Companies want to open arms exports, the state is against it. How the most heated dispute in the defense industry is unfolding

In the spring of 2025, President Zelenskyy clearly hinted that Ukrainian arms exports should not be expected in the near future. "This will be our economic advantage in relations with partners, including. But after the war," he said in his speech.

The new Defence Minister Denys Shmyhal also expressed his views categorically in an interview with the BBC: "There can be partnership projects when part of the products remain in the warehouses of partners. It is possible to form strong arms exchange chains with partners. But not direct exports."

At the same time, the "Technological Forces of Ukraine" association is organizing the first arms export forum since the beginning of the Great War in the spring, which was attended by 600 people – twice as many as the organizers expected. This demonstrates the industry's considerable interest in the topic of arms exports.

The idea of opening arms sales abroad during the war did not appear yesterday. It is due to the chronic underutilization of domestic manufacturers. In other words, arms manufacturers can produce more than there is money in the budget. The president estimates the difference between capabilities and actual funding at tens of billions of dollars. And this is lost development opportunities.

Some large manufacturers are not even half-loaded with contracts, which opens up the potential to produce additional weapons for foreigners, pay more taxes to the budget, and purchase more military equipment for the Defense Forces.

It seems that the key players have been off to a low start for a year. Law firms are probing the market to sell their export support services, "defense" opinion leaders are speaking out in favor of selling weapons abroad, manufacturers are actively working at international exhibitions, and profile politicians are charging society and partners with slogans about building an "arsenal of the free world."

But there has been no actual change in exports since 2022 – it continues to remain de jure permitted, but de facto prohibited. An attempt to sell something abroad ends with a refusal letter from the State Service for Export Control (SSCEC).

Adding further confusion to the arms export issue is the "Build with Ukraine" program, which involves the production of domestic weapons in partner countries. This is the first attempt to wrap arms sales in the guise of "technology exchange with partners," but how exactly this will work is unclear to anyone.

A hint at a simplified export procedure for defense companies also appeared in the new special legal regime, Defence City, although without any details.

It is worth recognizing that the government is partially covering the funding deficit in the defense sector through successful diplomatic work and attracting billions of dollars from the pockets of allies and profits from frozen Russian assets for domestic weapons production.

But all the external infusions into the defense industry are only a small compensation for the unrealized opportunities that mature Ukrainian manufacturers see before them in the event of opening up exports. Not to mention the possible political dividends that Ukraine may receive over time as a security donor.

"Defense" investigated why the issue of arms exports is so acute, what are the pros and cons of this idea, the real prospects of domestic manufacturers on the global market, and in what direction the political discussion is moving.

Time is running out

The main competitive advantage of Ukrainian manufacturers is millions of hours of "running-in" their own technologies in real battles in the most technological war in the history of mankind.

For example, Ukrainian kamikaze drones, at first glance, seem to be quite an achievable technology for almost any average country. But what exactly should this "simple" drone be like in order to really show effectiveness in combat? Which of the hundreds of possible options for communication, cameras, antennas, software, and warhead is the right and effective one?

For a long time, such information was exclusively owned by Ukrainian manufacturers. But the more time passes, the more information about technological trends at the front leaks to foreign companies. And the Ukrainian defense industry is gradually losing its key advantage, never having had time to monetize it and occupy a niche in the global market.

Information leaks abroad in several ways.

First, more and more public materials are appearing: videos, analytics, comments from Ukrainian and Russian military personnel. Based on them, we can draw certain conclusions about what is really working on the front.

The second is arms exhibitions, where Ukrainian manufacturers often tell their secrets themselves, presenting their product.

"Cool foreign companies come to our events, and then they say that they are interested in these ten companies. Their directors happily tell us that they did this and that, and they generally show their product from all angles. And then the foreign company says "thank you" and disappears. There have been cases when, after such conversations, they entered the market with the same product as our manufacturers, but twice as expensive," one of the Ukrainian developers of military software told "Defense".

Third, high-level exchange of experience.

"Any weapons exhibition or testing does not take place without military attaches from other countries. They are interesting to us in order to establish international relations. And we are interesting to them because they adopt our experience and knowledge. We give them a huge amount of information about technological trends and market leaders," Ihor Fedirko, head of the Ukrainian Council of Defence Industry, told "Defense".

And the fourth is banal industrial espionage and attempts to buy up technology. For example, "Defense" is aware of a case where a foreign manufacturer offered a fee for collecting any classified information about a certain type of Ukrainian drones. And one of the publication's interlocutors from the industry told how a foreign company tried to buy ready-made interceptor drone technology from our manufacturer through a Ukrainian intermediary for several tens of thousands of euros.

