“”, — write: www.pravda.com.ua
It was forbidden for a long time, but in the end, the authorities were informed that in the conditions of the budget deficit, the lack of funding for the development of the defense industry, and the frantic demand for Ukrainian military technologies among partners, this is a necessary solution.
A smart arms export system will allow companies to earn more money, which means more investment in the development of technology and production. The army will also benefit from this, because the weapons will develop technologically, and the taxes from their sale will be used to buy even more equipment or increase the salaries of military personnel.
The arms export policy has not yet been formed. It is very difficult to develop a regulation for this task, because it must put the needs of the Ukrainian army first. At the same time, the mechanism should be transparent enough so that companies can generally conduct some predictable business with the world.
However, there is a risk that the new system will be highly regulated and have corruption risks. The problem of corruption is not even so much the money that will be taken by state “intermediaries”, but rather the creation of additional barriers in front of arms dealers and the discrediting of Ukraine in the eyes of partners who are still quite loyal to our defense industry.
Oboronka interviewed the heads of three key armed associations. There was only one question – how not to turn arms exports into a big corruption scheme?
Fewer government intermediaries, more transparency
Serhii Goncharov, executive director of NAUDI (over 100 defense companies)The arms export system from Ukraine is one of the most complex and regulated, which creates a number of problems and risks for both the state and manufacturers.
One of the main problems is excessive centralization of processes. For many years, Ukraine used the model of a monopoly exporter, when only a limited circle of state-owned special exporter companies had the right to carry out foreign economic transactions with military goods. Such a system was intended to control sensitive technologies and prevent the illegal circulation of weapons, but in fact created conditions for opacity, political influence and corruption risks. Producers who did not have direct access to customers depended on intermediaries, which led to a decrease in profitability and a loss of competitive advantages in international markets.
Another serious problem is inconsistency and complexity of permitting procedures. The arms export approval and licensing system includes dozens of stages — from interdepartmental decisions to end-user control. This often leads to delays in contracts, loss of customers and undermining of trust in Ukrainian companies as reliable partners. Many foreign counterparties note the instability of the rules of the game, which change depending on the political situation or personnel decisions in state bodies.
It is an additional risk opacity of final price formation and profit distribution. Under the conditions of a monopoly exporter, the producer actually has no influence on the price of the final contract, and therefore often receives only a small part of the revenues that are generated at the expense of state-owned intermediary companies. This demotivates enterprises to develop their own technologies, invest in innovations or expand export activities. As a result, the state loses tax revenues, and the market loses dynamics.
There is also a significant challenge lack of a single system of foreign economic control in the defense sector. Various authorities have overlapping functions – the Ministry of Defense, the Ministry of Economy, the Security Service, the SZR, as well as interdepartmental commissions with mysterious functions and powers. This creates an administrative burden, increases the risks of subjective decisions and opens opportunities for abuse. This is especially noticeable in the period of martial law, when promptness and flexibility of decisions are of crucial importance.
Introduction the only state arms exporter may create new problems if proper controls and transparency are not ensured. Monopolization of this market destroys competition and, therefore, incentives to improve efficiency. The lack of public reporting on contracts, prices and end users raises suspicions of corruption and can lead to political scandals or sanctions from partners. In addition, excessive dependence on the state intermediary limits opportunities for international cooperation between private companies, which now play an increasingly important role in the production of modern weapons systems.
Even before 2022, special exporters were not extremely successful companies that would promote new and high-tech developments of the Ukrainian defense industry, instead, they mostly tried to sell the remnants of the Soviet arsenal of weapons for next to nothing. What is the probability that this will change dramatically starting in 2025?
No less important is the risk of exit of Ukrainian enterprises, and therefore technologies, to other jurisdictions. Not having the opportunity to work on the world market, and without the opening of exports, all Ukrainian enterprises are locked in the middle of a limited market with actually one customer, manufacturers will be forced to either close due to the lack of a sales market, or simply leave Ukraine and use their knowledge, experience and innovations to create similar products abroad.
To minimize risks, it is advisable to implement balanced model of state control and market competition. The state should retain control over strategic technologies, but at the same time allow bona fide manufacturers to independently enter foreign markets under clearly defined rules. An important direction is the digitalization of permit procedures, the creation of an open register of export operations and public reporting of special exporters. This will reduce the risks of abuse, increase the trust of international partners and ensure the development of a competitive defense sector.
Thus, the main task is not just to strengthen state control, but creation of a transparent, predictable and fair system for regulating arms exportswhich would stimulate the development of the Ukrainian defense industry, and not limit its potential.
Manufacturers must understand the rules of the game
Kateryna Mikhalko, executive director of “Technological Forces of Ukraine” (80 defense companies)First, the main safeguard against corruption schemes is always transparency, openness and equal and understandable conditions for all market participants. Secondly, it is particularly important to export military equipment to work and introduce complex monitoring of the process and a system of protection of intellectual property, which we still do not have.
Clear and open communication with and from the state is also important for companies. That is, gunsmiths must understand what needs to be done or what requirements to meet in order to obtain a permit, what surplus and deficit products are and what formula is used to calculate them, in which cases the company will be denied the opportunity to export, etc.
We strive for the integration of the Ukrainian defense industry into the European one. And this, in turn, requires us to both meet their standards and adhere to European principles and approaches in the international arms trade.
If we talk about what Ukraine should avoid when building an export system, it is the creation of a single special exporter with a monopoly position. This will create an artificial barrier between business and the market and perpetuate corruption risks. We analyzed the practice of engaging a special exporter in past years and see how many cases are still pending in anti-corruption bodies and courts against such intermediaries.
The key risk of involving a special exporter is that he will interfere in the relationship between the manufacturer and the partner, distort the market and make an uncompetitive markup on Ukrainian technologies. Instead, a transparent competitive policy is just one of the European principles that our European partners adhere to.
Finally, there is export control. We already have legislation that can both ensure this control and become the basis for the development of new control mechanisms while maintaining equal opportunities and conditions of access for all market players.
There are fuses. The main thing is that they work
Ihor Fedirko, director of the “Ukrainian Arms Council” (more than 270 defense companies)To prevent the export of Ukrainian arms from turning into a corruption scheme, the state must build a system based on collegiality, digital control and full accountability. The key threat, in my view, could be the excessive centralization of decisions in the hands of one person or a narrow circle of officials, as this could potentially create the risk of opaque agreements, lobbying or selective decisions.
No less dangerous are closed licensing and contracting procedures, unclear criteria for issuing permits, and the practice of admitting intermediaries with unknown connections or monopoly rights to the market. The lack of effective control over the end use of weapons, non-transparent financial settlements – cash or offshore, as well as the lack of a real mechanism to protect whistleblowers – all this can create conditions for abuse and undermines the trust in the system in the eyes of international partners.
Simultaneously Ukraine already has an important safeguard — the Interdepartmental Commission on the Policy of Military-Technical Cooperation (MKVTS)which includes representatives of the Ministry of Defense, the Ministry of Economy, the Security Service of Ukraine, the Foreign Intelligence Service, the Main Intelligence Directorate of the Ministry of Defense, the State Export Control Service, the State Customs Service, the NSDC Apparatus, the Office of the President and the Verkhovna Rada of Ukraine (with consent) and other key bodies.
Its collegial format significantly reduces the risk of concentration of influence in one point, because it is practically impossible to agree “with everyone”. In addition, we must ensure regular rotation of commission members, external parliamentary supervision and digital recording of every decisionto exclude even the shadowy possibility of abuse.