In May 2015, with Russia’s war still going on against eastern Ukraine, five Oplot-M tanks rolled out of the Malyashev tank factory in Kharkiv, ready for service in the army.
The Thai army, that is.
The tanks were later shipped off to join five others already delivered to Thailand. The country in 2011 ordered a total of 49 Oplot-Ms for a sum that was not officially announced but reported to be $240 million.
However, the Kremlin’s war in the Donbas has delayed the fulfillment of the order, and the remaining 39 tanks aren’t scheduled for delivery until March, Ukrainian Ambassador to Thailand Andriy Beshta said in July, the Bangkok Post reported at the time.
That’s not good news for Ukraine’s arms industry, which occupied a stable 3 percent of the world arms market between 2010 and 2014, but which has been losing ground since the war started in the spring of 2014. Last year Ukrainian arms sales halved, to $323 million from $657 million in 2014, according to the Ukrainian Institute of Strategies of Global Development and Adaptation, a Brussels-based think tank.
That places Ukraine about 10th in the global ranking of arms exporters, which is not bad for a country with a beleaguered economy facing aggression from its neighbor, but is still far away from Ukrainian President Petro Poroshenko’s target, stated in May 2015, that Ukraine should be among the top-five arms exporters “in the nearest future.”
The drop in sales isn’t due to Ukraine diverting arms production to the war, however, as economics expert Igor Groznyi explained in a blog for the Institute of Strategies of Global Development and Adaptation this May.
“There are two main reasons,” Groznyi wrote. “Firstly, we don’t have enough facilities to manufacture products that are in demand in the market; secondly, reputation failures prevent us from expanding presence on the arms market – failures to fulfil contracts, attempts to supply products of low quality, and so on.”
So reputation failures such as the ones that have plagued the Thai tank order are going to have to be fixed if Ukraine is to use increased income from arms sales to boost its own defense capabilities. That, in turn, will require investment. But where would the money come from?
Once source could be revenues from sales of high-value weapons system, like the Oplot-M tank, to renovate Ukraine’s own force of T-64 tanks for service in the east, according to Sergei Pinkas, an executive at Ukroboronprom, the state holding company that produces the new tank.
“It’s more efficient to export the Oplot than to use it in the war,” Pinkas said in an interview with Bloomberg in June 2015. “It sells for $4.9 million overseas. It’s better to sell it and use the money to fix and modernize 10 T-64s.”
Innovative systems
Meanwhile, Ukraine continues to sell abroad those weapons systems that are not vital for the war effort at home (and amazingly, Ukraine in 2015 sold $72 million worth of military services to Russia, according to Groznyi.)
The weapons sold to other countries include armored personnel carriers, aircraft engines, missiles for MiG-29 fighter jets, and gas turbines for warships. Most of this kit was developed in Soviet times, and is a cheap but reasonably reliable option for countries with tight defense budgets. Ukraine also offers servicing and upgrade plans for previously purchased weapons.
But Ukraine is also developing its own higher-tech arms that it hopes will compete at the more expensive end of the market. Ukroboronprom, the state arms exporter, in September unveiled a high-tech combat module, named the Taipan, which can be fitted to armored personal carriers and even small armored cars (it weighs only 350 kilograms.) Remote controlled and fitted with heavy machine guns or grenade launchers, the Taipan can also be mounted on fixed defensive positions like checkpoints, and can operate under its own battery power for three hours.
Another Ukrainian innovation is the Phantom – an unmanned, remote-controlled military vehicle about the size of a small car that can be used in infantry support roles, delivering ammunition, evacuating wounded, and carrying out battlefield reconnaissance. Equipped with a heavy machine gun or anti-tank missiles, it can also offer fire support.
All the same, promising developments like these are still unproved and not in full production, and can’t be found in Ukroboronprom’s 2016-2017 catalogue, which instead mainly features upgraded versions of Soviet-era arms, along with maintenance and upgrading services for tried-and-tested, but old Soviet weapons.