The leakage of experience is natural and cannot be stopped. After all, it was Ukraine that offered foreigners the Test in Ukraine service for combat testing of new Western equipment in real combat with the Russians. In a sense, it is even beneficial for us to share this information, because it increases interest in military support for Ukraine.

But at the same time, we must not forget about the dark side of the coin. The more information foreigners receive in various ways, the less chance we have of taking advantage of our competitive advantage in the market.

"We can sit on this bag of gold and think that we are one and perfect. But now we are losing momentum, when we can establish ourselves as an innovative partner with unique experience. We still have sectors where we remain innovative, but if we do nothing about it, we will lose," Fedirko noted.

The companies surveyed by "Defense" emphasize that controlled arms exports should be opened during the war. This is due to the fact that after the end of hostilities, state orders for weapons will sharply decrease, and it may take 1-2 years before meaningful export agreements are concluded. Without an already existing diversified portfolio of orders, this period of time may turn into a wave of bankruptcies and layoffs.

Some Ukrainian manufacturers are already transferring their investments and technologies abroad, without waiting for the opening of exports. For example, a large manufacturer of combat drones, Ukrspecsystems, announced an investment project in England worth 200 million pounds. Britain should become the first export platform for the company. Other UAV manufacturers have similar projects at various stages of implementation.

In itself, investing by arms manufacturers abroad is not something inherently bad. First, some countries require that arms production be located in their country before allowing a company to enter the market. Second, in most cases, our companies do not close down their operations in Ukraine, but simply expand their business abroad.

At the same time, closed exports deprive Ukrainian producers of at least a theoretical opportunity to sell products made in Ukraine abroad. A closed export window actually encourages companies not to build factories at home, but to shift their activities to other countries. At some point, the strongest companies will reduce their Ukrainian divisions after the fall in government orders and finally register in other countries.

Closed exports also hinder investment attraction. Foreign funds are not interested in investing large amounts of money in companies with only one sales market, which, moreover, will shrink significantly immediately after the end of the hot phase of the war. The lack of investment hinders the development of technologies and production of Ukrainian companies, that is, it directly affects our ability to produce weapons for the Defense Forces.

Finally, exports can be a useful tool for maintaining the rhythm of production, as during the annual "contract off-season," Ukrainian defense companies often sit idle for months.

What are the risks of opening up arms exports?

A popular argument for opening up exports is the ability to direct taxes from sold Ukrainian weapons to pay military salaries or purchase military equipment for our defenders. Thus, sales abroad will only increase the number of military equipment in the Defense Forces.

But the system must be built in such a way as to take into account all possible risks.

The first problem is the risk of public rejection. People may not understand the export of weapons when there is a shortage at the front.

Similar misunderstanding on the part of society was once caused by the sale of surplus electricity abroad. However, this did not become an obstacle: surplus electricity is exported anyway to earn money to continue the war, and thanks to high-quality communication, the enemy's attempts to "sow treason" among Ukrainians were unsuccessful.

The second problem is the risk of technology leakage to the Russians. It can hardly be considered significant, since the Russians already analyze Ukrainian developments thanks to trophies from the battlefield. But for reinsurance, Ukraine will still have to refrain from issuing export licenses to unfriendly countries.

The third problem is prioritizing orders for Ukraine. The system must be set up in such a way that arms manufacturers always have free capacity for the state customer, and the Defense Forces do not have to compete with foreigners for a place in the production schedule of Ukrainian factories. This requires the state and the General Staff to plan their needs qualitatively, which is not always possible in the current conditions, when technological trends on the front change every six months.

The fourth problem is the shift of the manufacturer's focus to the global market. Products for the domestic market and for export are usually different, and exports pay much more. Who will guarantee that the manufacturer, as now, will direct its investments to developing a product specifically for the Ukrainian market, and will not switch all its resources to more profitable foreign projects?

All of the above risks can be dealt with. It's just a matter of properly designing the system and the administrative capacity of the state.

For example, the Russians are already happy to monetize their military experience and sell weapons with the label "tested in Ukraine." Prioritizing supplies to their own army and simultaneously shipping weapons under foreign contracts does not cause any contradictions in the aggressor country.

Another example of arms exports during wartime is Israel. Despite hostilities, the constant threat of a large-scale war with its neighbors, and growing domestic arms orders, Israeli defense companies remain active on the global market and earned a record $14 billion for their country in 2024.

This is not to mention the United States, where arms exports never stop, no matter how many wars the country waged in different parts of the world.

Arms exports are more complicated than they seem

"As soon as the export window opens, Ukrainian weapons will flood the world market and bring billions of dollars to the state budget in the first year" is a popular myth that needs to be thrown out of your head forever.

In comparison, to achieve an annual export figure of 3 billion euros, industrially developed Sweden had to develop a wide product line with the most modern infantry fighting vehicles, artillery, and 4th generation fighters.

