The Defense Sector is the Most Dynamic in Ukrainian Industry
The Ukrainian defense-industrial complex (DIC) is only 60% loaded, and the remaining 40% lacks funding. This was recently stated by President Volodymyr Zelenskyy, who added: "Today, we have truly expanded significantly. And our defense capability would be greatly helped if we found funding for 100% of our production capabilities."
According to official data, the Ukrainian defense industry has grown 35 times during the full-scale war, reaching an annual weapons production potential of $35 billion. The Page investigated how the DIC is financed and the significance of the defense sector for Ukraine's industry.
Who Finances Ukraine's DIC
Primarily, the DIC is financed by the state, which allocates funds from the state budget for procurement. In 2025, the Ministry of Defense plans to purchase 4.5 million FPV drones of Ukrainian production – 110 billion hryvnias have been allocated for this.
Budget funds are also partially directed towards the development of new weapons. The state mainly invests in missile programs and ammunition production.
Businesses operating in the defense sector invest their own and borrowed funds in production. In the fourth quarter of 2024, Oschadbank, Ukrgasbank, and PUMB issued a loan of 2.8 billion hryvnias to a DIC enterprise under the Program for Enhancing the State's Defense Capabilities and Meeting the Urgent Needs of the Armed Forces of Ukraine. This is the first example of a consortium loan in the financing of the domestic DIC.
Indices of Industrial Production to the Previous Year
Source: State Statistics Service of Ukraine
In 2024, Oschadbank, Ukreximbank, Ukrgasbank, and PUMB provided 11 loans under state guarantees to DIC enterprises under the aforementioned program for a total amount of 21 billion hryvnias. A year earlier, Oschadbank provided a loan of 6.09 billion hryvnias under state guarantees under this program, and Ukreximbank – 5.98 billion hryvnias.
On May 9, Prime Minister Denys Shmyhal announced that the European Union had officially declared its intention to allocate 1 billion euros for the purchase of weapons under the so-called "Danish model" – directly from Ukrainian manufacturers.
DIC enterprises persistently request the government to allow them to export a portion of their products that are not needed in Ukraine. They would use the proceeds for development. However, the country's political leadership is in no hurry to grant such permission, promising that they will "look into this issue soon."
Dynamics of Industrial and Defense Production in Ukraine
In January 2025, all industrial products worth 335 billion hryvnias were sold. The main contribution came from the manufacturing industry (172 billion hryvnias). The DIC is part of the manufacturing industry.
In the reports of the State Statistics Service, two positions are clearly defense-related: "production of weapons and ammunition" and "production of military vehicles." In January, sales of the first amounted to 5.6 billion hryvnias, and the second – 2.5 billion hryvnias. The rest of the DIC's products are included in "civilian" activities.
The volume of industrial production in 2024 increased by 4.6% year-on-year. In January this year, it fell by 4.8%. At the same time, certain types of activities grew by tens of percent:
- Quarrying of stone, sand and clay – 98.8%;
- Manufacture of rusks, biscuits and other dry baked goods – 23%;
- Canning of fruits and vegetables – 11.7%;
- Manufacture of wearing apparel – 72.4%;
- Manufacture of concrete products – 23.6%;
- Metal processing – 43.7%;
- Manufacture of batteries and accumulators – 39.8%.
It is highly likely that these types of activities have a significant defense component.
Purely military types also grew significantly:
- Manufacture of weapons and ammunition – 38.3%;
- Manufacture of military vehicles – 22.8%.
The "manufacture of ships and boats," which grew by 23.4% in January, would also be desirable to classify as "military" activities, suspecting that the production of naval drones is hidden there. However, the analysis of data from the State Statistics Service forces us to abandon this assumption. The production volume there is only 105 million hryvnias, and 83% of the products were exported.