Defense Industry

Ukraine’s defence industry has become one of the most strategically important sectors of the national economy during the full-scale war. It mobilises significant financial resources, advanced technologies, and production capacities to support the Armed Forces. At the same time, the concentration of assets, state funding, and urgent procurement needs makes the sector particularly vulnerable to corruption risks and governance challenges.

Historically, management of state-owned defence enterprises in Ukraine was characterised by weak corporate governance, limited transparency, and fragmented oversight. For many years the sector was dominated by the state concern Ukroboronprom, which operated outside many of the standard rules applicable to other state-owned enterprises and lacked modern corporate governance mechanisms.

In recent years, Ukraine has begun a comprehensive transformation of the defence industry. In 2023, Ukroboronprom was corporatised and transformed into the joint-stock company Ukrainian Defense Industry (UDI) as part of a broader reform aimed at aligning the sector with OECD corporate governance standards. The reform seeks to introduce modern supervisory boards, strengthen accountability and transparency, and prepare the sector for deeper cooperation with international partners and private investors.

At the same time, the war has accelerated the expansion of Ukraine’s defence-industrial base, including the growth of private defence companies, increased international cooperation, and joint production initiatives with foreign partners.

Despite these positive developments, significant challenges remain. The sector still requires stronger corporate governance, clear compliance systems, improved transparency of state-owned enterprises, and effective safeguards against corruption risks.

NAKO has been actively involved in promoting defence industry reform. Our experts contributed to the development of Law №1630-IX, adopted in 2021, which laid the groundwork for corporatisation and the introduction of modern governance standards in the defence sector.

Today, NAKO monitors the implementation of these reforms and advocates for the full adoption of OECD corporate governance and anti-corruption standards across the defence industry. Our work focuses on strengthening transparency, improving oversight of state-owned defence enterprises, and supporting the creation of a competitive, accountable, and internationally integrated Ukrainian defence-industrial sector.