At the start of the all-out war, 27 months ago, Western countries needed to send aid to Ukraine rapidly and at scale. Naturally enough, they raided their own stockpiles.
And predictably, those supplies soon reached critically low levels. The British military said last year that its shelves were empty and it could send nothing more from its depleted stocks, while even the US, still the preeminent arsenal of the democracies, has struggled to provide sufficient munitions and equipment for Ukraine’s high-intensity warfare.
New solutions are needed. The most obvious is to purchase military equipment from Ukrainian companies. The country’s revived defense industry now has a potential output of $18bn-$20bn but can fund only about half this alone, the government says.
Since the beginning of the full-scale invasion, the defense industry has been producing artillery shells, UAVs (including kamikaze drones), self-propelled Bohdana 155mm howitzers, Neptune cruise missiles, Stugna anti-tank missiles, and other high-end products. Ukraine is also gradually switching to the production of NATO-caliber ammunition, such as 60-mm mines and 155-mm shells, although this latter capacity is not yet producing munitions.
Given this year’s long delays in the agreement of this year’s $116bn US and European Union (EU) aid packages and the possibility of future hold-ups for political reasons, Ukraine understands that it is critical to multiply domestic production.
There has been progress. The new head of the main arms company, Ukroboronprom, is an energetic 32 year-old tank engineer, Herman Smetanin, who helped Ukraine triple the production of military equipment over the past year. This year, it has caught up with Russia in producing kamikaze drones. Alexander Kamyshin, Strategic Industries minister, is just 39 and has visited almost every arms plant in the country, receiving daily reports on production line bottlenecks.
But while Ukraine is doing what it can, it badly needs foreign capital to raise production. Some defense plants stand idle for months, waiting for their turn to sign a contract with the state (the only customer after the ban on weapons exports was imposed in 2022.) Western partners could step in and buy the spare capacity.
The EU-Ukraine Defence Industries Forum, which met in Brussels on May 6, is a means to address this issue. It has discussed the possibility of capital investment including joint ventures with the Ukrainian defense industry and confirmed the opening of the EU Innovation Office in Kyiv by the end of the year.
Several states, including Denmark and Canada, have also joined the Zbroyari Manufacturing Freedom initiative of bilateral investments in the military industry. Yet, for the project to be effective more partners are needed.
The EU will channel funds through the European Peace Facility (EPF), which can now be used to purchase Ukrainian output. Currently, €5bn ($5.43bn) is earmarked for Kyiv’s military needs this year.
European firms including the German tank maker Rheinmetall are building production facilities in Ukraine and the UK’s BAE Systems is working with local companies to service and maintain its products, while the Franco-German company KNDS will do likewise. Czechoslovak Group is establishing ammunition production plants inside the country. These indicate progress although these are mostly fledgling projects.
The prize for the Ukrainians would be US investment and there are signals this may be close. Military industry development was high on the agenda of the May 14-15 visit of Secretary of State Antony Blinken to Kyiv. He announced the creation of a Ukraine Defense Enterprise Program and the allocation of around $2bn to support it under the Foreign Military Financing (FMF) scheme. Less noticed, yet crucial in this context was also Blinken’s mention of defense industrial base development under the 10-year-long US-Ukraine bilateral security agreement, which is expected to be signed soon.
The US and Ukraine laid the groundwork for weapons production cooperation last year. They agreed to co-produce vital 155mm artillery shells in Ukraine, and the FrankenSAM joint air defense systems project was launched.
Ukraine has meanwhile been attempting to transform its arms industry. The main state-owned weapons producer Ukroboronprom has been switched from state ownership into a joint-stock company named Ukrainian Defense Industry. This aims to make producers more compatible with Western enterprises and ensures cooperation with partners. So far, over 30 state-owned defense enterprises have been converted into commercial companies.
The domestic arms industry has advantages. The country has fought the most intensive war in Europe for 80 years and has gained priceless experience with battle-tested tactics and equipment. It can also produce at substantially lower costs than Western Europeans and North Americans, enabling greater output for the same price. And as the US has pointed out, shifting production to Ukraine should allow Western taxpayers to scale back direct aid.
The use of Russian frozen assets, or at least revenues derived from them, for the development of Ukrainian military production would help to save even more taxpayers money. Reports that the G7 group of developed nations is considering a payment to Ukraine of about $50bn using frozen Russian assets as collateral is one good way of speeding this process.
It seems that the US and Europe are changing the support strategy for Ukraine. Of course, direct Western military aid will remain crucial, but however the war ends, the country will need a substantial defense industry for many years to come. We might as well get started as soon as possible.
Marianna Fakhurdinova is a Visiting Fulbright Fellow at the Center for European Policy Analysis (CEPA) and Associate Fellow at the New Europe Center (Kyiv).
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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