With US supplies of weapons expected to fall in 2005 and European stockpiles running low, Kyiv’s arms supplies are shifting from international purchases to boosting domestic production.

Ukraine’s domestic production of arms grew 500% in 2024, led by drone production where the country has overtaken Russia in the number of units produced.

The trend in 2025 is expected to continue on the basis of the so-called “Danish model”; Denmark has been providing Ukraine with hundreds of millions of euros to invest into rapidly building up the country’s arms production, to make it more self-sufficient.

The plan was first floated by Ukrainian President Volodymyr Zelenskiy at a summit where he proposed making Ukraine a military production hub in October 2023 and those plans are starting to come to fruition.

As bne IntelliNews reported, Ukraine’s defence sector development went into high gear in October last year and Bankova (Ukraine’s equivalent of the Kremlin) signed a string of deals with international defence companies during the the second international Defence Industries Forum (DFNC2).

Ukraine's defence industry has reaped substantial benefits from its cooperation with Denmark in 2024, receiving weapons worth €538mn under a Danish-led financing initiative. The collaboration leverages multiple funding sources to bolster Ukraine's military capabilities.

The financing includes €125mn from Denmark's national Ukraine Fund, €20mn from Sweden, €2.7mn from Iceland, and €390mn in interest generated by frozen Russian assets. This funding model facilitates a streamlined process: Ukraine identifies priority projects while Danish experts evaluate suppliers' capabilities and oversee contract fulfilment.

Deliveries under the scheme’s first stage included Bogdan self-propelled artillery systems, long-range drones, and anti-tank and anti-ship missiles. The equipment has already proven effective on the battlefield.

“I am impressed by the speed with which the Ukrainian defence industry is providing,” Denmark's Defence Ministry spokesman said, as cited by UBN. An additional €135mn has been earmarked for further purchases and production of Ukrainian weapons, with Norway planning to contribute €43mn to support Ukraine’s defence.

Denmark’s national Ukraine Fund is the lead actor in the model, providing a significant share of the total funding as well as managing the process.

Rheinmetall

Germany’s leading defence company Rheinmetall is another key partner and has launched several projects, but these have been done largely at the initiative of the company itself and on a bilateral bias, rather than as a strategic plan cooked up by Berlin.

In October 2023, Rheinmetall and Ukrainian Defence Industry JSC (UDI, formerly Ukroboronprom) established a joint venture, Rheinmetall Ukrainian Defence Industry LLC, based in Kyiv. Rheinmetall holds a 51% stake in this partnership, with UDI owning the remaining 49% and focuses on the service and maintenance of mechanised armour, as well as the assembly, production, and development of military vehicles.

In December 2024, Rheinmetall announced plans to produce the Lynx Infantry Fighting Vehicle and the TPz Fuchs Armoured Personnel Carrier in Ukraine, with the first units expected to roll off the production line in 2025. Additionally, Rheinmetall has been supplying Ukraine with various military equipment, including Marder infantry fighting vehicles and Leopard 1 battle tanks, to bolster its defence capabilities.

Gunpowder factories are also in the works and expected to go online sometime this or next year.

Military-industrial growth

As a result, these initiatives are already making themselves felt. Ukraine's military-industrial complex saw production capacity surge by 500% in 2024 after the government invested over UAH39bn ($1bn) in weapons production. A preferential lending programme for defence manufacturers—offering loans at 5% interest, subsidised by the state—was a major driver of growth.

The Zbroyari campaign, a financing initiative that attracted $1bn with the help of international partners, further underpinned this expansion. Additionally, the government launched the Iron Polygon service that provides testing facilities for drones and other weaponry free of charge.

Ukraine's drone production saw a dramatic increase in 2024, largely due to a combination of strategic investments, international cooperation, and the government's prioritisation of the defence sector.

In 2024, Ukraine's drone production reached unprecedented levels, with over 1.5mn first-person-view (FPV) drones manufactured. Domestically produced drones accounted for 96.2% of all unmanned aerial vehicles (UAVs) used by Ukrainian forces in 2024.

These drones have proven to be instrumental in the war and filled in for shortages of artillery shells. Although each drone can kill only a few soldiers, their accuracy and high success rates make them lethal and have prevented Russia following through on military successes slowing its advance.

This achievement was part of a broader initiative to produce a total of 2mn drones, including various types such as medium-range attack drones and long-range drones capable of reaching targets over 1,000 kilometres away, that puts Ukraine’s drone production on a par with Russia’s.

Key projects for 2025 include a planned production ramp-up of 30,000 long-range drones and 3,000 cruise and drone missiles, as directed by President Volodymyr Zelenskiy.

The Ukrainian defence sector’s growth underpins a broader goal of boosting production capacity to $30bn annually, reflecting a strategic effort to secure long-term military readiness.

Ukraine also developed its first long-range cruise missile the Palyanytsia and put them into serial production at the end of last year, according to Zelenskiy.