Western investment drives Ukraine's defense industry to deter Russia

KYIV, Ukraine — With little chance of formal NATO membership in the near term, Ukraine is pursuing an alternative strategy: have Western allies invest billions to expand its defense industry so Kyiv can better defend itself and potentially help equip allied forces in the future. A centerpiece of this effort is a homegrown quadcopter drone capable of evading Russian jamming, flying more than 20 kilometers, and dropping six kilograms of guided explosives on tanks and other high-value targets. “The Ukrainians are the leaders in the world in terms of drone technology,” Keith Kellogg, the Trump administration's special envoy for Ukraine, said last week at a conference in Kyiv. “We are working with Ukrainians now to make sure we have got this drone technology exchange, which I think is very important.”

Drones, infiltration vehicles and autonomous systems have become emblematic of Ukraine's strategy to compensate for a smaller army and constrained resources. Europeans have grown more wary of overreliance on the United States for European defense, a sentiment intensified by new drone incursions from Belarus into Polish airspace. Kyiv aims to triple its weapons production and cut the dependency gap that has long constrained its defenses. Ukraine's defense minister said the weapons industry now meets nearly 60% of the army's needs, up from about 10% when Russia launched its full-scale invasion more than three years ago. Still, Ukraine's military budget — about $64 billion in 2024 — remains far smaller than Russia's, reinforcing Kyiv's push for Western investment and joint ventures to fill production gaps.

Security guarantees for Ukraine, in lieu of full NATO membership, are expected to hinge on European governments financing production in Ukraine and licensing Western technologies through joint ventures. Fabien Hinz of the International Institute for Strategic Studies in London said Europe is increasingly willing to back Ukraine’s defense industry given its battle-tested systems and relatively lower production costs. “Ukraine has the advantage of having battle-tested systems, of having quite low production costs and having entities in place capable of producing these systems rapidly.” For Kyiv and its partners, speed is life-or-death: the pace at which a weapon can be designed, produced, delivered and improved on the battlefield often determines survival.

The R-34 quadcopter made by FRDM sits in the middle of Ukraine's drone family. Its founder, Vadym Yunyk, says the company can scale production quickly if the government orders more units: “If the government places an order to produce 10,000 drones a year instead of 3,000, I will be capable of doing this in a month and a half.” In parallel, Ukrainian companies are expanding into other subsystems. Ukr Armo Tech’s Gurza-1 armored personnel carrier has been enhanced to absorb drone strikes and protect infantry, while the Gurza-2 will soon enter production to carry more personnel. CEO Hennadii Khirhii said the company produced 500 vehicles last year and plans to triple capacity. “Even in the traditional subsector of armored vehicles, we are way ahead of some European companies,” he said, noting that Ukrainian teams know the calibers and munitions used by Russian forces and bake that knowledge into vehicle design.

Ukraine is also pushing for licensing and manufacturing deals with Western arms producers. President Volodymyr Zelenskyy has said Ukraine could produce at least $30 billion worth of weapons annually, roughly three times the current budget, but its real leverage lies in partnerships that enable production on Ukrainian soil and in other European production hubs. Arsen Zhumadilov, head of the state procurement agency, underscored the need for rapid adaptation: “It’s not just about your ability to feed the stocks. If you want equipment relevant for today’s war conditions that is the only approach you can take.”

Denmark has been the trailblazer, turning direct financing into actual production capacity on Ukrainian terms. Earlier this month Zelenskyy announced a Danish-backed effort to build components for missiles and drones at a Denmark-based factory, a move meant to shield production from Russian attacks. Britain has signaled similar plans. Ukraine is set to receive about 1.3 billion euros ($1.5 billion) from a group of countries including Denmark, Sweden, Canada, Norway and Iceland to finance artillery, strike drones, missiles and anti-tank systems. Germany has also negotiated a parallel but less publicized deal. Kyiv says it is seeking more joint ventures that would allow Western partners to fund production while the Ukrainian side provides the know-how and orders.

The broader aim, according to Ukrainian officials and Western observers, is to build a self-sustaining defense sector that can rapidly adapt to battlefield needs and, over time, supply the broader alliance. Zelenskyy has argued that licensing and manufacturing deals could leverage Ukraine’s lower production costs and its access to battle-tested designs to accelerate Western defense capabilities. “When they enter the market they invest into the production and then they have their government pay for our ability to buy it and deliver it to the battlefield,” Zhumadilov said, describing a model that could widen production capacity beyond Ukraine.

As Europe weighs such partnerships, observers emphasize that the Ukraine-Russia conflict has forced a fast cycle of innovation. UML drone swarms, autonomous logistics and remote-directed targeting systems have all evolved rapidly because the alternative — running out of stockpiles or losing units — is not tolerable in a war of attrition. The result is a two-way flow: Ukraine gains access to advanced Western technologies, while Western manufacturers gain a proving ground for new systems under combat conditions. Analysts say this dynamic could also help seed future export markets for Ukrainian-made systems, including drones and armored vehicles, once the fighting subsides and production lines scale up.

The push to turn Kyiv into a regional defense-industrial hub comes as European security concerns tighten. European leaders have argued that a more capable Ukrainian military could reduce the need for ad hoc U.S. military support and strengthen deterrence against potential future aggression. Von der Leyen has framed Ukraine’s defense industry as a way to become a “steel porcupine” that can deter threats by presenting a ready-to-ship, hard-to-bypass arsenal. Zelenskyy has framed Ukraine’s industrial potential as a strategic asset, one that could reshape European defense supply chains in the years ahead, provided partner nations maintain their financial commitments and ensure steady orders.

For now, Kyiv’s objective is concrete: triple production, secure long-term financing, and create a network of joint ventures that can deliver modern, battle-tested weapons on a predictable timeline. The war has shown that in modern warfare, the tempo of innovation matters as much as the size of a stockpile. By expanding Ukraine’s defense industry and weaving it into Western supply chains, Kyiv and its partners hope to keep Moscow at risk of escalation and to ensure Ukraine can defend itself without being perpetually dependent on external donors.