Interview with Mr. Alex Pivovarsky | European Bank for Reconstruction and Development (EBRD)

Wednesday, 25 November 2020


FEAS Secretariat spoke with the Director of Capital Markets Development Team at European Bank for Reconstruction and Development (EBRD) Mr. Alex Pivovarsky about Capital Market Development Team’s functions, five-year strategy, SME research initiative, and more. 

Armenuhy: Hello, this is FEASTalks and I am Armenuhy Hovakimyan, Deputy Secretary General of the Federation of Euro-Asian Stock Exchanges. Today, my guest is Alex Pivovarsky, Head of Capital Markets Development Team of EBRD. The team is a member of FEAS from 2015 and is very active in its activities. 

Today we will try to understand the functions of the Capital Market Development team and the future developments of it. Thanks, Alex, for joining me.

Mr. Pivovarsky:  My pleasure.

Armenuhy: Thank you. So where is the Capital Market Development team placed in EBRD structure and what are its main functions?

Mr. Pivovarsky: The EBRD Capital Markets Development team is located now with the Vice Presidency for Policy and Partnerships and that Vice Presidency in turn works hand in hand with our banking team. So together we work closely on policy development and supporting product development in our countries of operations. 

The team was set up following the great financial crisis of 2008-2009, and its original goal was to help deepen the local financial markets and over time reduce dependence of those markets on foreign currency flows, and thus help make the local financial markets more resilient. 

As you probably recall, in 2008-09, when significant outflows happened at the same time, it became apparent that there is really critical need in developing local currency markets and local capital markets to make these flows perhaps less cyclical, less dramatic over time. 

The main functions of the team includes some analytical works on the capital markets. So we expect to understand the markets and understand where they are moving and going and help determine priorities for their development. 

We offer policy advice in our countries of operations to help develop institutions, infrastructure for capital markets and developing new products, new capital market products, supporting pilot transactions by our banking teams to help launch them in our markets. Some of those transactions are not new to developed markets, but they are often new for our countries of operations and require capacity building, institutions, legislation sometimes so that they can launch in our countries. 

And finally, we also do work on capacity building and knowledge sharing. We work with other IFIs, organize various events, seminars, conversations on capital market development. So this is quite a broad range of activities overall.

Armenuhy: For your team (the team before was called Local Currency and Capital Market Development) two years ago in November EBRD’s Board of Directors approved a five year strategy. Have there been any adjustments in the main pillars of the strategy caused by pandemic?

Mr. Pivovarsky: Indeed! We have a strategy, LC2 strategy which is intended to advance our local capital markets and local currency agenda for the bank as a whole. The strategy is for five years, 2019 – 2024, and it remains very much relevant, including during the pandemic. Because the key elements of the strategy are aligned with what my team is doing. It is to help develop policies on the capital markets development, institutions, infrastructure, products, and if anything, the pandemic has highlighted once again the importance of local capital markets. 

For example, in the initial weeks of the crisis, there were significant outflows of capital from emerging financial markets. In fact, in the first several weeks they were larger than during the great financial crisis. Because of the major effort, lessons learned in 2008-09, the significant injections of liquidity by global and major players, these markets very quickly stabilized. However, it became clear once again that countries and companies that have been able to scale up dependence on local currency more active in local capital markets experienced less turbulence during this crisis than they did in the past.

Armenuhy: Ok, so you are on your five-year strategy and good luck with managing it for the future years. What will be the key topics in capital markets of EBRD’s countries of operation after the pandemic?

Mr. Pivovarsky: Well, after the pandemic, there will be new topics that we see rising on the global agenda, and some of them will be of relevance for our countries of operations as well. 

Apart from the general effort to deepen and broaden markets, there are signs, very strong signs that the financial and capital markets are likely to become greener. The key regulators in major markets, including central banks, are more active in their efforts to green the financial system. So there are various tools being used, including policy tools, including risk perceptions, i.e., approaches to evaluating risks, etc, that are likely to lead more attention being paid to the impact of capital and financial markets on the environment.

Apart from the general effort to deepen and broaden markets, there are signs, very strong signs that the financial and capital markets are likely to become greener.

The other emerging theme, and it has become almost obvious during the pandemic and as we speak over Zoom and not in person, is digitalisation. We have seen transition to remote work, and shift of financial market activities and of capital markets towards digitalisation. We will expect to see more of this over time, more digital proofing of the financial systems to potential future shocks. So that in the future we would see more seamless transition of activities if needed to the digital space. 

