Ukraine’s rapidly expanding defense tech sector is poised for further growth in 2025
About the author: Justin Zeefe is Co-Founder of Green Flag Ventures

Ukraine’s defense tech sector looks set to continue its strong growth trajectory in 2025. Since 2017, Ukrainian startups have shown resilience with a consistent 25% annual growth rate. This trend has continued in wartime conditions and will only strengthen as Ukraine’s central role in Europe’s security is cemented. Except in the most unlikely scenario of a fundamental loss of sovereignty, Ukraine will remain a key driver of defense innovation in Europe.

Europe is already shifting toward self-reliance and increased defense investment. Prompted by Russia’s aggression, Europe recognizes the need for greater defense autonomy. This urgency has led to record-high defense budgets, with NATO countries investing significantly to meet alliance spending targets. In 2022, EU defense budgets reached EUR 240 billion, an 8% increase from the previous year, with the number of NATO members meeting spending goals rising from six to 23.

Ukraine: Indispensable EU Ally

EU-Ukraine defense partnerships are currently flourishing in response to concerns over future US security policy. European leaders recognize that supporting Ukraine now is both strategically essential and cost-effective, as it could allow them to avoid far greater containment expenses later on. Ukraine has become an indispensable ally for Europe’s defense infrastructure, and this deepening alliance is likely to drive increased European investment in Ukrainian tech. Ukraine’s innovative solutions are vital to the future of Europe’s defense and technology landscape.

Ukraine is already recognized as a European defense tech leader. From counter-drone technologies to electronic warfare, Ukrainian innovation reinforces this status. Over 1,200 innovative companies have formed in Ukraine since Russia’s invasion, directly contributing to defensive and offensive successes. This surge in defense innovation mirrors Israel’s rise in the 1990s as a “Startup Nation,” capitalizing on circumstances to build a formidable tech ecosystem that addresses immediate defense needs and positions Ukraine as a key technology provider for the West. Ukraine also occupies a strong position in high-tech education with an abundance of talent in critical fields. Ukraine’s highly educated workforce, particularly in STEM, forms the backbone of its tech sector. With over 300,000 professionals in STEM and thousands more graduating each year, Ukraine’s talent base is rapidly growing and is poised to surpass Israel by 2028. This robust talent pipeline is crucial for Ukraine’s ability to advance dual-use technologies, mirroring Israel’s transformation into a tech powerhouse driven by human capital.

Battlefield Tested Technologies

Export-oriented defense innovation in the world’s largest open air laboratory is an advantage Ukraine has seized. Ukraine’s defense solutions, tested in real-world conflict conditions, are currently being refined at a pace that few countries can match. This ensures Ukrainian technologies are battle-proven, an essential factor in today’s defense market.

Ukraine’s export strategy positions it as a key defense supplier to Europe and beyond. Prior to the full-scale war with Russia, the country was already building a profitable tech sector to buttress its agriculture, manufacturing, and natural resource wealth. Ukrainian innovators were focused on peacetime technological advancements across various industries including IT, agriculture, renewable energy, and manufacturing. With the onset of war, many of these innovators have pivoted from plowshares to swords, redirecting their expertise toward defense technologies to support the nation’s immediate security needs. This shift in focus has accelerated Ukraine’s emergence as a leader in defense tech innovation.

Long-Term Outlook

Ukraine is likely to remain focused on growing its tech sector and self-defense capabilities for many years to come. A scenario where Ukraine loses complete sovereignty is highly improbable. The more likely scenario is that Ukraine and Russia will negotiate over the currently occupied territories in both countries. Regardless of where the lines are ultimately drawn, postwar Ukraine will work to ensure that it is never again so reliant on external partners for its defense. Even with potential territorial compromises, we can expect to see continued exponential grown in Ukraine’s tech-aligned defense sector, supporting its own defense as well as the defense of its EU neighbors.

Meanwhile, Russia is under serious economic strain and cannot keep pace indefinitely. The invasion of Ukraine is taking a toll on the Russian economy, with defense spending projected to reach record levels by 2025. High inflation, rising interest rates, labor shortages, and limited access to high tech imports due to sanctions are all placing further strain on Russia’s resources.

Looking ahead, increased global demand for innovative defense capabilities, coupled with Ukraine’s rapid technological advancements, creates fertile ground for substantial returns. Investing in Ukraine’s tech sector is a strategic economic decision rooted in strong market dynamics. The country’s thriving tech ecosystem is not just surviving in today’s wartime adversity; it is poised for exponential growth. Supporting Ukraine’s tech ecosystem is a rare opportunity to do good while doing well. A strong, sovereign Ukraine enhances European security and prosperity, bolstering market stability and growth potential.

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