Overview
Russia’s continued aggression and Ukraine’s response highlighted the crucial role of the defense industry, marked by the daily needs for large amounts of ammunition, diverse weaponry, and military equipment. The increasing significance of aerial, ground, maritime and unmanned underwater vehicles and the associated military technologies involved in this new warfare further underscores Ukraine as a rare chance to field-test weapons, military systems, and equipment in actual combat scenarios.
Since Russia’s full-scale invasion in February 2022, Ukraine had to dramatically increase its defense spending, as well as rely on allies’ assistance.
Table: Ukraine Defense Spending (US$, millions)
| 2022 | 2023 | 2024 | 2025 estimated |
Ukraine’s budget | 44,000 | 64,800 | 64,700 | 49,000 |
% of Ukraine’s GDP | 32.5% | 37% | 34% | 26.3% |
Exchange Rates | 1 US$ = 32.34 UAH | 1 US$ = 35.57 UAH | 1 US$ = 40.15 UAH | 1 US$ estimated 45 UAH |
Source: Laws of Ukraine on the State Budget of Ukraine
Units: $ millions Exchange Rates: National Bank of Ukraine https://bank.gov.ua/en/
In 2025, Ukraine’s budget defense spending was expected to be directed to:
- financial and material support for military personnel ($31.4 billion)
- purchase of weapons and military equipment ($16.4 billion)
- support for the defense-industrial complex ($1.2 billion), in particular long-range strike capability programs, ammunition and unmanned systems production
Military aid from international partners has been vital to the success of Ukraine against a much larger adversary. Since February 24, 2022, U.S. military assistance totaled $67 billion (https://www.state.gov/bureau-of-political-military-affairs/releases/2025/01/u-s-security-cooperation-with-ukraine). The aid is delivered through various mechanisms like Presidential Drawdown Authority (PDA), the Ukraine Security Assistance Initiative (USAI), and Foreign Military Financing (FMF).
In July 2025, an agreement signed by U.S. President Donald Trump and NATO Secretary General Mark Rutte set up the Prioritized Ukraine Requirements List (PURL) where NATO Allies and partners purchase military equipment from the United States for Ukraine. Two-thirds of NATO Allies pledged financial contributions to this initiative by February 2026, led by Germany, the Netherlands, Norway, and Canada. In six months, Allies committed to nearly $5 billion to purchase second-to-none American innovation and technology to meet Ukraine’s battlefield needs
Opportunities
The most vital needs of Ukrainian armed forces include traditional military equipment such as artillery and rocket systems, anti-tank missiles, anti-armor and counter-battery systems, mortar systems and artillery ammunition, air defense systems, armored vehicles, unmanned ariel systems (UAS) and modern fighter jets.
- In 2025, the United States approved three weapons/defense systems sales to Ukraine:
- $322 million for armored combat vehicles and missile systems (FMF funding)
- $330 million for air defense systems as well as the maintenance, repair and overhaul of self-propelled artillery vehicles (FMF funding)
- $825 million for extended-range missiles and related equipment (funding from NATO Allies Denmark, the Netherlands, and Norway in addition to U.S. FMF funding)
The Ukrainian defense industry is a strategically important sector and a large employer in Ukraine. After several decades as an arms exporter, in 2014 Ukraine significantly increased its military procurement. With the start of Russia’s full-scale invasion in 2022, the domestic defense industry pivoted to meet Ukraine’s defense demand, with exports of defense products effectively curtailed. However, Ukraine’s president has indicated that defense exports will resume.
In Ukraine, both state-owned and private companies operate in the defense industry. The state-owned part of Ukraine’s defense industry is managed by the Joint Stock Company “Ukrainian Defense Industry” (UDI) and its enterprises manufacture tanks, armored vehicles, weapons, ammunition, UASs, aircraft and aircraft engines, radars, and communication equipment and systems. Ukraine’s privately-owned defense industry is growing rapidly and produces armored vehicles, UASs, weapons, ammunition, communications and mil-tech IT products.
The local industry, state-owned and private, is sourcing components and sub-systems, and as a result, provides export opportunities for U.S. suppliers of electronic components/sensors, avionics, communication, airborne and ground-based engines, and many others with an eye at producing NATO and Department of Defense-compliant materiel.
Since 2023, the Defense Procurement Agency (DPA) of the Ministry of Defense have led military procurement on behalf of the Armed Forces of Ukraine. The DPA verifies potential suppliers Ukrainian and foreign suppliers, who can apply for verification: https://dpa.mod.gov.ua/en/suppliers
When a particular product is being ordered and financed by the Ministry of Defense, DPA sends RFPs and RFQs to verified suppliers of this product and selects among the offers.
Ukraine provides a unique opportunity to battle-test weapons, military systems and equipment. The Ministry of Defense is actively testing new military equipment through its “Iron Range” service, which provides testing services and codification to Ukrainian defense manufacturers. There are possibilities for foreign companies as well, through the “Test in Ukraine” initiative by Brave1, the coordination platform for Defense Tech powered by the Ukrainian government. Under the “Test in Ukraine” initiative, companies could share prototypes for drones, loitering munitions, naval drones, electronic warfare systems and AI-driven products for testing on the battlefield.
On October 5, 2025, Law No. 4577-IX came into force, setting the basis for the launch of the incentive-based tax and legal regime “Defense City” for qualified Ukrainian military-industrial complex companies. “Defense City” offers significant incentives, including exemptions from corporate income, land, property, and environmental taxes until 2036 or Ukraine’s EU accession, as well as streamlined customs and export procedures to its future residents.
The purpose of “Defense City” is to provide the Ukrainian military-industrial complex with benefits and to establish an environment designed to accelerate the development, production, and modernization of military products in Ukraine. This is expected to be achieved through economic incentives for “Defense City” resident entities, streamlined export licenses, administrative facilitation of their activities, and enhanced security.