How European investment can take Ukraine's arms production to the next level
When, at the end of 2023, the continuation of US military aid to Ukraine came into question, and supplies from European partners declined due to the rapid depletion of stockpiles, Ukraine was left with only one systemic and consistent solution: to launch its own military production.
According to official data, by 2025 Ukraine will be producing about 40% of the equipment needed to meet its defense needs, compared to just 10% in 2022.
This is a major leap that would not have been possible without cooperation with Western partners. Yet, these achievements still fall far short of Ukraine’s real needs.
Read more about the challenges faced by both the EU and Ukraine in the process of rearmament in the article by Leonid Litra of New Europe Center: Rearming together with Europe: how Ukraine attracts Western investment into defence.
The realisation that the war will be protracted and that Europe will not be safe in the coming years has led some global manufacturers to express interest in joint production in Ukraine, with Ukraine, or for Ukraine.
What attracts investors is the ability to test defense products in real conditions and in real time. Thanks to this, Ukraine has become, as one Defence Ministry representative put it, a "country of opportunities."
Although the West has an advantage in producing high-tech weaponry, much of this equipment has never been tested in actual combat conditions.
For instance, it came as a real revelation that hypersonic Kinzhal missiles were successfully intercepted by the Patriot system, and that the German Panzerhaubitze 2000 self-propelled artillery proved to have four times the service life in practice than its manufacturers had estimated.
But the most striking example has been the use of drones, where Ukraine has become the undisputed leader.
The Ukrainian drone manufacturers’ community is even urging the government to lift the ban on military exports, in order to sustain production scale and attract new investment.
At the same time, after three and a half years of full-scale war, Ukraine’s defence industry remains severely underinvested. Of $35 billion in potential capacity, only about a third is currently covered by production contracts.
The lack of financing has forced the government and its partners to search for new instruments.
One promising mechanism is the "Danish model," which began with an investment of €50 million into production through Ukraine’s Defence Ministry. It has proven effective, delivering quick results and supporting domestic production that is critically important under current conditions.
The "Danish" and "Dutch" financing models have shown their potential and are helping Ukraine and its industry; but they still remain small compared to Ukraine’s actual needs.
To turn wartime emergency efforts into a strategic, export-oriented sector, Ukraine and its partners need to overcome structural underfunding, governance flaws and investor uncertainty.
The future of Ukraine’s defence industry depends on reforms, the mobilisation of large-scale investments, and integration into broader NATO and EU industrial systems.