Defense Industry Challenges 2020

The domestic defense-industrial complex (OPC) suffers from many problems that do not allow to meet the needs of the Armed Forces in arms, military and special equipment (MSE); adversely affect the export potential of the industry. Among the most pressing questions are:

→ Insufficient batch production of new and upgraded MSE samples.

→ Insufficient financing of measures for the development of the defense industry in the format of procurement of modern production and technological equipment, implementation of the results of scientific research on the development of the latest technologies in the production (modernization) of MSE, etc.

→ Loss of production of explosives and ammunition.

→ Problems in establishing interstate cooperation (on the importation of lethal weapons, components, and raw materials; implementation of joint projects for the creation of the latest and modernization of the IAU samples.

→ Absence in Ukraine of a single body responsible for the formation and implementation of a single military, economic and military-industrial policy, which results in a low level of cooperation and coordination of efforts (especially with private enterprises of the industry).

The specific problems of the private sector of the defense industry of Ukraine, which is developing dynamically in the context of the conflict with Russia, are:

→ the existence of separate legal acts that impede the establishment of mutually beneficial cooperation between public and private joint-stock companies;

→ restriction of the output of products of private enterprises of MSE to foreign markets;

→ lack of effective mechanisms for financing the preparation and production of new types of MSEs at private enterprises of MSE;

→ lack of guarantees and effective mechanisms for the protection of investors’ rights and private investment in the private-equity firms;

→ A lack of transparent mechanisms for tenders for the procurement of MSE.

NATO representatives have repeatedly emphasized the urgency of issues that need to be addressed in the light of partner countries’ experience, namely:

→ formation of military-economic policy and its components – military-industrial, military-technical policy and management of the military-industrial complex;

→ reforming the system of planning tasks and measures aimed at ensuring the economic security and defense of the state;

→ legislative regulation of creating an attractive and competitive environment in Ukraine for attracting foreign companies;

→ improvement of the system of development, development of production and procurement of MSE;

→ Reforming NATO’s logistics forces in line with NATO standards.

According to NATO representatives, the introduction of a comprehensive approach to the planning and management of Euro-Atlantic resources and logistics of the Defense Forces, in accordance with the Alliance’s guidelines, standards, and instructions, will create effective mechanisms for the economic security of the security and defense sector. They state that in Ukraine there is practically no system of integrated balanced centralized planning of tasks and activities that would simultaneously cover all issues of economic security and defense of the state. NATO representatives have repeatedly emphasized the need to create a competitive environment in Ukraine for the creation and modernization of MSE. Representatives of the NATO Reform Office and the NATO-Ukraine Joint Working Group on Economic Security emphasize the need to introduce a competitive market-based system for selecting contractors for the development and production of defense-related products and for their value, which should replace the outdated Soviet model.

Under those circumstances, the formation and implementation of the system of military-economic policy and its components – military-industrial and military-technical policy – is an important task for the relevant state authorities. A comprehensive analysis of the situation indicates the importance of economic factors influencing this industry. Thus, the National Security Strategy of Ukraine of May 26, 2015 determined that one of the urgent threats to the national security of Ukraine is the economic crisis and the depletion of financial resources, which have arisen due to the absence of clearly defined strategic goals, priorities, and tasks in the military-economic and scientific-technical development of the state. The Military Doctrine of Ukraine of September 24, 2015, stipulates that the economic security of military security should be implemented through the formation and implementation of a fundamentally new unified military-economic, military-industrial and military-technical policy. Important elements of such modernization are:

→ determination of strategic goals, priority directions and tasks of military-economic and scientific-technical development of Ukraine;

→ formation and implementation of a fundamentally new unified military-economic, military-industrial and military-technical policy;

→ the creation of a single central body responsible for coordinating efforts within the industry.

→ Development of the Strategy for the Development of the Defense Industry – legal regulation of the activity of the security and defense sector, the adaptation of basic documents to modern realities and requirements. In this context it is proposed to adopt the laws of Ukraine “On Creation and Production of Weapons and Military Equipment”; “On military-technical cooperation of Ukraine with foreign countries”; to prepare and adopt amendments to the Laws of Ukraine “On State Defense Order”, “On Investment Activity”; to prepare amendments to separate resolutions of the Cabinet of Ministers of Ukraine governing the state defense order.