Amidst the reports on the decrease in production volumes in all branches of Ukraine’s engineering sector, statistics of the country’s military and industrial complex are more than adequate. According to the MIC Agency operating under the Ministry of Industrial Policy, in 2009 enterprises controlled by the ministry showed a 58% increase in production volumes, a 40% increase in sales volumes and a 21% rise in profit margins compared to 2008
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| PHÎÒÎ: O. Lytvynenko |
Motor Sich, Artem Holding and Zarya-Mashproekt state enterprise made the greatest contribution to the growth dynamics in this sector. In addition, the presidential campaign of ex-premier Yulia Tymoshenko was an important factor in the growth of the defense industry in times of crisis. The MIC became the target of successful investments of budget money for a number of reasons.
First of all, the main enterprises of the sector are concentrated in the eastern part of Ukraine, meaning that the increased level of concern about the enterprises in this region was aimed at making a favorable impression on the electorate. Secondly, the defense industry was in dire need of cash infusions due to the declining state of the country’s aircraft and shipbuilding industries.
Sources with connections inside the Ministry of Industrial Policy say that in early 2009 it proposed to the government to grant a UAH 2.8 billion state loan to the military industrial sector, which would double production volumes by the end of the year. However, at that time all funds went to the recapitalization of local banks and it was only in the second quarter of 2009 that the Cabinet of Ministers changed its priorities.
The government allocated most of its budget money (around UAH 300 mn) directly or through related industries to rescue the aircraft construction plants in Kyiv and Kharkiv from bankruptcy. In addition to that, shipbuilders in Mykolayiv were allocated UAH 79 mn to design and build a new corvette. This was the main reason the aircraft manufacturing and shipbuilding industries in Ukraine showed a growth in output of 77 and 71%, respectively.
The production of weapons and military hardware showed a 16% growth in production volumes without government subsidies, while the armored car and tank manufacturing sector primarily, first and foremost the Malyshev plant in Kharkiv, can forget about the looming specter of bankruptcy thanks to a contract it signed with Iraq on the supply of 420 brand new BTR-4 armored personnel carriers.
Enterprises in the space engineering sector under the National Space Agency produced results now less impressive than those of the defense industry. Last year a Ukrainian-American contract was signed according to which Ukraine’s Pivdenmash (Southern Machine-building Plant) and associated companies will produce the central block of the first stage of the new American Taurus II rocket. This contract counterbalanced the somewhat lopsided geographic distribution of rocket export, more than of the orders of which Russia previously accounted for.
This essentially means that Ukraine’s defense industry will be able to work at a profit for a certain period of time owing to exports. In the future, the industry’s main task is to renewing domestic orders. Working on the domestic market the industry will be guaranteed sustainable development and at the same time will become less dependent on fluctuations in external demand supported by orders from the Ministry of Defense when orders for export are down. In addition to this, if the new government plans to stick to its priorities it should renew its interest in the scientific development. It was believed for a long time that the development of new types of arms and military hardware would be financed based on market schemes with the hopes that investors would always be found to invest their money in promising sectors.
As it turned out, it is much easier and more profitable to sell finished products than some intangible idea. While the government neglected R &D, all the vestiges of Soviet achievements were successfully hand-picked, but they were not invested in the future. As a result, today the Oplot tank and the Pelican radar system are the limit of the capacity of Ukraine’s defense industry.
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