Ukraine to allow weapon exports

Ukraine’s Government has unveiled a framework to allow domestic companies to export defence technologies, as part of efforts to help the firms scale and attract foreign investment. 

The framework – approved by Ukraine’s Cabinet of Ministers – creates a “transparent mechanism” for exporting domestically produced defence technologies, Minister of Defence Mykhailo Fedorov said on 1 July. 

Previously, the country’s domestic defence industry has been subject to widespread export restrictions as part of martial law, with very few highly-controlled exceptions. 

Manufacturers will be responsible for submitting export applications, which Fedorov said will be reviewed in “up to 30 days”. 

In terms of where Ukraine’s industry can export, Fedorov said that the list of countries is still being finalised, 

However, the countries participating in the Drone Deal initiative – covering Denmark, Latvia, Lithuania, and the Netherlands – “that have relevant intergovernmental agreements with Ukraine” will be able to procure Ukrainian-made equipment and work directly with domestic manufacturers, he confirmed. 

The Drone Deal initiative is a set of bilateral framework agreements designed to promote the joint production of defence technologies, as well as allow countries to “receive streamlined access” to Ukrainian technology. 

In total, approximately 20 countries are in export-agreement talks with Ukraine, according to Artem Moroz, Head of Investor Relations at Ukraine’s Brave1 defence-tech accelerator. Moroz added that this includes “a proposed five-year, USD50 billion deal” with the US to produce up to 10 million drones a year. 

Understandably, Ukraine’s domestic military requirements must be met before any export of a product can be agreed, with all sales above UAH15 million (GBP250,000) requiring authorisation. 

“Meeting the needs of Ukraine’s Defence Forces remains the government’s highest priority” – Ukraine’s Minister of Defence Mykhailo Fedorov. 

Moroz said that “20% of export value from finished products [and] 30% from components” will go into Ukraine’s “state fund for defence industry development”, to help catalyse further growth and innovation.  

For Ukraine, both Fedorov and Moroz have stressed that there will be no exchange of intellectual properly within export deals.  

Solving the scaling problem 

Prior to the export framework, exporting restrictions constrained Ukraine’s defence industry, and held back prospective investors, Moroz said.  

“We've watched [domestic] manufacturers run at 40%+ idle capacity”, he said, while there is significant interest from buyers globally to procure equipment. In total, Ukraine's defence industry can produce USD55 billion in materiel annually, which “domestic demand alone was never going to absorb,” Moroz said.  

In contrast with companies that have excess capacity, others are hoping they can secure greater international investment if they gain access to foreign markets. This investment should then help to facilitate the scaling up of domestic production. 

At a Brave1 investment event held at Ukraine’s UK embassy in June, DSEI Gateway heard from industry representatives who explained that the wartime cap on profits in Ukraine, and an inability to export, was limiting their ability to scale production. 

Ukraine’s Government is hoping that by opening up export opportunities abroad, both the issue of idle capacity and constraints on scalability can be mitigated – at least to some extent.