Ukraine's defence industry, developed in conflict, leads in tech innovation despite regulatory and budget challenges. Strengths include skilled, combat-tested talent and state alignment, but FDI faces corruption concerns. UAS ecosystem thrives on high domestic demand, but high defence spend is unsustainable and future success depends on export-driven innovation, not products.

Looking ahead

Enablers of innovation and scale for the future of Ukraine's defence-industrial base

Stuart Dee, Katja Fedina, Kiran Suman-Chauhan, Evie Graham, Daniel Hill, Andrew Gibson

ResearchPublished Dec 4, 2025

Ukraine's defence-industrial base has developed in conflict. It is setting global standards for innovation and technology iteration but doing so in an extraordinary budgetary and regulatory context. Robustly defining Ukraine's competitive advantage will inform the structure of longer-term defence-industrial planning.

Ukraine's competitive advantage is derived principally from its skilled and combat-experienced workforce, societal buy-in to defence and strong alignment between government strategy and defence-industrial and economic planning. Perceptions of corruption and complexity and an unclear demand signal environment, however, constrain inward Foreign Direct Investment (FDI).

Whilst Ukrainian society and industry have rallied to set up an unmanned aerial system (UAS) production ecosystem which is world-leading in terms of its technological capability, Ukraine's significant domestic demand buoys this ecosystem, driven by an unsustainable level of defence spend as a percentage of GDP. Longer-term defence-industrial success will require a transition to export orientation, but this is unlikely to be product-led. Instead, it is Ukraine's innovative capacity and skills that are likely to drive future export success.

Recommendations

  • Continuing to broaden the scope and international appeal of the 'Danish Model' of international aid based on investment rather than direct military aid. This model drives a familiarity with Ukraine's defence-industrial capability and enables domestic development to take precedence over sustainment of equipment. This should broaden longer-term prospects for FDI.
  • Developing a skills retention and reshoring strategy, focusing on accelerating the return of skilled Ukrainians to support Ukraine's longer-term industrial base. This in turn will support efforts to bolster the non-defence economy as Ukraine gradually transitions away from its currently high levels of defence spending as a percentage of Gross Domestic Product (GDP).
  • Commoditising Ukraine's innovative capacity and experience by seeking to compete internationally as a services integrator, rather than solely on a product exports basis. Whilst the market for UAS is increasingly competitive and will likely carry high regulatory burdens for Ukrainian outputs, Ukraine's capacity to procure and iterate at pace are key requirements for allied armed forces.

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Dee, Stuart, Katja Fedina, Kiran Suman-Chauhan, Evie Graham, Daniel Hill, and Andrew Gibson, Looking ahead: Enablers of innovation and scale for the future of Ukraine's defence-industrial base. Santa Monica, CA: RAND Corporation, 2025. https://www.rand.org/pubs/research_reports/RRA3833-6.html.
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