The development of domestic production and the transition from an economy focused on raw materials to processing should be crucial priorities for Ukraine to achieve economic sustainability. "Our goal is to increase the share of process industries in the GDP from 8% to 20%. To that end, the government will invest in the real economy. This includes attracting $90 billion in investment in manufacturing companies over ten years," said Yuliia Svyrydenko, First Deputy Prime Minister and Minister of Economy of Ukraine, at the end of December. 
has listed the top five events that concern the development of production in 2023.
Fast-growing defense industry
Ukraine’s defense industry currently includes 500 companies employing 300,000 people. In the total 4.9% GDP growth in 2023, the defense industry accounts for 1.5%, said Herman Smetanin, CEO of Ukrainian Defense Industry JSC.
Production at government-owned companies has grown by 92% in monetary terms (as compared to 2022) and amounted to UAH 79 billion (more than $2 billion). Approximately 637,000 items were produced or repaired, which is 1117% of the 2022 result.
Oleksandr Kamyshin
The number of private defense manufacturers has quadrupled. They account for 4/5 of the market today.
According to Oleksandr Kamyshin, Ukrainian Minister for Strategic Industries, the production of mortar shells has increased 42 times, while the production of artillery shells has increased 2.8 times. The production of small arms ammunition, 73-mm and 125-mm caliber shells, VOG-17 and VOG-25 grenades, and ammunition for drones has been launched in Ukraine.
The number of armored personnel carriers produced last November was five times the spring result. The production of armored cars increased 3.4 times versus 2022, and the production of ATGMs doubled.
The most notable events in the defense industry include:
- Last fall, Ukrainian Defense Industry JSC and the German Rheinmetall established a joint venture. Rheinmetall plans to start with repairing its German-produced military equipment in Ukraine and later localize the production;
- The design and manufacturing company Ukrainian Armor established the production of 120-mm mortar shells with two NATO countries. The company also produces 125-mm tank rounds using Ukrainian technology and employing Ukrainian specialists at foreign production facilities;
- The Metinvest Group launched serial production of mine-sweeping gears for tanks to neutralize anti-tank and anti-personnel mines. The planned production volume is up to five items a month. The cost of production is UAH 2.5 million (around $65,500) per piece of gear, with auxiliary equipment included;
Mine-sweeping gear
- The Armed Forces of Ukraine are testing newly made 14.5-mm and 12.7-mm machine guns developed by a private company. Considering the short operational life of these machine guns under intensive use, the military is very eager to receive newly developed Ukrainian weapons;
Ukrainian-made heavy machine gun
- As of December 2023, 30 2S22 Bohdana 155-mm self-propelled howitzers were produced for the Ukrainian army. They are manufactured at the Kramatorsk Heavy Duty Machine Tool Building Plant. The company evacuated its production facilities after the full-scale Russian invasion and resumed operations in a safe region. The production of Bohdana howitzers involves 25 companies and 400 employees.
The 2S22 Bohdana howitzer on a KrAZ-63221 chassis
Drone production took off
Drone production should be specifically mentioned among defense industries since drones have become a new multi-functional weapon class that plays a crucial role on the battlefield.
The Leleka-100 unmanned aerial system
Ukrainian producers supply the army with a wide range of unmanned vehicles, such as FPV drones, UAVs for reconnaissance and adjustment of artillery fire, attack drones with various ranges, sea drones, and ground robotized systems with various functions, including medical evacuation, logistics, and mining.
The Shrike FPV drone
As of the end of 2023, the total production capacity of state-owned and private manufacturers was:
- 1 million FPV drones;
- at least 10,000 medium-range attack drones;
- 1000 long-range attack drones (1000+ km).
They can be produced under long-term contracts with the Ministry of Defense.
On October 10, the Cabinet of Ministers expanded the list of military and dual-use products that can be imported without asking permission from the State Service for Export Control. This includes raw materials for producing ammunition and warheads for drones. The government launched this pilot project in June.
According to Oleksandr Kamyshin, 50,000 FPV drones were produced in Ukraine in December.
Shrapnel shell to be dropped from an FPV drone
Besides the production of drones themselves, another problem is the supply of serially produced munitions for them, which are safer and more reliable. According to the minister, around 50 manufacturers produce ammunition for drones in Ukraine.
