Three years on from Russia’s escalation of its war on Ukraine with the full-scale invasion, Ukraine faces mounting military challenges. At the same time, there is growing uncertainty about future military assistance from the United States under the Trump administration. This makes the question of Ukraine’s ability to supply its own military needs and its reliance on aid all the more pertinent.
Since February 2022, Ukraine has relied heavily on foreign military aid for its defence against Russia. Its domestic arms industry has also been able to increase production and develop its capabilities significantly. In 2023 Ukraine’s largest arms producer, Joint-Stock Company Ukrainian Defense Industry (formerly UkrOboronProm), achieved a 69 per cent year-on-year increase in arms revenues to $2.2 billion—the fastest increase and highest revenues the company has ever recorded. As Ukraine seeks to rapidly strengthen and modernize its military capabilities amid the conflict, numerous smaller producers have appeared, along with emerging joint ventures with foreign companies, creating a more vibrant, diverse and innovative sector.
This topical backgrounder examines how Ukraine’s arms industry has transformed during the Russia-Ukraine war.
From the Soviet legacy to specialization
Upon the dissolution of the Soviet Union in 1991, Ukraine inherited around 30 per cent of the Soviet arms industry, including both production capacity and research and development facilities. This legacy comprised around 700 enterprises with over 1 million employees, making it the most capable part of the newly independent Ukraine’s manufacturing sector.
Ukraine’s inherited production base was particularly strong in manufacturing missiles, transport aircraft, tanks, surface ships, and both marine and aero engines. It also included facilities for the production of munitions, explosives, radar systems, communications equipment and military optical devices. Notable examples of arms producers included Pivdenmash, the producer of Soviet intercontinental ballistic missiles, and Antonov, the company behind the An-124 Ruslan and An-225 Mriya, formerly the largest transport aircraft in the world.
Despite this, Ukraine did not have anything approaching self-sufficiency in arms production. Before 1991, Ukraine’s arms industries had been integrated into a network spanning all Soviet republics, with the overwhelming majority of final arms production concentrated in Russia. Developing the missing capabilities within Ukraine would have required costly restructuring and investment, which the country, caught in a severe economic crisis, could not afford.
At the same time, the shifting military-political environment made arms production less of a priority. Following the end of the cold war, many countries reduced their military expenditure and started converting parts of their military industrial capacity to civilian production, and Ukraine followed suit. Under the 1994 Budapest Memorandum and the 1990 Treaty on Conventional Armed Forces in Europe, Ukraine agreed to relinquish its nuclear missile capabilities and significantly reduce its arsenal of conventional weapons. Most of its military budget went to the basic upkeep of the armed forces, with only a small portion allocated to the maintenance and development of the arms industry. As a result, the number of arms-producing enterprises in Ukraine had already fallen by nearly two thirds to reach 267 by mid 1993, and continued to decline in the following years.
With limited domestic investment and procurement budgets, Ukrainian arms producers turned to the export of modernized Soviet-era equipment, technology transfers and joint ventures. This approach helped the industry to maintain a degree of economic viability and to preserve some technological capabilities. Competitive pricing and the proven durability of its systems enabled Ukraine to secure new export markets in Africa, Asia, Latin America and the Middle East. As a result, for nearly two decades after 1993, Ukraine nearly always ranked among the world’s top 15 arms exporters.
The wake-up call of 2014
Following Russia’s invasion of Crimea and the Donbas region in 2014, there was an urgent need to strengthen Ukraine’s defensive capabilities. In response, the government began steadily increasing military spending. Where the military procurement budget in 2014 was $62 million, by 2021 it had increased 13 times over, reaching $836 million. While much of the procurement budget was spent on imports, a surge in domestic orders fueled an expansion of the Ukrainian arms industry.
