the EBRD’s regions: quality institutions, the rule of law, and trust grounded in law are, in his account, among the foundations of every country that has reached a high standard of living. What he rejects is the conclusion that Ukraine is standing still, and he offers a counter-intuitive reading of why the constant public discussion of corruption is actually encouraging.

“In countries where corruption is very high, people know about it but don’t talk about it — that’s a bad sign, because it means a stable system with no change. But in Ukraine people do talk about it: the government, special bodies, civil society, donors and international organisations are all watching it. That doesn’t mean corruption is getting worse — its level may even be falling.”

Fifteen years ago, he adds, it was not obvious whether Ukraine was genuinely changing; today, in his view, there is more evidence that it has. Many changes have already improved the situation — the problems that remain are simply talked about openly and continuously, which he treats as a sign of a system in motion rather than a stuck one.

The missing ingredient: a base of domestic investors

The single most important thing Ukraine lacks, in Pivovarsky’s telling, is a base of domestic investors — something many countries in the region initially underestimated, assuming that if they built the right conditions and institutions, foreign capital would simply arrive. In practice, he explains, foreign investors do not want to be the only ones in a market: a macroeconomic shock in their own country can force them to cut back their exposures abroad, so they prefer a market they can exit if necessary, and they tend to reduce their presence in small markets that have no domestic base to complement them. The countries that succeeded, he says, built demand at home first, and he points to Sweden as the clearest example.

“The most successful in Europe are the countries that managed to create a base of domestic investors. An interesting example is Sweden. A small country, but they worked for a long time on building a domestic base. They have, for example, a system called ‘konto’ — savings with limited taxation, where each year people can set aside part of their money. The taxation is arranged so that earnings above the return on government securities remain untaxed. That’s how they created a large demand for equity investment, and as a result many small and medium-sized companies list on the market, because there’s a large domestic investor base.”

Other countries went a different route through pension funds, Pivovarsky notes, but some of the new private pension systems were regulated so cautiously that they earned almost nothing, and several governments eventually closed them rather than let them take on more risk while still owing the pensions. Croatia, he says, has learned from those experiences: it now allows part of pension savings to be invested in equity, including early-stage private equity and venture capital, and is working on an account modelled on the Swedish one.

Don’t build a new stock exchange — bring in an international one

Rather than rebuild a domestic exchange from scratch, Pivovarsky favours plugging Ukraine into an established international one — a debate he says is already live in parliament, where potential legislation on a competition to attract a major international exchange is under discussion. His reasoning is that building a domestic exchange would reopen all the governance and quality questions that surrounded Ukraine’s earlier attempts.

“Instead of creating our own exchange — again with all the governance and quality questions there were before — it may be better, right away, at the recovery stage, to bring in a quality international exchange.”

He sets this against a broader European pattern in which small markets are grouping together because, on their own, they remain too small to attract international attention. He cites the Baltic states, which since around 2017–2018 have worked toward a common market tighter than the EU’s, with NASDAQ present in all three countries and part of the market infrastructure shared — yet still, in his view, too small on their own. The EBRD, he says, runs a project bringing eight exchanges together — among them Poland, Romania, Hungary and Croatia — to build shared post-trade solutions and common products such as ETFs that cover companies across all eight, so that investors see one larger, meaningful market rather than several marginal ones. It is not an easy project, he acknowledges, given the regulatory differences and each country’s wish to keep at least its own bond market from disappearing overnight; but the direction of travel across Europe, he notes, is consolidation, with groups such as Euronext already operating a whole family of exchanges within a single holding.