Before the great war, Ukraine exported hundreds of millions of dollars worth of weapons annually, but this can hardly be called an unequivocal success.

The study by the Ukrainian Institute for the Future and the Ukrainian Council of Defence Industry "International Arms Market, Export Potential of the Ukrainian Defence Industry" states that the bulk of Ukrainian sales abroad after 1991 is the export to Africa and Asia of "surplus" weapons from warehouses or repaired/modernized Soviet equipment.

New products were also sold. For example, the Stugna ATGM, Oplot tanks, BTR-4, engines, aviation spare parts, military trainers, drones, radar stations, and armored vehicles. But their share was smaller due to the relatively small volumes of supplies.

Now the point is that Ukraine wants to build a multi-billion dollar industry in the production of new weapons, capturing new niches and the Western market.

To do this, you will have to learn to work according to the written and unwritten rules of new markets. Master your own production of components, and not just assemble drones from Chinese components. Bring your products into line with NATO standards (STANAG) and make them interoperability with Western military systems. Provide high-quality maintenance of equipment, modernization, and training.

Some manufacturers will cope with this task because they have the appropriate experience and resources. But some will inevitably "fall apart" and, at best, will remain operating at the local level.

A separate challenge will be to sell these weapons. This will require not only entrepreneurial talent and a high-quality, inexpensive product, but also state participation – diplomacy, export credit institutions, and agreements at the highest level.

Ukraine needs to build trust in its defense brand. It is currently based on the experience of real combat operations. But as drone manufacturer Oleksandr Chendekov aptly put it: "The label 'Combat proven in Ukraine' has an expiration date of no more than six months."

Among other things, Ukrainian gunsmiths must have mutual trust as business partners and a positive history of cooperation. The role of such a business brand with representation at international exhibitions is played by the private associations NAUDI and the Ukrainian Council of Defence Industry. And although there is some success in this, currently Ukrainian manufacturers do not reinforce each other, but act separately.

"Ukraine at the last international exhibition MSPO-2025 was strong, but scattered. Our companies were represented in different pavilions, although visitors directly said that they wanted to see a single Ukrainian zone, which most states did. A joint stand is not only convenience, but also a political message. We could strengthen this with information diplomacy, for example, a VR experience where everyone could find themselves in the destroyed Bakhmut or see Bucha after the occupation," Anatoliy Khrapchinsky, deputy director of Piranha Tech, told "Defense".

Ukraine's path on the world market will not be easy. Manufacturers will have to learn a lot, establish connections, squeeze competitors, and earn the trust of customers before our defense industry starts selling billions of dollars worth of weapons. And the authorities will not only have to set up an export system, but also learn how to "sell" the products of Ukrainian companies.

What weapons can Ukraine sell?

This question can only be answered accurately by opening up exports so that companies can negotiate substantively or simply export their weapons for testing to another country. For example, to obtain a certificate certifying the level of protection of an armored vehicle, it must be blown up at a training ground in a NATO country.

But the fact of great interest in Ukrainian weapons is undeniable.

The war in Ukraine has given birth to many new types of weapons that almost no one had produced before. First of all, we are talking about various types of attack drones. The droneization of all armies in the world and massive changes in doctrines have already begun.

The need to update military systems and weapons is demonstrated by the recent Russian drone attack on Poland. To repel a few foam drones, the allies had to launch aircraft from several NATO countries, long-range radar detection aircraft, tankers, fire missiles worth millions of dollars, and ultimately fail to hit even half of the targets.

"Defense" previously wrote about the problems Europe and the US have faced in their attempts to deploy their own drone programs. In short, their products are much more expensive and have no guarantee of combat capability on the front.

At the same time, Ukraine has technology, large production capacities, application manuals, up-to-date information from the front to improve equipment, and even localized production of individual components (albeit in a rather embryonic state).

The European Union countries recognize Ukraine's dominance in the drone sector and have even opened access for Ukrainian contractors to the SAFE program. These are loans worth 150 billion euros for the purchase of weapons, which are issued to EU member states. This mechanism legally stipulates the possibility of Ukrainian companies participating in weapons purchases. However, without open exports, they will not be able to do this, unless they transfer production to another country or if one of the partners decides to spend the loan money to support the Ukrainian army.

"We advocated in the European Union so that they would give us more money for defense, and now we ourselves prohibit this cooperation. The Ministry of Defense needs to provide some framework at least for the export of weapons under the SAFE program, or the problem can be solved by opening exports in other formats proposed by the authorities, for example, a wider deployment of Build with Ukraine," Kateryna Mykhalko, executive director of the Technological Forces of Ukraine association, told "Defense".

If you dig deeper, there is a place for Ukrainian weapons not only in Western countries, but throughout the world.

