Max Hunder
KYIV (Reuters) – Hundreds of Ukrainian businesses producing weapons and military equipment have sprung up since Russia’s full-scale invasion, but some are struggling to finance production and all fear being targeted by intensifying Russian missile attacks.
The owners say they invested their own money to survive and moved the location at their own expense to stay ahead of Russian intelligence. They are now calling on the government to cut what they say is excessive bureaucratic red tape surrounding arms purchases.
Some also want to be allowed to export, arguing that the government cannot buy all their products.
According to the Minister of Strategic Industries of Ukraine Alexander Kamyshin, the potential annual production volume of the military-industrial complex is now 18-20 billion dollars.
Ukraine’s cash-strapped government can finance only about a third of that amount, the minister told Reuters. That compares with $120 billion in military aid received from the Allies throughout the war, much of it in the form of equipment rather than money.
“We have the biggest struggle in a generation… If you look, for example, at NATO-caliber artillery shells, the production capacity of the US and the EU combined is below our needs,” Kamyshin said.
Many of Ukraine’s large state-owned defense enterprises have fallen on hard times since the collapse of the Soviet Union. Now the war has sparked a revival of the private arms sector.
The number of defense manufacturers has more than doubled since the invasion, according to his ministry. Private enterprises now number about 400 of the 100 state-owned enterprises, although the latter still provide most of the production capacity.
To solve the cash shortage problem, Ukraine is asking foreign partners to finance its defense production. On Tuesday, Denmark made its first such contribution of $28.5 million.
RED RIBBON
Some manufacturers say they are struggling to find funds, a problem compounded by a government procurement process they complain is slow and cumbersome.
“The first threat that manufacturers face when they start working is the bureaucracy of the military sector and procurement,” said Vladislav Belbas, general director of Ukrainian Armored Vehicles, one of the few Ukrainian manufacturers producing, among other things, armored vehicles and artillery shells. .
Belbas cited the fact that the Ministry of Defense places orders only for the current year, which limits the ability of manufacturers to plan for the long term.
Four manufacturers producing different weapons identified a range of problems: waiting months to find out if the government was interested in buying, shuffling between Department of Defense departments and the military, and lack of guarantees of future sales that could help them plan production. .
The Defense Department did not immediately respond to a request for comment on the complaints. It has previously said it is building a “new architecture” for defense procurement and earlier this year appointed a new agency chief in charge of arms procurement.
Private investment is largely driven by domestic entrepreneurs, who often say they are driven by patriotism rather than profit.
A Ukrainian government source, who spoke on condition of anonymity to discuss sensitive issues, said private investment was unevenly distributed.
“Everyone wants to invest in sexy stories like drones, but no one wants to invest in something complex like artillery shells.”
One way to raise money is to provide companies with licenses to export products that would otherwise remain unpurchased by Ukraine due to lack of funding.
Three producers told Reuters they would like to obtain export licenses, provided the manufacturer has unused capacity not covered by orders from Ukraine.
Kamyshin said this was not feasible: “It is fair for producers to demand either a complete reduction in their capacity or to allow them to export… but this position does not have political support, so we are looking for financing for our enterprises.” so that all production remains in Ukraine,” he said.
DANGEROUS BUSINESS
In addition to financial difficulties, producing weapons in Ukraine during a full-scale war is fraught with risk.
When Reuters visited the Ukrainian Armored Vehicles plant, a plant manager who identified himself as Ruslan agreed to speak only if his face was not shown to protect him from being targeted by Russian intelligence services.
The plant, which employs about 100 people and produces armored vehicles and mortars, was in the process of closing and moving to another location.
Ruslan said this was because a larger premises was needed to accommodate more staff and also to make it harder for Russians to find the plant. Some gun manufacturers change their location every three months for security reasons.
“From the (manufacturers) with whom I communicate, not a single private company has received (state) compensation for the move,” said Belbas from Ukrainian Armored Vehicles.
Another challenge producers face is the threat of blackouts as Russia attacks energy infrastructure while Ukraine runs out of air defense munitions to protect its skies.
“In 2022-2023, we did not have electricity for two-thirds of our working time – of course, in such conditions it is very difficult to produce anything,” Belbas said.
A government source said that at the moment producers do not have problems with power supply, and if there are mass power outages, they “will be the last to be turned off.”