I think that there is also greater awareness that digitalisation is actually good and helpful for the smooth functioning of the capital markets. 

It also has certain benefits related to inclusion in the capital markets, greater access to capital markets for people who are not included today. 

And finally, one of the trends that we see just taking off in our region, is a new interest in consolidation of smaller markets with more developed capital markets. For example, recently among members of this association, the Armenia Stock Exchange has announced its partnership with the Warsaw Stock Exchange that will likely lead to a consolidation over time that we as EBRD hope to support.

Armenuhy: Let’s continue the topic of consolidation. What kind of support EBRD has in this deal, Warsaw Stock Exchange and Armenia Securities Exchange and how do you see the future of this?

Mr. Pivovarsky: Well, in general, we think it is a good sign. Because Warsaw Stock Exchange has the experience in another emerging market country, a transition economy that has had, in a way, similar experience over the past decades, e.g., Armenia, which is where Armenia Securities Exchange is located.

And so, we feel that this experience of transition will be helpful for Armenia in this case, but also for other countries if this becomes a trend. There are similar experiences of consolidation with other larger, mid-sized markets. We feel that there is a better understanding of emerging markets and their needs in these more advanced countries of operations of EBRD. 

Moreover, in the case of Warsaw Stock Exchange, because they are based in the EU, there are new trends. In addition to what we discussed earlier, there are additional tendencies emerging there. They are related to the Capital Markets Union. So it is one of the less advanced areas of the EU’s integration, the capital markets, and that area is taking off as well. So there is a lot more going on. There is a strategy in the EU for the Capital Markets Union. There are various ongoing efforts. In a way the Warsaw Stock Exchange could bring this new experience to the market of Armenia.

So how can we support this process? Apart from just welcoming it and encouraging it, in a way, we hope to support it by helping develop a strategy for post-consolidation operations of the Armenia Securities Exchange. 

So we are in the process of discussing exactly how we can provide this support, what exactly is needed. But we generally are quite supportive and I hope we can contribute as a team, as an institution.

Armenuhy: Thank you for your contribution to this deal. And good luck to 2 of our members, to you as a supporter and Armenia Securities Exchange, as a part of the deal to manage this and to have a future development. Let’s come back to some projects. So your team has launched some projects amid Pandemic, such as SME Research Initiative. Can you tell us about this initiative a bit and what are other initiatives to expect in 2021?

Mr. Pivovarsky: Well, we are constantly thinking about new products and how we could support capital markets. SME research initiative, as you know, was intended to help encourage capital markets by supporting research on small and mid-sized companies in all countries of operations, to increase awareness of these companies. But also, perhaps, it is a contribution to the culture of capital markets. 

This is a part of the capital market in advanced countries. Unfortunately, sometimes because of resource constraints, this is harder in our countries because markets are smaller. And so we were, in a pilot, willing to support this type of effort.

We are constantly thinking about new products and how we could support capital markets.

As you know, during the crisis, the listing of new companies has become a bit delayed sometimes and more difficult because of the turbulence and the situation in the real economy. However, we hope that this type of work can have a longer term positive impact and awareness building in our countries. 

So what do we do during the crisis? We were thinking more about what else can we do in the capital markets? And our efforts are quite broad. So, for example, we are working to support the launch of short term commercial papers in the Baltic countries. This is the market where this type of instruments have not been present in the past. And we are working with those countries, but also as a bank to support the issuance of those.

For example, over time, it turned out that sometimes some of the larger companies in certain markets find it more difficult to access short-term liquidity because of their size. And they may sometimes deal with large partners of the banks in those countries. They need additional finance that the banks sometimes are not able to provide. For example, for regulatory reasons.

So we are always exploring this and trying to find out if there needs to be some instruments and we can support their development.

I mentioned already the greening of the financial systems. So we are working on some roles in some of the advisory products, including with the stock exchanges, to help them develop the capacity, first of all, to function as a greener financial institution. Set policies and internal policies and procedures, listing procedures, etc to prepare for the post-crisis, we hope, greener capital markets. 

And as I mentioned to you, also, we are supporting the consolidation of other market trends that revealed themselves during the crisis. So we are not necessarily doing this just because of the crisis period relevance and because we want to have the crisis sorted. We are also thinking about what will happen following the crisis and what areas will become dominant or of interest so that we can be better prepared for the post crisis period.

