Ukraine Can Become a Supplier of Weapons to NATO Countries

You don’t have to be a military expert to understand a simple but very important fact: for the survival of Ukraine as a state, we need people, weapons and resources. What sounds like another banal thing to some, for others is a daily challenge and a non-trivial task that has no simple solution.

Money for weapons can be obtained from its export

Over the past ten years, I have been closely monitoring the dynamics of relations between state customers and enterprises of the defense-industrial complex. It can be said that despite the symbiosis of the two sectors, calling their relations partnership would be an exaggeration.

The number of state orders since 2022 has reached incredibly high values. It is worth noting that even complex bureaucratic processes and restrictions on profit margins could not stop the growth of the industry. This is especially noticeable in the field of unmanned aerial vehicles.

Thus, in 2022 there were only seven Ukrainian certified suppliers of drones, while as of the summer of 2024 their number was already 87, and the total number of Ukrainian companies involved in the production of unmanned aerial systems, according to various estimates, has increased to 500.

At the same time, it would be fair to note that the state has created favorable conditions for scaling up production, especially in the field of unmanned technologies. More than 20 revolutionary laws and regulations were developed, which abolished the value-added tax (VAT) and customs duties on components for unmanned aerial vehicles. In addition, the admission of new weapons systems to operation was simplified, the margin of government contracts was increased to 25% (in the North Atlantic Treaty Organization (NATO) countries this figure is 17%), and a number of really working procurement mechanisms were introduced.

Over the past three years, drones have been purchased by everyone: volunteer funds and local governments, military units and the State Special Communications Service, ministries and procurement agencies, gas station networks, and even religious communities.

Thus, the flywheel of the industry has gained extraordinary momentum. If in 2023 the Minister of Defense of Ukraine stated at a meeting with manufacturers: “No matter how much you produce, I will buy everything from you,” then already in 2024, manufacturers of unmanned aerial vehicles are talking about a significant surplus of production capacity and are quite actively promoting the idea of ​​​​allowing exports.

Is the export of military products a reasonable decision?

Of course, the idea of ​​​​export, at first glance, looks very attractive. It is worth noting that export contracts are not limited by the level of profit. For example, as Taras Chmut stated, a complex of unmanned aerial vehicles, which is sold in our country for 220 thousand dollars, can cost 500 thousand dollars abroad. Thus, the establishment of exports is additional foreign exchange earnings, jobs and investments. In addition, it is also an opportunity to invest more in development and scale production, which in turn will reduce the cost of production, but improve its quality.

In general, it is expected that thanks to exports, the state budget for procurement may increase, and the cost of military products may decrease, and this will make it possible to supply our defenders with more weapons. At the same time, it is worth noting that during informal conversations with individual representatives of partner countries and some members of the media structures, concerns are expressed about potential reputational risks. In their opinion, opening up export opportunities for Ukrainian weapons may become an additional argument for those who demand a reduction or cessation of military assistance to us. They say, why should other countries provide weapons for free if Ukraine is able to sell them profitably itself?

It is worth noting that such narratives, even if they are unofficially articulated, can affect public sentiment in allied countries, where there is a certain fatigue from the long war. That is why taking these risks into account is important in forming a strategy for the further development of Ukrainian military exports and its public perception.

Even a small drop in aid from our partners, say, by 5-10% in monetary terms, will mean billions in weapons not received. This will be very noticeable, and it will not be possible to compensate for this loss. Another question: where are we going to export weapons and who will we displace from these markets? Yes, indeed, Ukrainian unmanned aerial systems are often cheaper and more effective than Western counterparts of these weapons, and this will mean that companies from partner countries may lose profits due to our presence in other markets. How will the boards of directors of the largest defense giants, whose lobbyists have been persuading politicians in the capitals of partner states to provide new aid packages to Ukraine for several years, react to this? For many of them, our country is now an opportunity to receive new contracts. But what will happen when Ukraine becomes not an opportunity, but a competitor?

A reduction in the volume of military aid due to the influence of the Russian Federation on public sentiment in our allies is just one of the potential negative scenarios.

Other risks are hidden in the geopolitical consequences of export contracts. The concept of a “collective West” is too simplistic and does not reflect the diversity of political views and the network of partnerships built by individual countries. The attitude of our allies to different countries and regions can differ significantly. The intricate interweaving of interests in the Middle East, China’s presence on the African continent, the political diversity of South America is a diplomatic minefield in which it is very easy to make a mistake.

What foreign policy goals do we want to achieve by exporting Ukrainian weapons?

I am sure that there are modalities of international arms transfers that can strengthen Ukraine's position, and not vice versa.

To begin with, it is necessary to clearly define what tasks Ukraine faces. Among the main ones:

1. attracting additional military assistance;
2. attracting investments in the defense industry;
3. technological strengthening of our allies.

If everything is quite obvious with the first two goals, then the issue of strengthening our allies should be revealed in more detail.

The experience of the Russian-Ukrainian war has demonstrated the serious ineffectiveness of some weapons, especially when it comes to unmanned aerial systems or precision weapons. The likelihood of a military conflict between the Russian Federation and the North Atlantic Treaty Organization in the current dynamics is only a matter of time.

In addition, it is worth noting that Ukraine is primarily interested in ensuring that our allies are ready for such a conflict. Seriously speaking, this is to some extent our direct responsibility. We must certainly find partnership formats within which the armies of the North Atlantic Treaty Organization countries will receive effective means of confronting the Russian Federation.