The industry was, however, still plagued by a culture of secrecy, clientelism and corruption—another legacy of Soviet times—which even after 2014 not only weakened Ukraine’s military capabilities and delayed the development of critical military systems but also deterred Western investors. These problems were especially prevalent within UkrOboronProm, the conglomerate that oversaw more than 100 state-owned companies and served as the primary supplier to Ukraine’s armed forces.
It was not until 2020, under pressure from civil society and foreign governments and also driven by a growing willingness for political intervention, that Ukraine began reforming its arms industry to address widespread corruption and inefficiency. The reforms included the creation of a new Ministry of Strategic Industries, the introduction of more transparent arms procurement procedures, an overhaul of leadership in state institutions and state-owned arms companies, and the corporatization of enterprises within UkrOboronProm. Despite some progress, particularly in leadership changes, many of the reforms stalled or remained unimplemented due to funding constraints and bureaucratic inertia.
Problems in the state-owned industries also led to the rise of private arms companies, which often surpassed their state-owned competitors in production efficiency, innovation and adaptability to the military’s needs. In 2015, 25 per cent of state orders went to private companies. By 2020 this share had more than doubled to 54 per cent, whereas state enterprises received 36 per cent and the remaining 10 per cent were imports. The expansion of Ukraine’s arms industry after 2014, along with reform efforts and the rising role of the private sector, laid the groundwork for increased arms production and technological innovation in the years that followed.
Adapting under fire
Russia’s full-scale invasion of Ukraine in February 2022 presented Ukraine’s evolving arms industry with a new set of challenges. Proximity to active combat zones and targeted attacks severely disrupted production at many factories. In the first two years of active hostilities, major arms producers suffered significant losses. According to a report by the Kyiv School of Economics assessing damage during the first two years of the war, engine manufacturer Motor Sich and aircraft producer Antonov alone reported damage amounting to a combined $601 million in industrial assets. As a result, companies were forced to adapt by relocating and restructuring production.
Nevertheless, Ukraine’s arms industrial capacity recovered quickly as the country shifted to a wartime economy. Since the start of the full-scale invasion, Ukraine has allocated more than 50 per cent of government expenditures to the military, significantly increasing funding for its arms industry. By 2023, government spending on arms and dual-use goods surged to 20 times the 2021 level, reaching $30.8 billion. Although a substantial portion of the procurement budget went into purchasing weapons from abroad, Ukrainian arms companies were able to restore and even expand their production capabilities. By 2024, approximately 500 arms producers were reported to be operational in Ukraine, collectively employing nearly 300 000 people.
In the past three years, Ukraine’s arms production capacity has grown not only in terms of volume but also of the range of military hardware that can be produced. This growth has been largely driven by the development of new technologies, as the scale and nature of the war have created a demand for military innovation. One of the most notable advancements has been in uncrewed aerial vehicles (UAVs), with Ukraine significantly increasing the number of domestically produced UAV models. Technological progress has been further accelerated by government initiatives, such as Brave1, a state-led platform that provides assistance to military technology developers and fosters collaboration between industry stakeholders. In just under two years since its launch, Brave1 has grown to support over 1500 military technology start-ups.
Resilient but still reliant
Thanks to coordinated efforts by Ukraine’s government, private sector and civil society, the Ukrainian arms industry has been able to rapidly modernize and grow in response to the war. Despite this, the industry is still hampered by outdated technology, financial constraints and inefficient spending.
The Ukrainian war effort remains highly dependent on Western arms, whether provided as aid or imported on commercial terms. Since 2022 Ukraine has managed to start domestic production of certain types of weaponry that it has received hitherto from abroad, such as globally scarce artillery and tank ammunition. However, it is still a long way from being able to produce alternatives to all the imported systems it uses on the battlefield. A significant portion of procurement funds are thus spent on purchasing weapons from abroad, which does not facilitate the development of the domestic industry.
