The development and production of high-tech products and solutions for the needs of the Armed Forces and the defence industry, also called Miltech, was not available to the private sector in Ukraine until 2022, the founder of TAF Drones recalled. It was a complete monopoly of the state and certain groups of influence.
The full-scale invasion and the challenges posed by Russian aggression changed everything - at first, many small players appeared in this industry. And then these small players became powerful manufacturers of certain products. This became possible, among other things, due to legislative changes on the part of the state and deregulation, says Oleksandr Yakovenko, emphasising the positive steps taken by the authorities. He also added the recently introduced preferential lending at 5% per annum in hryvnya. He also mentioned the conclusion of contracts for public procurement for a year.
‘I employ 700 people, and I can only plan my miltech production (and the supply chain - from 3 to 6 months) 2 months in advance. That means I order spare parts with my own money, not knowing whether I would get the order. Now this situation has improved. It hasn't improved by much, but we have already given a certain percentage of orders to large companies for the year. This is a very important story, and we are grateful for it,’ said Yakovenko.
However, according to him, there are still a number of urgent steps that the state must take, without which the industry will not have a promising future.
Domestic component base and further deregulation
Ukrainian companies do not manufacture components for various types of drones - they simply assemble them from foreign components, mainly Chinese. And here we are too dependent on China.
‘We have a strong country in terms of the IT industry, and we write quite powerful software for our products. But this is not enough. To become international players, we need full liberalisation and the ability to produce and localise components in Ukraine. Without this, nothing will happen. No one will need us on the international market, because none of my products are needed by NATO countries if they have a Chinese component,’ Yakovenko said.
However, the development of the component base is impossible without further deregulation of the entire system, he adds.
‘Let me give you a primitive example. If I bring carbon fibre from China to Ukraine to make frames, I will pay 10% duty and 20% VAT, which is 30% of the price.
If I order carbon fibre already cut in China in the form of a frame for an FPV drone - the government has made a preference, and I am very grateful for it - I will pay zero - neither duty nor VAT. Then the question is, why should I develop production in Ukraine if I can do it in China? In fact, we did just that. In fact, we have ordered SMT lines for printing PCB boards there and are currently printing these boards abroad,’ Yakovenko said.
‘If we want to develop the component base, and it is critical, and the issue here is not frames, it is thermal imaging cameras, communication systems, etc., then we need to deregulate this system, remove additional burdens and stimulate the market,’ he adds.
Export of Ukrainian technologies and products
For the development of Miltech, the state must allow the export of its products, says the founder of TAF Drones. (Talks about the feasibility of exporting the defence industry have been going on for years - Ed.) According to him, today, even during the hostilities, manufacturers are not 100% fully utilised: the load varies from company to company, but the average is no more than half of the possible capacity.
‘We understand why the government bans the export of products abroad. It makes political sense - it would be strange if we, a country at war, exported products. But it has a negative impact on the economy and industry development. Because when the war or the active phase is over, its further fate will be in question,' says Oleksandr.
According to him, the current demand for attack drones is 4.5 million, and when active hostilities end, they will stockpile more for the runoff, and then they will not order drones in this quantity. Meanwhile, the main goal of any manufacturer is to develop technology. Without exports, the manufacturer emphasises, Ukraine will not be able to become a technological power and compete with major international players.
‘Three weeks ago, I was in Abu Dhabi at the IDEX exhibition. This is a major international miltech exhibition, where Russia had probably the best stand after the Emirates. All the products that kill Ukrainians were at this exhibition.
We, Ukraine as a state, were also represented. ‘Ukroboronprom and a few private manufacturers. This is not enough. No one will buy anything if we don't allow exports. What do other companies do? They register legal entities abroad. And we are already losing potential export revenues every day,’ said Oleksandr Yakovenko.
Preparing the legal framework for the Miltech industry
‘No foreign investor will register and become an investor in a Miltech company with Ukrainian jurisdiction. Accordingly, even those companies that will receive exports, that will do some localisation, will pay taxes not in Ukraine,’ the drone manufacturer also noted.
According to Oleksandr Yakovenko, these are the steps that should have been taken yesterday.
‘We are moving in the right direction, but very slowly. For a country that is defending its independence, these are rather slow steps,’ the businessman said.