Is Ukraine ready to become a defence exporter?
Ukraine is at a unique point in the development of its defence industry. Over the course of the full-scale war, the country has built up its military-industrial complex: many new manufacturers have entered the market, unique skills have been developed, and a number of Ukrainian solutions are already competing with the best Western models.
However, success has another side. In some segments, such as the production of electronic warfare systems, surveillance, or drones, Ukraine is already experiencing overcapacity. In other words, factories can produce more than the state is willing to buy.
Paradoxically, excess capacity can be both an opportunity and a challenge. Without new markets, the industry will lose people, innovation, and investment attractiveness.
Export as a strategic tool
The balance between the needs of the state and production capabilities is constantly changing. The evolution of modern warfare methods is outpacing the cycles of production capacity preparation. The volume of capital investment in new production lines, as well as research and development work, remains tremendous.
The logic is simple: the more units of a particular product are sold, the faster the investment into its development and manufacturing is recouped. This also helps attract additional investment in the creation of new products and supports the development of the industry. Excess capacity often arises not because of a lack of state funds, but rather because war continuously creates new needs.
Exports and military-technical cooperation are important elements not only of the manufacturing economy but also of diplomacy. Those who supply technology influence the strategic decisions of their partners, strengthen coalitions, and attract investment. Ukrainian weaponry has already proved itself on the battlefield and is attracting interest from partners. It is up to us whether we take advantage of this opportunity.
The risks are as real as the opportunities
Are all opportunities equally safe for Ukraine? Attractive export prospects always hide risks that must be clearly understood.
The first risk is losing control over the end–user. History knows many cases when military products, having fallen into the “wrong” hands, became the cause of international scandals or a tool of political pressure on the exporting country. For Ukraine, which is striving for a place in the Western security system, the consequences of such mistakes could cause significant reputational and political losses.
The second risk is the reaction of partners. If allies see Ukrainian weapons on markets or in regions where they are not supposed to be, the consequences could be immediate: from reduced support to a reassessment of bilateral relations.
The third risk is shadow schemes. Excessive regulation or high taxes encourage businesses to split contracts, understate costs, and export individual parts instead of finished products. After all, even if it is possible to keep exports under strict control and approve each contract manually, this will not create predictable rules for businesses and partners. Without a transparent and modern regulatory framework, the negative consequences of exports may outweigh their positive effects.
Controlled exports: a partnership model
Exports should not be allowed “to everyone and everywhere,” but only when they are beneficial to the state and do not harm national security. That is why BRDO proposes a simple but effective model: controlled exports exclusively for strategic partners.
This involves the export of excess goods, services, and technologies to countries that are our allies, have signed security agreements with Ukraine, and actually finance our defence-industrial complex (the same “Danish model” that has already been supported by the United Kingdom, the United States, Canada, and a number of European countries). The principle is transparent: support for Ukraine and investment in Ukrainian production open the way to obtaining technologies that have been tested in modern warfare.
This approach gives Ukraine full political and technical control over exports. Weapons are only sent to countries that share our values and are interested in joint security. All products must be codified and remain within the purview of the state so that they can be quickly repurchased for the Ukrainian Armed Forces if necessary.
Export volumes are limited by the level of the partner’s contribution to the financing of the defence industry after 24 February 2022. This model maintains control over exports and provides incentives for partners to strengthen their military support for Ukraine.
We also propose a number of safeguards to protect Ukraine’s national interests. The transfer of certain sensitive products or technologies, the distribution of which has been restricted by the High Command, must be limited. Re-export or transfer to third parties is also prohibited.
The data must not contain information about the composition or location of Ukrainian forces and must not be used as a material for artificial intelligence training. Royalties are paid to the Ukrainian developers for the use of Ukrainian technologies.
Ukraine should retain the right to purchase a particular batch of products on a priority basis without sanctions or loss of reputation for businesses. The relevant provision should be clearly defined in each export contract, which will provide additional guarantees for defence and create predictable demand for Ukrainian manufacturers.
Such a system also has a challenge: it requires significant diplomatic coordination. For the model to work effectively, it is necessary to conclude transparent intergovernmental agreements, maintain constant dialogue with partners, and ensure trust at all levels.
Controlled exports of excess production to partner countries minimise political and reputational risks, allow for the accumulation of investments in the national defence industry, create transparent and understandable rules of the game, and pave the way for Ukraine’s full integration into the European and Euro-Atlantic security system.
The mechanism already exists, it just needs to be applied
It seems that such changes would require a radical overhaul of legislation or the creation of new complex procedures. In fact, the legislative framework already exists. Article 20 of the Law ‘On State Control of International Transfers of Military and Dual-Use Goods’ provides for the use of international or intergovernmental agreements for the transfer of weapons and technologies.
If the agreement clearly specifies the names of goods, exporters and end users, the issue is considered within 15 days following an official request from the partner state.
An additional window of opportunity for launching controlled exports is opened by the draft laws on Defence.City, which have been adopted in the first reading. In particular, they contain general provisions on simplifying the export of defence products. Their final version is still being developed. BRDO is preparing its proposals for the second reading so that the mechanism is robust, effective and secure for the state.
So, both the law and the conceptual framework we proposed are in place to launch the mechanism. The next steps involve a political decision and the development of a simplified export procedure within the framework of bilateral security agreements.
BRDO is ready to offer solutions
BRDO is ready to develop detailed procedures for applying this mechanism in cooperation with the government and relevant agencies. We can offer a transparent algorithm that will avoid unnecessary bureaucracy, minimise risks, and enable manufacturers to work fully in the interests of the state and its partners.
The controlled export model is a test of strategic thinking. Ukraine has already become a reliable partner for its allies. It is time to turn defence exports into a driver of development and a key to participation in a large security coalition.
Co-author – Taras Yemchura, Head of the Defence Policy Sector at the Better Regulation Delivery Office (BRDO)