Europe is shifting from supplying weapons to Ukraine to funding its defense industries

Business Insider

24-04-2025

The EU is providing funds to help boost Ukraine's domestic arms manufacturing.
It's a strategy to make Ukraine more self-reliant and ease pressure on Europe's own stockpiles.
Ukraine is a far cheaper place to manufacture weapons at scale, one expert told BI.
European countries are shifting their strategy when it comes to Ukraine, aiming to boost the country's capacity to produce enough weapons for its own defense rather than handing over ready-made weapons from their own depleting stockpiles.
In March, the European Union said that half of a €2 billion ($2.3 billion) aid package, taken from frozen Russian assets, was being earmarked specifically to help Ukraine boost its own artillery production, the largest package of its kind to date.
It's a trend that could have wider repercussions.
Military analysts told Business Insider that directing funds to grow Ukraine's defense industry can help reduce Ukrainian dependence on foreign military aid and strengthen Europe's own growing defense sector.
Europe struggles to produce enough shells
After decades of peace, Europe is rapidly bolstering its defenses amid waning US support and renewed threats from Russian President Vladimir Putin.
Even so, its armaments industry is struggling to rebuild military stockpiles while simultaneously providing Ukraine with the shells and other weapons it needs to fend off Russia.
Ukraine's own burgeoning defense sector offers a solution, Jacob Funk Kirkegaard, a senior fellow at the Bruegel think tank and a non-resident senior fellow with the Peterson Institute for International Economics, told BI.
"It makes imminent financial and economic sense for especially richer Western European nations to directly finance the full utilization of expanding Ukrainian production capacity," he said.
Ukraine, Kirkegaard added, is a far cheaper place to manufacture weapons at scale than Western Europe, and it already has a growing and innovative defense manufacturing sector.
Refocusing European arms production in Ukraine itself is a "win-win," he suggested, enabling Europe to cut costs, boost a crucial ally, and also see weaponry tested and refined on the battlefield.
Ukraine boosts weapons production
In the early years of Russia's full-scale invasion, Ukraine was heavily dependent on its Western allies for weapons and ammunition, and was manufacturing only a small fraction of the weapons it needed.
But it's fired up old Soviet weapons manufacturing plants and now produces around 40% of the weapons it uses at the front, Ukraine's President Volodymyr Zelenskyy said this month.
Ukraine is also now a world leader in the development and production of cheap UAV drones, which have become ubiquitous weapons on the battlefield.
"We've become the biggest drone manufacturer in the world, drones of tactical and strategic level," Rustem Umerov, Ukraine's defense minister, said in February.
And as BI's Jake Epstein reported, Ukraine's drone makers aren't just building weapons — they are rewriting the rules of modern warfare at a pace and scale that few could have imagined only a few years ago.
"With the rising importance of drones, the share of Ukrainian domestic production will also rise," said Kirkegaard.
Europe's defense sector, meanwhile, has struggled to boost production to keep pace with demand, with military analysts at the UK's Royal United Services Institute in April identifying regulation and a lack of coordination as factors holding it back.
"Increasing the output of domestic industry takes time," Jacob Parakilas, research leader for Defence Strategy, Policy and Capabilities at RAND Europe, told BI. "Ukrainian industry, which is already much more mobilized, can be effectively supported in the short term with direct investment and targeted knowledge transfer."
Parakilas said that European countries would also get a major boost from working more closely with Ukraine to jointly raise production.
"These approaches can happen simultaneously, and ideally produces synergies," he added, with "Ukrainian experience informing European understanding of the state of the art, while European money supports Ukrainian industry."
European defense firms set up shop in Ukraine
Several European defense firms, including Rheinmetall in Germany, BAE Systems in the UK, and the Franco-German firm KDNS, have already set up manufacturing operations in Ukraine to make military supplies, including armored vehicles.
Others, such as France's Thales, have entered into joint ventures with Ukrainian companies.
And cooperation between Ukraine and NATO countries on arms production is steadily increasing.
According to Ukrainian media, state arms manufacturer Ukroboronprom State Concern has been working with an unspecified NATO country to manufacture ammo since 2022. The ammunition is reportedly made to the alliance's standards, further integrating NATO and the Ukrainian military.
Ukraine has also been working with Poland to manufacture shells and other equipment domestically since 2023.
The latest aid packages will further boost these efforts. "This trend is expected to gain pace during 2025 as the US pivot away from Europe fuels increased defense spending across the continent," Serhii Kuzan, chairman of the Ukrainian Security and Cooperation Center, wrote for The Atlantic Council in March.
Parakilas projected that with more European support, Ukraine could manufacture significantly more than 40% of its equipment domestically, and move into manufacturing more complex weapons and technology, which it still relies heavily on its allies for.
But this, he said, meant the sector would become more exposed to Russian attacks and would "probably require greater and more careful investment to produce resilient returns."
Even so, it seems likely that Western European and Ukrainian defense sectors are moving toward closer integration.
"It will over time not be sensible to distinguish between the EU/European and Ukrainian defense sectors," Kirkegaard said. "They will become one."