The new Supervisory Board of "Ukroboronprom": strategic mistake or criminal shortsightedness?
Vadym Ivchenko, member of The Committee on National Security, Defense and Intelligence of Verkhovna Rada of Ukraine
On December 29, the Cabinet of Ministers approved the composition of the supervisory board of the joint-stock company "Ukrainian Defense Industry" ("Ukroboronprom)," which was formed by Minister Kamishin without discussion and coordination with the relevant committees in the Verkhovna Rada. The newly created body includes the Prime Minister of Ukraine from 2019–2020, Oleksiy Honcharuk, the President of the Kyiv School of Economics and former Minister of Economy Tymofiy Mylovanov, a former member of the Supervisory Board of Ukreximbank and the management of Naftogaz Ukraine Serhiy Konevets, member of the Supervisory Board of Ukrzaliznytsia David Lomdzharia, and the President and CEO of the Arizona Defense Industry Coalition Lindy Smith. While the representation of the US defense industry in the Supervisory Board deserves applause, the professional qualifications and independence of the other members raise certain doubts despite their limited and not without critical remarks selection.
According to the press release of "Ukroboronprom," the priority of the concern is the development of new competencies through the transfer of technologies from leading Western companies. But how can this be achieved when people far from the military-industrial complex (MIC) system hold high positions in the Supervisory Board?
The reform of the Ukrainian state defense industry has been declared a priority of state policy, at least since the Victory of the Revolution of Dignity. Still, it has ended only with changes in names, publication of refined press releases, reshuffling of seats in top offices, and questionable expenses from the state budget. All this has not contributed to developing our technologies, and the world's key defense corporations were unwilling to create joint ventures, invest, or cooperate with the state conglomerate "Ukroboronprom." Western top defense corporations demanded transparency, accountability, and protection of intellectual property, which the management structure of "Ukroboronprom," affected by corruption, infiltration of Russian agents, and overall inefficiency, could not provide.
Today, American military corporations plan to expand their business in escalating world security situations. They are looking at the Ukrainian realities in the desire to start cooperation with our defense industry enterprises. The parties have even started signing memorandums of intent to supply and produce weapons. The only question is where these new facilities will be located.
Constructing several arms production or repair facilities by one concern is an investment of millions of dollars. The total potential investment volume reaches 4 billion dollars. There is competition in the world for the placement of defense industry facilities. We should offer more favorable conditions for foreign corporations and appoint people who are understandable to them in the Supervisory Board of the defense concern. The last point is crucial, as weapon production is a particular and closed business. Outsiders who need help understanding all the nuances could be more well-received. Often, attempts to expand the circle of potential strategic investors in the Ukrainian defense industry are hindered by a need for more transparency, understanding, and trust in the development strategies of the industries. And the general business conditions in neighboring countries (which, although our allies in the war, remain economic competitors) are more favorable. I am not talking about the complex general security situation.
And if the last factor to Victory in the war is difficult to remove, then the first three are the direct responsibility of the Kamishin team, and their work should give confidence to foreign partners. For this, it is not enough to issue press releases and make changes "for decoration" - foreign partners have seen this several times and no longer believe in special effects. Fundamental steps that will be understandable to global defense corporations are needed.
I will note two facts that vividly illustrate our realities: over two years of war, the leadership of the "Ukroboronprom" could not take essential steps towards relocating military enterprises. On December 29, the enemy struck the military enterprises "Luch" and "Artem," and on January 2, they targeted the plants "Quasar" and "Mayak." People who worked in the workshops lost their lives. The locations of these enterprises are known to everyone, as they are still in the same place as they were during Soviet times. These are not the only enterprises destroyed by enemy shelling - the locations of bureaus developing drones and firearms manufacturing facilities are even available on the internet!
Ammunition production. Ukrainian enterprises can produce most components at a maximum low cost. 80% of the production cost is the availability of various types of gunpowder. However, due to high demand, it is tough to find these components, which are expensive to purchase. If, at the beginning of the war, we had focused on building facilities for our production instead of spending vast amounts of money on buying ammunition from around the world, we would have already had a complete production cycle for artillery and mortar shells. I believe this is a personal responsibility of the Minister of Strategic Industries and the supervisory board of "Ukroboronprom."
I will give an example of how it should work: in the USA, in 2022, all ammunition manufacturers received five-year contracts from the Pentagon. This scheme allows the manufacturer to develop a financial plan, estimate expenses, attract investments, take out loans, build capacity, and purchase new equipment. On the other hand, our manufacturers work exclusively on one-time, short-term contracts, so it is not beneficial for them to invest in equipment and construction.
It is also hard to imagine that foreign partners will be willing to invest, provide technology, lobby, and defend the interests of an institution whose activities depend on the mood and will of one (even a good) Ukrainian minister.
The conclusion from the above is that the Supervisory Board, single-handedly formed by Minister Kamishyn, will not contribute to developing the Ukrainian defense industry. Ukraine will only lose potential arms production enterprises on its territory, potential investments, partners, lobbyists, and supporters. And in the conditions of war with Russia, lost time is measured by the lack of weapons for the front and the lost lives of Ukrainians.