Armament Sales: the Economics & the Politics
YEVHEN MAHDASelling weapons and military equipment has proved to be a lucrative business at the governmental level; top-level official involvement in such sales appears a necessary factor for a country’s international prestige and its scope of influence in the world arena. Therefore, Ukraine’s role and place in international arms sales has an economic as well as political importance.

After the Soviet Union’s collapse, Ukraine inherited a huge arsenal of a variety of weapon systems and almost a million officers and men stationed on its territory. Over the years of independence this country has tried to make army personnel reductions and to optimise budget spending on the armed forces. In this sense the selling and manufacturing of arms and the strength of the national armed forces are related, rather than absolutely unrelated phenomena. Regrettably, the absence of adequate budget appropriations channelled into the Ukrainian army does not allow the military to purchase a sufficient amount of modern armaments. This, however, has not meant that Ukraine is lagging behind as an arms manufacturer and supplier.
In the first half of the 1990s, Ukraine was studying international arms markets, trying to find a niche. A number of analysts often refer to the period (perhaps not without some truth) as the years of lost opportunities, but it seems more likely that the period was a time of learning by Ukraine as a newly established national state seeking its place in the international arena, trying to get involved in and with the world arms market. At the time, Ukraine’s key rivals were Russia and Belarus, selling similar weapon systems while having tangible ex-Soviet arsenals on their territories. In the mid-1990s, Ukraine’s defence industrial complex had scored its first noticeable success.
Aware of the complexity of accessing Western European markets, Ukrainian manufacturers of modern ground weapon systems tried to find customers in the Third World. The first large contract, for deliveries of 320 T-72 tanks from the Malyshev Works in Kharkiv, was made with Pakistan, then carrying out an ambitious army modernisation programme, due to sharpening relations with India. That contract was worth $640 million, and in subsequent years sales of armaments to that South Asian country would reach almost a billion dollars, with good prospects of bilateral military-technological co-operation.
Ukrainian arms dealers were not always made welcome in the world market, mostly due to the fact that, before 2000, arms exports from Ukraine were quickly increasing and this country was asserting its place among the top ten weapon systems and materiel exporters. However, the severe competition prevented promising projects from being developed. Thus, the AN-70 military cargo aircraft project, proposed by Ukraine as a key aircraft for the EU quick deployment forces, lost out. Because of ruthless and biased competition, the world’s best model in its class lost the tender to a Western European model, albeit existing only as blueprints at the time. Moreover, the Russian brass voiced doubts about the expediency of purchasing the AN-70 for the Russian Air Force. Contrary to the existing agreement of AN-70 production co-operation, the Russian Air Force were pressured by the IL-76 lobbyists. However when Leonid Kuchma and Vladimir Putin met in December 2003 the issue was deleted from the agenda, with the Russian side reaffirming its partnership commitments.
The Ukrainian defence-industrial complex received its next impetus after the Melnychenko cassette scandal, where Leonid Kuchma was alleged to have discussed the possibility of selling Kolchuga detection systems to Iraq with Valeriy Malev, General Director of the Ukrspetsexport state arms sales firm. Thanks to products developed by the Topaz plant in Donetsk, known as a “state joint-stock holding company”, stealth-type aircraft become invisible to radar. Valeriy Malev died shortly after the scandalous tapes had been made public and it added a dramatic touch to the Kolchuga case. The UK-US inspection of the company manufacturing Kolchugas and the subsequent US occupation of Iraq failed to reveal any traces of Kolchuga in that country. There was an aspect about the situation that proved quite embarrassing for Ukraine, as over the past couple of years four Kolchuga systems have been purchased by China and two by Turkmenistan.
The latest severe provocation demonstrating the arms market’s jungle law aimed against Ukraine was the Dar Al Hayat’s publication early this year, accusing Ukrainian scientists of selling compact nuclear armaments to Al Qaeda. This act of information homicide is graphic evidence that the possibility of expanding Ukrainian presence in the world arms market worries its key rivals; it also objectively points to the maturation of the Ukrainian defence-technological complex. The Ukrainian DTC tries to make up for the failures of the tenders for the supply of tanks to Malaysia and Greece by making contracts on a smaller but equally profitable area. Among such exports are firearms, air defence systems, tanks and tank and ship engines. Among the prospective buyers are the Third World, NATO, and CIS countries, including Russia. In fact, Ukrainian-Russian co-operation has increased in the sphere of military production in the last several years. Both countries expect this cooperation to help them access the promising markets of the Persian Gulf, Southeast Asia, and Africa.
In 2003, Ukrainian DTC earned some $500 million by selling, repairing, and modernising weapons and equipment. For this country military-technological co-operation now and then becomes part of big-time diplomacy, allowing it to find new promising markets - and not only for military products.
Experts believe that Ukraine’s active stand in the world arms market will shortly allow it to begin to re-equip the national armed forces while making manpower reductions. The national military manufacturers and suppliers can become more active in looking to access overseas markets. Analysts consider that Ukraine may stay among the top ten military exporters with an annual arms export turnover of $500-600 million, and the figures may increase given a favourable market situation and effective privatisation of defence businesses without changing their primary structures.