Armenuhy: Yes, better prepared means that you will have success. About the crisis and the challenges of today’s world, how are you keeping communication with your team and how are you encouraging them to stay positive? Any special tips from you in this challenging time?

Mr. Pivovarsky: Well, we have well, as a bank, we have moved more or less exclusively to remote working for this period. And it was quite a new challenge for us as an institution. And I feel personally that we’ve done reasonably well. So we moved relatively smoothly to remote working, we actually increased the volume of operations. Because, as you know, as a bank we work, we are a counter-cyclical institution.

So during the crisis, we often do more than in a less turbulent period because it’s part of our mandate to support our clients and companies at a time when they need the support and they don’t find it in the market. 

Actually this summer was the busiest period more or less in our whole history, and the volumes of projects are really very high. So, of course, that created some pressures because remote working is not easy and sometimes there are technological challenges or internet connections are not great. And in my personal case, I also had to begin with my new team, the Capital Markets Department of the EBRD amid the pandemic. And I have not seen a significant proportion of my team in person since I started in July. So that for me is quite a new challenge. I have never experienced this before and so we have had to find ways to be connected and spend quite a lot of time getting to know each other through Zoom, through WebEx, through other online platforms.

We have regular team meetings. We use the technology to do catch-ups, sometimes smaller brainstorms and conversations as a team. We had to learn to work with our clients, including governments, in the countries of operations through virtual tools. I guess it may be of some interest that we have learned also that in this time of crisis, we try to encourage each other to remain active and healthy and take some rest. And as a team, for example, we started a team group on one of the sports apps. This month we encourage each other as a team to reach two hundred hours of physical activity during the month of November. So we are also doing that as a team and try to remain active and support each other and encourage each other. 

So really, it’s a range of activities. I think the experience has been better than expected. But we need to be constantly mindful that as the winter gets darker, days get shorter, we need to make sure we all can take some time off, go for a walk and not be connected every single minute.

Armenuhy: I like the sport activity and yes, challenging times are bringing new skills, and I hope these new skills will be useful for the future.

And the very last question, in your personal opinion, what life will look like after covid pandemic and what are the major challenges that humanity will face?

Mr. Pivovarsky: This is a very interesting question, and it definitely goes beyond the capital markets, although, of course, to some extent it is all connected.

Well, I think that the pandemic has confirmed how interconnected we all are. Given the speed and breadth of the virus spread, how quickly it affected basically the whole world. It shows that the world is much smaller and more vulnerable than perhaps we had felt. It also shows that we are quite interdependent, that this interdependence, has grown over time, and it goes way beyond our immediate communities and our families. 

I believe that in a day to day life, there will be some changes for the better. 

So we, for example, now it is more accepted that we should be able to work more flexibly and be able to spend more time with our families rather than always be available. So I think that there will be more remote working over time, more flexible working in particular in professions where it is feasible.

So most people working at the capital markets probably could expect to work more flexibility over time.

We will probably experience more spread of digital technology, including to support collaboration. We havee seen an explosion of technology and its improved quality just in the last half a year. 

As the governments will need to stimulate the economy over time, the question of the impact of economic activity on the environment will not go away. So there are a lot of discussions about how we can spend on green infrastructure and other government expenditure after the crisis to build better economies and greener economies with less impact on the environment. 

And of course at the EBRD, some of these leading topics are very much in our blood. We hope that these trends will help us to become even more effective in our countries operations. For example, just some weeks ago, our Board of Directors approved our new green economy transition strategy. It states that by 2025 the EBRD will be a majority green bank.

So the impact of the greening of the financial system is very much direct on the EBRD first of all. 

We also will continue to work on ensuring that finance and access to finance is more inclusive. So this is another major theme, so that women, people in remote regions, youth in some countries, and seniors can have access to finance when they need it on fair terms. 

We, of course, also will be supporting digitalisation not only in the financial sector, because it’s a broader theme, but we will be working in that area as well. 

So I hope that in a few years time, not many, when we speak and reflect on this challenging period, on this pandemic, we would feel that it helped us launch more positive trends in the world that we all will be happy about.

Armenuhy: Let’s hope. Thank you, Alex.

Mr. Pivovarsky: Thank you very much.