The growth of production volumes was partially restored
Industrial production decreased by 2.9% in Ukraine in the first half of 2023, versus the 31.9% decrease in the same period of 2022, the State Statistics Service reported. Since March, production has started to grow: after the initial 51.2% leap in March, the rebound was 18.2% in April, 17.9% in May, and 13.7% in June.
However, the 40% and 28.2% drop in January and February, respectively, versus the same months of 2022 before the invasion caused the negative total semi-annual result.
Processing industries increased their output by 3.1% in the first half of 2023. This result was secured by the production of vehicles (+29.9%); mechanical engineering (+12.9%); the food industry (+12.1%); furniture production and machine repair and installation (+11.6%); the production of rubber and plastic products (+6.5%); and the timber industry (+4%).
Ukrainian-made school buses
Positive news from Ukrainian manufacturers in 2023 includes:
- The Zaporizhstal steel plant increased the production of rolled products by 57.2% compared to 2022. The plant smelted 65.4% more steel and 35.3% more cast iron. In 2023, the plant operated at 70% of its capacity on average;
- Interpipe announced the implementation of three investment projects. The largest of them is the construction of a new pipe heat treatment area worth about $40 million. Two more projects are being implemented in the railway products division;
- Cherkasy Bus PJSC produced nearly 500 buses and 350 trucks over the year. The company managed to restore production volume during the war thanks to the School Bus governmental program and the 5–7–9% affordable loan program. The company currently produces Ataman buses on the Japanese Isuzu chassis with a 67% share of local production, and its trucks are 30% localized.
New industrial parks are created
In the last days of December, three more industrial parks were added to the Register of Industrial Parks of Ukraine, with two located in the Khmelnytskyi region and one in the Lviv region. The total number of parks in the country is currently 73.
Some of the recently registered parks include:
- Krasyliv Technoport — about 500 jobs will be created in an industrial cluster for metal processing and manufacturing of metal products on an area of 10.1 hectares. The initiator plans to invest UAH 87 million (nearly $2.3 million) in the park. It is also expected to attract investments from the managing company and residents of the park (in their own production), as well as private financing of the project. The total amount of pre-confirmed investments is UAH 555 million (more than $14.6 million). The park will also prepare new places for the relocation of industrial enterprises from the east and south of Ukraine;
- WinIndustry — processing industry enterprises will work on a territory of 13.1 hectares. The priorities are the involvement of companies working in the fields of waste processing, information and electronic communications, and research and development.
War risk insurance was launched
One of the major hurdles to the attraction of private direct investment in Ukraine is the lack of adequate insurance.
According to Yuliia Svyrydenko, Ukraine was able to build infrastructure for investment insurance, and the government plans to expand it next year. This work included the first cases of insurance of investments against war risks, the development of the mechanism of court insurance, work on the Ukraine Development Fund, and other steps.
Thus, the Ministry of Economy has set up a facility for insuring vessels against war risks with British partners.
"This facility is already working. There is interest in the market. We are awaiting the first insurance agreements to be signed with exporters. The total volume of insurance allocated for this facility is $50 million. We expect the adequate insurance policy to additionally foster the growth of exports of Ukrainian products by sea and lower the cost of grain shipping insurance to 1–1.25%," Svyrydenko emphasized.
The Multilateral Investment Guarantee Agency (MIGA) insured the first investments in the M10 industrial park in the Lviv region. In addition, the agency renewed coverage for a package producer.
MIGA is now working to attract additional funds to the MIGA Sure Trust Fund. Japan, the United Kingdom, and Norway have already made their contributions.
The U.S. International Development Finance Corporation (DFC) will allocate $380 million to fund five projects. Superhumans Center, a Lviv-based center for reconstruction, prosthetics, and rehabilitation, was the first project insured against political risks in 2023.
Also, 14 national export credit agencies of other countries opened limits for medium-term insurance of operations and investments in Ukraine and began to insure the risks of private investments of their companies. The total limit exceeds €1 billion.
The EBRD is working on a facility for insurance of property in transit and in warehouses against war risks, and the European Commission is willing to provide the necessary guarantees for this.
The Cabinet of Ministers expanded the mandate of the Export Credit Agency. Currently, coverage from military risks can be obtained by Ukrainian companies that invest in Ukraine. But so far, the agency is short of funding. Efforts to raise more money are ongoing.
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