Ukrainian Defense Industry at Risk of Disarray

Executive Summary:

• As Russia’s invasion of Ukraine enters its third year, the Ukrainian government faces the challenge of boosting its troubled defense procurement and defense industry to lessen dependence on outside assistance and meet the country’s growing defense needs.
• Tensions reportedly rose between the director of the Defense Procurement Agency (DPA) and the Minister of Defense when it was revealed that Ukrainian-made 120 mm Soviet caliber mines supplied to the frontline were defective.
• Lack of sufficient financing, problems with Ukrainian-made ammunition quality, lack of critical components, and the internal standoff within the defense sector create serious risks to Ukraine’s war efforts against Russia. 

On February 24, Russia’s full-scale invasion of Ukraine will enter its third year. Ukrainian military and defense capabilities are now at a critical point due largely to internal conflicts, financing challenges, deficiencies in military equipment, and a lack of essential military components. These issues pose significant risks to Ukraine’s ability to defend against Russian aggression.

A dispute over procurement between Ukrainian Minister of Defense Rustem Umerov and Defense Procurement Agency (DPA) Director Maryna Bezrukova is ongoing (Obozrevatel, January 30). Bezrukova was dismissed on January 31 for “failure to meet delivery plans and other violations,” according to the Ukrainian Ministry of Defense (MoD) (MoD; Kyiv Independent, January 31). This action contradicts the DPA’s supervisory board’s unanimous decision on January 21 to extend Bezrukova’s contract as director (Radio Svoboda, January 30). Such an internal crisis stirs concerns among Western partners, especially as the DPA is Ukraine’s only agency to procure weapons, unmanned aerial vehicles (UAVs), and ammunition from abroad and inside Ukraine (Hromadske, January 30).

Ambiguity remains as both sides accuse each other of violating the law and poor performance. Umerov insists on the DPA’s poor procurement results, which have been confirmed by several members of the Ukrainian Parliament (MPs) (Ukrainska Pravda, January 14; Ministry of Defense of Ukraine, January 31; Novynarnia.com, February 8). According to these MPs, an MoD internal audit has revealed numerous problems with supply disruptions in 2024 and problematic intermediaries (Ukrainska Pravda, January 14).

Bezrukova and anti-corruption activists, however, claim that Umerov acted unlawfully in dismissing her (Interfax Ukraine, January 28; Radio Svoboda, January 30). These accusations point to potential abuse of power by Umerov, which violates Article 364 of the Criminal Code of Ukraine (Verkhovna Rada of Ukraine, April 5, 2001). At the same time, the latest revisions to Ukraine’s law “on the legal regime of martial law” allow the administration of the public service entity (in this case MoD) to appoint state-owned enterprise directors directly, without a competitive selection (Verkhovna Rada, May 12, 2022). This means that Umerovs dismissal of the DPA director is subject to legal analysis. In the span of a few days, Umerov appointed Arsen Zhumadilov, the head of Ukraine’s non-lethal procurement agency, then re-appointed Bezrukova without much explanation, according to a statement released by the DPA on January 30 (Facebook/Defense Procurement Agency; Novynarnya, January 30).  Following this, Arsen Zhumadilov was appointed a DPA director again and currently holds this position as a provisional director (Glavcom.ua, January, 31).

At the center of the dispute was the discovery last year that several Ukraine-made, Soviet caliber 120 mm mortar shells, which the DPA had procured, were faulty and either failing to explode or failing to hit their targets (Kyiv Independent, November 26, 2024). Yurii Butusov, a military correspondent from Ukraine, first raised this issue in November last year (TSN, November 25, 2024). Since then, the MoD and DPA have been locked in a paralyzing dispute over where responsibility lies.

These issues present serious risks for Ukraine in the war against Russia. Ukraine relies almost entirely on foreign financing for weapons and ammunition procurement, while simultaneously suffering serious territorial losses. These factors mean that Ukraine cannot afford mistakes in procuring functional military equipment or internal disputes between defense officials at such a crucial time. These scandals represent the overall institutional weakness and lack of coherence in the Ukrainian defense industry and related procurement systems. Local Ukrainian weapon and ammunition manufacturers face several challenges, including a lack of critical components for production, dependence on unsustainable ammunition imports, worker shortage due to the war’s mobilization, and consistently interrupted electricity supplies caused by Russian targeted attacks on Ukraine’s energy infrastructure (E Novyny, December 4, 2024; Pravda.com.ua, December 26, 2024). Subsequently, domestic defense producers cannot increase their production of ammunition goods (UNIAN July 15, 2024; New Voice of Ukraine, November 1, 2024).

Expectations from the political level are higher and lead to unrealistic demands for factories to boost their capacity, resulting in poor quality and supply interruptions. Ukrainian Minister of Strategic Industries German Smetanin reacted to a mines procurement scandal by demanding that the local producer triple production, even though the factory has failed to deliver almost a third of its deliveries on time (Censor, January 13). Members of the Ukrainian Parliament have voiced problems with other DPA suppliers of a similar nature (Patrioty, December 5, 2024). Overall information on DPA procurement challenges revolves around the inefficient use of money to procure much-needed weapons and significant supply interruptions of ammunition for the army. Similar concerns are voiced by the local defense industry association Technological Forces of Ukraine on UAV procurement, stating that 75 percent of private contractors have not been provided government contracts for 2025 as of December last year (Ekonomychna Pravda, December 11, 2024). The DPA director and local activists have blamed Umerov (Apostroph, January 25).

These problems shed light on a complex issue in the Ukrainian defense industry and the challenges it faces as a result. First, Ukrainian local producers are incapable of timely, sufficient production and experience occasional quality problems. This is due to dependence on imported components, problems with personnel, and an unreliable electricity supply. All major producers are state-owned, and Ukrainian defense manufacturers’ managing entities set unrealistic factory goals. Second, Ukraine heavily depends on imports of full-round (ready) ammunition. According to multiple government representatives, this is problematic because of global ammunition components scarcity, insufficient financing in Ukraine, and supply disruptions by the DPA (UNIAN, July 15, 2024; Army Inform, January 31; Suspline.media, February 2). Third, there is poor interagency and intra-agency coordination between the MoD, the DPA, and the Ministry of Strategic Industries, which are responsible for defense industry policy, procurement, and defense production. The current scandal is a clear indication of these problems. Fourth, there is a lack of clear architecture for UAVs and robotics developed by the MoD and Army Headquarters that would be contracted to private UAV producers by the DPA and MoD. Without such a system in place, private companies do not know where to invest or which types of drones to procure. Most companies identify those needs based on personal contacts and are not always accurate (Tverezo, January 30).

If Ukraine does not address these challenges on an interagency level and avoid national security scandals, domestic production problems and import reliance will hinder an already undersupplied army. Scandals can give way to information distortion and manipulation within defense entities, leading to further resentment in the army, production and procurement paralysis, budget mismanagement, and doubts among Western allies and partners on whether to further support Ukraine.