A "major change" in aid to Ukraine? The EU has increased investment in Ukraine's military industry, and Ukrainian companies want to export weapons to bail out

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According to Xinhua News Agency, following his visit to United States in September, Ukraine President Volodymyr Zelensky has made a "whirlwind" visit to Britain, France, Italy and Germany within 48 hours since October 10, launching a diplomatic offensive for the "victory plan" proposed by him and seeking aid for next year.

Some foreign media previously reported that among the goals of Zelensky's trip, it is difficult to achieve goals such as pushing Ukraine to join NATO and asking allies to allow Ukraine to use Western long-range weapons to strike at Russia. However, Ukrainian Defense Minister Umerov, who accompanied Zelensky's visit to Europe, said on October 13 that the meeting with Western allies still brought "concrete results", and France, United Kingdom, Italy and Germany have all confirmed that they will increase investment in Ukraine's military industry, including promoting Ukraine's local weapons production and establishing joint ventures, which may provide Ukraine with much-needed weapons and equipment in a new cooperation model.

According to a report by the Washington Post on the 13th, the European Union has decided to provide about 440 million US dollars (about 3.113 billion yuan) in aid to the Ukrainian military industry, which marks a "major shift" in the EU's approach to the Russian-Ukrainian conflict, but it also highlights the shortcomings of the EU defense sector in the production of weapons and ammunition. A European diplomat, speaking on condition of anonymity, said that Europe has realized that it does not have the capacity to produce the weapons that Ukraine needs, and the easiest way is to let Ukraine produce it itself. "If Ukraine had the materials and funds, they could do the job faster on their own."

"The Denmark model"

At the beginning of the war, the Ukrainian defense industry could not absorb large amounts of money. However, Ukrainian Prime Minister Shmygal said a few days ago that the country has tripled weapons production in 2023 and doubled this figure in the first eight months of this year. According to the Ministry of Defense of Ukraine, the Ukrainian military industry has received an allocation of $4 billion this year. Ukrainian Economy Minister Sviridenko believes that Ukraine has the ability to produce more products in the military industry of about $10 billion to $12 billion.

At a time when the war on the front line is stalemate, the United States election is approaching, and the aid to Ukraine is facing uncertainty, in order to seek to further improve the country's weapons production capacity, seeking Western investment in the Ukrainian military industry has become one of the key goals of the Ukrainian side. The Washington Post reported that the European Union recently announced that the $440 million aid provided to the Ukrainian military industry will come from the profits generated by Russia's frozen assets, and Denmark will provide an additional about $190 million. The $630 million aid will be led by Denmark and managed through the previously finalized "Denmark model".

According to information provided by the Ministry of Defense of Ukraine, Denmark was the first foreign partner to start directly financing Ukrainian defense companies. The "Denmark model" is a low-cost, high-efficiency modern weapons manufacturing strategy, that is, the Ukrainian side submits the arms manufacturing contract for which it is seeking financial support, and then foreign partners such as Denmark decide whether to provide funding after assessing the production capacity of the relevant Ukrainian defense company.

The Ministry of Defense of Ukraine previously announced on September 30 that the 155mm vehicle-mounted gun (Bohdana), which was invested and co-produced by Denmark and independently developed by Ukraine, has been delivered to the Ukrainian armed forces. Denmark, for its part, said it would not set "red lines" to limit where these weapons could be used.

In addition, Ukraine has signed preliminary cooperation contracts with defense enterprises such as Germany's Rheinmetall and the German-French joint venture KNDS Group, and KNDS has just announced the opening of a branch in Ukraine in early October to support cooperation between Ukrainian government agencies, the Ukrainian defense industry and the KNDS Group. Some analysts believe that such cooperation can not only meet the needs of Ukraine to attract more foreign investment, but also allow foreign defense companies to test and improve their products in the changing war.

A European official, speaking on condition of anonymity, told The Washington Post: "The funding provided by Ukrainian partners is a watershed moment – it refers not to the amount of money, but to the idea of putting government money into Ukraine's defense industry." He said the money would be used to produce "missiles, drones" and other "deep strike weapons." In the future, the flow of funds to the Ukrainian defense industry may soon "increase sharply".

