Surging defence production in Ukraine

Since 2022, Ukraine’s defence sector has surged from $1 billion to an estimated $35 billion: a 35-fold increase. This remarkable growth has been driven by targeted government investments, strategic regulatory reforms, and a sharp rise in private capital inflows. Institutional actors including the Ministry of Strategic Industries and the Defence Procurement Agency under the Ministry of Defence have streamlined licensing procedures and facilitated new procurement contracts to attract domestic and international producers of military equipment.

In December 2024 alone, Ukraine produced nearly 200,000 military drones

This expansion has coincided with a rapid increase in the number of defence-related firms, which now number approximately 500 public and private entities. These include a dynamic mix of private startups and state-owned enterprises such as Ukroboronprom, all of which contribute to a diversified production landscape. Notably, Ukraine has made extraordinary advances in domestic drone manufacturing. In December 2024 alone, it produced nearly 200,000 drones, testament to its growing technological and industrial capacity in modern warfare.

Ammunition shortages, depleted supply chains

Yet limited state funding, along with hurdles in securing international funding, mean that Ukraine uses only about one-third of the hardware produced. Its army has also suffered severe ammunition shortages, depleting artillery and preventing Ukraine countering Russian advancements effectively.

Supply chains, especially for critical drone components, remain vulnerable. And limited EU regulatory integration hinders Ukraine’s eligibility for EU funding programmes or the launch of joint projects.

The EU's ReArm Europe plan seeks to boost its defence production capabilities using cost-effective technologies to achieve strategic autonomy – particularly important in light of dwindling US aid. The EU is also strengthening its eastern flank in anticipation of Russian aggression.

ReArm Europe seeks to boost defence production to achieve strategic autonomy – particularly important in light of dwindling US aid

Investing in Ukraine’s defence production can thus deliver substantial economic and security benefits, for the EU and for Ukraine, whose leaderships should now take steps to ensure robust and efficient collaboration.

This collaboration, however, also carries potential risks, particularly given the rapid expansion of dual-use production, where regulatory oversight remains limited and uneven. Without stronger EU-NATO coordination, fragmented procurement systems and certification procedures could hinder progress. Moreover, deepening defence cooperation with Ukraine might advance faster than the country’s broader accession process, which could create misalignments between defence integration and institutional readiness.

Steps the EU could take

To fully harness the potential of Ukraine’s rapidly growing defence industry, the EU should prioritise practical, immediate measures that enable joint production and foster long-term regulatory and technical alignment. This requires a coordinated approach involving targeted operational, legal, and financial instruments to ensure that Ukraine’s defence sector becomes an integrated contributor to common European defence and security goals. By investing in interoperability, streamlining procurement procedures, and aligning standards, the EU can help transform Ukraine into a strategic partner within the broader European security architecture. Ukraine's government can:

• Accelerate Ukraine’s legal and financial inclusion into the European Defence Industry Programme (EDIP), allowing firms access to research and development, and joint procurement.
• Establish an EU-Ukraine technical task force to improve Ukraine’s technical and regulatory alignment with EU certification and procurement standards. This could overcome regulatory delays and hasten Ukraine’s integration into EDIP and other EU frameworks.
• Scale up the EU Defence Innovation Office in Kyiv, enhancing collaboration with Ukrainian companies, and improving the EU’s defence autonomy.
• Introduce an EU-Ukraine initiative to safeguard critical supply chains for components such as drone optics and semiconductors, in line with EDIP and ReArm Europe objectives.
• Invest in technologies with military and civilian applications, such as drones and energy storage. This could attract funding, and develop Ukrainian innovation via joint production of drone parts using EU-funded research and development alongside Ukrainian assembly.

What Ukraine can do

To maximise the benefits of closer defence cooperation with the EU, Ukraine can take several steps to enhance alignment, foster collaboration, and strengthen its industrial base:

• Accelerate legal and technical alignment with EU defence procurement and certification standards to access EDIP and other programmes, and participate in joint projects. Streamline administrative and legal processes to ensure EU companies can participate in EU-Ukraine ventures.
• Work with the EU via Kyiv's recently opened Defence Innovation Office to identify collaboration opportunities and secure defence funding.
• Collaborate on dual-use technologies to attract EU funding and support economic development.
• Discuss ways to safeguard supply chain resilience for key defence components, securing production in line with current EU objectives.

A win-win scenario

The EU and Ukraine can deepen defence collaboration by removing regulatory and funding barriers, securing supply chains, boosting coordination, and targeting investment. This would make both parties more resilient, and better prepared to counter the Russian security threat.

Removing regulatory and funding barriers and securing supply chains would make the EU and Ukraine better prepared to counter the Russian security threat

Closer EU collaboration with Ukraine could generate significant positive geopolitical outcomes for European security. A more deeply integrated Ukrainian defence sector would strengthen the EU’s capacity to promote stability along its eastern flank, and reinforce deterrence against further Russian aggression. Such integration would not only enhance Ukraine’s defence capabilities but make European security architecture more resilient and responsive.

Moreover, closer EU-Ukraine defence ties would support NATO by reinforcing supply chains, expanding industrial capacity, and fostering greater interoperability among European partners. At a time when US security commitments to Europe appears less certain, deepening defence cooperation with Ukraine could be vital to bolstering the EU’s strategic autonomy, while reinforcing its contribution to the transatlantic alliance.

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