Ukraine’s defense industry has undergone a remarkable transformation in the face of Russia’s full-scale invasion, rapidly shifting from reliance on foreign donations to producing much of its own weaponry. According to The New York Times, by September 2025, President Volodymyr Zelensky declared that Ukraine was now self-sufficient for nearly 60 percent of its armaments—a feat that would have seemed unimaginable just a few years ago. But as the country’s factories churn out thousands of artillery shells, armored vehicles, and a dizzying array of drones, a shadow of concern looms over the secretive world of military procurement. Billions of dollars—much of it from Ukrainian taxpayers and European donors—are flowing into the coffers of domestic arms makers. Yet, much of this spending remains shrouded in wartime secrecy, raising red flags for analysts and anti-corruption activists alike.
Internal government audits, reviewed by The New York Times, have revealed a troubling pattern: dozens of contracts for everything from artillery shells to drones were awarded by Ukraine’s Defense Procurement Agency not to the lowest bidders, but to companies that submitted higher bids. In total, these unexplained overpayments amounted to at least 5.4 billion hryvnia, or about $129 million. “They overpay for unknown reasons and without justification,” said Tamerlan Vahabov, a former adviser to the agency, who lamented, “there is a lack of political will to do it the right way.”
Of course, not every contract awarded to a higher bidder is evidence of corruption or waste. Sometimes, there are valid reasons—perhaps the lower-priced supplier can’t meet quality standards or deliver on time. “That justification can be true, or it can be corruption,” said Olena Tregub, executive director of the Independent Anti-Corruption Commission, a Ukrainian nongovernmental group. Still, the audits illustrate the steep challenge Ukraine faces as it pivots away from Western military handouts and toward a homegrown defense sector funded by both domestic and European sources.
Ukraine’s procurement system is nothing if not complex. After Russia’s invasion in 2022, the country’s army drew supplies from two main streams: donated equipment from Western allies—think Abrams tanks and M777 howitzers—and its own domestic industry, which had to be rapidly revived. The Defense Procurement Agency, created as an independent branch of the Defense Ministry in 2023, was meant to bring order to this chaos. Its birth, however, was prompted not just by the war, but by scandal: Ukrainian media had uncovered a string of questionable military expenditures, including massive overpayments for food and clothing for soldiers. These revelations forced the resignation of then-defense minister Oleksii Reznikov.
The new agency, however, has had its own growing pains. Two of its directors have already been fired over accusations of ineffective management. Most of its roughly $10 billion budget for 2025 is funded by Ukrainian taxpayers, but European countries have also stepped in. Under a program pioneered by Denmark, more than $1.6 billion in European subsidies have been pledged to help Ukraine buy arms from its own industry.
And what an industry it is. Ukraine’s defense sector now encompasses over 2,000 weapons suppliers, ranging from legacy Soviet-era factories—once famous for producing intercontinental ballistic missiles, tanks, and jets—to hundreds of scrappy defense technology startups and even tiny basement workshops. Some of these companies have delivered extraordinary successes. A fleet of Ukrainian-made drone speedboats, for instance, has managed to sink about a third of Russia’s once-vaunted Black Sea Fleet, according to presidential adviser Oleksandr Kamyshin. The country has also shown ingenuity by adapting cheap consumer drones for military missions, saving vast sums and confounding Russian forces.
But with such a diverse and often chaotic ecosystem, problems are bound to arise. The audits tracked multiple contracts that resulted in late or incomplete deliveries, and in some cases, companies failed to deliver weapons at all despite receiving prepayments. Alarmingly, some contracts were signed with companies without first verifying whether the winners even had legitimate manufacturing sites. “The agency has recently overhauled its contracting practices to ensure fairness,” said Arsen Zhumadilov, the agency’s director, in a statement. He explained that sometimes lower bids are rejected because they “may not meet the required standards of quality, delivery timelines, payment terms or other essential criteria.”
Historically, most purchases were brokered through arms dealers, who received a markup—typically around 3 percent—on each sale. A separate audit found that, until at least last year, the procurement agency involved such middlemen in 83 percent of its contracts, rather than buying directly from suppliers. Arms dealers gained a foothold early in the war, when Ukraine’s artillery ammunition reserves were nearly depleted and the government had to plead with exporters to buy back weapons previously sold to war-torn African and Middle Eastern nations. These dealers soon expanded their role, brokering deals between the Defense Procurement Agency and Ukrainian manufacturers.
Recognizing the inefficiencies and risks of this system, the agency has started phasing out contracts with middleman companies. It is also experimenting with new procurement models. One of the most ambitious is an online marketplace that allows army commanders to purchase drone weapons directly from suppliers, with just a click or two—cutting out layers of bureaucracy and, potentially, opportunities for graft. Zhumadilov called it “a game changer in military supply.”
Still, the challenge of rooting out corruption and inefficiency remains. The government’s own auditors have not accused anyone of theft or embezzlement outright, but they have referred some contracts to law enforcement for further investigation. The stakes are high: as Ukraine increasingly relies on its own industry and international arms markets, ensuring that every dollar is spent wisely is not just a matter of good governance—it’s a matter of national survival.
For now, Ukraine’s defense industry stands as both a symbol of resilience and a cautionary tale. Its ability to rapidly innovate and produce weapons at scale has been crucial in blunting Russia’s invasion. But as billions continue to flow into this sector, the country faces a pivotal test: can it build a modern, transparent procurement system that matches the ingenuity of its engineers and the bravery of its soldiers? The answer may well determine not just the outcome of the current war, but the foundation of Ukraine’s security for years to come.