It is important to note that all of the above goals are possible only under the conditions of strong and serious partnership projects.

Partnership or competition. Alternative mechanisms for arms exports

If we talk about arms exports as a foreign policy mechanism, then we should consider the tools available to us from a slightly different angle. Below are analyzed only some models that are alternatives to exports, in descending order of their priority.

Attracting funds from allies for purchases from Ukrainian manufacturers for the needs of Ukraine

This model is the most desirable and most effective for Ukraine. It looks like this: foreign governments directly or through defense institutions conclude contracts with Ukrainian manufacturers for the supply of weapons for our Defense Forces. It sounds like a fantasy, but thanks to the initiative of the Ministry of Strategic Industries of Ukraine, ZBROYARI has already managed to attract about $700 million, and these are definitely not the last deals made in this format. In total, the project plans to attract $10 billion.

The Danish government has shown leadership and support by initiating such a practice. This is how contracts were concluded for the purchase of the Bohdana self-propelled guns. Recently, the United Kingdom announced a tender for the purchase of unmanned aerial vehicles for Ukraine within the framework of the Drone Coalition. Ukrainian manufacturers were also invited to participate in the tender. In essence, this is the same export, because these are funds from foreign countries that enter our economy, but all products remain in Ukraine.

Trilateral agreements for the supply of military products

The continuation of the model of attracting funds from allies for production in Ukraine could take place in a format where the governments of our allies would conclude contracts with Ukrainian companies, within which half of the products would go to the needs of our Defense Forces, and half would go to the country that financed the contract.

This would largely eliminate the reputational problems associated with arms exports, and at the same time strengthen the armed forces of those who are ready to invest in our victory. In this format, this approach is more like a security agreement than trade.

Strategic localization of foreign production

Placing representative offices of foreign companies that will carry out repairs, and in the future also assemble and modernize Western weapons, the profit from which will return to their jurisdictions, is not exactly the idea that looks attractive to Ukrainian manufacturers. In addition, it may seem risky to Western companies, but not without meaning.

In 1977, the United States of America allowed the use of part of the FMF (Foreign Military Finance) aid package for Israeli companies. The production of the Merkava tank and the Lavi fighter were among the first projects financed in this way.

Every year, the share of American funds in the Israeli military-industrial complex grew, as did the presence of American companies. The business of the United States of America, perfectly understanding the mechanics of the Foreign Military Finance system, found ways to establish a company in Israel or purchase a share in an existing enterprise in order to obtain American contracts. They later became lobbyists for the expansion of this financing format.

It is worth noting that until 1991, the share of Foreign Military Finance that went to localized production or joint ventures with the United States of America was 25%. In 2009, it was legally fixed at 26.3%. This policy brought mutually beneficial results, and now Israeli defense companies and their scientific achievements are important elements of key American defense programs, such as the F-35.

Integration into the supply chains of the North Atlantic Treaty Organization

One of the mutually beneficial and understandable formats for Ukrainian exports would be a restriction on sales exclusively through the NSPA (NATO Support and Procurement Agency) — the North Atlantic Treaty Organization Agency for technical maintenance and supply. After our declared course for Euro-Atlantic integration, a logical step would be our integration into the Alliance’s supply systems. This requires significant investments to implement the necessary production and quality control standards, appropriate product codification, expensive testing procedures, etc. But it is worth noting that this is the format of transparent and fair competition that will be understandable to our partners and will have a long-term strategic impact on Ukrainian relations with the North Atlantic Treaty Organization through the building of interdependencies.

Joint ventures

Currently, there is no ban on creating joint ventures, but there are no incentives for this format of interaction. Military risks, problems with the judicial and law enforcement systems, tax regimes and restrictions on the withdrawal of profits stand in the way of such cooperation.

Ukraine should consider the possibility of creating special economic regimes for the operation of such enterprises, customs preferences and forms of production in which part of the products will be manufactured in Ukraine and part will be manufactured abroad, in particular for export to other countries.

Such diversification will reduce the risk of losing critical technologies as a result of attacks by the Russian Federation. At the same time, it is a way to attract investment and export Ukrainian products without actually crossing the Ukrainian border. It should be noted that this concept is complex and contains many risks, but it is definitely worth attention.

Licensed production and export of services

In today's world, there is no difference between exporting a weapons system and sending an entire archive of documentation for its creation. It is worth noting that software or data sets for training artificial intelligence are becoming increasingly valuable.

Unfortunately, Ukrainian technologies often leave the territory of Ukraine without authorization, namely due to the work of unfriendly intelligence or banal relocation of production. The problem lies not only in the area of ​​our special services' work to prevent the leakage of such information, but also in more practical matters. For example, the problem may be in determining the value of non-property rights, protecting intellectual property, or the mechanism for paying royalties to designers or developers of combat systems.

We have the opportunity to export defense technologies in the intangible world. The Delta situational awareness system, which is being developed by the Ministry of Defense of Ukraine, is already attracting the attention of our allies and has significant potential for selling licenses for its use.

A large number of video files from the cameras of our unmanned aerial vehicles are invaluable for training artificial intelligence models, and an established production system, when our allies will manufacture licensed Ukrainian systems at their facilities, paying the appropriate royalties to designers, is a good way to make a profit and continue to develop.

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The approaches proposed in this article are only a conceptual description of multi-level solutions in the field of military-technical cooperation. This is a long road, and manufacturers and the state will be able to overcome it only together.