Currency revenue, new investments, and scaling of the defense industry: what arms exports will give Ukraine

The government’s decision to allow the export of Ukrainian weapons to partner countries could become one of the most important economic steps of wartime. It is not only about the development of the defense-industrial complex or strengthening international cooperation, but also about a powerful source of foreign currency earnings, creation of new jobs, development of related industries, and scaling up production. Experts interviewed by UNN point out that allowing the export of products not contracted by the state will enable defense enterprises to compensate for underutilized capacities, invest in their own development, and make the Ukrainian defense industry even stronger.

President of Ukraine Volodymyr Zelenskyy reported that the surplus of production capabilities in Ukraine for certain types of weapons reaches 50%. He added that a mechanism for the export of Ukrainian weapons has been agreed upon.

Partners who help Ukraine have been offered a special format of cooperation, Drone Deals – special agreements on the production and supply of our drones, missiles, shells, and other types of weapons, military equipment, software, integration with partners’ defense systems, as well as providing our expertise and the technological exchange needed by Ukraine.

The President instructed the Ministry of Foreign Affairs of Ukraine, together with intelligence agencies and the SBU, to determine a list of countries to which the export of our weapons is impossible due to their cooperation with the aggressor state.

After this, the Government approved the first transparent mechanism for the export of Ukrainian weapons. In particular, a clear procedure has been created that establishes uniform rules for the state, manufacturers, and partners.

The new mechanism for the export of Ukrainian weapons significantly simplifies the procedure for obtaining permits. The application review period has been reduced from 90 to 30 days, and the minimum contract value has been set at 15 million hryvnias. At the same time, the needs of the Ukrainian army remain a priority: if a certain weapon is in short supply for the front, the Ministry of Defense can block its export. The state also retains control over Ukrainian technologies, in particular, intellectual property rights are not transferred, and re-export or sale of products to third countries is possible only with the consent of Ukraine.

In addition, 20% of the value of exported finished products will go to the state budget, and additional financial conditions regarding components are also in effect.

As stated by the director of development of a defense enterprise, Anatoliy Khrapchynskyi, in a comment to RBC-Ukraine, the current mechanism has a number of limitations. According to him, it actually works only within the framework of the Drone Deal format, and the list of countries to which Ukrainian developments can be supplied is determined by intergovernmental agreements and the Ministry of Foreign Affairs of Ukraine. In addition, strict rules regarding intellectual property may reduce the interest of foreign investors in creating joint ventures, as they do not receive rights to further modernization or use of technologies.

Export will allow enterprises to invest in their own development

Military expert Oleh Zhdanov believes that from an economic point of view, the permission to export is absolutely justified, as it gives manufacturers the opportunity to develop their own production capabilities.

“From a commercial point of view, the decision is good. We need to let the military-industrial complex earn money. Because part of this money they will invest in their own development. And in increasing the industrial base,” he noted in a comment to UNN.

At the same time, according to the expert, the main condition should remain the unconditional fulfillment of the needs of the Ukrainian military.

The most important issue is control, so that it does not later turn out that the Armed Forces of Ukraine lack these types of weapons. This is the most painful question in terms of providing for one’s own army, one’s own needs, especially in wartime, when it is necessary to ramp up this production and this supply

He added that it is the state defense order and the control system that should guarantee that exports are not carried out to the detriment of the Ukrainian army.

It is about a model where enterprises can operate not only under state contracts but also use free production capacities for export. This will mean not only additional loading of production lines but also reinvestment and retention of highly qualified personnel.

Foreign currency earnings and new jobs

Chairman of the Committee of Economists of Ukraine  Andriy Novak also believes that opening exports is a powerful stimulus for the entire Ukrainian defense-industrial complex — both state and private.

“The fact that Ukraine has been allowed to export weapons, so to speak, surplus at the moment, which the Ministry of Defense of Ukraine is not purchasing, is a very positive signal for all manufacturers. Moreover, both for classic state-owned enterprises of the military-industrial complex and for many newly created ones that were established already during the full-scale invasion of 2022,” he noted in a comment to UNN.

According to him, the ability to work on foreign markets will motivate companies to invest in product quality and ramp up production.

Furthermore, arms exports mean additional foreign currency inflows into the country. And this, in turn, means additional tax payments, new orders for Ukrainian enterprises, expansion of production, and, consequently, an increase in the number of jobs. Not only weapons manufacturers will benefit from this decision, but also metallurgy, mechanical engineering, electronics, logistics, IT, and other related industries that work for the defense sector.

Ukrainian weapons have become a global brand

In Novak’s opinion, Ukraine currently has a unique “window of opportunity” because the demand for Ukrainian military technologies in the world is growing rapidly.

“And since there is now, so to speak, a general global fashion for Ukrainian weapons, because the whole world sees how Ukraine, having tens of times fewer resources, defeats the Russian army, which has tens of times more resources. And Ukraine wins precisely by, let’s say, more effective military technologies. That is, it takes not by quantity, but by quality. And it is for this Ukrainian quality, for these Ukrainian technologies, that there is now increased demand on the global arms market,” the economic expert explained.

According to him, after the President of Ukraine Volodymyr Zelenskyy paid official visits to the UAE and Saudi Arabia, where agreements were reached, in particular on cooperation in the security sphere, interest in Ukrainian manufacturers has only intensified.

And, in particular, after such, so to speak, a targeted tour of the President of Ukraine, particularly through Arab countries, where before this tour we had signed more than ten military-industrial agreements for the purchase of Ukrainian military equipment. Well, first of all, unmanned systems, both aerial and maritime – surface and underwater. This information spread throughout the world, and the entire global arms market now has an increased interest specifically in Ukrainian military products

That is why, in his opinion, opening exports was a timely decision and Ukraine should make the most of it.

Exports will help compensate for uncontracted volumes and scale up production

Another important advantage of opening exports is mentioned by CEO and CTO of Fire Point, Iryna Terekh. According to her, opening exports will allow Ukrainian manufacturers to compensate for those volumes of products that have already been manufactured but are not being purchased by the state due to budget constraints.

“Production has ramped up like crazy, we could supply the whole world with weapons, but we are limited by the very low limits of the Ukrainian budget. Therefore, this decision is very historic, it is extremely important. Although I understand why it took so long to be made, I am glad it happened and I think we will now see a win-win on all fronts,” she noted.

In addition, exports open the way to creating joint productions with European partners and scaling up Ukrainian technologies and, as a result, technological sovereignty.

Through joint ventures, we eliminate some competitive factor. Instead of “fighting” with someone in their market, we can unite and create a situation where 1+1 equals 11, not 2. Therefore, opening exports is something many manufacturers fought for, many spears were broken over.

In her opinion, this will also positively affect the investment climate and create additional incentives for the development of Ukrainian business within the country.

So it is obvious that opening exports of Ukrainian weapons could become one of the key strategic economic decisions of wartime. Provided that the needs of the Defense Forces are prioritized and effective state control is maintained, it will allow attracting additional sources of budget revenue, scaling up production, and retaining qualified personnel in Ukraine. Ultimately, both the state and business will benefit.