To address this, Ukraine is striving to implement new production technologies through cooperation with partners. Arms producers from the United States and Europe have been increasing their presence in Ukraine, with companies such as Rheinmetall, KNDS and AeroVironment opening production facilities and forming joint ventures with Ukrainian producers. These collaborations not only help in the modernization of Ukraine’s arms industry but also accelerate the standardization of Ukrainian-made armaments to NATO requirements, advancing the country’s long-standing ambition of Euro-Atlantic integration.
To further stimulate the development of its arms industry, Ukraine has managed to engage Western partners through special programmes aimed at financing its domestic arms production. While it is still short of its $10 billion objective, by 2024 Ukraine had raised over $1.5 billion for investment in its domestic arms industry from nine Western donor countries under a new programme called Zbroyari (armourers) Manufacturing Freedom.
Partnerships with Western companies have also catalysed long-overdue reforms, with partners urging Ukraine to address corruption and inefficiency in its arms companies. A notable example is the ongoing corporatization of UkrOboronProm, including its transformation from a state conglomerate into a joint-stock company. The transformation includes a plan to introduce Organisation for Economic Cooperation and Development (OECD) corporate governance standards across the numerous state-run arms companies under its control, to enforce transparent management practices and make them increasingly attractive to foreign investments.
The steps mentioned above are undoubtedly helping to develop and expand the Ukrainian arms industry, and thus to increase the country’s ability to supply its own military needs. However, at least in the short term, Ukraine will remain heavily reliant on military aid for its defence, making it vulnerable to the whims of its partners.
In an unpredictable geopolitical landscape, Ukraine needs to reduce this reliance and build a resilient arms industry sector that can serve as much of the country’s military needs as possible. Recent developments seem to be heading in the right direction to achieve those ends: prioritizing innovation and technological advancement along with fostering a competitive, transparent market should help to create an environment that is more attractive to sustained foreign investment, ensuring that the industry is economically viable in the longer term.
ABOUT THE AUTHOR(S)
Kateryna Kuzmuk is an intern in the SIPRI Military Expenditure and Arms Production Programme.
Lorenzo Scarazzato is a Researcher in the SIPRI Military Expenditure and Arms Production Programme.
Three years on from Russia’s escalation of its war on Ukraine with the full-scale invasion, Ukraine faces mounting military challenges. At the same time, there is growing uncertainty about future military assistance from the United States under the Trump administration. This makes the question of Ukraine’s ability to supply its own military needs and its reliance on aid all the more pertinent.
Since February 2022, Ukraine has relied heavily on foreign military aid for its defence against Russia. Its domestic arms industry has also been able to increase production and develop its capabilities significantly. In 2023 Ukraine’s largest arms producer, Joint-Stock Company Ukrainian Defense Industry (formerly UkrOboronProm), achieved a 69 per cent year-on-year increase in arms revenues to $2.2 billion—the fastest increase and highest revenues the company has ever recorded. As Ukraine seeks to rapidly strengthen and modernize its military capabilities amid the conflict, numerous smaller producers have appeared, along with emerging joint ventures with foreign companies, creating a more vibrant, diverse and innovative sector.
This topical backgrounder examines how Ukraine’s arms industry has transformed during the Russia-Ukraine war.
From the Soviet legacy to specialization
Upon the dissolution of the Soviet Union in 1991, Ukraine inherited around 30 per cent of the Soviet arms industry, including both production capacity and research and development facilities. This legacy comprised around 700 enterprises with over 1 million employees, making it the most capable part of the newly independent Ukraine’s manufacturing sector.
Ukraine’s inherited production base was particularly strong in manufacturing missiles, transport aircraft, tanks, surface ships, and both marine and aero engines. It also included facilities for the production of munitions, explosives, radar systems, communications equipment and military optical devices. Notable examples of arms producers included Pivdenmash, the producer of Soviet intercontinental ballistic missiles, and Antonov, the company behind the An-124 Ruslan and An-225 Mriya, formerly the largest transport aircraft in the world.
