Charles Esther
Armored vehicles are being worked on daily in Ukrainian factories.
This development is a clear sign of a growing defense industry amid the ongoing Russian invasion.
Ukraine’s local industry is expanding rapidly and becoming more self-reliant.
The nation is relying less on international allies for equipment.
Despite this progress, the industry says a large portion of its manufacturing capacity remains unused.
The problem is simple — Ukraine cannot afford the high costs of large-scale weapon production.
Industry leaders believe there is a straightforward way to solve this.
Ukraine’s Untapped Manufacturing Power
Since the full-scale invasion began, Ukraine’s defense industry has experienced exponential growth.
From large factories to garage startups, local companies are producing much-needed equipment for the front lines.
Their innovations are tailored for Ukraine’s unique battlefield needs, drawing interest from Western nations hoping to learn from them.
Minister of Strategic Industries Herman Smetanin revealed earlier this year that Ukraine’s defense sector has grown 35 times since 2022.
Back then, the industry was valued at $1 billion.
Now, it is worth approximately $35 billion.
Still, the potential is far from fully used.
Industry bodies representing around 100 Ukrainian defense companies told Business Insider they could produce far more — if properly funded.
Demand vs. Capacity
Serhiy Goncharov, CEO of the National Association of Ukrainian Defense Industries, said the industry’s production capacity is over three times what the current defense budget allows.
Ukraine’s defense companies receive contracts worth around $11.5 billion.
Yet, they have the ability to produce up to $45 billion worth of weapons.
“We are ready to increase our production.
We have the capacity to increase our production,” Goncharov said.
“But for now, we still work in the limit of the budget of Ukraine.”
Similar views have been echoed by officials.
Oleksandr Kamyshin, Ukraine’s former Minister of Strategic Industries, confirmed in April 2024 that the nation’s manufacturing power exceeds its budget threefold.
Ihor Fedirko, CEO of the Ukrainian Council of Defence Industry, also emphasized the presence of huge spare manufacturing capacity.
The Budget Barrier
Ukraine’s defense companies rely heavily on the government’s military contracts.
Some military units purchase their own supplies, but this is not enough to drive large-scale production.
Given the financial limitations of a country at war, the government can only provide so much.
Without external funding, much of the available industrial capacity remains idle.
The Danish Model Offers Hope
Industry leaders have proposed a practical solution already being used on a small scale.
This model, started by Denmark in 2023, directly funds Ukrainian companies to produce weapons for the war effort.
Instead of sending military aid from their own stockpiles or buying from Western firms, partner countries pay Ukrainian manufacturers directly.
Goncharov described this model as the “simplest” and most effective way to help Ukraine.
It delivers faster battlefield results and gives manufacturers the financial confidence to ramp up production.
Several nations have already joined the Danish model, and others — including Germany — are developing their own versions.
This method ensures Ukrainian soldiers get exactly what they need, faster and at a lower cost.
Last year alone, it supported $550 million worth of weapons procurement.
One notable success was the increased production of the Bohdana self-propelled howitzer.
A List of What Can Be Made
Ukraine’s defense sector already has a priority list of weapons it is ready to mass-produce under this model.
The list includes artillery systems and armored vehicles, both of which are in high demand.
Fedirko described the Danish model as the “largest hope for the private sector.”
Alternative Paths to Boost Production
While the Danish model offers a fast and focused solution, it is not the only option.
Goncharov has discussed other models with the European Commission.
One approach involves financing production in Ukraine using components sourced from European countries.
This strategy supports both Ukrainian and European defense sectors.
Though more complex and medium-term, it ensures that Europe also benefits from increased industrial activity.
Why Europe Should Pay Attention
Europe is watching the war in Ukraine closely.
Many nations have boosted their own defense budgets and are warning of potential future threats from Russia.
However, they are reluctant to empty their stockpiles.
Meanwhile, new defense orders are creating delays and backlogs.
This limits how quickly they can deliver weapons to Ukraine.
Working with Ukrainian firms provides another way forward.
Ukraine’s industry has grown quickly and remains closely connected to the front lines.
This direct feedback loop allows them to innovate and adapt to battlefield needs more rapidly than many Western producers.
Goncharov believes that cooperation with Ukraine is not just helpful, but essential.
He said Ukraine must continue growing its own capacity, as international support is not expanding fast enough.
For allies, partnering with Ukraine means learning from real-time combat experience and developing more effective weapons.
A Difficult Reality
“We unfortunately face this situation when we have war on our territory,” Goncharov said.
“And it’s not our choice, but it is what it is.”
Through innovative partnerships and funding strategies like the Danish model, Ukraine’s defense industry could finally operate at its full potential — not just to defend itself, but to become a key player in global defense production.
