Reform Of Ukrainian Defense Industry Giant Tests Zelenskiy’s Will

8/5/19
When a Ukrainian media outlet reported in February that people close to then-President Petro Poroshenko were involved in skimming money from the military, it blew the tires off his slowing campaign machine just weeks before his reelection bid. Bihus.Info's investigation accused Ihor Hladkovskiy, the son of Poroshenko’s business partner Oleh Hladkovskiy, of selling smuggled spare military-equipment parts from Russia at exorbitant prices to Ukroboronprom, the state-owned concern that oversees the defense industry. Poroshenko, who ran on the patriotic slogan “Army, Language, And Faith,” was subsequently trounced in the April runoff by comic actor Volodymyr Zelenskiy, a political novice who promised to root out systemic corruption and attract foreign investment. The 41-year old president now has the power to do just that after July 21 parliamentary elections handed his party a powerful majority – and a clear mandate to install reform-minded officials in key positions in government and state companies. How thoroughly Zelenskiy cleans up Ukroboronprom, an opaque behemoth that critics say is synonymous with state corruption, will be a litmus test of his commitment to those goals. The size of what’s at stake for the new president and his country goes far beyond the amount of money allegedly siphoned annually from Ukroboronprom. A transparent defense industry opens the door to foreign investment, economic development, and closer NATO integration -- as well as a stronger military.

Ukroboronprom is a “serious, serious problem” for Ukraine and the whole military industry is suffering from a “lack of transparency and corruption,” John Herbst, a former U.S. ambassador to Kyiv and now director of the Eurasia Center at the Atlantic Council think tank, told a conference in Washington on July 29. Zelenskiy’s domestic and Western supporters see cause for optimism. A month after his May inauguration, Zelenskiy named reformist former Economy Minister Aivaras Abromavicius to Ukroboronprom’s five-member supervisory board, tasking him with carrying out a long-awaited audit of the concern. But fixing Ukroboronprom -- which oversees about 130 companies employing 80,000 employees who make products from tanks to planes to missiles -- won’t be quick or easy. Ukroboronprom was created in 2010 by then-President Viktor Yanukovych, who formed it by consolidating the nation’s state-owned military companies under one umbrella shortly after he took office. When Yanukovych was ousted, his successor -- Poroshenko -- promised to reform the concern. However, his words never materialized into real action, Hurak says. Poroshenko “didn’t have the political will” to carry out change because it would have hurt the financial interests of his friends. “We lost five years. If we had started the reforms back in 2014, we would now have a transformed industry with strategic Western investment across all aspects of the military industrial complex,” he says. Ukrainian companies could make parts for NATO’s defense industry or incorporate Western technology into their weapons to compete more effectively with Russian products in third markets, says Phil Karber, president of the Potomac Foundation think tank and a specialist on Ukraine’s military sector.

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