Previously, the Ukrainian side has been seeking United States and other Western countries to allow the Ukrainian army to use Western-aided long-range weapons to strike deep into Russian territory, but so far, United States has not "relented" for fear of further escalation of the conflict. Zelensky said a few days ago that Ukraine has developed and successfully tested its own ballistic missiles, and the number of drones that can be produced per year has reached 4 million.

Ian Lesser, director of the Brussels office of the Germany Marshall Fund, analyzed that Western investment in the Ukrainian military industry "provides greater flexibility", "can provide more capabilities for Ukraine in a short period of time", and at the same time "may reduce some pressure on defense production in Western countries", and its broader significance is to promote Ukraine's gradual integration into the Western defense industry supply chain; But it is still difficult to replace the effect of large-scale Western arms supplies to Ukraine. The United States Institute for the Study of War (ISW) also said in an assessment on October 2 that Ukraine still needs significant Western assistance in the coming years.

While seeking military aid, he also wanted to export weapons

During the Soviet era, Ukraine was an important weapons manufacturing base, but after independence in 1991, the related budget was cut, causing the defense industry to gradually shrink. After the outbreak of the Russia-Ukraine conflict, Ukraine has increased investment in the defense industry, and plans to invest $6 billion in domestic weapons manufacturing in 2024. Despite this, the Ukrainian military-industrial complex is still in trouble due to a shortage of funds. United States political news network Politico reported on October 9 that the Ukrainian military industry has pressured the government to lift the ban on arms exports so that relevant companies can profit from overseas sales and reduce economic pressure.

According to the National Association of Defense Industry of Ukraine, allowing military exports could strengthen the Ukrainian economy and could bring in up to $2 billion in tax revenue in 18 months. Halyna Yanchenko, a Ukrainian parliamentarian in charge of the links between industry, government and investors, said at a special meeting last month: "Many countries in the world are interested in weapons made in Ukraine and tested in real combat." If arms exports are not blocked, Ukrainian manufacturers will have a large number of buyers and contracts in the coming years, and the export ban will inhibit the development of strategic industries. ”

Estonia Defense Minister Pevkul said on October 13 that Estonia is considering the possibility of buying defense supplies from Ukraine, according to the Kyiv Independent. Although Ukraine currently bans the export of defense equipment, Pevkul believes that these restrictions may be circumvented if the two countries reach a mutually beneficial agreement. He also said Estonia was "interested in long-range missiles," but did not give further details. If the two sides reach a purchase agreement, "Ukraine will be able to obtain more money and produce more products for its own army." ”

According to the United Kingdom Financial Times, limited resources are prompting Ukraine to consider exporting drones. Ukrainian officials and industry insiders believe that the Ukrainian government lacks the funds needed to support the development of the industry. The current export ban could lead to a brain drain and reduced tax revenues, and Ukrainian-related companies are trying to circumvent this ban by setting up factories abroad.

After the outbreak of the Russian-Ukrainian conflict, the Ukrainian drone industry has developed strongly. Of the $6 billion budget that Ukraine plans to invest in local weapons manufacturing this year, one-third has been allocated to the drone industry, but it is still not enough to support production and research and development. Ukrspecsystems, one of Ukraine's largest UAV producers, has set up factories abroad, and the head of the company revealed that the Ukrainian army is currently "extremely short of UAVs", but the country's purchasing capacity is lower than the company's production capacity.

Politico reported that in the face of pressure from the military industry, the Ukrainian parliament is already working on a mechanism that would allow military manufacturers to sell excess products overseas, subject to strict controls to ensure that only items that are not needed at the front line are sold. If the government finally gives the "green light" to this, it will allow the relevant enterprises to earn up to $15 billion a year and promote the production of weapons in Ukraine.

However, within the Ukrainian government, there are still doubts about the "lifting of the embargo" on arms exports. A senior Ukrainian Foreign Ministry official, speaking on condition of anonymity, told Politico: "Ukraine exports weapons during the war while asking for military assistance from partners. Ukraine will not understand, and neither will the partners. Another senior Ukrainian official close to the Ukrainian president's office said that Zelensky is currently more focused on seeking investment in the field of defense, and the Ukrainian military may also not agree to allow foreign arms sales.

Surging News reporter Hou Danwei