Ukraine’s weapons industry presses government to allow arms exports

KYIV — Ukrainian authorities are under pressure to allow exports of Ukrainian weapons; if that happens it would be a dramatic change of policy but one driven by pleas from the cash-strapped domestic arms industry.
“As of today the decision on opening controlled exports is still at the stage of searching for a political will of the highest leadership of Ukraine,” Ukrainian MP Halyna Yanchenko told POLITICO on Wednesday. Yanchenko is also secretary of the National Investment Council — an advisory body that encourages contacts between industry, government and investors.
The Ukrainian parliament is already working on a mechanism that would allow manufacturers to sell excess production abroad — under strict controls to ensure that only items not needed on the front lines are sold. Giving the green light could earn arms companies up to $15 billion a year and boost Ukraine’s weapons production.
“Weapons made in Ukraine and tested in real combat are of interest to many countries around the world. Ukrainian manufacturers could have queues of buyers and contracts for years to come if arms exports were not blocked,” Yanchenko said at a special commission meeting in the parliament last month. “With export restrictions, we inhibit the development of a strategic industry,” she added.
A possible rethink of the export ban is driven by the sector’s cash shortage.
Ukraine’s defense industry has exploded in size in reaction to Russian aggression. In the first half of this year, it produced 25 times more ammunition than in all of 2022, it is capable of producing 4 million drones a year, has started making 155 mm NATO standard ammunition as well as Bohdana self-propelled howitzers, and is developing its own ballistic missiles, President Volodymyr Zelenskyy said earlier this month.
The problem is that Ukraine’s defense companies can produce $20 billion of weapons and ammunition per year, but Kyiv can only afford to spend $6 billion.
That’s prompting the sector to press the government to lift an export ban so it can earn from foreign sales.
“We expanded our capabilities during war, but without long-term contracts and regular flow of financing, everything stops,” Yuliia Vysotska, a senior executive with Praktika, a Ukrainian producer of armored vehicles, told POLITICO. “We have to let people go until we get another contract. We don’t have spare financing to pay salaries if we have to stop for a month or so. And talented specialists go elsewhere or to war while we’re waiting for a contract.”
The National Association of Ukrainian Defense Industries said allowing military exports could strengthen the country’s economy. The lobby argued it could bring in up to $2 billion in new tax revenues over 18 months.
Not allowing exports means that 85 percent of Ukraine’s defense producers have thought about relocating production abroad, said the Technological Forces of Ukraine, Ukraine’s drone producers union, citing an internal survey of its members.
Despite parliament investigating dropping the export ban, the government still sees allowing foreign weapons sales as politically dangerous.
“Imagine what it would look like? Ukraine exports its weapons during the war while asking partners for military aid. Ukrainians would not understand, partners would not understand,” said a senior Ukrainian foreign ministry official speaking to POLITICO on condition of being granted anonymity.
Another top Ukrainian official close to the president’s office, also speaking on condition of being granted anonymity to discuss sensitive issues, said that Zelenskyy is more focused on searching for investments in the defense sector.
“We don’t have a position on exports. I think the Ukrainian military does not share the vision that we have to allow selling weapons, while soldiers at home need it,” the official told POLITICO.
Industry argues that allowing sales would actually help the Ukrainian military, as it would increase output and cut production costs. “Exports also would allow us to keep the pace and produce more for the front faster,” Vysotska said.
With the export avenue still closed off for now, Kyiv is pressing its allies to source weapons directly from Ukrainian companies rather than importing kit.
Kyiv is planning to push the issue during this month’s Ramstein meeting that organizes allied military help for Ukraine. It will press proposals for partners to invest in the domestic production of weapons, primarily drones and electronic warfare systems, Zelenskyy said on Monday.
U.S. President Joe Biden had been scheduled to attend a summit this week before deciding to stay in the U.S. due to Hurricane Milton hitting Florida. A new date is now being considered.
Ukraine’s partners are already starting to place contracts with domestic arms-makers.
The EU has allocated €400 million from a first tranche of proceeds from frozen Russian assets to finance Ukrainian defense companies. The effort is run by Denmark, which also added some of its own money.
“You produce [items] of the same quality for less money, quicker, you cut away the transport and logistics costs, and the companies pay taxes [to Ukraine], so you are helping the economy,” Katarína Mathernová, EU ambassador to Ukraine, told European Pravda.
Lithuania and Canada have also pledged funds.
Ukraine has also launched an initiative called Zbroyari: Manufacturing Freedom aimed at collecting $10 billion for domestic weapons production from partners. 
Allowing exports is just one of the changes the industry is arguing for. Others include: The defense ministry signing long-term contracts with domestic producers; preferring local manufacturers over importers; and digitalizing lists of military needs.
“The Strategic Industries Ministry is fighting for us so that we have three-year contracts. Few of them have been concluded, but they are still underfunded. Rather, they are contracts of intent,” Vysotska said.
There’s another problem for the domestic arms industry — a lack of components. Ukrainian producers sometimes have to wait up to 18 months for crucial parts, “and during war we don’t have 18 months,” Vysotska said.
Halyna Yavorska, a 43-year-old lawyer who also works at a drone production enterprise in the Kyiv region, said Ukraine has started to produce circuit boards for drones, but most of the components are still coming from China. “And China doesn’t really want to deliver. I can’t find goggles. Not available on AliExpress in Ukraine. But for some reason, available on Russian websites,” Yavorska said.
And that comes back to the government’s lack of funds.
 “We understand … the state does not have money for everyone. There is no electricity, many enterprises are forced to stop. Other countries should help us,” Yavorska said.