171107 Badrak Rozvytok OPK 0Russian aggression and occupation of Ukrainian territories caused an outstanding liveliness of the defense industry. The military-industrial complex (MIC) has shown its most active involvement through private enterprises, which took advantage of their flexibility and power to use the circulating funds from civil sectors of production and thus demonstrated a wonderful dynamics of developments and adjustment of the manufacturing process for defense products. The number of the very private enterprises has rapidly increased as well – it was no more than forty in 2000; however, after three years of war, such entities in the country are now steadily nearing the figure of two hundred.  

 

Considering that the role of the private sector in rearmament of the army is growing up year by year (according to the data for March of this year, provided by Yuriy Brovchenko, the Deputy Minister of Economic Development and Trade of Ukraine, the ratio of state-owned and private enterprises, which take part in defense orders, is approximately 50% to 50%), and the main landmarks to be used are attraction of foreign investments and technologies to the MIC, we should talk more about the necessity of creating in the country appropriate conditions for efficient work of defense enterprises, including the private branch.

 

Related Publication: YURII BROVCHENKO: PRIVATE SECTOR’S CONTRIBUTION TO DEFENSE INDUSTRIES IN UKRAINE CANNOT BE EMPHASIZED ENOUGH

 

Appearance of some new players in the MIC gave rise to significant extension of the domestic product range. The ideas in the private sector are introduced several times more dynamically than in the state-owned. Today, successful activity in the private sector is conducted not only by Motor Sich JSC, “Holding Company “Ukrspetstechnika””, TASKO Corporation, all of which have been famous since the years of 2000, but also by enterprises that had been little-known earlier, but now are mentioned across the whole country. Among such are: Scientific and Production Association “Practika” PrJSC, Scientific-Production Company “TECHIMPEX” Ltd, Adron R&D Ltd., Kuznya na Rybalskomu Plant PJSC, “Stiletto Ukraine” Engineering Company, NPP TEMP-3000, Athlon Avia R&D and Production Company, Ukrspecsystems, “Telecard-Pribor” Ltd., Ukrainian advanced research project agency UA.RPA and many more.

 

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Over the recent years, a series of new weapons and military equipment (WME) samples has been made, with some of them already being supplied for troops, including to the area of combat operations. In such a way, the country has seen a line of various machines with wheel arrangement 4x4: Kozak-2 from Scientific and Production Association “Practika” PrJSC, “BARS-8” from “Bogdan Motors” Corporation, Cougar and Spartan from PJSC “AutoKrAZ” and Triton from Kuznya na Rybalskomu Plant PJSC. Some of them have already been used as intended. Thus, for instance, as many as 64 pieces of Kozak-2 vehicle have been released for the benefit of the State Border Guard Service and the National Guard of Ukraine; 10 Kozaks have also been ordered by the military department. At least 120 KrAZ Spartan and Cougar armoured vehicles were supplied for a number of power-wielding agencies of Ukraine, and several Triton AFV are used by native frontier guards.

 

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Other products, which are currently successfully used for their intended purpose: unmanned aerial vehicle (UAV) А1-С Furia made by Athlon Avia R&D and Production Company and PD-1 from People’s Project – the all-Ukrainian centre of volunteers – and the Ukrspecsystems company, as well as Leleka-100 UAV from Production-Innovative Company “DeViRo”, “Mara-2M” UAV from Carboline LLC, Valkyrie UAV from Army SOS. The vehicles supplied are quite few; however, what really matters here is that the situation as to the issue has already started to change in troops.

 

Motor Sich Private JSC representatives implement at their own expense new projects of modernization for Mi-2MSB-V and Mi-8MSB-V helicopters, which have not been sent to the troops yet. Ukrainian advanced research project agency UA.RPA developed, in its turn, a tactical surveillance and attack system, laser system for spotting snipers, ballistic helmets, a portable VHF modem for data transmission in the mode of pseudorandom hopping.

 

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Positive effects were noticed while using “ANKLAV” – complexes for combating UAV, developed by “Holding Company “Ukrspetstechnika”” – and the systems of protection against precision weaponry Adros from R&D and Production firm Adron. Incidentally, owners of private enterprises have begun extending their industrial cooperation with success. For example,“Holding Company “Ukrspetstechnika”” has developed a mobile complex of surface recognition and ECM “JAB” and, by agreement with Scientific and Production Association “Practika” PrJSC, installed it on the wheelbase of the combat vehicle Kozak. This means that the present-day idea is about creation and commissioning of combat systems.

 

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Yet, we should point out: the national MIC cannot provide a lion’s share of the Armed Forces of Ukraine, notably, in the most important nomenclature of WME and services (which is not less than 60%–70% in money equivalent). For instance, Ukraine has never and still does not manufacture combat aircrafts, systems of wind shield, naval weaponry, unmanned aerial vehicles (UAV) of attacking, operational strategic and operational tactical types, combat helicopters, a substantial part of air guided weapons, overwhelming majority of ammunition, small arms and a lot more. That shows, in the first place, that the choice of the way to satisfy these needs of the defense forces must be determined by an interdepartment body, with consideration of the priority list, distinctly presented by the General Staff of the Armed Forces of Ukraine (AFU), reasoned conclusions of chief designers and research and technology board (the last one can be formed of the directors of defence enterprises, economists, leading field-oriented scientists). Moreover, capital intensive projects (like creation of combat planes or operational-strategic UAV, wind shield systems), under the conditions of permanent shortage of resources, could be developed exclusively with availability of investments and technologies, both from private domestic companies and from foreign investors.

