MarketAark - ||The Ukrainian Defense Industry ||Market Opportunities and Entry Strategies, Analyses and Forecasts to 2017

							 The Ukrainian Defense Industry Market Opportunities and
      Entry Strategies, Analyses and Forecasts to 2017

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                                       Ukraine expected to invest US$4.0 billion in its air force over the forecast period

London, August 7th, 2012 – Ukrainian defense expenditure recorded a CAGR of 1.5% during the
review period (2008-2012), reaching US$2.08 billion in 2012 and, over the forecast period (2013-
2017), it is expected to grow at a CAGR of 6.4%, to reach an estimated value of US$2.86 billion in
2017. Ukrainian defense expenditure is primarily driven by the country’s ongoing tensions with
Russia, the acquisition of new military hardware systems and participation in international
peacekeeping missions. Despite an anticipated increase in the overall defense budget, military
expenditure as a percentage of GDP is expected to decrease over the forecast period, from an
average of 1.2%, to an average of 1.1% (reference graph below).

                                2.50                                                                                         25%



                                                                                                                                    Defense expenditure growth rate (%)
                                                                                                                             20%
 Defense budget (US$ Billion)




                                2.00                                                                                         15%

                                                                                                                             10%
                                1.50
                                                                                                                             5%

                                                                                                                             0%
                                1.00
                                                                                                                             -5%

                                0.50                                                                                         -10%

                                                                                                                             -15%

                                0.00                                                                                         -20%
                                             2008              2009           2010            2011            2012
                                       Capital expenditure (US$ bn)   Revenue expenditure (US$ bn)    Def ense expenditure growth



Although the Ukraine is expected to invest a total of US$12.78 billion in its armed forces over the
forecast period, on average, only 14.6% of this total is expected to be invested in the modernization
of the country’s defense equipment, limiting the opportunities available for both foreign OEMs and
domestic defense companies. Additionally, despite Ukraine offering skilled labor at a lower cost than
the majority of European countries, foreign OEMs are unable to make significant investments in the
country’s defense industry due to the prohibition of FDI in defense.
Despite possessing both a strong technological base and skilled labor, the Ukrainian defense industry
has so far been unable to produce modern technological hardware such as advanced fighter planes,
submarines and warships. Instead, the growth of the country’s domestic defense industry has stalled
as the majority of reforms to modernize the country’s defense industry have been postponed, while
only 20% of state-run programs for the development of the country’s defense complex were
implemented in 2010. As a result of these factors, Ukraine’s domestic defense industry is unable to
improve its infrastructure and enhance its capabilities.

The growth of Ukraine’s domestic defense industry is also limited by excessive corruption and a lack
of transparency in the country’s military procurement process. Corruption in the country frequently
involves bribery of high level officials with discretionary authority over government policy and the
sale of government assets or large government contracts, while lower level officials responsible for
enforcing regulations are also often bribed. In addition, the country’s licensing and registration
processes are so complex and time consuming that the costs of entering into the Ukrainian defense
industry are significantly increased.


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About Strategic Defence Intelligence

Strategic Defence Intelligence's unique monitoring platform tracks global defence activity for over
2,500 companies and 65 product categories in real time and in a highly structured manner, giving a
comprehensive and easily-searchable picture of all defence industry activity. The site features: daily
updated analysis, comment and news, company and customer profiles, defence spending, tenders
and contracts, product and technology intelligence, a research and analysis database providing
access to industry and competitor reports to enable business and market planning, and fully
customizable tools, including instant personalized report generation and custom alerts.


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