Defense production capacity in Ukraine is projected to hit $55bn this year, according to the National Security and Defense Council in Kyiv, compared to $1bn before 2022’s full-scale invasion. That’s close to a quarter of national GDP.
Given the need to stay heavily armed even if Russia agrees to a ceasefire, and given the global interest in Ukrainian weaponry, the industry is likely to dominate economic reconstruction. Arms and the technology now embedded inside them could play as big a part in the industry as they do in another “porcupine” country, Israel.
More than four years of war, in which low-cost drones, interceptors, and missiles have been developed, tested, and honed on the battlefield, have resulted in unparalleled technological advances. And Ukraine can expect to leverage them for a hefty markup when exported to the West, the Middle East, and elsewhere.
The shape of a defense-led recovery depends on whether Ukraine makes the right deals in Europe as it seeks to maximize the value of its expertise, according to Tamar Jacoby, director of the Progressive Policy Institute’s New Ukraine Project.
The defense sector has become increasingly decentralized to allow it to be flexible and innovate with real-time feedback from the frontline, but it means it often misses out on economies of scale.
Ukraine’s Ministry of Defense has also, until recently, banned weapon exports, and deals that have been permitted so far have been time-consuming and stymied by bureaucracy. The businesses that flourish tend to be the ones with the right connections, Jacoby said.
Regulations need to be reformed to speed up processes, tackle corruption, and encourage the development of a robust defense export industry, which will attract talent.
Jacoby compares Ukraine to Israel, which was able to build on its military experience to fuel an economic and technological boom through sales of high-end, cutting-edge weaponry, supported by a government apparatus actively pushing exports.
The major problem of the defense industry — and every other aspect of post-war Ukraine — is likely to be the shortage of workers.
Former Prime Minister Yulia Svyrydenko said in May that Kyiv is seeking to persuade 3.1 million exiles to return to help meet the target of 4.5 million workers the government says will be needed for post-war recovery.
About 5.6 million Ukrainians were still abroad in January, of whom 4.3 million were in Europe, according to the Kyiv-based Centre for Economic Strategy. Of those, 43% plan to return, but 80% of them only after the war ends.
War, blackouts, and mobilization are the top three reasons for staying abroad, and all three are more prevalent in younger age groups.
And it is those young returnees who have gained experience of Western-style business practices and built contacts that Ukraine’s defense industry will need for its future development.
Their return will raise challenging and sensitive questions. Is Ukraine going to reward those who didn’t fight? And how will their rewards compare to those for veterans who spent the war in the trenches?
The implications for social cohesion are clear, and the Ministry of National Unity, which was tasked with tackling this issue, was disbanded in July 2025 after only six months of existence. Industry might decide it doesn’t matter where someone spent the war, and disregard the risks of unrest because it needs skilled employees too badly to hold grudges, Jacoby said.
There is also the issue of NATO weapon standards. Will Western European buyers opt for the simpler and cheaper Flamingo missile over the so-called exquisite Tomahawk missile? They will almost surely opt for a combination of both, but the question is what combination, Jacoby said.
Ultimately, success will not be dictated by the market alone, but by defense export-friendly policies.
Policy choices that favor veterans while still offering benefits to returnees will be vital to the social cohesion that will make Ukraine attractive to its young workers in exile and help drive post-war recovery.
Šimon Peichl is a humanitarian volunteer in Mykolaiv Oblast, Ukraine, and a researcher focusing on the Middle East and Eastern Europe.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