Despite this, Ukraine did not have anything approaching self-sufficiency in arms production. Before 1991, Ukraine’s arms industries had been integrated into a network spanning all Soviet republics, with the overwhelming majority of final arms production concentrated in Russia. Developing the missing capabilities within Ukraine would have required costly restructuring and investment, which the country, caught in a severe economic crisis, could not afford.
At the same time, the shifting military-political environment made arms production less of a priority. Following the end of the cold war, many countries reduced their military expenditure and started converting parts of their military industrial capacity to civilian production, and Ukraine followed suit. Under the 1994 Budapest Memorandum and the 1990 Treaty on Conventional Armed Forces in Europe, Ukraine agreed to relinquish its nuclear missile capabilities and significantly reduce its arsenal of conventional weapons. Most of its military budget went to the basic upkeep of the armed forces, with only a small portion allocated to the maintenance and development of the arms industry. As a result, the number of arms-producing enterprises in Ukraine had already fallen by nearly two thirds to reach 267 by mid 1993, and continued to decline in the following years.
With limited domestic investment and procurement budgets, Ukrainian arms producers turned to the export of modernized Soviet-era equipment, technology transfers and joint ventures. This approach helped the industry to maintain a degree of economic viability and to preserve some technological capabilities. Competitive pricing and the proven durability of its systems enabled Ukraine to secure new export markets in Africa, Asia, Latin America and the Middle East. As a result, for nearly two decades after 1993, Ukraine nearly always ranked among the world’s top 15 arms exporters.
The wake-up call of 2014
Following Russia’s invasion of Crimea and the Donbas region in 2014, there was an urgent need to strengthen Ukraine’s defensive capabilities. In response, the government began steadily increasing military spending. Where the military procurement budget in 2014 was $62 million, by 2021 it had increased 13 times over, reaching $836 million. While much of the procurement budget was spent on imports, a surge in domestic orders fueled an expansion of the Ukrainian arms industry.
The industry was, however, still plagued by a culture of secrecy, clientelism and corruption—another legacy of Soviet times—which even after 2014 not only weakened Ukraine’s military capabilities and delayed the development of critical military systems but also deterred Western investors. These problems were especially prevalent within UkrOboronProm, the conglomerate that oversaw more than 100 state-owned companies and served as the primary supplier to Ukraine’s armed forces.
It was not until 2020, under pressure from civil society and foreign governments and also driven by a growing willingness for political intervention, that Ukraine began reforming its arms industry to address widespread corruption and inefficiency. The reforms included the creation of a new Ministry of Strategic Industries, the introduction of more transparent arms procurement procedures, an overhaul of leadership in state institutions and state-owned arms companies, and the corporatization of enterprises within UkrOboronProm. Despite some progress, particularly in leadership changes, many of the reforms stalled or remained unimplemented due to funding constraints and bureaucratic inertia.
Problems in the state-owned industries also led to the rise of private arms companies, which often surpassed their state-owned competitors in production efficiency, innovation and adaptability to the military’s needs. In 2015, 25 per cent of state orders went to private companies. By 2020 this share had more than doubled to 54 per cent, whereas state enterprises received 36 per cent and the remaining 10 per cent were imports. The expansion of Ukraine’s arms industry after 2014, along with reform efforts and the rising role of the private sector, laid the groundwork for increased arms production and technological innovation in the years that followed.
Adapting under fire
Russia’s full-scale invasion of Ukraine in February 2022 presented Ukraine’s evolving arms industry with a new set of challenges. Proximity to active combat zones and targeted attacks severely disrupted production at many factories. In the first two years of active hostilities, major arms producers suffered significant losses. According to a report by the Kyiv School of Economics assessing damage during the first two years of the war, engine manufacturer Motor Sich and aircraft producer Antonov alone reported damage amounting to a combined $601 million in industrial assets. As a result, companies were forced to adapt by relocating and restructuring production.
