From garages to factories: how private capital can reshape Ukraine’s defence industry
The private sector has become one of the main drivers of Ukraine’s defence industry. Small teams have learned to adapt equipment rapidly to battlefield needs, developing capabilities that were previously limited or absent: FPV and strike drones, electronic warfare systems, robotic platforms, and military electronics.
In a column for Mind, Svitlana Dovhalenko, an economist at CASE Ukraine, explains how this wartime technological breakthrough can be transformed into a sustainable industrial model.
The sector’s production capacity could reach $55 billion in 2026. In 2025, the Ministry of Defence approved more than 1,300 new Ukrainian-made weapons and equipment systems for operational use, including over 550 unmanned aerial systems. Meanwhile, the state-owned Ukrainian Defence Industry increased output by 50%, to more than UAH 180 billion.
The problem is not state ownership itself, but the state simultaneously acting as owner, regulator, customer, and gatekeeper to the market. The state should set strategic priorities, create long-term demand, and protect critical technologies, while businesses should invest, compete, and scale production.
Defence assets should be divided into three groups. Commercial manufacturers of components and dual-use products could be privatised through competitive auctions with investment commitments. Unique facilities producing explosives, rocket propellants, secure communications, and other irreplaceable technologies should remain under state control. Strategic enterprises requiring modernisation could attract minority investors, establish joint ventures, and enter into licensing agreements.
The first step should be an audit of state assets and the creation of three lists: assets to remain state-owned, assets eligible for privatisation, and enterprises requiring a strategic investor. This should be followed by pilot privatisation involving three to five companies or separate production facilities.
Manufacturers also need multi-year contracts and access to finance. In 2025, the Ministry of Defence signed long-term agreements with 12 producers worth almost UAH 130 billion, while six banks provided a defence company with a syndicated loan of UAH 21.5 billion. Similar instruments should be extended to private companies with confirmed orders.
Controlled exports could help utilise spare capacity, generate foreign-currency revenue, and finance new developments. The reform should not aim to sell as many factories as possible. Its goal is to create a system in which the state controls critical capabilities, private businesses scale production, and strategic partners provide capital, technology, and access to international markets.