With Russia’s full-scale invasion of Ukraine now fast approaching the end of its second year, Ukraine has been determined to develop its military-industrial complex.
As illustrated by the $60 billion in Ukrainian aid now stalled in the US Congress, Ukraine’s security may directly depend on its ability to produce weapons domestically and attract private funds to its defense industry.
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Multi-national companies may see advantages to developing and testing military technology in combat conditions in Ukraine.
Kyiv Post spoke with Vadym Ivchenko, a member of the Verkhovna Rada Committee on National Security, Defense and Intelligence, about the development of Ukraine’s defense industry.
He spoke on the potential for collaboration with foreign companies and the conditions Kyiv can offer weapons manufacturers.
How realistic is it to join the network of global concerns for the manufacture of weapons?
As the Ministry of Defense negotiates and signs memoranda with weapons and military equipment manufacturers in many countries, two questions arise: are countries ready to allow their manufacturers to transfer certain technologies to Ukraine, and is it financially sound for these companies to transfer production to Ukraine?
So far, the answer to these two questions remains to be seen, Ivchenko said.
If a large corporation starts production in Ukraine, along with that comes insurance companies, financial institutions and various contractors.
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Developing production facilities and an entire infrastructure can cost billions of dollars.
For Ukraine, this means new jobs and new income from taxes.
“But there are three main obstacles for such corporations. First, there’s a war here. Not every corporation will want to work in these conditions. Second, political will. For several reasons, not every government wants to collaborate, at least for now. One of these reasons is corruption,” Ivchenko said.
“And third, there is the issue of funds. If the first two strategic and political decisions are made, then and only then will the financial issue be considered, which will be in support of the political decisions,” he said.
However, now some interested parties have come up with proposals. One of these is the American aircraft manufacturer, Bell Helicopter.
They want to build US-style combat helicopters for Ukraine. These helicopters, equipped with missiles, adapters, etc., are of great importance for the development of Army Aviation in Ukraine.
“But there are not many such companies that have taken the initiative on their own. We need to negotiate with most corporations and campaign,” the MP said.
In addition, this process is actively hindered by Russia.
For example, Ukraine was set to receive 12 US-provided AH-1Z Viper helicopters from Slovakia. However, that process was suspended when Slovakia elected pro-Russian Prime Minister Robert Fico.
“Ukraine is negotiating the transfer of these helicopters. If that goes well, then and only then will negotiations begin on the decision to start production. And if the launch decision itself is quick, then the process of transferring the production and all the structures necessary for its operation is quite long,” Ivchenko explained.
What can Ukraine offer foreign companies?
Ivchenko, a member of the Verkhovna Rada Committee on National Security said that Ukraine is working to create comfortable conditions for international companies.
“Not so long ago, the law on industrial parks was adopted. This reduces the tax burden and simplifies the issuance of land for willing producers,” he said.
In addition, today Ukraine can offer fast access to local infrastructure and networks. For example, the law on state support for investment projects that make significant investments in Ukraine was adopted. It accelerates the process of receiving government decisions.
“But now there is the question of political will and the correctness of the approaches of the ministry that manages this. Now the main problem is in the post-Soviet standards,” Ivchenko said.
According to Ivchenko, the Soviet mindset can be seen in the creation of the Ukroboronprom supervisory board, which consists of former Prime Minister Oleksiy Honcharuk, former Economy Minister Tymofey Milovanov, as well as Serhiy Konovets – a former member of Ukraine’s State Export-Import Bank Ukreximbank, Davyd Lomjaria – JSC Aragvi Ventures executive director, and Lindy Smith, the President and CEO of the Arizona Defense Industrial Coalition (AZDIC).
While Ivchenko did not express concerns about any of the members of the board, he was concerned with the appointment process.
“It is necessary to adhere to the rules of transparency – to hold an open competition for positions and recruit people according to such criteria as the recommendation of a certain corporation. That is, an international corporation has decided to enter Ukraine and gives a letter of recommendation to a certain person who will accompany the project and develop the defense industry,” he said.
According to Ivchenko, Ukraine should endeavor to specifically tailor appointments to create a friendly environment for foreign companies that would act as “investment nannies.”
Second, it is necessary to communicate with the relevant state institutions to provide the whole package of licensing permits for the development of production.
“Third, we need to work with large financial institutions that invest in the military-industrial complex, and not just wait for the (US) Congress's decision to allocate funds to Ukraine,” Ivchenko said.
Is there any progress in the development of the Ukrainian military-industrial complex and its own local enterprises?
According to Ivchenko, Ukraine’s main achievements so far are the expansion of international cooperation and an increase in the amount of ammunition and UAVs of various types (reconnaissance, strike, FPV, etc.). In addition, the production of marine drones and infantry fighting vehicles has been launched.
“It is worth noting that the quality is significantly better than in 2021. However, of course, these processes could be faster,” Ivchenko said.
There are also positive developments in the import of components for the manufacture of light weapons – such as exemptions from taxation and customs duties.
“And here it’s worth emphasizing once again: when Ukraine attracts a global corporation for the manufacture of military equipment, it will trump everything else. Because this is a billion-dollar investment,” Ivchenko said.
“Now Ukraine strategically needs to have its own factories that produce gunpowder and other mixtures for shells. But it depends on finances and permits from other countries to distribute their technologies.”
For example, in the field of gunpowder production, Ukraine is completely dependent on imports, although historically it produced gunpowder during the Hetmanship – about 300 years ago. And even until recently, there were several powder factories — in the Luhansk and Sumy regions. But at the moment, the Luhansk region is occupied, and in Sumy – there need to be large capital investments. At the same time, the raw materials for gunpowder are also imported.
Also, since some Western allies remain afraid to provide missiles with a long range, such as 300-400 kilometers (185-250 miles), the question arises, why can't Ukraine start its own production?
According to Ivchenko, one must consider that a missile flies according to data from non-Ukrainian satellites – all of them produced by foreign corporations, which, in turn, must receive permission from their governments to grant Ukraine licenses for relevant innovations.
“That is, we can do it, but they don't give us permission. To some extent, this is due to the United States’ fear of provoking World War III if Ukraine starts hitting objects deep within Russia. However, based on the negotiations of this issue, I am optimistic,” Ivchenko said.
Priorities for 2024
Ivchenko said that: “in 2024, in the development of the military-industrial complex, it is worth highlighting the main goal — changing Soviet approaches and introducing transparency in government actions,” as well as expanding cooperation with international companies and creating favorable working conditions for those who have already expressed a desire to work in Ukraine.
“It is important to implement transparent mechanisms of corporatization – the transformation of state-owned enterprises, closed joint-stock companies, production and research and production associations into open joint-stock companies,” Ivchenko said.
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