Nevertheless, Ukraine’s arms industrial capacity recovered quickly as the country shifted to a wartime economy. Since the start of the full-scale invasion, Ukraine has allocated more than 50 per cent of government expenditures to the military, significantly increasing funding for its arms industry. By 2023, government spending on arms and dual-use goods surged to 20 times the 2021 level, reaching $30.8 billion. Although a substantial portion of the procurement budget went into purchasing weapons from abroad, Ukrainian arms companies were able to restore and even expand their production capabilities. By 2024, approximately 500 arms producers were reported to be operational in Ukraine, collectively employing nearly 300 000 people.
In the past three years, Ukraine’s arms production capacity has grown not only in terms of volume but also of the range of military hardware that can be produced. This growth has been largely driven by the development of new technologies, as the scale and nature of the war have created a demand for military innovation. One of the most notable advancements has been in uncrewed aerial vehicles (UAVs), with Ukraine significantly increasing the number of domestically produced UAV models. Technological progress has been further accelerated by government initiatives, such as Brave1, a state-led platform that provides assistance to military technology developers and fosters collaboration between industry stakeholders. In just under two years since its launch, Brave1 has grown to support over 1500 military technology start-ups.
Resilient but still reliant
Thanks to coordinated efforts by Ukraine’s government, private sector and civil society, the Ukrainian arms industry has been able to rapidly modernize and grow in response to the war. Despite this, the industry is still hampered by outdated technology, financial constraints and inefficient spending.
The Ukrainian war effort remains highly dependent on Western arms, whether provided as aid or imported on commercial terms. Since 2022 Ukraine has managed to start domestic production of certain types of weaponry that it has received hitherto from abroad, such as globally scarce artillery and tank ammunition. However, it is still a long way from being able to produce alternatives to all the imported systems it uses on the battlefield. A significant portion of procurement funds are thus spent on purchasing weapons from abroad, which does not facilitate the development of the domestic industry.
To address this, Ukraine is striving to implement new production technologies through cooperation with partners. Arms producers from the United States and Europe have been increasing their presence in Ukraine, with companies such as Rheinmetall, KNDS and AeroVironment opening production facilities and forming joint ventures with Ukrainian producers. These collaborations not only help in the modernization of Ukraine’s arms industry but also accelerate the standardization of Ukrainian-made armaments to NATO requirements, advancing the country’s long-standing ambition of Euro-Atlantic integration.
To further stimulate the development of its arms industry, Ukraine has managed to engage Western partners through special programmes aimed at financing its domestic arms production. While it is still short of its $10 billion objective, by 2024 Ukraine had raised over $1.5 billion for investment in its domestic arms industry from nine Western donor countries under a new programme called Zbroyari (armourers) Manufacturing Freedom.
Partnerships with Western companies have also catalysed long-overdue reforms, with partners urging Ukraine to address corruption and inefficiency in its arms companies. A notable example is the ongoing corporatization of UkrOboronProm, including its transformation from a state conglomerate into a joint-stock company. The transformation includes a plan to introduce Organisation for Economic Cooperation and Development (OECD) corporate governance standards across the numerous state-run arms companies under its control, to enforce transparent management practices and make them increasingly attractive to foreign investments.
The steps mentioned above are undoubtedly helping to develop and expand the Ukrainian arms industry, and thus to increase the country’s ability to supply its own military needs. However, at least in the short term, Ukraine will remain heavily reliant on military aid for its defence, making it vulnerable to the whims of its partners.
In an unpredictable geopolitical landscape, Ukraine needs to reduce this reliance and build a resilient arms industry sector that can serve as much of the country’s military needs as possible. Recent developments seem to be heading in the right direction to achieve those ends: prioritizing innovation and technological advancement along with fostering a competitive, transparent market should help to create an environment that is more attractive to sustained foreign investment, ensuring that the industry is economically viable in the longer term.
ABOUT THE AUTHOR(S)