• Economics
• Ukraine

June 26, 2025, 5:18 PM View Comments ()

Ukraine is braced for a Kremlin summer offensive that will make a heavy dent in its weapons stockpile. Cautious that rebuilding those supplies requires sustained interest from its Western backers, Kyiv is opening what one official called its “Wild West” arms industry to investors, promising to become the world’s “breadbasket” for lethal military equipment.

Over the past three years, Ukraine’s allies in NATO have donated around $140 billion of military aid that has helped hold Russia back.

On top of receiving missile defenses, drones, and more conventional artillery, Ukraine has developed its own impressive arms industry. Much attention has been paid to its manufacturing of attack drones—2.5 million drones are expected to be produced in 2025.

Since the start of the war, Ukraine has built an arms industry with an output capacity of over $35 billion.

However, recent estimates suggest that only around $12 billion, according to Ukrainian officials, worth of orders have been placed, meaning there is a huge amount of excess capacity. Kyiv hopes that Western allies will seize this opportunity to invest in Ukraine’s domestic arms industry—and it is making Ukraine’s defense sector as attractive as possible to Western investors.

“Of course, it would be better if they were straight donations, but we also must be realistic,” said Serhii Kuzan, chair of the Ukrainian Security and Cooperation Center. “We know that making our arms industry as attractive as possible is the best way to keep our Western allies interested and sending money here.”

Kyiv’s pitch to outside investors looks something like this:

Ukraine is still the West’s first line of defense against the Kremlin, effectively fighting a battle on behalf of NATO by keeping Russian forces from progressing farther west into Europe. Ukraine has done an incredibly impressive job, given early estimates suggested the country would fall in three days, so it’s in the West’s interest to keep supplying Kyiv with weapons.

Another part of the argument is that it is cheaper and quicker to get those weapons to the front line if they are made in the country itself. Producing the weapons in Ukraine is easier as, under its current state of martial law, the nation doesn’t have the bureaucratic, regulatory, or logistical problems in manufacturing and testing weapons that most NATO countries do.

If that’s not incentive enough, Ukraine has become something of a “Wild West” for weapons production. Those were the exact words a Ukrainian government official used when I was in Kyiv last month, describing how testing weapons on an actual battlefield against a real enemy drives innovation faster than labs or testing ranges.

“What might take you months, even years of developing, testing, and manufacturing in the West will only take weeks here,” said the official, who spoke on the condition of anonymity as they are directly involved in the war effort. “We are the best test field in the world because mistakes here mean death. We can tell you very quickly how your product does or does not work on the battlefield.”

Western arms companies willing to invest in or work directly with the Ukrainian defense industry will have real competitive advantages in the fast-changing, high-tech world of modern weapon design. They will also be able to say with absolute certainty what works on the battlefield and what doesn’t.

When the war eventually ends, those who took advantage of Ukraine’s Wild West approach will find that they have a workforce with real-world battlefield experience. “Smaller European countries that have typically smaller armed forces are necessarily obsessed with the idea of maximum lethality for minimum cost,” said one European defense industry source. “From that perspective, it would make sense to make use of these people who know how to make stuff that we know for sure works.”

And the money doesn’t hurt. Europe is braced to spend up to $936 billion on rearming itself.

Depleted weapons stockpiles will need to be refilled, and there won’t be many places able to compete with Ukraine when it comes to making piles of gear by people with a track record of making relatively cheap and deadly effective weapons.

Those in joint projects or who have opened factories in Ukraine will be well-placed to secure large orders worth eye-watering sums of money. The German arms giant Rheinmetall has already committed to opening factories in Ukraine, while Britain’s biggest defense firm, BAE Systems, is one of many that has set up a legal entity in the country.

Placing strategic NATO assets in Ukraine also offers the prospect of providing a level of security without actually admitting the country into the alliance.

“If you have German engineers or British managers working in Ukrainian factories on joint projects, you create a pretty major deterrent to Russia launching attacks on those areas,” said William Alberque, former NATO director of arms control. “The more you can stitch Ukraine’s arms industry into the NATO and European defense industry, the more they are involved in decision-making and the greater that deterrent becomes.”

That’s the sales pitch. What’s the downside? Well, Ukraine is a country still at war and there’s no clear end in sight. We don’t know what Ukraine will look like politically in five years’ time. If the war is over, there is no clear indication of what a peace settlement will look like in terms of territory—or what assets Russia might be able to seize. And there is still every chance that Russia will launch another invasion down the line.

There is also the small matter of Ukraine being under martial law, meaning there are export controls on weapons made in the country, as well as no clear timeline on when an investor might be able to export weapons outside of the country for profit or for their own domestic militaries to use. The uncertainty regarding martial law also includes who any intellectual property might belong to, defense industry sources say.

That said, whatever the risk, Ukraine losing this war and Russia becoming emboldened is still by far the worst option for NATO. There are many who believe that even the donations to date have still been given through gritted teeth, to the shame of the West—and that the need for commercial considerations is a stain on the West’s record. As another Ukrainian official said: “We really are fighting a war on behalf of the West. If we lose, Russia won’t stop at Ukraine. Without your support, we simply cannot compete with the scale of their weapons manufacturers.”