Dwindling stocks
Ukroboronprom’s 2016-2017 catalogue also offers the types of weapons that Ukraine could well use itself, or has been appealing to Western countries to supply it with to defend against Russian aggression. These include R-2 anti-tank missiles (sold to Kazakhstan and an unnamed African country in 2014), counter-battery radars, and battlefield recovery vehicles for damaged tanks (sold to Azerbaijan).
Ukraine’s arms exports in recent years have been mainly of former Soviet materiel withdrawn from Eastern Europe after the fall of communism in the late 1980s and early 1990s, according to Viktor Plakhuta, who until recently was Director of the Department of Defense and Security at Ukraine’s Ministry of Economic Development and Trade.
However, those stocks won’t last forever, and much of it is significantly degraded.
“The explosives in ammunition only has a limited lifespan,” Plakhuta said, giving one example.
And because of this past reliance on exporting aging and obsolete Soviet-era arms, Dr. Gustav Gressel, a senior policy fellow at the European Council on Foreign Relations, doubts that Ukraine will hit its target of becoming a top-five arms exporter.
“In the past, Ukraine was one of the top arms exporters, but this was mainly due to exporting stocks of stored Soviet equipment and ammunition to all sorts of countries,” Gressel said. “And to be frank, a lot of that stock was sold illegally by corrupt officials. Furthermore, a lot of that stuff you need now for the war in the east, particularly munitions. There won’t be much capacity left to export.”
Indeed, ammunition is one thing Ukraine can’t afford to export in the midst of war. Amazingly, after over two years of conflict in the east, Ukraine has still not set up its own production of ammunition, and has been relying on old stocks, as Oleksandr Turychnov, the secretary of the National Security and Defense Council confirmed in June during a council meeting on the problem.
At the meeting, which was held at a factory Ukraine is considering retooling for munitions production, Turychnov said a significant amount of ammunition reserves inherited by the country from the Soviet army had been “thoughtlessly recycled or sold at a time when no one was thinking we would be engaged in a war.” He said the ammunition reserves had been used to protect Ukraine in recent years, including over the last two years of war.
Plakhuta confirmed that Ukraine currently has no capacity to produce munitions in calibers from 5.45 mm assault rifle cartridges all the way up to 155 mm artillery shells. The only factory that made them is in Luhansk, which is now controlled by Kremlin-backed anti-government armed groups.
“I don’t know why Ukroboronprom hasn’t arranged production of (this ammunition),” he said.
The country has now turned to its partners to help with ammunition supplies: Lithuania on Sept. 3 supplied Ukraine with 150 tons of ammunition – mainly 5.45 mm cartridges – according to a report by Reuters.
Development plans
Meanwhile, with the aim of attracting partners to develop Ukraine’s military-industrial complex, Ukroboronprom has developed what it calls the Ukrainian Shield program, which is to run from 2016 to 2020.
On offer is the chance to invest in Ukrainian innovative weapons systems and to develop new systems in partnership with Ukrainian companies, as well as the use of Ukrainian facilities for arms production.
Among the benefits of such cooperation, Ukroboronprom says, are Ukraine’s strong technical and science education system, and its low-cost workforce (at $1.20 per hour in the manufacturing sector, labor is cheaper even than in China ($2.20), according to Ukroboronprom).
Still, Ukraine has been able to offer such incentives in other areas of the economy for years now, and investment has only trickled in. On top of that, the legal status of the Ukrainian Shield program is shaky, according to Plakhuta, who said only the Ministry of Economic Development and Trade had the right to set state policy in the arms sector.
Before resigning from the ministry, Plakhuta was involved in drawing up a strategy paper on the development of the defense-industrial sector.
The proposed strategy, drawn up with the help of Western consultants according to Plakhuta, is the first one of its type in independent Ukraine’s 25-year history. However, it will take years to implement – it is proposed to run until 2025.
In the meantime, the country faces a tougher fight than ever to bring in investors amid ongoing military conflict and economic troubles. And even if it can attract investors, will they be the “right kind?” asks Gressel.
“Chinese enterprises would like to buy some Ukrainian enterprises like (military engine maker) MotorSich, and subsequently transfer the production to China. Is that the investment you need?”
“What Ukraine needs to do now is to strategize which key technological fields it can excel in in the future, and how, and with which partners and investors it can further develop them to be competitive at the global scale.”
