Capacity is there, but orders are lacking: how bureaucracy is holding back Ukraine’s defence industry
The Ukrainian defence industry has become one of the most dynamic sectors. Domestic manufacturers already meet over 50 per cent of the front line’s requirements in certain categories of weaponry, notably drones, artillery and communications equipment. At the same time, state mechanisms are struggling to keep pace with the speed of the technological race.
Svitlana Dovhalenko, an economist at CASE-Ukraine, writes about the main barriers to the sector’s development in a column for Channel 24.
If the procurement process takes half a year, the technology may become obsolete even before mass production begins. Due to the lack of predictable orders, companies are unable to plan investments and scaling up even a year in advance.
The digital platforms Brave1 Market and DOT-Chain Defence have partially bridged this gap. For some categories, the supply cycle has been reduced from several months to a few weeks, and in some cases to as little as 10 days. Thanks to the ‘eBaly’ system, which allows units to order equipment based on confirmed combat results, the military placed orders totalling nearly 14 billion hryvnias in 2026.
The key question is no longer whether Ukraine is capable of producing enough weapons, but whether the state can finance its existing capacity. The defence industry’s production capacity has risen from approximately $1 billion at the start of the full-scale war to $55 billion. However, this figure represents potential output at full capacity, rather than actual production. Without contracts, companies are operating below their capacity, whilst promising developments remain limited to small production runs.
A staff shortage has become an additional challenge. Defence companies are competing with the IT sector not only for engineers and researchers, but also for managers and specialists in procurement, logistics and production organisation.
Controlled exports are intended to utilise excess capacity, attract investment and generate foreign exchange earnings. The new mechanism limits the processing of applications to 30 days and sets a minimum contract value of 15 million hryvnias for finished products. The Ukrainian military remains the priority: exports are only permitted once government contracts have been fulfilled.
For defence technologies to become a pillar of the economy and European security, the state must align procurement, funding, personnel policy and export regulations with the actual pace of the sector’s development.
❗️The publication by the Center for Social and Economic Research (CASE Ukraine) was made with the support of the Civil Society Home of ISAR Ednannia as a part of the project «Strong Civil Society of Ukraine – a driver towards reforms and democracy,» funded by Norway and Sweden. The contents of this publication are the sole responsibility of the Center for Social and Economic Research (CASE Ukraine) and can in no way be taken to reflect the views of the Government of Norway, Government of Sweden and ISAR Ednannia.