 

For this purpose, the country must settle a string of questions. From creation of the already mentioned interdepartment executive body to gaining a multilevel support of the private sector in the MIC. Nowadays, Ukraine continues to apply the Soviet GOSTs, which must be substituted by the National Standards before 2019, but that activity has not even started yet. Another surprise for the Western partners is that paying royalties to the developer of WME is not common in Ukraine. Besides, investment protection is an unpredicted process, since the key laws in the field are absent. Mutually satisfactory terms in joint projects for production of weapons with foreign companies have not been created so far.

 

The obvious opportunities of strengthening the potential of the MIC have been used quite scantily during the period of war. For example, the initiatives of the private sector are almost not used, foreign and private investments are not attracted, the state-owned part of the MIC is not privatized. Experts of the CACDS feel that improving the structure of the Ukrainian military-industrial complex may receive the necessary impulse owing to attraction of the private business potential through active implementation of diverse projects within the state–private partnership (SPP). The reason for it is that, in contrast to the companies of state-owned entity, private sector enterprises have broader opportunities for attraction of foreign investments and participation in international projects. Up to now, state-owned and private companies are at unequal positions; therefore, serious investments in the domestic MIC are out of the question. Liberalization and retreat from the state monopoly of arms export sales are required – to sell products abroad, the private entrepreneur must ask for permission from his competitor – “Ukroboronprom”. As long as this restriction is in force, the potential of the MIC will not be exploited to the full.

 

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Although, the government begins to change its views. Thus, in April of this year, the above-mentioned Yu.Brovchenko noted that the Ministry strives to create a platform for efficient cooperation between the private sector of the MIC and the state. “We are open to cooperation and negotiation of all our initiatives. These days, for example, it is the draft bill “On the creation and production of weapons, military and special equipment”, and we invite everybody to work on it collaboratively. Several mechanisms have already been launched; they work and prove their efficiency – for example, loans against state guarantees”, remarked the official.

 

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A certain positive pattern appeared in the vision of MIC problems as well. Thus, as requested from the association of private defense structures “League of Defense Companies of Ukraine” (CACDS is one of cofounders of the organization, and the author of this article was chosen as the Head of the Expert Council of the League ), for the purpose of solving the problem, the Interdepartmental Commission on Military-Industrial Complex adopted the decision to form a working team with the participation of the League representatives. What this means is that the “dragon” conditions for private companies may be substituted by more loyal ones, which will allow to increase interest in the development of new WME and, accordingly, to enhance the rearmament of the army. In such a way, during price formation of WME, enterprises will be able to add to their profit not 1% but 5% – in procurement of component parts, and 30% instead of 20% – for performance of works.

 

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By the way, one should go into more detail when addressing the issue of forming nongovernmental association of Ukrainian enterprises and organizations that produce or develop products for defense and double purpose. Creation of the “League of Defense Companies of Ukraine” became the reflection of the drawbacks within the military-technical policy of the country and the real challenge of the present. Approximately forty enterprises, which are currently included in the League, implement the intention to join efforts of the private business owners in the defense industry around improvement of internal cooperation, adjustment of efficient state–private partnership in the defense industry field, engaging collaborative efforts to improve the marketing of the defense products made by private enterprises both in the country and on the markets of foreign countries. The League’s main focus area is participation of its members in efficient and good-quality rearmament of the Ukrainian Armed Forces. The League also cooperates with the Government of Ukraine and all Ukrainian military-industrial agencies.

 

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It is worth underlining about the necessity of gradual changes in the former Soviet mechanisms and procedures on the domestic weapons market. Namely, towards creation of equal rights for the activities of private and state-owned companies, certain changes in the legal and regulatory framework which administers functioning of the MIC. A separate direction of efforts for the League consists in formation of conditions for investments of the country in the latest developments and production of weapons and military equipment, as well as encouraging the country to build partnerships in the projects with state guarantees of procurement within the framework of a defense order (under the conditions of corresponding technical features). Plans are also made to form new conditions for using the opportunities of military-technical cooperation aimed at creation of joint productions together with foreign companies, bringing new technologies to Ukraine, and for attraction of investments from leading global companies.

 

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Today, efficiency and viability of the state management in the field of the MIC are achieved increasingly frequently owing to engaging private sector agencies, since it allows much more dynamic implementation of groundbreaking ideas, as compared to the state-owned sector. On the other hand, development of the MIC exclusively through state-owned institutions provides low efficiency under the conditions of the global market. Successful implementation of such partnership will help to increase the quality of the produced weapons, attach civil technologies more efficiently and ensure the efficiency of budget investments in the MIC.

 

Related Publication: YURII BROVCHENKO: PRIVATE SECTOR’S CONTRIBUTION TO DEFENSE INDUSTRIES IN UKRAINE CANNOT BE EMPHASIZED ENOUGH

 

Valentyn Badrak,

Director of the Center for Army, Conversion and Disarmament Studies (CACDS)

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