Few people are better placed to assess the historic changes currently taking place in the Ukrainian defense industry than Kyiv-based Canadian lawyer Daniel Bilak. In his role as director of Kinstellar law firm’s Ukraine practice, Bilak helps major international defense companies establish a presence in wartime Ukraine. As the former chief investment advisor to the Prime Minister of Ukraine and head of the country’s UkraineInvest agency, he also understands the challenges of cooperating with the Ukrainian defense sector. Meanwhile, since the onset of Russia’s full-scale invasion in February 2022, Bilak has served in Ukraine’s Territorial Defense Forces, giving him invaluable first-hand insight into the raw military realities behind the talk of increased output, technical innovations, and joint ventures.
“Ukraine’s defense industry is currently the most important and active sector in the country,” says Bilak as he sits down to chat with Business Ukraine magazine in mid-May. “It’s exciting because it is brand new. The domestic defense industry used to be a closed shop, but everything changed very quickly within six to nine months after the full-scale invasion. The Ukrainian government realized that to make the defense of the country sustainable, Ukraine had to develop its own defense industrial base.”
This recognition has helped encourage what Bilak describes as an unprecedented openness to international collaboration among Ukraine’s traditionally dominant state-owned defense companies. It is also fueling an explosive expansion in the number of private sector companies active in the country’s defense industry. According to recent estimates, since 2022 the private sector share of Ukraine’s overall defense output has increased from the low single digits to almost 50 percent. Officials say that within five years, they would like to see this figure rise further to between two-thirds and three-quarters.
Enhanced Openness
To illustrate the changing climate within the Ukrainian defense industry, Bilak points to his own recent experience after being hired by German defense giant Rheinmetall to help negotiate the first major joint venture in the sector with state-owned defense industry behemoth Ukroboronprom. When informed by his German clients that they expected to finalize all details within two weeks, Bilak admits to being initially highly skeptical, only to be shocked by the productive approach and professionalism of the Ukrainian officials involved in the talks. The deal was duly closed on time. “I think it was a record for any state agency in the history of independent Ukraine,” he recalls. “It was like negotiating with a major Western company and demonstrated that you can do business with the Ukrainian government.”
Mutual Benefits
Bilak stresses that the arrival of major defense industry players such as Rheinmetall is not merely a matter of businesses from friendly countries supporting Ukraine in its hour of need. Instead, he believes the recent expansion of the Ukrainian defense sector, together with increased international involvement, should be viewed in the broader context of the major changes currently underway within Europe’s security architecture. “This isn’t about giving Ukraine assistance. This is about developing mutually beneficial collaboration. The Russian invasion of Ukraine and the recent delays in US military aid have served as a wake-up call for the whole of Europe. London, Paris, and Berlin have realized they must be prepared to protect themselves and will need to dramatically increase defense production. Ukraine will play a central role in this process.”
Tech Innovation
When it comes to rebuilding the European defense industry, two of Ukraine’s most immediately obvious assets are expertise and experience. For generations, no other Western country has had to fight a war against a military power even vaguely comparable to today’s Russia. This has created unprecedented challenges for the Ukrainian Armed Forces, while also pushing the country’s vibrant tech sector to come up with a steady stream of innovative battlefield solutions. While similar trends can be seen everywhere from electronic warfare to armored vehicles, Bilak highlights the remarkable progress made by Ukraine’s domestic drone industry since the outbreak of full-scale hostilities more than two years ago.
“Because of the real time testing that is taking place in wartime Ukraine, the country is advancing leaps and bounds in terms of drone technology. In many cases, Ukrainian producers have already surpassed the drone technologies that partners were providing the country at the initial stage of the war,” Bilak comments. Understandably, many of the world’s leading drone producers are now seeking to integrate into this rapidly expanding Ukrainian drone ecosystem. Germany’s Quantum Systems recently opened a EUR 6 million drone production plant and development hub in Ukraine, its second facility in the country following the establishment of a Ukrainian training and service center in 2023. Others are set to follow. At the same time, Ukrainian drone manufacturers are looking to expand into other countries. “It is a very fluid situation,” says Bilak.
Logical Partnership
Access to innovative technologies is not the only reason for companies and partner countries to pursue deeper defense industry cooperation with Ukraine. Bilak notes that as the country’s European neighbors move to ramp up defense production they are encountering a range of obstacles, including regulatory restrictions alongside challenges related to manpower and production sites. “In Ukraine we have the land, we have the skills, we have the willingness, and we have the need,” says Bilak. “A lot of international defense sector companies have already come to the conclusion that expansion into Ukraine makes economic sense, even under today’s wartime conditions.”
Bilak emphasizes that his primary goal is to help bring about Ukrainian victory. At the same time, he believes there is an extremely persuasive business argument for foreign companies to collaborate with the Ukrainian defense industry. “In the coming years, all the military kit coming out of Ukraine will carry a stamp, ‘Tested in Ukraine.’ This will become the gold seal for the defense industry globally. So those who develop partnerships with Ukrainian defense companies now or invest in the sector are likely to end up doing very well.”
Era of Instability
Ultimately, however, the further development of Ukraine’s defense industry will be fueled by security imperatives rather than profit margins. As Bilak notes, we are now entering a new era of global instability that will force countries throughout the democratic world to reverse decades of cuts in defense spending and to rearm. The Russian invasion of Ukraine was the catalyst for this historic shift; Ukraine is set to remain at the heart of European efforts to safeguard its security for many years to come. “It’s not even a question anymore of bringing Ukraine into the European defense ecosystem,” says Bilak. “Ukraine is now the driver of the new European security architecture.”