"Interceptor UAVs can be sold to countries that could become targets for Russian or Iranian/Yemeni drone attacks. Reconnaissance wings are now being purchased by all armies that are increasing their technological potential, while Ukraine has such drones with the world's largest number of combat missions and the widest range of models with different functionality.

Ground-based robotic systems and combat FPV helicopters may be of interest to absolutely all armies in the world, because this is the challenge of modern warfare. We see great interest in naval drones from Southeast Asia as a tool of asymmetric warfare. Such weapons may also be of interest to countries combating piracy in the Horn of Africa region.

"EW/EMERGENCY means – the "frequency war" has led to a unique level of development of similar means of Ukrainian production. In particular, we are talking about products unique to the world market, such as trench and automotive EW. Such means will become increasingly relevant as soon as the armies of the world realize the risks of being hit by cheap strike drones," noted Igor Fedirko.

In some segments, Ukrainian weapons are not technologically the best, but can still compete thanks to their low cost and large production capacity.

"Here it is worth mentioning the "Bohdana" self-propelled guns. We can recall the purchases of French "Caesar" self-propelled guns by Indonesia, Estonia and other countries. In this segment, "Caesar" and "Bohdana" are direct competitors, and it is not a fact that in an open competition the French model would win. Especially considering the extremely high Ukrainian production rates.

We can also talk about Ukrainian armored vehicles. Turkey has recently been actively signing contracts for the supply of its equipment to Estonia, England, and Romania. And here the Ukrainian "Novator" and "Vart" could also provide worthy competition.

We can mention the sale of drones by the Polish WB Group to Indonesia, although Ukrainian analogues from DeViro, Ukrspecsystems, Athlon Avia, Airlogics and others could also be of interest to the customer.

"But the situation with the manufacturer of Ukrainian brake parachutes for MiG-29, Su-24, Su-25, Su-27 aircraft is absolutely wild. Objectively, the only competitor is Russia, whose products are significantly more expensive, but Ukraine does not allow its exports, despite the fact that there are no internal contracts for it," Serhiy Goncharov, executive director of the NAUDI association, told "Defense".

Will exports be allowed?

Regarding arms exports, there are two key tracks today – the Build with Ukraine initiative and the possible opening of exports to residents of the Defence City legal regime.

Build with Ukraine is a program under which Ukraine manually selects a partner country, signs an intergovernmental agreement with it, and allows a Ukrainian company selected by the Ministry of Defense to locate its factory there. All of this is wrapped in the guise of "joint arms production," meaning that this factory will produce weapons for both Ukraine and the partner country.

Defence Minister Denys Shmyhal calls this a "quasi-export." In reality, it is not an arms export at all, but rather a legal export of technology and duplication of Ukrainian factories in other countries.

And although Build with Ukraine looks like a beautiful international political move to encourage partners to invest in our defense industry, the mechanism does not contain uniform rules of the game for business, and therefore is rather an exception to the general "rule" of isolating domestic manufacturers.

At the time of publication, "Defense" has not received a response from the Ministry of Defence regarding the specific mechanism by which the Build with Ukraine program operates. We will publish it as soon as it becomes available.

The second track, which raises the issue of arms exports, is Defence City – a new legal regime for defense companies, which has not yet started operating.

Bill No. 13420, among other benefits, stipulated a number of norms that were actually supposed to open the export of defense products from Ukraine, provided that the company is a resident of Defence City and pays a license fee.

But already during the vote, the deputies decided to cut all the relevant norms. The law left only one mention of export: "Business entities that are developers or manufacturers of military goods and have the status of a resident of Defense City may export such goods without obtaining the powers provided for in Article 13 of this Law."

Vladyslav Bandrovsky, a senior lawyer at Sayenko Kharenko, explained to Oborontsi that with this law, the deputies have actually introduced a simplified export procedure. Usually, in order to export military goods, a company must obtain appropriate authorization from the Cabinet of Ministers, but now this step has been removed for companies-residents of Defence City.

At the same time, Bandrovsky notes that this is just one of the bureaucratic links on the way to the manufacturer's entry into the world market. After all, to export the goods, you still need to obtain permission from the State Security Committee, which has been blocking any attempts by gunsmiths to sell something abroad for the past three years. So how the "fast track" for exports will work in practice is unknown.

It is likely that the final export format, or lack thereof, within the framework of Defence City will be established in the by-laws, which are currently being drafted by the Cabinet of Ministers and will be published in the coming months.

Opening up arms exports is one of the most pressing issues in the industry. If a year ago it was out of the question, now the state is taking at least some first hesitant steps to allow it. There is a growing understanding in government offices that this is not only about companies' earnings, but also about the economy, the development of domestic developments, and ultimately the defense capability and political weight of Ukraine.